Tour of duties

Tour of duties

While some resellers are reporting a new round of suspicious retail pricing, it would appear a new round of sales tax evasion scams is not necessarily the cause. Gerard Norsa garnered the channel's opinions on the effectiveness of last year's legislative changes and asked assistant taxation commissioner Michael Cebalo for a report card.

So, as a reseller with a retail market, you're doing it tough on price against an ever increasing number of competitors, aren't you? They have got to be doing something under the table to sell at such ridiculously low prices, haven't they?

Well, not necessarily. New markets are being uncovered daily as superseded technology and new price points open opportunities for the entrepreneurially adept. Meanwhile, the tax department says it isn't hearing any reports of a new round of tax evasion scams.

However, waving a golden carrot such as the vast amount of money floating around the PC boom at the moment is sure to attract its fair share of shonky dealers looking for a quick buck.

While most of the evidence points to the phenomenon now being a trickle rather than the raging torrent it was prior to the September implementation of new regulations, it is never time to be complacent.

Only fools would believe tax evasion has been totally stamped out, but a more rigorous accreditation system, new order authorisation procedures and stiffer penalties for cheats seems to have stemmed the flow.

Cash economy

Some people are obviously still looking for and exploiting ways around the system. There is still a cash economy deeply entrenched in certain areas of the industry and new markets such as online trading and booming swap meets present regulatory authorities with fresh challenges.

Resellers feel the playing field has been evened somewhat but is not yet totally level. John Lyall, sales manager at Sydney's Victory Computers, used to work in the Melbourne dealer scene where he said tax evasion was rampant and very lucrative before September last year. He doesn't know of any illegal activity but suspects there is still organised deception.

"A lot of dodgies bought bulk before the new laws came in," Lyall said. "I am sure there are people out there still trying to get around the system because there is a lot of money at stake."

Bill Bowman runs Second Byte Computers in Sydney, selling used PCs and notebooks to a growing market. Able to offer attractive entry-level systems by picking up brand name ex-rentals, upgrading and then reselling them, Bowman has seen competitors advertising all sorts of product for "less than I can buy things".

"When you ring some of these guys and ask for their best price, they ask 'are you paying cash?'," he said. "Some dealers are also offering brand name systems at prices that are suspiciously low."

Ron Harris, managing director of Internet sales shooting star Harris Technology, recognises there has to be an element still operating outside the law. He urges "every genuine reseller in the industry to take it upon themselves to report anything they suspect" but feels it is nowhere near as widespread as it was before.

"It used to be pandemic. Now there are just isolated cases and the tax department seems to have the will and energy to stamp it out. Before it didn't care," Harris said.

"Now it knows there is a lot of money there and is just going for it. We are looking at some resellers we believe are playing funny games and we report those when we see them."

Not all resellers are seeing only roses. Andrew Harrington, computer manager of Ted's Computer Wiz, the growing offshoot of its retail camera store chain parent, is one who is sure there is still a tax evasion industry.

He was "absolutely certain" taxless digital imaging product was being advertised in Melbourne and questions whether wholesalers might be involved.

Worked for awhile

"It [tax changes] worked for awhile, but they certainly appear to have found a new way around it," Harrington said. "I have no idea how they are doing it, but you can guess. It started the first time around with document forging and I would say that is probably still happening."

"The emphasis has been put on the distributor, but that doesn't mean they aren't in cahoots," he added. "If they are involved, do you think they're going to report anything to the Tax Department?"

However, Harrington felt the biggest issue was computer swap meets. "That is where a lot of product is being sold," he said. "A lot of small-scale assemblers are shopping at those sorts of markets and avoiding paying any tax in that way."

Under the new system, distributors bear a lot of the responsibility in the policing and documentation of transactions to which sales tax apply. As well as facing an onerous task to retain previous accreditation, they have also been charged with reporting all suspicious activities they encounter and undertake rigorous documentation, reporting and order authorisation procedures to comply.

Chris Dimmock, sales and marketing director for accredited server distributor Genitech, believes any properly accredited companies flouting the system would more than likely be new ones. He felt existing companies who passed the re-application process would have been "squeaky clean".

"You have to prove you are deserving and that you have a legitimate supply chain," said Dimmock. "You have to give the tax man too much information for an existing company to scam it."

Dimmock said it would be very hard to label cheap pricing in the assembly trade as simply tax evasion as there is such a wide variety of product and so many different sources for it.

