NTLG (April 2024): Trust in the ATO

The importance of trust, the current landscape and ATO priorities

Community attitudes towards tax and levels of trust in the ATO

Australia has a high reliance on corporate tax, a highly tax conscious population and one that has a low appetite for budget deficits.

Australians have a deep sense of fairness when it comes to their tax system given the relationship between tax collections and government expenditure on social programs.

Experience tells us community attitudes towards paying tax in Australia remain heavily influenced by the actions of the ‘big end of town’ and smaller players in the economy look at best practice approaches. This is reinforced by our recent Shaping community beliefs, attitudes and norms research.

The ATO’s authorising environment is highly influenced by community attitudes towards those perceived as ‘paying their fair share’ (or not) and how the government of the day balances prevailing community attitudes with their own political agenda. ?

The benefits of high levels of trust in the ATO

The Australian community our most important stakeholder and they hold us to a high standard.

The ATO scored 79% trust and 81% satisfaction in the Trust in Australian Public Services Annual Report 2023 released by the Australian Public Service Commission. The results position the ATO within the top 3 APS agencies for the second year running. These are great results which reflect our ability to adapt and evolve to keep pace with community expectations.

Trust is critical to support voluntary compliance and willing participation in the system, so this is more than nice feedback, it is actually a self-reinforcing signal that the tax system is improving.

Improving trust and confidence in the tax system is our end game

This high level of trust is a culmination of our efforts over the past few years – to be more transparent in our administration, better understand and improve our clients’ experience with the tax system and through our effective delivery of COVID stimulus measures.

Our tax system is performing the best it ever has: over 91% at lodgment and 93% after compliance activity. This is an outstanding achievement and reflects Australians’ predisposition towards paying tax, and the ATO’s trusted role as administrator of the tax system.

More than just an effectiveness measure, our tax gap program is also integral to informing our decision-making and future approaches.

We’re linking tax gap to strategy and system changes, and using insights to inform planning and resourcing decisions, particularly when those strategies sustainably reduce the tax gap by locking in willing compliance.

The real end game is a self-reinforcing trust, the trust the community and policy makers have in the tax administration.

The ATO’s key strategies to engender trust

The role of transparency

Tax and trust in the tax system are important to the community. We are seeing an increased focus on environmental, social and governance factors influencing the decisions businesses are making as they recognise they need a social licence to operate. An informed community now expects everyone to pay their share, hence the next theme I will talk about: transparency.

ATO transparency to the Australian public about the health of their tax system

Our Annual report sets out how the ATO has performed in the year, including its own financial statements, its management and accountability, its performance against a range of non-revenue based measures and its revenue performance.

Traditionally, the reporting of tax system health was relatively limited, with a focus on revenue collections and audit yield. As our tax performance program has matured, we have provided more detail around the impact of our engagement activities on taxpayer compliance.

Recognising that Australians deserve more information as to the health of their tax system, the ATO also annually publishes system level information such as:

–??Australian tax gaps – overview : detail on our tax gap estimates across market segments and taxes

–??Total revenue effects : the full effects of ATO activity, not just money raised from audits

–???Tax assured : the amount of tax over which we have the highest confidence or assurance that it has been reported correctly

–??Tax and Corporate Australia : a detailed analysis by sector, ownership and other lenses of the tax performance of large companies

–??Settlements: aggregated data about our settlements across all markets

• on appropriate large market matters, we also encourage the taxpayer to publish broad details of the settlement (both in relation to the past and the future) so that the public can have additional insight to (and hopefully confidence in) the settlement.

Under law we are also required to publish:

–??Corporate tax transparency reports : aggregated data for some of the largest corporate entities.

ATO transparency to taxpayers about their own affairs

For individual and small business taxpayers, information is increasingly available to the ATO in real or near real time and this, combined with digital advancements, challenges our traditional approaches to transparency.

We are moving to a model where these smaller taxpayer’s own information is brought to the attention of the taxpayer as early as possible to help them avoid unnecessary mistakes.

–????? For individuals this involves:

• pre-filling tax returns based on the information we hold or, where we don’t have complete or fully reliable information, put in reminders that taxpayers may have sold assets or have had other tax relevant events during the year
• if deduction claims differ significantly from peers, under the “nearest neighbour” model taxpayers will be advised of this prior to finalisation of their tax return
• where we receive information which suggests taxpayers may have missed items, at first instance advising them and giving them an opportunity to update the return

–???For small business this means we are working towards:

• a periodic endorsed / quality assured direct data feed from their accounting software to the ATO, rather than having to prepare a separate return or activity statement
• providing risk models to digital service providers to help taxpayers and their advisers identify mistakes (or simply understand whether they may attract our attention) prior to the data feed being finalised.

