ATO Seeks to Close $33 Billion Tax Gap by Collecting Outstanding SMB Debts

ATO Commissioner of Taxation Chris Jordan. Source: AAP/Lukas Coch.

Australia’s underground economy and small businesses are on the radar of the Australian Taxation Office (ATO), as the federal government tries to close the gap by warning tax evaders of billions in unpaid taxes.

According to the annual tax commissioner reportreleased this week, the undisputed tax liability increased from $26.5 billion as of June 30, 2019 to $44.8 billion as of June 30, 2022.

In his review of the report, Commissioner Chris Jordan said tackling rising tax debt was a priority.

“As the economy recovers, one of our top priorities is to settle the recoverable debt that has accumulated over the past three years,” he said.

According to the report, the increase in debt is attributed to “disrupted economic activity due to closures and cash flow impacts to small businesses and households.”

The Commissioner met with Assistant Treasurer Stephen Jones on Monday, where they announced an estimated $33.4 billion tax gap between tax owed and tax paid.

Jordan told the The Australian Financial Review that small business taxpayers and labor-related expenses are the main contributors to the gap.

“The biggest effect of COVID-19 is the increase in our outstanding debt,” he said.

“Most of this is small business, self-reported debt. It’s not income tax…it’s unpaid superannuation security, it’s GST that was collected and never remitted.

“It’s the pay as you go deduction that was never paid.”

The ATO resumed its usual debt collection activities for small businesses this year, after suspending enforcement measures at the height of the pandemic. This has prompted tax practitioners to warn small businesses to meet their tax obligations and to speak up quickly if they need help.

In last week’s federal budget, the the government has revealed its intention to recover at least $5.7 billion of the debt by bolstering the resources of tax regulators, including spending $242.9 million to extend for three years the shadow economy program of the ATO and $80.3 million to extend the ATO’s personal income tax compliance program for another two years.

Jones said tax evasion was impacting funding for Australia’s most essential services.

“The vast majority of taxpayers do the right thing, but cheating on your taxes is not a victimless crime,” the assistant treasurer said.

“This has a direct impact on funding vital services, from equipping our defense force personnel to care for the elderly.

“The Albanian government’s investment in tax integrity will make the system fairer and bring in $5.7 billion in legally owed revenue to benefit the entire community.”

The federal government also announced in its 2022-23 federal budget last month that it would invest $1.1 billion to increase and extend funding for the ATO’s tax avoidance task force.

The task force will also be extended for another 12 months until July 2025.

Since June 2021, the Tax Avoidance Task Force has helped the ATO raise $22.9 billion in tax debt. The government uses these revenues to fund essential services, including education, health and other community services.

The ATO’s annual report confirms that gross tax of $648.5 billion was collected in 2021 to 2022 and that $132.9 billion in refunds were provided. Net tax revenue was $515.6 billion, up $64.2 billion from 2020 to 2021.

According to the report, improving the tax performance of small businesses will remain a priority area from 2022 to 2023.

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