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How a tax design practice area can support better tax policy

2016-11-11 10:14:02

Prototype, iterate, solve.  These words, often used in describing innovation, are equally important in tax design. 

Good tax design is something the Australian Taxation Office is keen to promote and one of the ways it does this is through its Design function.  This is a practice area where good design theory can be applied to real-life tax administration design challenges.  The practice area also harnesses contributions from stakeholders such as staff, taxpayers and tax practitioners.

One popular design tool is Rapid Solution Design.  This is a time-bound design activity, anywhere from a few hours to a few days of workshop time employed to clearly identify a problem, achieve consensus on key issues and start to map out a solution.  In a very short period of time, stakeholders have a high level sketch of how a solution is going to work and a set of issues to address.  

This is one tool to be applied by Indonesian government officials visiting Australia in October to investigate better management of the risks associated with Value Added Tax (VAT) refund claims. They will examine how the risk of fraudulent refund claims can be better balanced with the competing need to minimise adverse impacts for businesses' cash flow.  One issue is that VAT refunds are slow holding up vital cashflow for businesses.  Another is the efficiency of the VAT audit system which would benefit from a more risk-based approach to compliance.

In a visit supported by AIPEG and the Government Partnership Fund (GPF), twelve officials from the Directorate-General of Taxes and three other units in the Ministry of Finance (Fiscal Policy Agency, Inspectorate General and Central Transformation Office) are participating in meetings and workshops with the Australian Taxation Office.

The work program builds on a visit, in June this year, to the Australian Taxation Office and Treasury to examine Integrated Tax Design.  This is where the tax administration inputs into tax policy design.

“We have the advantage of seeing what works and does not work in practice” as said by Australia’s Commissioner of Taxation.  Seeking the community’s perspective through consultation – knowing what problems exist and their ideas for possible solutions is vital for us to provide the right advice.”

The outcome of the visit is expected to be a shared understanding that all stakeholders can take forward to improve administration of the VAT for the benefit of both the government and the business community.