Geoffrey Yiu discusses the need for balance in the design and implementation of black economy measures.
The black economy refers to people who operate entirely outside the tax system or who are known to tax authorities but deliberately misreport their tax obligations. The black economy can also include those engaged in organised crime, and those engaged in the production and sale of prohibited goods.
The report estimates the black economy to be around three percent of our gross domestic product or $50 billion. The black economy results in reduced income and consumption tax revenues, as well as higher welfare payments due to the understatement of income. The black economy also provides unfair competition for honest businesses, and leads to the exploitation of more vulnerable workers.
The Government broadly accepted 72 of the BET’s 75 recommendations, and we have already seen some action occurring.
On 18 May 2018, Treasury released a consultation paper on the design and introduction of a Statement of Tax Record (STR). The Government announced on Budget night that from 1 July 2019, a business tendering for a Federal Government contract of greater than $4 million in value would be required to furnish an STR as part of the bidding process.
The Government envisages that a business would be able to obtain the STR from the Australian Taxation Office (ATO) within a matter of days, based on whether the business has fulfilled certain reasonably objective tax compliance criteria. It also envisages that the STR would have a certain period of validity, such that the business may not have to reapply for an STR each time it engages in a new government tender.
The purpose of the consultation process is for Treasury to obtain input on matters including the criteria that should be set down to determine eligibility for an STR, and what information should be stated on the STR itself. There will also be consideration of how STR obligations might extend to subcontractors, and the optimal period of validity of the STR.
Most would agree that constricting the demand for the goods and services that the black economy supplies is a valid component of any strategy to shrink the sector. However it will be important that the design and implementation of the STR strikes the right balance between providing government procurement departments with meaningful information, and still allowing an efficient and effective tendering process from the perspective of both bidder and client.
The consultation period closes on 15 June 2018. KPMG will be participating in the process and invites you to get in touch with us if you have points to raise.