At the other end of the spectrum, our approach is two-fold. We are providing taxpayers with:

–??confidence around their tax affairs (in a way which can be shared with boards, shareholders, employees or customers):

• Justified trust: we are more transparent with companies as to the areas of assurance and areas of concern, providing a detailed report to the company at the end of the review
• Practical compliance guidelines: which set out our risk frameworks on specific issues, helping taxpayers self-assess their behaviour as low risk or high risk, in an effort to prevent disputes

–??information about where they sit in relation to their peer group (so they know where they stand and can self-moderate):

• Findings report – Top 100 income tax and GST assurance programs : outlines our key findings and observations, how we are applying justified trust and how to achieve high assurance
• Findings report – Top 1,000 income tax and GST assurance programs : a summary of our observations around assurance ratings for income tax and GST
• Findings report - Public and multinational business settlements 2022-23 : statistics for settlements entered into with public and multinational businesses, which supplement the aggregated settlement figures included in the ATO annual report.

Taxpayer transparency to the ATO

Australia has always had an environment of high transparency to the ATO.

Income tax returns and related schedules like the International Dealing Schedule mean that the ATO has had significant insight into the tax affairs of large companies, often more than other countries.

Over recent years this has increased with:

–????? Reportable Tax Position Schedule : information on uncertain tax positions from the largest companies, which has been expanded to include disclosures of arrangements that pose a risk to the corporate tax base

–????? Tax risk management and governance review guide : We are also seeking more insight into companies’ internal tax governance frameworks, and how well that governance framework is “lived” under the justified trust initiative.

Taxpayer transparency within their own companies and to their shareholders and the public

Over recent years we have seen the introduction and take-up of transparency measures designed to make the tax affairs of large corporates more open and accessible to the Australian community, namely:

–????? Voluntary Tax Transparency Code : a set of principles and minimum standards to guide medium and large businesses on public disclosure of tax information.

From an ATO perspective we view voluntary tax transparency now as an expected minimum standard by the Australian community for those large corporates operating here. We have seen in more recent years that tax is increasingly playing a critical role in the integration of environmental, social and governance (ESG) in businesses.

Our experience shows that tax transparency (to the regulator, the board, the market and/or clients) is a key contributor to instilling confidence in a business and their ESG commitments. We often say that tax is the silent ‘T’ in ESG.

We have also seen uncertain economic conditions again putting large corporate and public organisations under the spotlight. We are increasingly seeing private sector organisations being expected to match public sector accountability and scrutiny, not just for their tax affairs. With the number of businesses achieving high assurance ratings increasing, many businesses should be well positioned to demonstrate their tax contribution credentials. However, this will require more businesses to adopt greater transparency about their tax affairs.

Treating taxpayer information with care

Data security

We are conscious that we sit over one of the most interesting and sensitive data sets in Australia.

The ATO currently holds about 50?petabytes of actively used data and processes about 20?billion transactions each year. Our systems block an average of 4.7?million attempted cyber-attacks each month ?– this is even higher during our peak individuals’ lodgment period ‘tax time’.

We are actively hardening our current systems against the rise of cyber or digitally enabled fraud at scale (such as identity and information theft) but also embedding fraud prevention measures into systems as part of the initial design process for whatever the future may bring.

Beyond traditional ‘cyber security’ of ATO IT systems we are looking at how we can maintain secure, digital-first interactions with taxpayers and third parties (such as tax agent systems or superannuation funds).

Data ethics

We also recognise that we don’t just need to protect the data we hold from external fraud attempts, but we also need to ingest, use and share it legally and ethically.

Another element of our data philosophy is to only obtain data where it will be used and its usefulness is proportionate to its burden or intrusiveness.

Importantly, leveraging data and analytics does not replace the human element: rather it frees up our people to focus on tasks requiring human judgement and empathy. This is why it is useful to refer to ‘bionic arms’, not ‘robots’.

We are also working closely with the Office of the National Data Commissioner and actively support whole of government initiatives to strengthen arrangements in place to safeguard our data sharing activities.

