Review by the Inspector-General of Taxation
On 4 August 2003, the then Minister for Revenue and Assistant Treasurer, Senator the Hon Helen Coonan, announced my appointment by the Administrator of the Commonwealth of Australia as the inaugural Inspector-General of Taxation. I was delighted to be appointed to the position as I hold strong beliefs that the systems of tax administration can be improved for the benefit of the broad community. This role provides me with a platform to be involved in that improvement. The ability to contribute from a position of independence is very important to me. I commenced in the role on 7 August 2003 and immediately set about establishing a new government agency while also undertaking a comprehensive scoping study,through wide community consultation, to identify the range of systemic concerns with tax administration.
Establishing the agency
The challenge of establishing a totally operational independent government agency is significant. As well as locating suitable premises and recruiting staff, it is necessary to address such matters as employment and remuneration guidelines, Chief Executive Instructions, risk management procedures and internal control systems so as to operate properly an independent agency pursuant to the Financial Management and Accountability Act 1997. I greatly appreciate the support and assistance provided by the Treasury in that initial set-up phase. The relationship has continued with the negotiation of a service level agreement with the Treasury to supply, on a full cost recovery basis, a wide range of services including human resources, information technology (computer services), accounting, finance, property and travel. I also acknowledge, and appreciate, the willingness of the Australian Reinsurance Pool Corporation, that was also going through a similar establishment phase in the Treasury portfolio, to enter into some mutually beneficial infrastructure sharing arrangements. A key element in the establishment of my office was the recruitment of a suitably experienced and talented team. I was very pleased to appoint Steve Chapman to the role of Deputy Inspector-General of Taxation in early November 2003. Steve brought many years of senior level experience in the public sector, particularly in the areas of tax administration and small business policy, which complemented my own background. I was also very fortunate to recruit a good balance of talented public and private sector staff to my four Adviser vacancies. Establishing and operating a small agency does raise some challenges in existing in a governance and regulatory regime which is more geared to large organisations. One positive is the constant reminder of the challenges faced by the small business community, who face similar challenges. The then Minister for Revenue and Assistant Treasurer, Senator the Hon Helen Coonan, officially opened the Inspector-General's offices located at 50 Bridge Street, Sydney on 21 April 2004.
The agency's activities
On being appointed to my position, a first priority task was to consult with the community to identify key issues and concerns which might form the basis of my work program. With the assistance of two seconded staff from the Treasury, I undertook a comprehensive scoping review during the period August to November 2003. The review captured the systemic issues in the administration of the tax laws concerning the community. The scoping study involved a wide range of community consultations in Brisbane, Sydney, Canberra, Melbourne and Perth. I was overwhelmed by the level of community support, particularly from business, accounting, legal and tax organisations. Five issues papers were produced and published on the Inspector-General's website (www.igt.gov.au) and a report to the Minister was lodged in early December 2003. Issues Paper Number 1 was titled Context for Scoping Review, Issues Paper Number 2, Policy Framework for Review Selection, Issues Paper Number 3, Self Assessment, Issues Paper Number 4, ATO Law Enforcement and Governance and Issues Paper Number 5, ATO / Client Interface Systems. One concern expressed in some quarters related to the potential for overlap or duplication between my role and that of the Commonwealth Ombudsman and the Commonwealth Auditor-General. However, commencing with my initial scoping study, senior staff from both organisations have provided full support and cooperation to my review activity and determining my work program. Similar sound relationships have been developed with the Treasury and the Board of Taxation. I greatly appreciate and value this situation. It is also important that an open and professional relationship exists with the Tax Office. The Commissioner of Taxation organised quite early after my appointment a range of opportunities for his senior staff to provide me with a high level understanding of Tax Office directions and issues. While there have been, and will be, issues and differences from time to time, I am appreciative of the professional and evolving relationship that exists between the Commissioner and me and our respective senior staff. Given that I cannot direct the Commissioner of Taxation, and recognising that he is also appropriately statutorily independent of the Government, it is very important that our professional working relationship is such that my findings are openly considered on their merits. I fully recognise the mutuality of this situation. Also, very strong links were established, and have been continually sought to be maintained, with a number of private sector stakeholders from business, accounting, legal and tax organisations. The key role of the media in communicating to the broader community on my work is also greatly valued and appreciated. Following publication of the five Issues Papers, I undertook further community consultation in January 2004 to assist in prioritising the issues, as identified in the scoping study, into a forward work program. Following the January 2004 consultation, I published a 'short list' of issues on 29 January 2004 which would form the basis of the forward work program. This listing is reconsidered every six months. The identified issues are set out as follows:
- the ATO's administration of penalties (paragraphs 34-37 in Issues Paper 4);
- small business audits (paragraphs 54-57 in Issues Paper 4);
- the administrative cost to business of an audit (paragraphs 58-60 in Issues Paper 4);
- company and other tax compliance for small business (paragraphs 55-62 in Issues Paper 5);
- simplified tax system (paragraphs 63-67 in Issues Paper 5);
- low value assets (paragraphs 75-78 in Issues Paper 5);
- GST refunds (paragraphs 68-74 in Issues Paper 5);
- individual tax returns (paragraphs 85-89 in Issues Paper 3); and
- the ATO's small business debt collection practices (paragraphs 68-74 in Issues Paper 4).
