The taskforce has a daunting job because non payment of tax occurs on a wide

The taskforce has a daunting job because non payment

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The taskforce has a daunting job, because non-payment of tax occurs on a wide scale among HWIs and the Australian community and their political leaders are sensitive to this fact. A globalisation of tax hustling by aggressive promoters may unsettle a lot of the inertia that delivered voluntary compliance in the past. At the top of the market, their entrepreneurship with new financial products can be technically dazzling. The fact of life is that if you are rich enough and aggressive enough, it is not necessary to pay much tax. Legal penalties are important and lower than they should be. But even if they were dramatically increased, legal penalties could never on their own make it rational to pay the level of tax that Parliament and the people expect the rich to pay. If revenue is escaping out of four open windows, closing three of them might simply see more flowing out the fourth, or a fifth window being prized open. This is not to say that it is impossible to achieve improved levels of taxpaying through a combination of measures. If the Commissioner works tirelessly at closing every window through which the revenue escapes as soon as he sees it, the returns to tax planning will fall because the high costs of developing shelters will pay returns for shorter periods. Combine this with inertia, the threat of expanded return oversight, audits, penalties, the desire of many for the quiet life free of governmental hassles, the desire of many others to pay their fair share, to eschew a self-image as a cheat, to sleep well at night, and the result can be an improvement of compliance, especially if all these levers are used in a way that is perceived as fair. Indeed, the taskforce does seem to have succeeded in incrementally improving compliance among those subject to its work, as evidenced by the jump in the tax paid by HWI-controlled private companies from substantially below to substantially above that of non-HWI private companies. There is evidence from many areas of compliance with law of a tipping point phenomenon. Failure to meet the law’s obligations becomes so widespread that enforcement authorities effectively give up, and have little choice but to do so, given the enormity of the task. Mark Kleiman (1993) calls it enforcement
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Through the Eyes of the Advisers 267 swamping, a phenomenon widely observed with drug-selling hot-spots in the US. Where the capacity for the police to enforce the law is fixed, a rise in crime in the neighbourhood reduces the punishment per offence. This lower level of punishment attracts new offenders. Enforcement swamping arises where enforcement capabilities fall too low to prevent this positive feedback cycle. Arguably the ATO had an enforcement swamping crisis with HWIs in the 1970s and early 1980s and is at some risk of descending into that situation today because of global pressures.
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  • Fall '16
  • tax authority, Australian Taxation Office, Tax Office, Compliance Model

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