Chris Evans|Knowledge@ASB

Who would be the winners and losers if Australia simplified its tax system? As tax time looms, many Australians with relatively simple tax affairs are once again preparing to file a return in the hope of receiving at least a small sum back. And accountants and tax agents also are bracing for the annual onerous round of compliance activity on their behalf. But it doesn’t have to be like this! In the UK and New Zealand, the personal tax system has been simplified, so most “wage slaves” who are taxed at source no longer need to fill in a return. While taxpayers are spared the obligation for frequently negligible returns, accountants are able to focus on the more interesting activities of adding value and creating greater wealth for clients. In an interview with Julian Lorkin of Knowledge@Australian School of Business, Chris Evans, professor of taxation, outlines why the case for simplified tax adds up.

An edited transcript of the interview follows.

Knowledge@Australian School of Business: Many people loathe tax time, having to fill in a tax return every year and go along to an accountant. Is there an easier system?

Chris Evans: In many countries in the world you don’t fill in a tax return. Take the UK or New Zealand, for example, very few taxpayers in those countries have to fill in returns. It’s only taxpayers with more complicated tax affairs that have to complete and submit an annual return. Otherwise the tax system takes the right amount of tax at the right time during the year. At the end of the year, you neither owe money to the taxman, nor are you owed money.

In Australia, we could look at changing our system away from what we call comprehensive filing, in which everybody has to file a return, into one where there’s much more selective filing – only those with more complicated affairs need to submit a return. Those of us who are straightforward “wage slaves”, that is, people who have only employment income and have had the right amount of tax taken at the right time during the year would have nothing more to worry about.

Knowledge@Australian School of Business: I’ve been talking to Michael D’Ascenzo, the commissioner of the Australian Taxation Office, and he was saying that people enjoy filling in a tax return simply because they get money back as a result. They consider it almost like Christmas when they get the cheque in the post.

Chris Evans: That’s a rather strange way of looking at it. I don’t prepay my electricity so that I can enjoy getting money back at the end of the year. Why would I enjoy prepaying my tax, paying it before I need to and then getting a nice cheque back at the end of the year? It used to be a tradition in Australia that those cheques, the tax refunds, paid for the annual holiday, or the fridge, or something big. From the commissioner’s point of view, he’s obviously interested in getting everybody to submit a return because it’s sort of command and control and it means you know what’s going on. But the point is the tax office already knows most of that information anyway because the employers have sent in the amount of tax that they have deducted. If they wanted to, the tax office could find the information from the banks about the amount of interest that’s been paid to taxpayers, or from companies the amount of dividends that have been paid. So, a lot of the information is already there in the tax office. It seems very strange that they want us to then send in an annual return and confirm most of what they already know. It would be much simpler just to wash us out of the system.

Knowledge@Australian School of Business: Tax professionals argue that not only would thousands of them be out of work if we adopted the UK system, but also that people love finding ways of claiming back just a little bit of extra tax – and, effectively, that fun would go out of the system.

Chris Evans: That’s interesting because tax agents would be concerned about the loss of work. But we did this national survey with accountants about four years ago, and a lot of them said: “Yes, get this trivia out of our lives and let us get on with what we’re supposed to be doing, which is adding value to the businesses’ and to personal taxpayers’ wealth, rather than having to deal with everyone’s little refund each year.” The tax agents who do nothing else may well be losers and we would no longer have this same tax agent dependency that we have currently in Australia, but a lot of other tax agents and accountants would be able to get on with some serious value-adding work, rather than wasting time on petty compliance.

Knowledge@Australian School of Business: Can we assume that if we scrap the annual tax return, then the cost for individuals will go down? While people may not be claiming so much back, they would actually be paying less tax upfront?

Chris Evans: We’d be paying less to external advisors, and if we cleaned out and simplified the system we’d probably be paying less tax – so there could be a win-win all around.

Knowledge@Australian School of Business: I’m sure many people are crossing their fingers hoping that we will change the system