KPMG’s report on the ‘black economy’ – 10 steps for the ATO to collect missing revenue

On Tuesday 22 March 2018, KPMG released its report: ‘Shining a light on the black economy’, describing it as the last of the major tax bases that can yield significant government revenue.

• KPMG estimates the ‘black economy’ at $32b and the revenue lost as about $5b (GST, PAYG on wages and income tax on business).
• Last year (2017), the ATO published a ‘gap’ estimate of $2b for PAYG ‘income tax gap’.

In it’s report, KPMG recommends the following series of proposals which could claw back untaxed income:

1. Additional funding for coordinated enforcement action against serious tax crime.
2. Two-stage amnesty for incorrect reporting, with subsequent higher penalties.
3. Legislation to deny income tax deductions for cash payments.
4. Strengthening evidentiary requirements for eligibility to obtain an Australian Business Number (ABN).
5. Bringing the current ASIC company register up to date and review it for accuracy.
6. Including a clean tax history as a requirement for participating in Commonwealth, state and local government tenders.
7. Implementing a government ‘one stop shop’ for all necessary business and employer registrations.
8. Making any cash transaction involving more than $10,000 illegal.
9. Tying vendor rights to maintenance of invoice records and evidence of electronic payment.
10. Government to support the Business Council of Australia (BCA) supplier payment code of conduct.

25.3.18

[KPMG Australia website: Report; FJM; Tax Month March 2018]

Study questions (answers available)

1. Could dealing with the ‘black economy’ yield the biggest amount of Government revenue?
2. Does KPMG estimate the total tax lost to the ‘black economy’ at $2b?
3. Does KPMG recommend an amnesty followed by harder penalties (like the ‘Project DOIT’ initiative for undisclosed assets overseas)?
4. Rather than ban tax deductions for ‘cash’ payments (ie. payments with ‘legal tender’) might it be more sensible to impose documentary substantiation requirements?
5. Do they recommend tightening evidentiary requirements for ABNs?

[answers:1.yes;2.no($5b);3yes;4.yes(EditorialComment,Sorry);5.yes]