- a review of the potential revenue bias in private binding rulings (publicly released 25 February 2008);
- a review of the extent to which the ATO has implemented recommendations from completed reports by my office (publicly released 5 March 2008);
- a review into the Tax Office’s administration of GST audits (publicly released 11 June 2008);
- a review into the underlying causes and the management of objections to Tax Office decisions (commenced January 2007);
- a fourth, summary report on the review of the Tax Office’s handling of complex matters arising from the three case study reviews completed during 2007 (commenced June 2007). This report was submitted to the Minister on 6 August 2008;
- a review into the Tax Office’s administration of public binding advice (commenced November 2007);
- a review into the non-lodgement of income tax returns (commenced November 2007); and
- a review into aspects of the Tax Office’s settlement of active compliance activities (commenced November 2007).
Significant non-review activity
In addition to the reviews undertaken and progressed by my office, during 2007‑08 my office and I have been engaged in a range of consultative, taxation and general administrative matters of significance including:
- a presentation to and discussion with, the Technical Quality Assurance Forum of the Tax Office (see photo page 3) — a senior‑level forum that provides assurance to the Commissioner of Taxation on the quality of technical decision making;
- a meeting with Mr Dick Warburton AO, Chairman of the Board of Taxation to discuss matters of common interest;
- consultation with a subcommittee of the Board of Taxation in respect of one of its reviews;
- a meeting and consultation with the Tax Design Review Panel;
- a visit by Ms Nina Olson, National Taxpayer Advocate, Inland Revenue Service (USA) and two of her senior staff with my staff and me to canvass issues of common interest. This meeting was one of regular ongoing meetings with other scrutineers of Revenue agencies in other countries with relatively similar roles to mine;
- a visit by senior members of the United States Government Accountability Office to canvass a myriad of issues associated with the possible introduction of a goods and services tax within the United States of America;
- appearances and the provision of evidence before Senate Estimates hearings in February 2008 and May 2008;
- the position of the Inspector-General was put to the market in line with the Government’s guidelines on ‘Merit‑based selection of APS agency heads and statutory office holders’; and
- speaking and participating in a wide range of functions, including conferences, professional body functions, tax agent and industry group meetings throughout Australia. Such opportunities have provided my office with the chance to hear from taxpayers and their representatives at first hand on tax administration issues of concern to them. These have substantially provided input to reviews underway and have also provided scope to consider issues likely to be put on my future work program.
Retention of the Office of Inspector‑General of Taxation
The amalgamation of the Inspector-General within an existing agency was proposed as part of Labor’s $3 billion Savings Plan announced on 2 March 2007 with the aim of saving the total budget allocation of the Inspector‑General of Taxation (the agency). The Assistant Treasurer and Minister for Competition Policy and Consumer Affairs, Chris Bowen MP, announced on 9 April 2008 (Media Release 022) that the Government will retain the office of the Inspector‑General of Taxation as a separate independent statutory office. ‘After consulting with the accounting and legal professions, the Government has decided that the transfer of the Inspector‑General’s functions to another agency would not be appropriate,’ Mr Bowen said. The Minister also said ‘The Inspector‑General of Taxation plays an important role in ensuring high standards of tax administration for Australian taxpayers. The best way to ensure the Inspector-General’s work is not hampered in any way is to retain the Inspector-General’s status as a separate stand alone body.’ The Minister also said that the announcement provides certainty to the accounting and legal professions and to taxpayers.
Joint Committee of Public Accounts and Audit report on Tax Administration
The Joint Committee of Public Accounts and Audit (JCPAA) released, in June 2008, its report on the Committee’s inquiry into tax administration (Report 410, June 2008). The Inspector-‑General had made a substantial submission to the Inquiry and I had appeared twice before the Committee to give evidence. It was very pleasing to see that the report has quoted extensively from my submission, evidence and completed reviews of my office. The role of my office in considering tax administration issues is clearly recognised by the Committee.
Proposed work program
Management of issues likely to be considered for my work program involves a sophisticated activity. A database of issues raised with my Office is maintained, regularly monitored and where necessary updated. Matters dealt with on the database include correspondence, emails and other communications with my office, and matters appearing in the national and local press. Issues raised orally with my office are also monitored. These issues could have been raised with me or one of my officers at conferences, meetings or by phone. Prioritisation of all issues is dealt with by relying on the criteria as set out in the IGT Issues Paper Number 2, released in December 2003. Regular ongoing monitoring of the issues is carried out by my office. This includes identifying potential reviews from other full reviews either completed or underway. A Potential review topics are short listed and scoped with either the Tax Office or private sector bodies or individuals. As well, periodical, and at least annually, discussions take place between my staff and I and the Commonwealth Auditor‑General and the Commonwealth (and Taxation) Ombudsman and their senior staff. I also meet with private sector stakeholders at least on a six monthly basis on a more formal basis to maintain ongoing dialogue concerning the Inspector‑General’s work program and to test the likely short list against other competing priorities. Under the protocol between the Inspector‑General and the Commissioner of Taxation, consultation occurs between our two agencies prior to announcing the annual update to the proposed work program. In recent years my staff has undertaken considerable scoping of potential work program issues with the Tax Office and in a number of cases research with overseas revenue agencies prior to my announcement of the formal terms of reference for particular reviews. Under the Inspector‑General of Taxation Act 2003 I have very broad powers in setting my work program. However, from the inception of the role I have always had a very transparent process in setting my forward work program. Proposed reviews announced in May 2007 but not yet commenced include the following issues:
- The extent to which the Tax Office has fulfilled its obligation in a self‑assessment system to provide adequate and contemporary guidance to taxpayers on matters it has publicly identified as a compliance risk.
