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ECONOMICS LEGISLATION COMMITTEE
21/10/2010
TREASURY PORTFOLIO
Inspector-General of Taxation

CHAIR —Welcome. Do you have an opening statement that you would like to make?

Mr Noroozi —Just briefly. As you know, the office was set up in 2003. It has been going for seven years. I have been in the job for about two. I started on 6 November. This is the first time I have appeared in this capacity before you. In terms of what we have been doing, in the last financial year the minister released five of my completed reports, including the so-called U-turn review which dealt with adverse impacts of alleged delayed or changed views of the tax office.

There are three other reports that are with the minister awaiting public release. Those are to do with a super guarantee charge, the administration of private binding rulings and also a follow-up review to see how the tax office has implemented the recommendations that it had agreed to in a number of earlier reviews.

We are also in the midst of four other reviews. One of them is the audit of large business. Another one is the administration of past rulings. Another one is SME and audits of high-wealth individuals. The last one is the review of the tax office change program, which I was directed to do by the minister after concern had been raised by taxpayers and tax practitioners about delayed or incorrect returns as well as problems with refunds. I will commence work on a new work program towards the end of this calendar year. That is by way of introduction.

Senator XENOPHON —It may not surprise you to know that my primary concern is in relation to the review of the change program. Could you give an indication of the time frame of when you think that review will be provided to the government?

Mr Noroozi —Sure. I might, if I may, paint a bit of a picture first.

Senator XENOPHON —I was going to ask about the number of submissions and the like.

Mr Noroozi —We have received over 90 submissions. It is an enormous program. It was not just the tax office personnel involved; there was the contractor Accenture and two independent assurers involved and subsequent to that there was a further contractor involved. It has been a process of going through over 90 submissions, verifying the contents of those as well as further investigation work and also trying to develop worthy recommendations as to how some of the issues may be overcome if this were to happen in future. So it has been a very—

Senator XENOPHON —But it is still a current problem though, is it not? It is a current issue—that is, the transition or the change program?

Mr Noroozi —I am aware that the Senate was keen for this process to be quick. The approach that I have taken is to have a staged approach to deal with the most immediate issues upfront which is what has affected taxpayers and tax agents. As regards that first stage, we are in the process of completing our first draft of that report which we will be sharing with the tax office soon, as I am required to under my act and under the protocol between us and the tax office. Following that period of consultation with the tax office on the draft itself, it will then be provided to the minister. As you know, it will then be released by the minister at the time of his choosing but within 25 sitting days. So that is where we are at. We are in the process of finalising our first draft of the report upon which we will then be engaged in consultation with the tax office before releasing to the minister.

Senator XENOPHON —In terms of the tax office response, that may be a month or so? What would you normally expect in your experience of these things?

Mr Noroozi —There are arrangements under the protocol. As you would appreciate, first of all we need to make sure that everything in that first draft is absolutely correct and they have the right to have a look at that. They also have the right to respond to any criticism in that report, and they have a period of time to do that. So there may be some iterations involved. We will do it as soon as we can. I am hoping that in the next few months we would be in a position to finalise that report and submit it to the minister.

Senator XENOPHON —Is there an ongoing review? Obviously into the new tax year there are some suggestions that in order for the tax office to cope with the problems there were a lot more staff than probably were anticipated to continue working on it. That is something we will ask the ATO later on today, but is that one of the issues that you are monitoring or looking at in the context of this change program?

Mr Noroozi —As you know, under the Inspector-General of Taxation legislation I am not authorised to discuss the reviews until such time as they are publicly released by the minister.

Senator XENOPHON —I just have to be patient I think. Thank you.

Senator BUSHBY —Thank you to the officers of the Inspector-General of Taxation for coming along. Mr Noroozi, you said it is your first time before us. I presume that is because we have failed to call you before since you have—

Mr Noroozi —I have appeared before you in a different capacity.

Senator BUSHBY —That is right. I do recall that, but as Inspector-General of Taxation.

Mr Noroozi —Yes, it is.

Senator BUSHBY —I am glad that we have called you along today. You do a lot of important work. In your view how much scrutiny are the ATO’s decisions subject to? Is it adequate in your view?

Mr Noroozi —That is a difficult question. There are certainly a number of scrutineers on the tax office. There is the Ombudsman who deals with single cases for individual taxpayers or, should I say, single taxpayers, be it corporate or an individual. They raise their issues with the Ombudsman and they have a scrutineer function. I have a scrutineer function with respect to systemic issues. In addition to that, there is the ANAO that carries out performance audit and so on. There is also the Joint Committee of Public Accounts and Audits, so there are a number of scrutineers. This starts getting into a policy area and something that perhaps the government could consider, but at the moment there are certainly a number of bodies looking at what the tax office does. I guess it is for others to determine whether all of those different bodies are doing their scrutineering function adequately. I have no reason to doubt it.

Senator BUSHBY —Does the ATO have any publicly available policies on how it deals with its objections and complaints?

Mr Noroozi —Yes, it does have procedures for objection handling. We have done a review into tax office handling of objections, for example. We did that and it was released by the minister in the last financial year.

Senator BUSHBY —Do you monitor the number of disclosures of taxpayer information made to other government agencies or law enforcement agencies?

Mr Noroozi —No.

Senator BUSHBY —Is that outside the scope of your act or something that you have not directed the attention of the office to?

Mr Noroozi —The level of disclosure is not something that we have turned our mind to, but I would have to look at the legislation to see whether that is actually authorised or not.

Senator BUSHBY —As far as I know, there are not any records of these disclosures. I would think that it is probably in the public interest if there were records of the level of disclosures to other government agencies. That may be something of interest to you, if it falls within the scope of your act. Have you read the Denley case, which was decided recently by the appeal court in Queensland, which was critical of the ATO’s litigation tactics? Are you aware of that?

