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2 Australian Taxation Office — E-Tax Initiative

Summary

The Australian Taxation Office’s (ATO) development of its e-tax web based service platform and its subsequent integration with other electronic databases making the best use of data provisioning capabilities, has delivered substantial improvements in the service provided to clients (taxpayers and tax agents) and also lowered transaction and compliance costs for clients and the ATO.

The current e-tax arrangements represent a further major step in the broad ATO modernisation program initiated in 1987 which was aimed at more effectively exploiting emerging information technology capabilities. This multi-phased modernisation program began with development of an Electronic Lodgement Service (trialled at pilot scale in 1987), moved on to the development of an electronic tax pack ‘e-tax’ (trialled at pilot scale in 1998) and was then extended further to the development of systems in conjunction with other government and private sector organisations providing tax relevant information to enable pre-filling of e-tax returns. The pre-filling of e-tax returns was piloted with data from Medicare and Centrelink in 2004–05.

Uptake of e-tax has expanded rapidly and e-tax lodgements exceeded paper tax return lodgements for the first time in 2005–06. Around 2.3 million people lodged their 2008 returns via e-tax and, of these, approximately 1.6 million chose to use the pre-filling functionality. A further 6.6 million pre-filling reports were downloaded by tax agents.

Apart from the obvious benefits of pre-filling (for example easier access to information and identification of forgotten accounts), use of the service also helps to ensure the accuracy of information submitted as part of the return and results in far fewer post-assessment adjustments.

The development of the e-tax arrangements required a concerted organisational commitment led by successive Commissioners of Taxation over two decades and an associated commitment to major investments in new technology platforms and business re-engineering. While the ATO benefited from more general developments in information technologies, e-commerce and community broadband network penetration, harnessing of these opportunities to its particular business requirements still required the ATO to make a major strategic investment.

The e-tax initiative has also required the ATO to focus externally and invest considerable effort to develop relationships with organisations responsible for providing tax relevant information in order to get data provided in a timely manner for pre-filling of returns and more fully realise the functionality of the e-tax capability. The relevant organisations include government agencies, financial institutions and employers generally (for payment summaries). In 2008, the pre-filling system shifted from the ‘expanding pilot’ phase to full production, encompassing all electronically available financial institution data, payment summary data and a wide range of data held by the ATO.

Relevant chronology

1986 — Self assessment legislation passed, representing paradigm shift in tax administration;

1987 — Government agreed to fund a 10 year modernisation program for the ATO on the basis that significant cost savings would be achieved;

1987 — Trevor Boucher, Commissioner of Taxation, visited US and saw an experimental trial of an electronic lodgement facility developed by the Internal Revenue Service;

1987 — Project oversighted by Michael Carmody saw the ATO pilot the initial use of electronic lodgement services through a small trial in South Australia. The National Taxpayer System established in 1975 was a critical enabler to process tax returns received by Electronic Lodgement Service (ELS);

1988 — ELS trial expanded and 27 000 returns lodged;

1989 — ELS project focus changed to ‘operationalisation’. ATO Client Relations Officers visited tax agents to provide training and information. National Implementation project initiated;

July 1990 — ATO announced national ELS release, promised 14 day turnaround on the processing of a tax return as an incentive;

1990 — Data-matching Program (Assistance and Tax) Act 1990 regulates use of Tax File Numbers for data matching purposes;

1991 — ATO awarded Technology Productivity Gold Award. Introduced TaxPackExpress with Australia Post. Pilot conducted in the ACT;

June 1991 — Trevor Boucher awarded an Officer of the Order of Australia (AO) in the Queens Birthday Honours list for services to the community as Commissioner of Taxation;

1992 — ELS extended to cover business applications;

1993 — National release of TaxPackExpress;

1997 — Tax legislation changed to recognise the electronic return as furnished by the taxpayer and recognise electronic signature. Prime Minister announced electronic service delivery targets as part of the strategic plan for Information Age Government;

April 1998 — ATO’s first website, ATO assist, established;

1998 — e-tax piloted with a small group;

1999 — Electronic TaxPack, called ‘e-tax’, released nationally with 27 000 lodgments received;

July 2000 — New Tax System introduced, including improved identification through the Australian Business Number (ABN);

2002 — over 550 000 taxpayers lodged their income tax returns using e-tax; ATO undertook a ‘Listening to the Community’ consultation process which identified as an irritant for the community, having to provide similar information to multiple agencies; ATO launched the tax agent portal;

2003 — Improved version of e-tax introduced with streamlined security;

2004 — e-tax lodgments surpassed 1 million for the year;

2004 — ATO initiated the Easier, Cheaper and More Personalised (ECMP) Change Program, a budgeted $453 million investment in new technology and business re-engineering, including new identity matching functionality and a single information technology system to store whole-of-taxpayer data. Pre-filling for tax agents via the Tax Agent Portal introduced;