- The potential use of guidance such as the service entity booklet to increase certainty in other areas of compliance focus.
- The Tax Office’s level of investment in staff that set legal precedents.
- The Tax Office’s management of the Higher Education Loan Program (HELP).
The precise timing of these reviews will be determined in part by when reviews already underway are completed. Following the announcement by the Government on 4 August 2008 not to re‑appoint me to the role of Inspector‑General, future work programs, no doubt, will be announced by my replacement.
Improvements to tax administration
Looking back over the last five years, there is a significant number of improvements to tax administration to which my reviews and other activities have achieved or contributed. At a general level, there are clear signs of the Tax Office being held accountable for its actions. The Commissioner now attends hearings of the JCPAA as a standing commitment. Submissions and reports from scrutineers, including my Office, provide input to JCPAA and other Parliamentary Committee lines of inquiry, and to media and community commentary. More specifically, the Commissioner has agreed wholly or in part to the vast majority of recommendations made in my reports to Government as shown in the following table.
Table 1: Number of Inspector‑General recommendations accepted
|IGT Reviews||Number accepted/total recommendations|
|Review of remission of general interest charge for taxpayers in dispute with the Tax Office||16/19*|
|Review of Tax Office administration of GST refunds resulting from the lodgement of credit BASs||12/12|
|Review into the Tax Office’s small business debt collection practices||2/2|
|Review into Tax Office’s administration of penalties and interest arising from active compliance||4/4|
|Review into Tax Office audit time frames||4/4|
|Review into the Tax Office’s management of litigation||27/32|
|Case Study – Service Entity Arrangements||10/12|
|Case Study – Living Away from Home Allowances||2/2|
|Case Study – Research and Development syndicates||1/2|
|Review into potential bias of private binding rulings for large businesses||10/10|
|Review into the Tax Office's administration of GST audits for large businesses||12/14|
|Total recommendations accepted/total recommendations||100/113|
A positive aspect of my Office’s interaction with the Tax Office is its apparent readiness to change approaches both during reviews and in anticipation of my reports. Stakeholders also report that more flexible approaches tend to be adopted by the Tax Office when a review by my Office is either foreshadowed or underway.
Public sector stakeholders
The Commonwealth Auditor‑General and the Commonwealth (and Taxation) Ombudsman also scrutinise the Tax Office from their perspectives. My office is in regular contact with these agencies. The roles of each agency are different and we have sought to communicate with each other regularly to ensure that there is no unnecessary duplication of the reviews we conduct.
Community and private sector stakeholders
I am pleased to report that community and private sector stakeholders continue to maintain a strong interest in my role and contribute to my work program. I meet with all key private sector stakeholders at least twice a year to consult with them in formulating my ongoing work program. In 2007-08, I have found that establishing specific stakeholder reference groups for some particular reviews has provided valuable insights into taxpayers’ direct experiences of Tax Office approaches. While my role is to identify systemic improvements in tax administration, I welcome the opportunity to obtain information from individual taxpayers, tax agents, and community leaders, including parliamentarians. I have also found that the ongoing development of relationships with tax administrators, taxation academics and researchers and my equivalents in other countries has enabled an invaluable sharing of experience and comparison of ideas and approaches to both generic issues in tax administration, and as input to particular reviews.
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 with the Commonwealth Ombudsman and the Commonwealth Auditor‑General.
The Office of the Inspector‑General has enjoyed ongoing consistent staff retention during 2007-08. One of my senior advisers, Mr Tasos Mihail, was awarded one of 20 Young Leaders’ Program scholarships available across 26 countries, with generally one candidate from Australia selected to attend. Tasos heading to Japan in October 2007 to undertake a 12 month course conducted by the Japanese National Graduate Institute for Policy Studies. On successful completion of the program Tasos will be conferred with a Master of Public Administration. I am grateful for very competent and loyal staff who are keen to work with me in seeking to improve tax administration for the benefit of all taxpayers in an environment where we have very limited resources at our disposal.
My final annual report
I am disappointed that I will not be continuing as Inspector‑General for another five years. But I will leave the role with a great sense of achievement and of a job well done. In particular, the Government’s decision to continue the role in full noted the strong record of improvements and community support that has developed during my five years as the first Inspector‑General. Without those achievements the role would already be gone. My successor will inherit an excellent team and a package of work in progress which will ensure further achievements in the future. I will continue to be a keen observer of how the tax system develops and I look forward to the opportunities of the future. SIGNED David R Vos AM Inspector‑General of Taxation
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 Commonwealth Ombudsman, the Commonwealth Auditor‑General and the Commissioner of Taxation.
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 need a range of skills to deliver to the Government the services required. These include:
- a broad 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
- 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 4.