Criminology Research Council grant ; (6/89)
The report observed that tax practitioners playa pivotal role in the Australian taxation system. Not only do they act as intermediaries between the Australian Taxation Office (ATO) and the majority of taxpayers, especially business taxpayers, but they also influence the ethical climate and level of compliance with taxation laws. The report discusses this role by reference to data derived from an empirical study of tax practitioners and tax officials from around Australia. The study sheds light on the nature of the compliance problem and the factors which affect the administration of Australian taxation law generally.
The survey involved interviews of a total of 141 persons actively engaged in the tax field. This figure included 75 tax accountants in firms of different sizes, 33 solicitors generally in large to medium practices and 33 ATO officers in the National Office and in 11 branch offices in six cities.
In the view of tax professionals, the level of compliance in relation to taxation laws, or obedience to the law, improved considerably during the 1980s. How extensive that improvement is cannot be adequately measured. If there is a weakness in the knowledge of the revenue authorities, it is that they do not have an accurate measure of how much revenue is lost to non-compliance. The black economy is a black hole - estimates of its scale vary widely and ideas of how to combat it through the income taxation system are scarce. Losses through off-shore transactions are also difficult to measure. Notwithstanding the lack of quantification, it is agreed on all sides that attitudes to compliance have undergone a significant change. Many factors have contributed to that change and many of those factors are inter-connected.
At the practitioner level, the anti-ATO aggression of the 1970s has been replaced by a closer, more professionally courteous relationship. The accounting profession has been anxious to overcome the stain suffered as a legacy of the tax avoidance era. Practitioners are under pressure from their clients and the ATO. Clients, for the most part now understand that tax advisers cannot work miracles. They are more realistic about their tax options and commercial attitudes but they still expect that accountants will provide the best possible service and will control the cost of taxation as much as possible. Accountants understand that their primary professional responsibility is to their clients. The ATO has successfully impressed upon taxpayers that there is no real advantage in taxation fraud or artificial transactions. Clients expect accountants to do whatever is necessary for them to comply. In this respect the accountants are forced into a relationship, not of partnership but more of interdependence with the ATO. Both, parties are working, for different reasons, towards similar objectives. There is little doubt that a large measure of the improvement in compliance can be traced to this coincidence of interests. In dealing with clients the accounting profession has, it seems, taken the view that in the long run compliance is the wiser option.
Even though the ATO is very powerful in the sense that it can confidently expect that the system will be altered to suit its goals, it is very dependent on the professional practitioners. Practitioners process approximately 66 per cent of the tax returns lodged and they submit themselves to the discipline of the lodgement program. A breakdown in the profession's commitment to compliance would have adverse effects on the way in which the taxation system operates. For these reasons it is appropriate for the ATO to pay more attention to practitioners through the provision of better service, more consultation and less aggression.
The courts have played a significant role in the emergence of a more compliant culture. They have been perceived by the profession as being more purposive in their interpretation of the law and less tolerant of transactions that have no commercial integrity. The role of the courts has been a decisive factor in the compliance process. Whereas in the tax avoidance era the High Court was perceived as encouraging tax avoidance, the modern judicial approach to taxation law has had a similar impact but in an entirely different direction.
The ATO describes its goal as voluntary compliance. In the taxation context it would be reasonable to say that most taxpayers have no detailed understanding of the law and for a high proportion of them the services of a practitioner are necessary. It is however significant to note that professional advisers have serious misgivings about the law. The complexity, the lack of certainty and the frequent changes to the law contribute to a climate of serious uneasiness among practitioners, even those in the major firms. Practitioners refer to a real risk of inadvertent non-compliance. Small practitioners express a desire to leave the field because of its complexity; medium size firms seek second opinions; and the large firms warn of problems that will emerge in ten years' time. The ATO, it is said, is in a similar state of ignorance about new laws but it seeks to guide the profession by way of its rulings.
The improvement of compliance levels has been achieved by a combination of administrative and social means. The study found that the ATO needs to develop appropriate ways of measuring the level of compliance and the effectiveness of its strategies. In this respect there is considerable scope for research and consultant services. It needs also to pay attention to the professions to ensure that their goodwill is preserved and that the major role they play in maintaining the taxation system is respected.