Ken Phillips, a small business owner and executive director of Self-Employed Australia, told the Senate’s Legal and Constitutional Affairs Legislation Committee in Sydney today that the ATO’s current breadth of powers are akin to a dictatorship.
“The tax commissioner has the power of a dictator, and if you have dictatorial power, it will be abused,” Mr Phillips said.
He likened the behaviour of the ATO to that demonstrated by churches in relation to sex abuse scandals and the banks in claims of misconduct: “deny, deny, deny”.
Mr Phillips accused the ATO of wrongly targeting low-hanging fruit in the form of honest taxpayers, rather than properly investigating and policing those bent on flouting the rules.
“Our observation is that if you are upright, honest and completely forthright with the ATO, you run quite a high risk of getting abused in the system. Conversely, if you play shenanigans and have the intent not to pay taxes, you have a fairly high chance of getting away with it,” he said.
According to Mr Phillips, allegations of fraud or wrongdoing against taxpayers are treated as law which then need to be disproven, rather than how other sectors of the law work in terms of building a case of wrongdoing.
He outlined one example in which a woman had her documents seized by the ATO, meaning she was powerless to demonstrate that the ATO had made an error of judgement.
The case proceeded to the Administrative Appeals Tribunal (AAT), during which the ATO claimed it would be “too onerous” to produce the documents, and the AAT sided with the tax office rather than demand the records be produced.
“I was staggered that the court agreed with them,” said Mr Phillips.
“People quite literally get cooked over a very long period of time … there is no onus on [the ATO] to behave according to the normal principles of justice.”
Committee chair Senator Ian Macdonald was surprised to hear Mr Phillips state that even taking disputes to the AAT, rather than to court, can cost upwards of $40,000.
“This is an expensive system,” he said, noting that accounting, legal and other costs quickly pile up when disputing a tax determination.
Speaking about the Judiciary Amendment (Commonwealth Model Litigant Obligations) Bill 2017 put forward by Liberal Democrats Senator David Leyonhjelm, Mr Phillips said he strongly supports the bill as an introductory measure to bring about oversight and change to the way the ATO operates.
“[However,] this bill on its own will have limited impact for small businesses,” he said.
Using the line that the tax office is, in effect, the police, judge, jury and hangman all in one, Mr Phillips pushed for the ATO to broken up into two distinctly separate organisations: one to police tax rules, and the other to prosecute non-compliance.
And within this structure, Mr Phillips pushed for the creation of a Small Business Tribunal to expedite and cost-efficiently hear SME disputes about tax decisions.
Mr Phillips also repeated previous public calls for the ATO to face a royal commission of its own in a bid to clean up the system.
Earlier this month, ATO commissioner Chris Jordan bowed to public pressure and announced it would provide SMEs greater scope for review of any tax disputes.
It follows the launch of an investigation into ATO practices by the Taxation Ombudsman, amid claims the ATO is bullying SMEs and allegations it improperly issued garnishee notices.