Businesses that use “sales suppression” software to erase some daily transactions in order to dodge their tax burdens now face hundreds of thousands of dollars in penalties, with the federal government this week introducing strict policies to outlaw the tools in Australia.
On Wednesday, Minister for Revenue and Financial Services Kelly O’Dwyer introduced the Treasury Laws Amendment (Black Economy Taskforce Measures No 1.) bill into the House of Representatives, beginning the passage of the first laws developed in response to recommendations made by the government’s Black Economy Taskforce.
The government has been focused on curbing the more than $21 billion in revenue that is lost annually through “black economy” activities that result in business income being misreported, including by cash-only businesses.
However, the first bill to enter the Parliament in this area focuses on software packages, with the legislation designed to extend the Tax Administration Act to impose stiff penalties on individuals found to be supplying or in possession of sales suppression tools.
These software tools work with point of sales systems to strategically erase a portion of a company’s recorded sales throughout the day. They can be used to allow businesses to fudge the amount of income they actually made through both cash and card payments.
Current tax law already prevents businesses from falsifying their records, but no specific laws existed to penalise Australians who sold, distributed or possessed this kind of software in their businesses.
The new rules introduce a penalty of 5000 penalty units ($1.05 million) for a person or business found to be supplying or making available these kinds of products to businesses.
Meanwhile, a person found in possession or control of such software can be fined 500 penalty units, or $105,000.
Any Australian found using such tools to falsify sales records will be on the hook for 1000 penalty units, or $210,000, according to the proposed legislation.
The explanatory memorandum for the bill also highlights the manufacture of sales suppression tools falls under the scope of the Criminal Code, and penalties on this front could include up to 10 years of imprisonment.
Tony Greco, general manager of technical policy at the Institute of Public Accountants (IPA), says that while it’s impossible to know the exact scale of sales suppression software use in Australia, he believes it is in use in the country and needs to be curtailed quickly.
“It’s obviously marketed to people in a way that is not going to attract the attention of the regulators, but we know it’s there,” he tells SmartCompany.
Greco believes the government is acting fast on the issue given that those keen to avoid tax are looking at brand new ways to do this as consumers increasingly turn away from cash.
“Once upon a time it was the case that in a cash business, all you had to do [to avoid tax] was keep some money in the till. Now with most customers using credit cards, that process is becoming more difficult,” he says.
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“The government is looking to stamp it out because this is obviously a step up in the sophistication tree.”
Mark Chapman, director of tax communications at H&R Block, says sales suppression tools have long been talking points in other business markets, including the US.
“We know that it is a major worldwide problem, and while my gut feeling is that it’s not a major issue in Australia, I expect that some of it is [happening] here,” he tells SmartCompany.
Chapman says the challenge for regulators is this type of software is difficult to detect. But small businesses that do the right thing end up “losing out” when less honest businesses use sales suppression tools.
“I think it makes a great deal of sense to crack down in this area by preventing the use of these things by law,” he says.