On 7 January 2004, I announced a review into the remission of General Interest Charge for groups of taxpayers in dispute with the Tax Office. This review incorporated a request under paragraph 8(3)(a) of the Inspector-General of Taxation Act 2003 by the then Minister for Revenue and Assistant Treasurer (Senator Coonan) for the Inspector-General to review the systems established by the Tax Office for exercising the Commissioner of Taxation's power to remit the General Interest Charge. The Terms of Reference and Consultation Plan for the review were published on my website. In accordance with the requirements of my Act, the Commissioner of Taxation was provided with the opportunity to comment on my findings. On 31 March 2004, I announced a review into the tax administration of GST refunds arising from the lodgement of Business Activity Statements. The Terms of Reference and Consultation Plan are also available on my website. This review is currently being finalised. On 21 April 2004, I announced a review into the Tax Office's Small Business Debt Collection practices. The Terms of Reference and Consultation Plan for that review were similarly published on my website. This review is still under way. Pursuant to subsection 41(2) of the Inspector-General of Taxation Act 2003 there were no directions to undertake reviews given by the Treasurer or the Minister for Revenue and Assistant Treasurer to the Inspector-General under subsection 8(2) of the Inspector-General of Taxation Act 2003 during the year. In setting my work program, I have taken into account the requirements of subsection 9(2) of the Inspector-General of Taxation Act 2003, and have consulted on a number of occasions with the Commonwealth Ombudsman and the Commonwealth Auditor-General.
Looking forward to 2004-2005
With the office of the Inspector-General now established and fully staffed, and with proper systems and procedures in place, 2004-05 will provide the opportunity to focus fully on my primary role of improving tax administration for the benefit of all taxpayers. Individuals and/or groups of taxpayers, professional associations and businesses have been encouraged to bring systemic administration issues to my attention. I will endeavour to address taxpayer concerns about administrative issues while ensuring resources of the agency are directed to those areas of most benefit to taxpayers overall. The willingness of professional and business associations, in particular, and members of the community to provide their time and effort in both bringing matters to my attention and in assisting with my reviews well demonstrates to me the importance of my role and the responsibility that rests with me. I will continue to give high priority, in setting my ongoing work program, to always taking into account the views of the wider community and will continue to foster and develop strong relationships with the business, accounting, legal and tax organisations representing the wider taxpayer community. In concluding, I would like to thank my staff for their role in the achievements of our first year of operation. I look forward with confidence to meeting the challenges of our work program into the future. David Vos AM Inspector-General of Taxation
Role, function, outcome and output structure
The Inspector-General of Taxation Act 2003 established an independent statutory agency to review:
- systems established by the Australian Taxation Office to administer the tax laws; and
- systems established by tax laws in relation to administrative matters.
The Inspector-General seeks to improve the administration of the tax laws for the benefit of all taxpayers. This is to be achieved by identifying systemic issues in the administration of the tax laws and providing independent advice to the government on the administration of the tax laws. To ensure that reviews undertaken reflect areas of key concern to the Australian community, the Inspector-General develops a work program following broad-based consultation with other stakeholders including taxpayers and their representatives, the Australian Government Ombudsman, the Commonwealth Auditor-General and the Commissioner of Taxation. For 2003-04, appropriations for the Inspector-General of Taxation were not separately reported in the Portfolio Budget Statements. Rather, the appropriation was included in the Treasury appropriation under Outcome 2 and funds were provided to the Inspector-General by way of transfer from Treasury. Following the appointment of the Inspector-General in August 2003, an outcome and output structure was developed for inclusion in the 2004-05 Portfolio Budget Statements. For the purposes of this report, the 2004-05 outcome and output structure has been used as the basis of reporting.
Figure 1: Outcome and output structure
Figure 2: Inspector-General of Taxation management structure
Inspector-General of Taxation services
The Inspector-General is an independent adviser to the Government on systemic issues in the administration of the tax laws. All reports by the Inspector-General to the Government are required to be either tabled in both Houses of Parliament or to be made otherwise public by the Government.
The Inspector-General and his office needs a range of skills to deliver to the Government the services required. These include:
- a good understanding of the tax laws;
- a broad understanding of the business environment;
- investigative and analysis skills to identify and understand systemic issues in tax administration;
- a capacity to conceptualise and analyse systemic issues within the broad tax context;
- relationship skills to develop and maintain excellent relationships with both public sector and private sector stakeholders; and
- excellent writing skills — the ability to present facts, argument and suggested solutions in a cogent form on systemic tax administration issues.
For the Inspector-General to be effective in his role, he and his office must foster productive working relationships across government, public sector stakeholders (particularly the Commissioner of Taxation and his office) and private sector stakeholders. Although independent of both the Government and the Commissioner of Taxation, the Inspector-General must have an understanding of overall government policies and the role and activity of the Commissioner of Taxation. The main public sector stakeholders are the Commonwealth Auditor-General, the Commonwealth and Taxation Ombudsman, the Commissioner of Taxation, the Treasury and the Board of Taxation. Private sector stakeholders include those set out in Table 3.
Table 1: Resources for Inspector-General of Taxation outcomes