A4.1 On 16 February 2000 the ANAO tabled its report titled Administration of Tax Penalties, Auditor-General Report No. 31, 1999-2000. This report examined the Tax Office's administration of penalties with a particular emphasis on its corporate governance framework and issues relating to the consistency, effectiveness and accountability in the administration of the previous penalty regime.
A4.2 The audit found that there was scope for improvement in the Tax Office's administration of the previous penalty regime. It concluded that, although penalties are an important enforcement strategy featured in the ATO Compliance Model, the Tax Office lacked appropriate control structures to oversight the accountability, consistency and effectiveness of its penalty administration.
A4.3 The ANAO made a number of key findings as part of its review dealing with Tax Office management in relation to penalties and its administration of the penalties regime. These were as follows:
ATO management in relation to penalties (Chapter 2)
19. The audit found that the Commissioner does not receive assurance through the ATO's corporate governance framework that the penalty regime is operating effectively or consistently.
20. The ANAO considers there would be benefit to the ATO in taking a more systematic approach to the quality assurance of penalties and analysing and reporting penalty information as a part of its governance reporting process.
21. ATO staff training in relation to penalties could be enhanced by including the linkages between the Taxpayers' Charter, the Compliance Model and the imposition and remission of penalties. Also, training materials could be improved by providing analyses of the different gradations of non-compliant behaviour and the appropriate enforcement strategies to be applied. The ATO has advised of its intention to develop its training accordingly.
ATO administration of penalties (Chapter 3)
Aligning administration of penalties with the ATO Charter and Compliance Model
22. The ANAO found the ATO could better align its penalty administration with the principles and undertakings of the Taxpayers' Charter and the Compliance Model by developing a cost-effective, on-line rule-based decision support system and access to taxpayer history and profiles.
Improving public information about penalties
23. The ANAO considers that informing taxpayers of their tax obligations is central to the issue of fairness. In a self-assessment environment, taxpayers need to know of their obligations and responsibilities under the law. The audit identified the provision of information for taxpayers about penalties as an area that could be readily improved.
Detection of liability for Tax Shortfall Penalty
24. We found that the ATO does not leverage off its fieldwork where tax shortfalls have been identified, by following-up in future years the effectiveness of penalties on taxpayer behaviour. Such follow-up would enable the ATO to build profiles of non-compliance and to develop indicators of penalty effectiveness.
25. The audit identified areas where detection of liability for Tax Shortfall Penalty could be improved including streamlining claims to legal professional privilege and to concessions under ATO Guidelines for Access to Professional Accounting Advisers Papers.
Addressing current gaps in administration of specific penalty types
26. The audit found other potential areas for improvement relating to the ATO's administration of particular penalties including:
- giving priority to outstanding systems changes to implement accurate calculation of the GIC on a compounding basis as required by legislation;
- eliminating anomalies that exist between administrative penalties and penalties imposed through prosecution. This could reduce the incidence of taxpayers preferring prosecution to administrative penalties;
- implementing system changes to avoid incorrectly applying Late Lodgement Penalty to 'nil trading' companies; and
- improving tax agent lodgement programs to reduce the need to apply Late Lodgement Penalty.