IPA pushes for ABN withholding tax system

IPA CEO Andrew Conway says taxable payments reporting has resulted in “measurable improvements in compliance by contractors” and has “exposed areas of non-compliance such as missing ABN details and invalid ABNs”.

“Mandatory reporting has shown to be a very effective mechanism for prompting taxpayers to re-join the tax system ahead of possible detection through data matching,” Mr Conway said.

“The experience shown in the construction and building industry has proven that mandatory reporting has been able to reverse entrenched longstanding non-compliance behaviour. It has encouraged reluctant contractors to engage with the tax system in a positive way.”

Mr Conway said the recommended system is similar to one already operating effectively in New Zealand.

An ABN withholding tax system will also address risks associated with the increasing number of self-employed businesses generated from the sharing economy.

“The explosive growth of the digital or sharing economy can play havoc with ensuring contractors are doing the right thing when compared to salary and wage earners, hence the reason why countries such as New Zealand are bolstering their ABN withholding to address growing risk to tax revenue,” Mr Conway said.

“The withholding rate can be industry specific to reflect differences in profitability or a tailored rate that a business applies for to reflect individual tax circumstances.”

The recommendations form part of the IPA’s pre-budget submission.