Blitz on small business tax debt

The newly appointed Tax Commissioner has inherited a sizeable small business tax debt collection problem. Small business tax debts have skyrocketed to $7.8 billion. The draconian general interest charge applied to outstanding tax debts has not encouraged many businesses to pay up. The ATO does not supply any essential services to small businesses, so they represent the easiest creditor to delay payment towards, with no effect on their operations. Other creditors stop supply and are therefore in a much more powerful position to demand payment.

The debt is owed by 885,000 small businesses, of which 859,000 or $6.2billion of the outstanding amount is attributable to businesses with a turnover of less than $2 million. The remaining 26,000 businesses with a turnover exceeding $2 million owe $1.166billion.

Most of the outstanding tax debt relates to taxes associated with the lodging of quarterly activity statements, namely GST, PAYG and income tax instalments. Many small businesses have taken some time to adjust to the GST. They failed to sufficiently raise their prices to collect the new tax, partially due to fear of the ACCC taking action, or simply due to the other fear of losing customers. The GST has imposed an onerous obligation on small business, forcing them to administer the levying and collection of the tax on behalf of Treasury - a task they had not previously undertaken, unless they were subject to sales tax. Sales tax affected approximately 80,000 small businesses - only a small proportion of the total. GST on the other hand affects every business entity. It is no wonder that the ATO is having problems collecting small business tax debts, as such businesses are all too often not good at managing their cash resources.

The ATO has adopted a softly softly approach since the introduction of the GST, allowing small business taxpayers with tax debts to continue neglecting their payment obligations. There have been attempts to encourage small businesses to pay up by lowering the general interest charge for those taxpayers entering into a direct debit  payment arrangement with the ATO.

The ATO has now decided to adopt a more aggressive approach against the 800,000 small businesses with outstanding tax debts. It is currently contacting people directly by phone in the early evening. A further measure to be adopted will be referring the debt to an external collection agency where the taxpayer has not responded to previous Tax Office letters or phone calls and the debt is less than $7,500.

Upping the ante will surely create some outcry from taxpayers, but in fairness to all other businesses that have paid their tax debts on time, the ATO must pursue such debts to their conclusion.