Tax Office says it has a heart: Tax collections up but payment arrangement schemes double

The Australian Taxation Office’s annual report published yesterday shows while tax collections have increased the ATO is also making it easier for small to medium businesses to pay back debts.

Net tax collections rose to $301 billion, a 10% increase of $28 billion on the previous financial year and unpaid tax debts jumped by $2.5 billion to $16.6 billion at the end of 2011-12.

The ATO said the increase reflected higher income tax collections, with the largest increases coming from pay-as-you-go withholding and company tax.

However, the ATO has also tried to make it easier for SMEs to pay back debts, with 280,000 “businesses experiencing short-term financial difficulties” entering payment arrangements with the tax authority to pay debt in instalments over the past financial year.

This is more than double the 113,000 businesses who entered payment arrangements last financial year.

The payment arrangements in place at the end of June were worth $3.8 billion and of these 35,900 were interest-free arrangements for small businesses with tax debts worth $688 million.

The ATO has characterised the surge in payment arrangements as part of its more understanding approach to businesses struggling to pay debts since the global financial crisis.

“Consistent with our corporate values, we have continued to assist businesses in short-term financial difficulties with tailored, and sometimes interest free, payment arrangements,” the ATO annual report states.

The report says the ATO was pleased to receive commendation from the Joint Committee on Public Accounts and Audit for providing relief for individuals and businesses experiencing hardship, which it said showed the ATO to “have a heart”.

The annual report also revealed:

• The ATO raised $11.4 billion in “active compliance liabilities” targeting tax evaders through audits, risk reviews, investigations and voluntary disclosure campaigns.
• The gap between the projected goods and service tax collection and the actual amount collected from 2001–02 to 2009–10 is 6.7% of GST accrual revenue, but the gap has decreased since the GST was introduced.
• 85,000 businesses were helped via the ATO’s small business assistance program.
• Over 539 million transactions received from third parties were matched to support a range of compliance and service activities, such as pre-filling of returns.
• Due to higher compliance activities, the number of objections and reviews completed in the past financial year increased to 33,272, up from 24,255 in the previous year.

Stephanie Caredes, counsel at the Tax Institute, told SmartCompany the increase in the payment arrangements by the ATO signalled a more empathetic approach.

“It seems that there is a willingness on the ATO’s part to enter these arrangements with businesses struggling to pay their tax debts and it demonstrates the ATO’s recognition of the tough situation these businesses are in while carrying out its role as a revenue collector,” she says.

“It puts businesses in a situation where they can still meet their tax obligations.”

The Institute of Chartered Accountants highlighted the new level of transparency in the ATO’s report as a result of the analysis of the gap between projected GST collection and the actual amount collected.

Institute tax counsel Paul Stacey said in a statement the way the ATO manages tax non-compliance risk has changed.

“Old-style audits are nearly obsolete. Nowadays there is a greater emphasis on earlier intervention strategies, and the ATO needs new performance metrics to better measure their effectiveness,” he said.