The Australian Taxation Office is embarking on a campaign to crack down on GST evasion in the IT channel after discovering considerable shortfalls in tax revenue.
The tax department has been conducting a risk-assessment process on the IT industry since late last year, and is now armed with evidence that is likely to see several major wholesalers and small retailers face the courts over non-compliance.
The investigations were revealed at a roundtable organised by ATO officials, who invited major industry participants to a GST Cooperative Compliance discussion forum last week.
Representatives from PC vendors such as Hewlett-Packard, IBM, Dell, Toshiba, Apple, NEC/Packard Bell, Panasonic and Canon sat alongside representatives from channel companies such as Tech Pacific, Dicker Data and Harris Technology to hear about the extent to which tax evasion had grown in the industry.
Those attending the roundtable were stunned by stories of major wholesalers funnelling large amounts of unreported cash through bank accounts, export and import scams, and the scale of the cash economy in the retail market. Most vendor representatives agreed that there was very little visibility of such issues, and had no idea of the extent to which tax avoidance had escalated among their channel partners.
An ATO director said that recent audits had identified "significant shortfall in revenue" as a result of various tax scams. "My feeling is that the computer industry is at a higher risk level than most other industries," he said. It was also noted that one of the IT industry's most problematic characteristics is that there is no association that represents the interests of the IT channel that could allow the industry to self-regulate such issues.
Officials also said that with GST legislation in place for several years, the ATO is moving away from a "help and education" mode to an "audit and verification" mode. In short, action is the order of the day and once investigations are complete the channel can expect quite a shake-up. One official said that there are "several known identities" the ATO is investigating in the wholesale market.
ARN was offered the opportunity to participate in the roundtable discussions and presented our own findings, based on recent interviews with key figures in the IT channel.
The Australian Taxation Office has identified several key areas where non-compliance is an issue.
Exports and imports
As reported by ARN in May, several players in the IT channel are gaining tax credits by exaggerating the value of their exports or even failing to export all or any of the products stated in the reports to the ATO.
Such scams can allow a company to sell goods locally at up to 10 per cent cheaper than their competitors after gaining tax credits.
Key channel figures contacted by ARN were aware of the problem but not of its scale. The ATO, however, is certain there are significant amounts of credits being claimed in such a fashion.
A similar problem exists with importers that are under-valued to minimise GST payments.
"A fair amount of problems appear to be at the border," an ATO spokesperson said.
The cash economy
ARN's discussion of the "cash economy" with key channel figures indicated that there is a considerable amount of deals done in cash at the low end of the retail market. Most respondents believed that it could not exist any higher up the chain, as most companies would simply refuse to conduct business with any reseller or distributor that only dealt in cash.
Not so, said ATO officials. They confirmed that the cash economy is rife among small dealers- but also that there are significant business to- business cash transactions tracked by regulatory bodies among large wholesalers that are not recorded in their books.
Computer markets and fairs were also identified as areas of concern.
At the crossroads
It is commonly assumed that most tax evasion was all but stamped out by the sales tax accreditation scheme (referred to as 7A) and later the replacement of various sales taxes with the GST. But ATO officials are not so certain that the channel is any cleaner than it was during the days of wholesale sales tax evasion. The ATO has found that many channel companies cleaned up their act once the 7A legislation was introduced, but they nevertheless found new loopholes in GST legislation as soon as their 7A obligations expired.
The last thing the ATO wants to do is weigh down legitimate dealers, distributors and vendors with another set of rules specific to the IT industry to curb the problems. "At the end of the day, we don't want to have to introduce new legislation," one official said. "So we are calling on the industry, particularly the top tier, to assist us with information so that we can steer clear from enforcing these extra obligations."
The office is moving to work closer with customs to uncover export and import scams, and will step up its work with financial institutions to identify suspect movements of cash.
The ATO requests that any information that would be useful in creating a level playing field in the IT channel should be reported to the GST evasion helpline on 1800 060 062.
More information on tax reform is also available on 13 24 78.
What they said
ARN asked several distributors, resellers and other players in the IT channel for their opinion on tax-evasion issues. Names have been withheld to preserve anonymity.
Is there a problem with GST compliance in the IT industry?
"Yes, but it's only a small minority that's causing the problems. It's mainly at the low end among very small Asian importers. I would say most retail IT companies and corporate suppliers are doing the right thing."
"The problems are much more serious in Sydney and Melbourne than anywhere else. They are much more prevalent among suppliers and resellers of small items that have high dollar value, such as CPUs and memory."
"There are strong, organised links between those running the import scams and those on the streets selling goods without GST components. They have a very tight network."
Is there a cash economy within the IT industry?
"Yes, but it cannot be too large. A cash economy is heavily dependent on how much cash is floating around. If you sell in cash, the vast majority of companies out there won't deal with you. You're left with the home market and swap meets, which aren't a big part of the industry."
"Cash is still king. You can't stamp that out. Not a day goes by without somebody knocking on our door with a few boxes of video cards or something being sold for cash."
How do the current problems compare with the sales tax experience?
"The old sales tax avoidance days are gone. These guys largely disappeared when the ATO introduced the sales tax accreditation scheme. The ones that were left over were soon wiped out with the introduction of the GST."
- Corporate reseller
"I'd rather believe the scale of this activity is much smaller than the sales tax days."
Does the channel need more education on tax issues?
"No. These guys are all very aware that they are abusing the system."
"Education is not going to do anything. Catch the bastards and take them to court and make sure they get tough sentences."