The Tax Act used to comprise a few pages now several forests are required to make the paper that comprises the books covering the various tax rules. This monster has an insatiable appetite for complicating the simple act of paying your tax. David Vos has been chosen to tame this monster by identifying the systemic problems within the tax system and recommending changes.
David Vos likes to describe his new position as Inspector General of Taxation as that of a conductor trying to get an orchestra to play together. As a keen collector of musical scores, it is understandable he would use such a metaphor.
Unfortunately, the Tax Act and the taxation system that is used to administer the Act is not like a musical score. It will require more than the wielding of a determined baton to get this taxation orchestra to play in harmony.
A more appropriate metaphor is that Vos is a very small David trying to do battle with a huge Goliath or more aptly a Tax Act Frankenstein which was created over time with bits and pieces, bandaids, inappropriate surgery and grafts. This modern bureaucratic monster now threatens the efficient running of the economy and has become a compliance nightmare for individuals and companies.
The first taxes levied in Australia were to raise money for a Sydney jail and help care for orphans. This was in 1788. The first Commonwealth Tax Act was enacted in 1915 and it was levied on income. Since then the Tax Act hasn't basically changed, it has only got bigger and more complex.
It is not about more or less taxes or even the type of taxes that should or should not be levied or removed. The bureaucratic Frankenstein that Vos has to do battle with is the administration of the tax system where the original policy intent has been mangled by inappropriate legislation and tax law.
The result is a tax system that like Frankenstein stumbles along. And no one wants to put this creation out of its misery and start afresh. Tax reform in Australia on any level has always been about adding new parts to the Tax Act.
Luckily, Vos is not afraid of challenges. At 55 he came out of semi-retirement to bid for the new job of Inspector General of Taxation. It was not easy. He was one of the last applicants and there was a preferred candidate.
He won that battle not least because he has first hand experience of the workings of the Australian Taxation Office but also because he came in to help the Federal Government implement the GST when it was under fire.
He is determined to make his mark and despite reservations from the tax system industry he believes he can make significant progress as an advocate for accountants and directors in unravelling the complexities of the system of collecting taxes.
His optimism stems from the little known amendment inserted into his job criteria by the Democrats who insisted that the reports by the Inspector General are made public.
"This is a powerful tool in that the Government cannot sit on my reports indefinitely. It also puts pressure on me to ensure that my recommendations accurately reflect the feedback I receive from the market," he says.
"It is why I have made it as my first priority to talk to all parties and associations dealing with tax matters and find out their views. I do not want to hear complaints about particular taxes but I certainly want to understand if there are systemic problems in the tax system.
"My first impressions are that small to medium sized businesses are being punished by the current system. These small businesses are usually served by an equally small tax office business run by one or two accountants.
"From some of the feedback I have already received is that these accounting businesses are slowly going under because of the increasing complexity of their dealings with the ATO and the costs of this compliance is yet another burden on small business."
The Government, not to mention the ATO, is naturally sensitive to any problems surrounding the collection of taxes. The reality is that employers, tax agents and the large accounting firms do the bulk of actual tax collection.
If this system is being compromised because the rules surrounding what is and what is not taxable have become so convoluted and so complex that it requires a bevy of lawyers and accountants to interpret them, then the system is indeed in trouble.
Any assumption that the relatively recent tax reforms achieved anything other than changing the tax mix was illustrated in the survey Charles Sturt University conducted among small businesses in regional Australia. (Company Director, July).
The survey showed that regional businesses were less than impressed with the new tax system and that compliance on a range of issues was more complex and increased costs.
And there is a growing realisation that individuals and groups have hijacked the system of collecting taxes. Before the 1980s, the system of collecting taxes was through self- assessment and people would pay what they thought they owed.
Now, lawyers, accountants, financial planners, tax agents and an array of other consultants are earning a living from the complexity of the tax system. Recently the Commissioner for Taxation, Michael Carmody, has agreed to mediate a dispute between accountants and financial planners on who can give taxation advice to the public.
