The Australian Taxation Office (ATO) could stand to gain as much as AU$5 billion a year by enforcing corporate tax measures to crack down on the black economy, says a study by KPMG.

Australia's black economy is estimated to be worth AU$32 billion a year according to the consultancy firm. Tackling organised crime is the main priority for the government but KPMG suggests that measures could also be taken to deal with lax financial reporting in the corporate sector.

Measures focus on e-payments and e-invoicing

In particular, the firm proposes the following measures to deal with the under-reporting of revenue and income:

• Providing limited amnesty for businesses to voluntarily disclose incorrect tax reporting, followed by a second stage where employees can disclose their under-reported wages and the employer’s associated failure to withhold PAYG tax. Subsequently, increased penalties would apply to businesses that did not participate in the amnesty.
• Legislating to deny income tax deductions for cash payments to employees, contractors and tradespeople and other service providers.
• Strengthening the evidentiary requirements for eligibility to obtain an Australian Business Number (ABN) to crack down on their use for sham contracting purposes.
• Making a clean tax history a requirement for participating in Federal, state and local government tenders.
• Banning cash transactions for amounts exceeding $10,000.
• Implementing a government “one stop shop” for all necessary business and employer registrations.
• Tying vendor rights to maintenance of invoice records and evidence of electronic payment.

KPMG's Grant Wardell-Johnson said: “Adopting these measures would increase the fairness of the tax system and level the playing field between dishonest and honest businesses and individuals. It would also support community ethics and rebuild trust, as honest taxpayers witnessed the reduced incidence of others cheating the system at their expense.”

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CTMfile take: The report by KPMG - Shining a light on the black economy - is of interest to tax professionals and provides concrete strategies for making corporate tax collection more efficient.