The Australian Taxation Office has said in Parliament that government could "consider at some point" adding tax debts to credit ratings, in a bid to make businesses and individuals more accountable for paying on time.
As reported in The Australian Financial Review, at the standing committee on tax and revenue late last month, second commissioner Geoff Leeper said small business debt was one of the biggest debt streams for the tax office.
Leeper referred to the cash flow crisis faced by small businesses, stating that many are taking around 52 days to pay or receive payment on invoices, with the ATO low on the list of business payment priorities.
SMEs comprise 60% of the debt owed to the ATO, which is currently around $18 billion. He said that currently there was no consequence for this.
“The commissioner and I have had several conversations about this,” he said. “One of the things we think might be at play here is that, because the fact of a debt to the Tax Office cannot be disclosed to the markets because of secrecy provisions, there are no credit reference consequences from being in debt to the Tax Office.”
He said a person “certainly would get failure to lodge or general interest charge consequences, but being in debt to us does not affect your credit rating”.
Leeper said this was a matter for the government to consider at “some point”.
“The only way around it that we can think of is to propose that the Commonwealth as an entity have the ability to advise a credit market, 'Geoff owes $41,000,' without disclosing the nature of that debt,” he said.
Leeper explained it was “not a simple issue” and noted the challenge for small businesses to juggle all of its creditors.
“It is all covered by secrecy provisions, so unless we can construct some other way of advising the credit markets — but, of course, all you are doing then is trying to elbow your way to the front of the queue, and the small business person is still trying to pay the bank, the material supplier and things,” he said.
Dun & Bradstreet’s director of consumer risk solutions, Steve Brown, told SmartCompany the idea has been raised before and the credit agency “welcomes that initiative” when it comes to business debt disclosure.
Brown says in recent years the ATO has increasingly adopted a more commercial approach to debt recovery. He says it has employed Dun & Bradstreet and other debt recovery services to assist, and a potential move for more disclosure of what it is owed could be beneficial for creditors.
Brown says if businesses know their debt to the ATO could potentially be recorded there would be more incentive to negotiate a settlement with the ATO.
He also thinks it could bring transparency and fairness to the tax system, and it would enable creditors to have a more realistic view of a business’s financial status before loaning money or providing goods and services.
“A company can look solvent, and look like it is paying all of its creditors on time… then a winding up order suddenly comes from the ATO… they could be paying everyone but the ATO,” he says.
For personal consumers, Brown was more cautious about the idea of adding tax debt to credit history records, as it could raise privacy issues.
“Most people are on PAYE systems so there is little opportunity to avoid paying their tax debt,” he says.