For instance, superannuation, salary sacrifice and property purchases all have tax implications and the accountants say if financial planners provide this advice it cuts across their traditional turf.
The problem of turf protection is not restricted to the private sector. Within the ATO, there is also a vested interest in keeping tax collection complicated in terms of job security and career prospects.
The mass-market schemes and the treatment handed out by the ATO to organisations and individuals caught up by the inconsistencies of rulings that lead to suicides, and forced home sales is something that does not sit easy with Vos.
The manner in which government has traditionally sought to alleviate any fall-out is through appointing someone to have a look at the system.
It is why the taxation system has more oversight bodies than any other market. There is a Commissioner of Taxation, an Ombudsman, a Board of Taxation and now an Inspector General.
The one thing that everyone seems to agree on is that with the inherent powers vested in the office of Inspector General, it is Vos who will carry the hope and aspirations of the long suffering taxpayers in fighting the taxation system Frankenstein.
It is why the his powers include the ability to compel the ATO to hand over any document he wants. As well, the Ombudsman of Taxation, who normally receives individual complaints, will pass on information to Vos where individual tax problems are a sign of systemic failure.
The ATO is naturally reticent about handing over documents to anyone. It wasn't until a report in The Australianforced the hand of the ATO that it released a report by the legal firm, Ledlin Partners, showing that the ATO has an abysmal record of debt collection.
The situation is apparently so bad that the ATO is considering allowing the use of credit cards to pay tax debts and to outsource the collection of bad debts. Importantly, the Ledlin report says that the problem is a systemic one, making it something that Vos will have to look at.
One of the questions that will be asked is whether Vos will use the media and the public to generate support for his initiatives. "I have an expectation that I would prefer to be a Graham Samuels, the current head of the ACCC, than an Alan Fels. I envisage that the press will hound me and I will never have to chase them for press mentions.
"I have already experienced this and to date despite the breach of Chatham House rules at a meeting in Queensland that was reported the next day in the press, what I said is what I said. It is probably better to have put it a context but the press never puts these things in context. I have given a verbal undertaken to Michael Carmody that I will not be fighting him through the press. He has 23,000 people and I have 10 and that's like David and Goliath.
"Everywhere I go I am in a no win situation. The Government won't want me to tear strips off the Tax Office because that will bring the respect of the Tax Office into disarray and this would create a political problem.
"The other side of the equation is that company directors, taxpayers, accountants and lawyers are going to expect that I act as their advocate. Therefore, if I fail them they will be seeking my blood. If I am seeking to simplify tax rules the lawyers and accountants will seek my blood. If I don't simplfy the tax system the small business sector will want my head.
"To be perfectly blunt, I would dearly love that my role continues on with only the slight reference in the press but if I get front page news on a regular basis, then so be it. This is not my intention and not what I want but it may be inevitable.
"The other alternative, of course is that within a defined period of time, I could have been so successful that I have done myself out of a job."
Vos recognises that the possibility of this happening is remote and it was he who insisted on a five-year term.
"If I did it in such way as to get change affected and in such a way as to reach an optimum level it would do me out of a job. But one of the dilemmas in trying to reform anything is the inability of government to get legislation through both houses of Parliament.
"With a hostile Senate and politicians always wanting to play politics, I am secure in the knowledge that one problem will be solved while another is created. There will always be new taxes considered and there will always be changes to existing taxes and unintended consequences arising from this and therefore my role will go on forever. I won't go on forever but my role will."
The AICD's submission on the IGOT work program is available at www.companydirectors.com.au
The purpose of this database is to provide a full-text record of all articles that have appeared in the CDJ since February 1997. It is aimed to assist in the research and reference process. The database has a full-text index and will enable articles to be easily retrieved.It should be noted that information contained in this database is in pre-publication format only - IT IS NOT THE FINAL PRINTED VERSION OF THE CDJ - therefore there might be slight discrepancies between the contents of this database and the printed CDJ.
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