Mr Noroozi —Yes, we are aware of that. A number of years ago there was a review done by my predecessor into the litigation matters that the tax office gets involved in. But, again, as you know, we engage in a very wide consultation process before we release our work program. I am about to embark on a new work program towards the end of this year. At this stage of course we will take input from everybody as well as doing our own research as to what the work program should be. Currently I am completing a work program that was set in March 2009. I am required under my act to advise well in advance as to what that work program is and then work through it.

Senator BUSHBY —In terms of the issues that are raised by the appeal court in Queensland in that case, those issues may well be things that you will consider as part of your work program.

Mr Noroozi —Potentially, yes.

Senator BUSHBY —Similarly, no doubt you would be aware of the ATO material in relation to the departure prohibition order which was imposed on Paul Hogan and how that was approached. I presume that would also be the ATO’s approach to departure prohibition orders and similar powers. Will they also be on the possible list of work order?

Mr Noroozi —Certainly the wider issue of Project Wickenby will be and also the serious noncompliance unit within the tax office. We have already received a number of submissions. Again, that is one of the potential reviews that we will be looking at when we develop our work program.

Senator BUSHBY —I note that in issue No. 38 at paragraph 1460 of the Thomson Reuters Weekly Tax Bulletin you are actually reported as considering a review of Project Wickenby.

Mr Noroozi —Yes, that is right. I think what I have said publicly is that we have received a number of complaints. We have received a number of submissions. We are considering it and we will make a decision about it when we complete our work program—sorry, we complete the actual future work program.

Senator BUSHBY —Yes, what is going to be in that work program—I understand. Are you satisfied with the ATO’s response to your report on your review into the implications of any delayed or changed ATO advice on significant issues?

Mr Noroozi —That was the one that has been shortened to the U-turn review. The report is obviously on our website. The tax office agreed to all of the recommendations we made in that report. The first recommendation talks about a potential course of action the government might want to take in terms of the advice framework that the tax office operates within. Then it goes on to say, ‘But we have come to some administrative agreement with the tax office into what they should do in the meantime.’ The tax office is supposed to develop a practice statement from 12 months of the release of that report that captures in what circumstances they would seek to apply their advice retrospectively or prospectively, and we are engaged with them in development of that practice statement. So the issue is, yes, we are happy about the fact that they agreed to the recommendations but much depends on its implementation. As I said, the practice statement will come out. We will then see how the tax office applies that in practice before saying whether we are completely happy with the tax office response.

Senator BUSHBY —Okay. Your work program—and you are currently developing the next one—how long a period will that work program cover?

Mr Noroozi —It will depend on the type of reviews that come up because, again, the legislation requires me to consult widely and really much of it comes from the grassroots. So it will depend on the type of reviews and how many reviews we select to do. Traditionally, both my predecessor and I have not necessarily sat down saying, ‘This work program is going to last for this long.’ For example, in the last work program we set out initially eight reviews we would do and, given my current level of staffing, that was always going to take a couple of years to do, roughly.

Senator BUSHBY —What is your current level of staff, just as a matter of interest?

Mr Noroozi —Including myself, seven.

Senator BUSHBY —Okay. Having adopted a work program—so you identify seven or eight areas that you are going to look into—if you become aware of another systemic issue in the ATO early on in that work program, one that appears like it could need some urgent attention, do you have the flexibility to be able to change a work program to include that?

Mr Noroozi —Indeed. In fact, that is what we did, for example, when I was directed to do the Change Program. We had just starting doing the review into tax office audits of SMEs and high-wealth individuals. So that has been put on hold until we complete the Change Program.

Senator BUSHBY —Okay. I have one final question. In 2009 the inspector-general—who I presume was you then; I am not sure—wrote in a report dated 15 April 2009:

Clearly, the stakeholder feedback to date does not suggest that current management and handling of objections—

by the ATO—

is perceived as being independent or impartial.

In the same report:

... the Inspector-General believes that the Tax Office has to take further steps... to reinforce the role of objections in tax administration and to promote its independent character.

Has this perception changed, in your view, since early 2009?

Mr Noroozi —That was the review that I alluded to earlier.

Senator BUSHBY —Yes.

Mr Noroozi —What we do with these reviews is after some time has passed we go and do a follow-up review to see to what extent the recommendations we made, and to which the tax office has agreed, have actually been implemented. We will shortly be starting that follow-up review process on the objection review.

Senator BUSHBY —Okay.

Mr Noroozi —It is probably more appropriate to speak about it at that time.

Senator BUSHBY —We will have to call you back again.

Mr Noroozi —Correct.

Senator BUSHBY —Okay. Thank you.

Senator CAMERON —I am just not sure whether this is the appropriate place to be asking this question but, given that you deal with serious noncompliance and systemic issues, is sham contracting an issue that you would be involved with?

Mr Noroozi —Sorry, let me go back a step. I do not deal with serious noncompliance. The review that I may do would be looking at the tax office’s handling of serious noncompliance. For example, the complaint that has been made to me is that no matter who you are, you always deserve due process. Some of the complaints are around people who are accused or who are potentially serious noncompliers and who have not been afforded due process. That is the allegation. So I do not deal with serious noncompliance per se; that is the job of the tax office and I think they are appearing after me.

Senator CAMERON —That is what I wanted to know. Thank you.

CHAIR —Thank you. As there are no more questions for the Inspector-General of Taxation we will conclude at that point and look forward to seeing you back at a future date to follow up on those issues. I call the Treasury next, and I will ask the Revenue Group and the Australian Taxation Office, outcome 1 groups, to come to the table. These groups will be heard together.

[2.44 pm]