2004–05 — ATO piloted pre-filling with data from Medicare and Centrelink;

June 2005 — Michael Carmody awarded an Officer of the Order of Australia (AO) in the Queens Birthday Honours list for tax administration and reform through innovative approaches to design and implementation of new policies and operations;

2005–06 — Agreement with a number of banks to provide information much earlier than the statutory date of 31 October; Pre-filling pilot expanded to include childcare rebate, bank interest and managed fund information; e-tax lodgments exceeded paper ‘Tax Pack’ lodgments for the first time;

2007 — 1.9 million individuals used e-tax to lodge their 2007 return and of these approximately 1.1 million used pre-filling. A further 1.9 million pre-filling reports were downloaded by tax agents through the Tax Agent Portal; and

2008 — substantial investment in encouraging employers to lodge payment summary data early and electronically with very positive uptake. Pre-filling system went into full production including all financial institution data, payment summary data and wide range of ATO-held data available. Lodgments of 2008 returns via e-tax exceeded 2.2 million. Of these approximately 1.56 million chose to pre-fill. A further 6.6 million pre-filling reports were downloaded by tax agents.

Key observations from case study

Major innovations

The innovation involved use of improved technology and data matching to provide a better service and lower transaction and compliance costs for clients (taxpayers and tax agents) and for the ATO. The case study also shows the commitment to continued innovation.

The longer term implications of moving from post-assessment income data matching to pre-filing of electronic returns represents a considerable shift in Australian tax administration. So too does the ATO seeking to facilitate taxpayer compliance by providing web-based services rather than undertaking post-assessment verification, while also putting a greater focus than previously on those taxpayers intentionally seeking to avoid their taxation obligations,

Observations and lessons learned

  • Innovation prompted by customer need and opportunity — The introduction of the New Tax System led to numerous taxpayers’ complaints, and feedback indicated taxpayers wanted less administrative complexity. The ATO wished to simplify the tax return process, increase the channels of choice for filing tax returns and provide an equivalent level of service regardless of the channel used. The opportunity was presented by increased use of the internet and more sophisticated software tools. E-tax offered a better service to self-preparer taxpayers and efficiencies for the ATO than paper-based systems.
  • Communication — ATO has marketed benefits of free, fast and personalised system. Taxpayer community is increasingly using e-products.
  • Experimental approach — initial developments of ELS, e-tax and pre-filling were all piloted before national release. E-tax currently only available to Microsoft Windows users and broader availability will need to await further development of new technologies.
  • Built on previous experience — pre-filling and e-tax is a further, and logical, development of a longer-term modernisation process going back two decades. While the technological platforms were different the ATO learnt general lessons from earlier experience.
  • Developing a new paradigm — move from post-assessment income data matching to pre-filling of electronic returns and achieving compliance by provision of web-based services rather than post-assessment verification. This makes obtaining taxpayer compliance easier, cheaper and more personalised.
  • Importance of developments in technology — ATO assisted by development of Public Key Infrastructure (PKI) digital signatures, other web-based technologies, data matching and analysis technologies, and has benefited from greater broadband penetration.
  • Importance of leadership — the vision and continued support of successive Commissioners of Taxation have been important drivers of change in tax administration. Strong Executive support has been critical in the development and implementation of new initiatives such as e-tax.
  • Organisational agility — The ATO has faced a substantial challenge in implementing major tax system changes, while at the same time managing development and implementation risks and taking advantage of developments in technology and business process re-engineering.
  • Investing in ideas — while not specific to e-tax, several senior executives in the ATO were given a role as ‘design leaders’ with a remit to work out better business processes;
  • Cultural change — Attitudinal change from a focus on strict compliance to making things easier for the taxpayer and focussing more on intentional tax avoidance. This has significant implications for compliance activity and the skills sets ATO staff require. Encourages bottom-up innovation;
  • Leveraging relationships and collaboration — the ATO has built strong relationships with State and Territory revenue offices and other government bodies such as Medicare Australia, Centrelink and the Department of Veterans’ Affairs. As well, it has devoted considerable energy to its relationships with data providers — for example financial institutions, and employers. It is an active member of a number of international tax forums including the OECD and the Pacific Association of Taxation Administrators (comprising US, Canada, Japan and Australia);
  • Innovation stimulus — innovations by the ATO have generated some operational innovations within the financial sector to provide data earlier and driven business process changes within the tax agent industry. These have been enhanced by the Tax Agent Portal; and
  • Rewards and recognition — the award of an AO to both Trevor Boucher and Michael Carmody is recognition of their personal leadership and contribution but also reflects favourably on the ATO as an organisation. ATO has internal reward and recognition arrangements.

 

 

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