New laws touted by the government as boosting transparency of tax debts may actually prove counterproductive, an industry insider has claimed.
The federal government recently released draft legislation for the transparency of business tax debts, aiming to allow the ATO to disclose business tax debts to credit reporting bureaus where the businesses have not effectively engaged with the tax office to manage their debt.
The criteria for reporting tax debt information will depend if the entity has an ABN, a tax debt of which at least $10,000 is overdue by more than 90 days, and has not effectively engaged with the ATO to manage its tax debt.
Prushka Fast Debt Recovery chief executive Roger Mendelson suggested that while the proposed legislation was well meaning, it would have little benefit for SMEs.
“SMEs, when they take on a job, they are eager to get the contract signed, and most of them have no effective credit checking processes in place, they aren't a member of Equifax, they just don't have the means, experience and knowledge to really check credit,” he said.
“The only ones who ever check are the large businesses where it is just part of their process, when they set up a new account, they do credit checks and also they get alerts so if defaults get registered on a customer's name, they invariably will get an alert and they will put that customer on close watch and most of those customers will be SMEs.”
Instead, Mr Mendelson believes the new law will hit SMEs the hardest, should they fall afoul of the new law.
“[Larger organisations] will have an accounts department or an accountant and he's not going to let their relationship with the ATO lapse to the stage they are not responding in any way so invariably those companies that are reported on will be SMEs,” he said.
“This may then act against the best interests of those SMEs which are the subject of the adverse reports because it is likely to make it much more difficult for them to obtain credit and may also result in credit facilities being withdrawn.”
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