The Australian Taxation Office is continuing its crackdown on the black economy, with increasing help from the public.
For the first five months of the financial year – from July through to the beginning of December – the Australian Taxation Office’s (ATO) Tax Integrity Centre received a record-breaking 24,000 tip-offs from people whose suspicions were raised by issues such as the non-declaration of income, the payment of cash to workers, or cases where someone’s lifestyle did not appear to match their income level.
Peter Holt, the ATO’s assistant commissioner small business, welcomes the calls, and says he is not surprised.
“We’re hearing loud and clear that people are sick and tired of this kind of dodgy behaviour,” he says.
“It’s effectively stealing from the community.”
The Black Economy Taskforce estimated the black economy could be worth as much as 3 per cent of national GDP, or about A$50 billion a year. The ATO estimates the tax effect of the black economy for small business is about A$7.7 billion a year.
The Tax Integrity Centre is part of a whole-of-government approach to squeezing the black economy and closing the tax gap between what the ATO would receive in an economy of full compliance, and what it actually receives today.
Other recent measures have included the Black Economy Procurement Connected Policy, which requires businesses to be tax compliant if they are to bid for government tenders, and the Currency (Restrictions on the Use of Cash) Bill 2019, which puts limits on cash payments over A$10,000 from January 2020.
Then there is the natural decline in the use of cash in the economy, with ATM transactions down from 40 per person per year in 2008 to about 25 per year in 2018.
Research by East & Partners recently forecast that cash payments across Australian businesses would fall to below 2 per cent by 2022, creating a virtually cashless society.
While all of this limits black economy opportunities, it doesn’t wipe them out, and many people are still looking to dodge the system.
One recent ATO success was the case of Tharun Likki, who was prosecuted in March 2019 for tax fraud after being investigated following a tip-off.
Likki was in Australia studying computer networking, but became involved in a tax fraud scheme, where he illegally obtained visa details from other overseas students to generate tax file numbers and then lodge fake tax returns.
For this scheme, which reaped an estimated A$100,000 over two years, Likki was sentenced to two years and three months of jail time.
Other tips have come from people who observed the extensive use of cash in the payment of wages, while in another case a person who boasted on social media about inflating their tax deductions was reported and faced ATO action.
Holt says many of the public tip-offs provide information for about 10,000 annual visits to businesses by a dedicated team of 100 ATO staffers.
“Tip-offs from the community, combined with other information we hold, help us build risk profiles that we use to identify the locations we select for a visit,” Holt says.
“Our visits have also generated a sharp increase in the volume of tip-offs we are receiving.”
At CPA Australia, Elinor Kasapidis, tax policy adviser, agrees that public attitudes to the black economy are changing, but also puts the ATO’s tip-off success down to a good communications strategy.
She says the consolidation of different channels, such as the Phoenix and black economy hotlines, was well communicated and now gives the public a single channel for tip-offs.
“In the past, people may have wanted to say something, but didn’t know how to do it,” Kasapidis says.
“The ATO has made it increasingly easy for people to make these calls and give this type of information.”
Having encouraged the tip-offs, Kasapidis says it’s now important for the ATO to follow up effectively, and this requires the allocation of adequate resources.
If someone makes a tip-off and then sees that no action has been taken, their confidence in the system is undermined and they will be disinclined to call again.
“It is early stages now, so it’s hard to make a judgement on how effectively resourced they are,” Kasapidis says.
“The process from tip-off to intelligence to a review or audit can be a lengthy one, so this will take some time to play out.”
While agreeing that cash is the “grease” for the black economy, Kasapidis says that data is playing a greater role in the ATO’s capabilities.
“The use of cash might be the reason for the initial-tip off, but data really is the key to identifying the full picture,” she says.
“It’s about looking at a wide range of data and bringing that together, and the ATO has invested in those capabilities, and I would expect that would continue to be built up and used to take action.”