From a whole-of-government perspective, and indeed from a citizen perspective, data should ideally only be collected once, and then shared within government, rather than asking citizens to share the same data multiple times across government. This naturally will be with the agency that logically has the greatest relationship with the client’s natural system. Any data collected by the agency through that service can then be shared with other agencies as necessary, subject to legislative constraints. Of course, worse than asking for the same data twice, is asking for broadly similar data.

At a higher level, ATO population level data is increasingly being seen as a whole-of-government asset, critical for understanding what is going on in the economy and informing policy development.

We have developed a set of data ethics principles which are designed to make interactions easier and ensure our data activities support the integrity of Australia’s tax and super systems.

Our six principles are to:

–????? act in the public interest, be mindful of the individual

–????? uphold privacy, security and legality

–????? explain clearly and be transparent

–????? engage in purposeful data activities

–????? exercise human supervision

–????? maintain data stewardship.

Taxpayer secrecy

Taxpayer information held by the Commissioner includes highly confidential and sensitive personal and commercial information that is obtained by the Commissioner solely for the purposes of taxation administration, either voluntarily from taxpayers, or using coercive legal powers.

Taxpayers must have confidence that such information will only be used for taxation administration by the Commissioner and will otherwise remain confidential. This applies across the range of taxpayers including individuals, companies, trusts and partnerships, and Australian residents and non-residents (in respect of whom sovereign risk concerns may arise), and in the case of business taxpayers, regardless of whether they are classified as small, medium or large.

The ATO has been entrusted by the Australian community with extensive information-gathering powers. These powers were granted to help address the information asymmetry between taxpayers and the ATO. The flip side of these powers is that taxpayers are protected from this information being misused, used by other parts of government unless there is a specific exemption, or made public.

Taxpayer confidentiality laws in Division 355, Schedule 1 of the Taxation Administration Act 1953 provide that it is a criminal offence for a taxation officer to disclose “protected information” to anyone, unless a specific exception applies to authorise the disclosure.

This provision is a critical feature of the taxation system in Australia which protects taxpayer secrecy. The secrecy provisions reflect important and well recognised policy considerations, which include:

–??It is essential that the ATO be able to require taxpayers to provide information to it, even where that information is against their self-interest, or would even tend to self-incriminate the taxpayer. Taxpayers must have confidence that such information will only be used for taxation administration by the Commissioner and will otherwise remain confidential.

–??Taxation confidentiality ensures effective administration of the taxation system by encouraging taxpayers to disclose information voluntarily in a system that is dependent on self-assessment for its efficient operation. In the absence of taxpayer confidentiality, the effective and efficient administration of the taxation system would be undermined by taxpayer reluctance to disclose information voluntarily. Where coercive powers are used, taxpayers expect their information will remain confidential and only be used for taxation administration purposes; and

–??Perhaps most importantly, allowing on-sharing of information obtained on this basis would be contrary to the social compact of Australia as a liberal democracy and the benefit of the community of having a non-politicised taxation administration (reinforced by specific restrictions on the ATO providing information even to its Minister).

Apart from legislated exceptions (such as the Corporate Tax Transparency data), the key exception to this principle has been where a taxpayer puts their own affairs in the public domain in a way that causes a loss of confidence in the system or the risk that a scrutiny process will fail. For example, where a taxpayer has provided evidence to a Senate Committee that is incorrect, as a matter of general administration, the Commissioner may choose to “correct the record”, in the interest of maintaining community confidence in the ATO’s administration of the tax system and to allow the Senate Committee to make informed decisions based on correct information. Finally, it must be noted that the Senate has the power to over-ride secrecy provisions and compel production of information, but there are longstanding conventions that this power should be used sparingly and after careful consideration and testing.

Conclusion

If our end game is about boosting trust and confidence in the tax system, then we must be a trustworthy tax administrator.

To achieve this, we need to keep pace with community expectations, not just about their attitudes towards paying tax or the ATO, but around access to information.

And so, we have these two seemingly contrasting but actually complementary, and equally important, strategies to engender trust:

–????? fostering a culture of transparency within the tax system

–????? treating taxpayer information with care.

Both require high levels of discipline, integrity, and accountability; and commitment from the ATO Executive through the whole organisation.

Member reflections on these strategies are operating is welcomed, as are reflections on their role in fostering trust in the ATO and Australia’s tax system.