Small businesses operating in “high risk” sectors could be subject to automatic minimum tax bills after the black economy taskforce suggested it would investigate the idea, but finance professionals have raised concerns over how this would be executed fairly.
On Tuesday, the taskforce, which has been asked by the government to come up with tangible solutions to fight Australia’s multibillion-dollar problem of lost tax revenue, released a consultation paper listing 54 potential policy changes that would make it more difficult for business owners, company directors and Australian citizens to shirk their tax obligations.
Having previously signalled a focus on so-called “high-risk” and cash-heavy sectors like hospitality and hairdressing, one the options floated by the taskforce is for Australia to consider the notion of “rule of thumb” tax bills for some sectors.
While the consultation paper says the taskforce does not necessarily support a model similar to Spain — where hospitality businesses are issued tax assessments based on the number of workers they employ — the paper has still questioned whether the idea of minimum tax bills has merit here.
“Businesses affected by any such tax would be able to claim a refund if they could demonstrate they should be paying a lower rate,” the taskforce suggests.
However, Lisa Grieg, founder of tax and business advice service Perigee Advisers, the implementation of the policy could cause chaos. If introduced, Grieg says it would actually flip one of the central ideas of Australia’s tax system — the concept of self-assessment.
“They’re sort of saying, ‘we think you’re guilty more often than innocent’,” she says.
While the minimum tax standards could be developed through a range of sources, including Australian Taxation Office benchmarking data, Greig says the problem is any such policy would create additional work for businesses and accountants, while potentially raising issues of equity, especially if the policy was to apply to only some sectors.
“I can’t see how to make it fair, it would have to be across the board,” she says.
Several of the taskforce’s suggested policy investigations still focus on smaller operators at a time when cash payments are declining, leading Greig to wonder whether a situation could eventuate where big costs are added so the tax office can chase “small percentages” of gain.
Speaking to SmartCompany yesterday about the taskforce’s suggestion of an overhaul of the Australian Business Number (ABN) system, Paul Drum, head of policy at CPA Australia, said SMEs should be tracking all recommendations from the taskforce closely, so they can “actively make their own input” on any proposals.
The taskforce has already asked stakeholders for input on a range of other policies, including how the ABN system could be revised so that those who hold ABNs treat them more as a licence “with rights and responsibilities”.
In particular, feedback is sought on the idea of introducing a “provisional” business number called the Australian Business Licence, which Australians would be required to obtain before carrying out a business. A business literacy test would have to be completed within six months for the licence number to be converted to a full ABN-style registration number.
Is cash on the way out entirely?
The black economy taskforce has also been busy considering how to limit ‘under the table’ transactions in the cash economy, suggesting a range of policies for investigation that would limit Australian’s interactions with cash.
This include whether Australian businesses should be required to pay “all wages electronically”. In its consultation paper, the taskforce points out that all super payments must now be made by electronic funds transfer, and the taskforce has floated the idea that under this model, no cash wage payments would be eligible for tax deductions.
An “organised changeover” of currency has also been suggested to gradually phase out the $100 note, as well as the suggestion that gambling establishments be allowed to pay out winnings via EFT, rather than in cash.
The business community is being asked to weigh in on these proposed changes, which can be read in full here.