"I can't be sure that a guy building systems cheaper than me is cheating on sales tax. The people doing this are the ones selling stuff like new notebooks and printers," he said. "Those prices are directly traceable as the product originally can only come from one place.

"People selling them cheaply are either doing a shonk or losing money."

A supply chain that includes wholesale and retail companies with common owners is an area that the tax department should be looking at, according to Maree Lowe, director of distributor/integrator Anabelle Bits/ASI Solutions.

Lowe believes there has been a dram-atic decrease of tax evasion in the industry under the new laws but wonders about the dealings between related companies and policing of Internet sales.

"We are told that where there are common owners, special prices are being charged between them where tax appears to be paid and then they actually go and claim tax back as well," Lowe said.

"I think the Internet is going to be very interesting as well," Lowe added. "I think it is a whole new marketplace and hope the tax department is ready to deal with it. In a lot of ways it should make life easier for the ATO because the information being put up sometimes tells its own story."

Fabio Grassia, managing director of monitor importer and distributor NatComp Technology, said he hasn't heard of any new loopholes being exploited and agrees the new laws have definitely curbed the tide. However, he doesn't think the ATO will ever get rid of tax evasion until there is a GST.

"Where there is a will there is a way," Grassia said. "Nothing will deter some dodgy operators. The tax department doesn't apply enough resources to chase everything up and when they do, they are often too late anyway.

"Under a GST, the onus will pass to the importer who will have no choice but to collect from resellers or they will be out of pocket themselves," Grassia said.

The taxman's reply

In speaking to Michael Cebalo, the ATO's assistant taxation commissioner, it appears the tax department is pleased with the results from the new system and is keen to hear of any new evasive developments.

Extra revenues being collected point to the legislation's effectiveness and that is good for the industry, Cebalo said.

Budget estimates in legislative proposals for the new system expected sales tax on the computer industry to yield approximately $80 million per year extra and the ATO is on target to "get that fairly comfortably", Cebalo said.

"Every dollar of sales tax we lose, legitimate channels lose six or seven in turnover," he continued. "So if we are clawing back in the order of $100 million this year, then six or seven times that is going into legitimate channels.

"Overall, the feedback we have got from the industry is that people are very pleased with what has happened.

"We said up front we were not going to get perfection out of this but we did think we would make a significant impact. On all evidence that is precisely what has happened.

"In an industry of this size and with the entrenched nature of some past practices, no doubt there will be people that still want to have a go."

When questioned on what resources the ATO is using to gather intelligence on the industry, Cebalo said there were "about 100" operatives in the field nationally and regular monitoring of advertising. In the last 12 months, "something like 2000" computer premises had been visited, he said, predominantly educating dealers about the changes as well as "information gathering" and a small percentage of "on suspicion" visits following leads.

Cebalo wanted to reassure resellers the accreditation process for all companies, new and existing, is rigorous. He felt that was one of the strongest features of the new legislation.

"I don't want to give away all our internal checking processes, but I will say it is more difficult for a new company to get accredited than it is for an existing one," Cebalo said.

"This is simply because with existing companies, we have a background and complete compliance history we can check on. We can't do that with a new business, but what we can do is look at information from other sources and in particular the tax record of the people behind the business."

The ATO is not handing out accredi-tation to every Tom, Dick and Harry. "Accreditation hasn't been rampant in the computer channel, certainly less than 3000, but that covers a broad range," Cebalo said.

Cebalo said the ATO is fully aware of the potential impact of the Internet, but claimed hardware sales in that arena still have to go through a physical delivery stage so the tax implications "remain the same". Trade in software and other intellectual property is a different matter and poses some challenges for the future.

Cebalo dismissed the practice of collusion between retailers and wholesalers with common owners and thus trying to elude the net as an easy deception to detect. "I don't want to give away any ideas on how to avoid tax but under the new system, that would have to be the classic 'don't do'," he said.

"People attempting to do this will put themselves right in our firing line."

"The ATO's recourse used to be largely against wholesalers, but that has all changed," Cebalo said. "The new legislation says that if retailers have goods in their possession for which tax hasn't been paid and we think it is reasonable for them to know tax hasn't been paid, then they are liable."

In your court

In the end, the problem of tax evasion, which affects all legitimate companies in the channel, is in the hands of resellers. Suspicious practices can be reported on a toll-free ATO sales tax hotline (1800 634 905) which is there for "getting information and giving us leads", Cebalo said.

"Any reseller or distributor that suspects something fishy is going on should call us. In providing information we offer total confidentiality, but our capacity to be helpful to them is directly related to how specific the information is that they pass on to us."

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