One of the most dangerous events for democracy is a disintegration of public confidence in its tax system. The vast bulk of tax revenue is self-assessed so tax collectors rely on substantial community faith in the system.
In Australia our belief in the fairness of the way taxes are collected (rates of tax are a different issue) is eroding rapidly and unless addressed will impact the revenue base. Each year the Australian Taxation Office tells the treasurer of the day that if he or she turns a blind eye to some new form of bastardry there will be more money in the till. Treasurers need the money and succumb.
But we know when this process is getting close to confidence disintegration when the highly respected Inspector-General of taxation, Karen Payne, puts a huge banner in the IG web site to help potential victims. And the community comments on my revelation of this banner showed just how dismayed Australians are becoming.
Enter John Dahlsen with a new set of warnings and a message to politicians to give taxpayers legislated rights so that disputes can be resolved fairly and quickly.
Dahlsen is unique in Australia. On the one hand he represents the top end of town as a former chairman of Woolworths, a director of the ANZ for 20 years and many other board posts. But he also owns one of Australia’s top 500 private companies, the Gippsland-based building supplier Dahlsens.
Those interested in the future of Australian taxation should read the attached paper. You will remember that last March Dahlsen revealed that, along with all the other top 500 companies, his enterprise had been chosen for a special ATO inquisition.
PDF: John Dahlsen’s paper
I will highlight what happened, his advice to others and the changes required via a number of edited extracts from the paper:
* The ATO is saying “give us a great deal of information and work with us. In turn we will decide whether you can be a trusted taxpayer or partner and be left alone for three years and only report material change in the interim.” For most of us material changes are happening almost daily. With the new concept of blockchain and digitisation, we are going through a profound business revolution where people are struggling to understand all the ramifications.
*The ATO is planning to extend the process to the next 5000 companies and then to the emerging companies. It is questionable whether it is worthwhile taxpayers co-operating; is it a fair exchange of value? Is it a fair compact? Is it not an overarching exercise of power with insufficient benefit to the taxpayer?
* This journey to get doubtful privileges commences with omnibus questions (over 200) only some of which are relevant to taxing you. The massive data you provide (in our case over 1000 pages), is merely the beginning of the journey. It is like peeling an onion and the initial inquiries just remove the peel. And then follows a series of interviews to target areas based on your information, seeking more and more information. The ATO wants to understand all the connections, relationship, the sector and your economics and where you are heading (basically your strategy) and fundamentally the ecosystem within which you operate. It wants a person in the organisation to whom they can talk directly. For some companies this will be extraordinarily complex, difficult, time consuming and not adding any value to their business.
* Shaun Cartoon, partner at law firm Arnold Bloch Leibler, stated: “These reviews might initially feel like you’re getting a big, warm hug from the ATO, who wants to know everything about your group and how it works…….clients mustn’t be fooled, because that hug can quickly turn into a tight squeeze.”
* The ATO has, unlike any other organisation, incredible power. In effect you have to prove your innocence whether you are charged with a sin or not. The ATO does first not have to prove your guilt or sin. You simply go, unless bailed, to jail and you have to find your way out, and at the same time pay upfront for your sins and lose the money whilst you are proving your innocence.
* There is a huge power imbalance. The ATO has infinite resources, massive information, superior and specialised knowledge, and so it is easy to crush the taxpayer. The taxpayers have developed a huge fear of the ATO. Many compromise because they do not have the resources or will to resist irrespective of the likely outcome of the case. After all the appeal processes is daunting, very slow and costly. A non legislated ATO charter is subject to interpretation and importantly no consequences or remedies for the ATO.
* Australia should follow the US with a taxpayers’ charter - backed by legislation not by charters or guides - and a whole raft of avenues for reaching out, remedies and consequences to the tax officials that do not comply.
* With a charter in place and a fair and rapid appeal system, the industry data being collected could be shared with those providing it to benchmark their productivity. The government, the ATO and the private sector could work with technology providers to help tax payments and reduce paper work and ATO costs. The data being collected would then benefit both the ATO and the companies that provide it.
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