Australian Tax Forum

Articles from the current issue:

• Invisible taxation: Fantasy or just good service design?

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  This article introduces a new concept for design and evaluation of public services, and taxation in particular. The approach is novel as it draws from multiple domains to construct and propose a measure of administrative effectiveness as an alternative to traditional “service” quality. The article explores the commonalities between service delivery in public administration and the private sector. Exceptional service places the customer at the centre of the experience, achieving a balance between the needs of the organisation and those of the customer. Client service may involve more than one interaction, utilising multiple channels and touchpoints. An excellent client experience is created when the customer achieves the desired outcome with a high level of satisfaction and quality. Service quality is achieved through good service design.

• Book review: Tax simplification

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  The principles of a “good tax”, commonly expressed in terms of simplicity, certainty, equity, neutrality and efficiency, are well known and often quoted in the tax literature. Tax simplification has been, and will continue to be, on the agenda of governments in many countries, including Australia. The UK, for example, has a formal independent Office of Tax Simplification (OTS). 

• The relationship between CSR and tax avoidance: An international perspective

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  Corporate tax aggressiveness (or avoidance) is widely viewed as socially irresponsible and “unethical” (Hoi et al 2013; Sikka 2010). However, few corporate social responsibility (CSR) studies have considered tax aggressiveness as an explicit component/measure for understanding CSR activity. Based on US data, Hoi et al (2013) find some evidence that firms with excessive irresponsible CSR activities are more aggressive in avoiding taxes. However, they find no evidence of a more general relationship between CSR and tax avoidance. This finding contrasts with the Australian study of Lanis and Richardson (2012), which documents a strong negative relationship between CSR disclosure levels and tax aggressiveness (high CSR disclosure is associated with lower tax aggressiveness). Our study extends the literature by examining the CSR-tax avoidance relationship in a wider international context using sustainability ratings data provided by Ethical Investment Research Services. Based on a large sample of firms across several international reporting jurisdictions, we find some limited evidence of a negative relationship between CSR levels and tax aggressiveness, even after controlling for firm size, industry, region, risk, financial performance and other factors. However, the association is not consistent across all tax avoidance proxies tested nor CSR metrics utilised in this study. Furthermore, when we partition the regression analysis by region, the CSR-tax avoidance relationship was found to be significant on the Asian (including Oceania) sub-sample, but is largely insignificant on the North American, European and UK sub-samples.

• Estimating aggregate tax compliance costs: a new approach using a state space model

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  This article aims to develop a general statistical method for estimating tax compliance costs in Australia on an annual basis. The proposed approach represents an attractive alternative to the traditional, large-scale survey method which is known to be expensive and time-consuming to conduct. A state space mode is applied to a series of tax administrative costs, approximated by annual expenditures incurred by the Australian Taxation Office. This produces estimated annual growth rates of Australian’s tax compliance costs. Combining the growth rates obtained from the state space model with a comprehensive survey-based estimate of tax compliance costs in a particular year, an annual series of tax compliance costs can then be generated. Note that the proposed method has general applicability and the use of Australian data is a mere illustration.

• The dissenting opinion of BRICS practitioners on the BEPS agenda

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  Our research investigates the opinions on the OECD BEPS Action Plan of tax experts from practice in BRICS countries vis-à-vis developing countries and OECD countries. In an adaptive conjoint analysis, we find that experts from BRICS countries have a substantially different view on the effectiveness of the OECD BEPS Actions and the measures as suggested in the Action Plan. This supports the notion that OECD countries act in their own interests and reach out to non-OECD countries more to seek support for their own agenda than to truly include their priorities. Also, it can be expected that BRICS countries will increasingly assume the role of a norm maker in future international tax policy. Our results contribute to the current reorganisation of the principles of international taxation, and highlight the OECD BEPS Actions that are perceived as being of the highest importance.

• What can the United Kingdom’s tax dispute resolution system learn from Australia? An evaluation and recommendations from a dispute systems design perspective

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  The way in which tax disputes are managed and resolved can have a significant impact on the overall experience that taxpayers may have in interacting with revenue authorities. This in turn can impact on taxpayer voluntary compliance. A number of revenue authorities around the world have introduced various initiatives aimed at preventing or resolving disputes earlier in the disputes process. One of which is the introduction of in-house facilitation, a form of alternative dispute resolution (ADR) that generally utilises a revenue authority member of staff trained in mediation techniques to help facilitate an agreement between parties. HM Revenue and Customs (HMRC) in the United Kingdom (UK) and the Australian Taxation Office (ATO) in Australia formally adopted forms of in-house facilitation programs in 2013 and 2014, respectively. Set against this background, this article uses dispute systems design (DSD) principles to evaluate the tax dispute resolution system in the UK and consequently makes recommendations for improvements to the system, drawing from DSD features of the Australian tax dispute resolution system and the ATO’s current “Reinventing the ATO” transformation project. The recommendations put forward in this article include a greater integration of the dispute resolution system and ADR within the overall tax administration system and improvements in the support of the system by HMRC members at all levels.

• The impact of tax on the prospects of achieving target retirement wealth in Australian default superannuation plans

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  Prior empirical studies on superannuation in Australia have investigated the adequacy of superannuation to fund retirement on a pre-tax basis. Also, government policy in this area is often predicated on simplistic assumptions and methodologies, with little or no empirical evidence of the impacts of superannuation taxation arrangements on retirement wealth and the adequacy of default superannuation plans. This “baseline” study fills this gap in the literature by providing evidence about the prospect of a representative member of a complying superannuation fund in Australia, on retirement, having sufficient accumulated superannuation to adequately fund their retirement under current taxation arrangements. We assume the fund utilises a typical default asset allocation, and we use a bootstrap simulation approach to generate relevant asset returns. We compare a representative retiree’s terminal wealth at vesting age with a nominal retirement wealth target. Our results suggest that a representative member under current superannuation taxation arrangements has a roughly 50% chance of not accumulating sufficient superannuation to meet a reasonable retirement wealth target by retirement age.

• Did tax cuts on earned income reduce welfare participation in Canada?

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  From 1986 to 2005, Canadian provinces used earnings exemptions to modify effective marginal tax rates on welfare participants’ labour market earnings. Two policy variables were used: an exemption threshold and an above-threshold marginal tax rate. We estimate the effects of these two policy variables on provincial rates of welfare participation, while controlling for heterogeneous combinations of other welfare reforms and macroeconomic conditions across provinces and through time.

  The data reveal large and statistically significant effects of earnings exemptions on welfare participation. Reducing the marginal tax rate levied on welfare participants’ earned income by 50 percentage points was associated with a two percentage point reduction in the average province-year’s participation rate or, equivalently, a 23% relative reduction below the unconditional mean rate of participation. Earnings thresholds and above-threshold marginal tax rates interact in ways that make it difficult to predict how changing either policy parameter in isolation is likely to affect participation. Cutting above-threshold marginal tax rates would appear to be the strongest variable through which earnings exemptions may effectively reduce welfare participation.