The review into aspects of the Pay As You Go (PAYG) instalments system is the first Inspector-General of Taxation (IGT) review to be undertaken in direct response to insights drawn from the IGT’s complaint handling service. It also had stakeholder support during consultation on the IGT 2017 work program and attracted submissions from individual taxpayers, tax practitioners and their representative bodies.
A key focus of this review was individual taxpayers’ awareness and understanding of the PAYG instalments system. Individual taxpayers were unclear as to why they had been entered into the system, its requirements and exemptions, its interaction with the annual income tax system and the support tools available to them. Accordingly, the IGT has recommended a number of improvements to the ATO’s taxpayer communication and guidance materials as well as internal staff education and support.
The major underlying source of stakeholders’ concerns arose from confusion caused by the interaction between the ATO’s accounting systems. Symptoms raised by stakeholders included the non-receipt of ATO communications and consequential issuing of multiple Activity Statements for past periods as well as unnecessary debt collection action whilst the ATO manually ‘washed up’ duplicated liabilities. Accordingly, the IGT has recommended that, as a longer term goal, the ATO consider using a single integrated accounting system for administering the income tax and PAYG instalments regimes. In the interim, a number of recommendations have been made that are aimed at improving the current processes.
Stakeholders had also raised concerns regarding specific elements of the PAYG instalments system. These elements were the ATO’s entry criteria for individuals, administration of penalties and interest as well as the inclusion of statutory income in calculating the instalment rate. In response, the IGT has recommended periodic review of the entry criteria as well as additional system functionality to allow tax and BAS agents to voluntarily enter their clients into, or exit them from, the system through their practice management software.
The IGT has also made recommendations to enhance the ATO’s PAYG instalments risk treatment strategy including the education of individuals regarding underestimation of instalment amounts, appropriate consideration of penalty imposition and public reporting of ATO enforcement statistics.
Overall, the IGT has made seven recommendations which are made up of 22 parts. The ATO has agreed in full with six recommendations and has partly agreed with the other (or agreement with 21 out of 22 parts). The one part on which agreement was not reached relates to the provision of a general information brochure to new entrants into the system when issuing the ATO welcome letter. However, the ATO has committed to considering alternatives.
The implementation of the agreed recommendations should result in significant improvements for individual PAYG instalment taxpayers, their representatives and the ATO. The IGT wishes to take this opportunity to thank all who contributed to the success of this review.