A Critical Analysis of Tax Avoidance Schemes in Australia

Abstract

Taxation, as defined for the purposes of this paper, is - the compulsory acquisition of goods and services, usually in the form of cash, by a government, from its people, for no return. It differs primarily from a gift in that it is taken by way of compulsion rather than being given voluntarily. There is an expectation on the behalf of taxpayers that the government will provide security and social order as well as social, infrastructure and welfare services such as education, health and amenities. Governments, faced by the eternal economic problem of boundless wants and limited resources often fail to deliver to the satisfaction of all. By its very nature therefore, a natural human aversion is created to the payment of taxes. In modern democracies, which rely on the goodwill of the populace to retain office, the matter of government revenue is a heavily debated political issue. The emotional nature of the social issue often far outweighs the logical economic issue of government responsibility for the fair and equitable distribution of wants and needs of society. In modern capitalist society there remains a need for government intervention in the economy to ensure the populace have a fair distribution of wealth and that the economy is serviced by the infrastructure essential to maintain and service the needs of industry and commerce to conduct industry and professions. Since the times of the Punic Wars when the site of Hannibal’s camp was auctioned in Rome, confidence tricksters have created fanciful schemes to encourage the unwary or the naive into giving them large sums of money or goods for worthless or non-existent goods or services. No scheme works with greater efficiency than tax avoidance. Entrepreneurs and confidence tricksters have exploited taxpayer’s natural aversion to paying income tax to promote schemes to divert monies from taxation into projects which substitute payments from taxation revenue to their own projects. Australian commercial ventures and taxation legislation are influenced by the nation’s position as a sophisticated Organisation for Economic Co-operation and Development (‘OECD’) nation centred among the developing and third world nations of South East Asia and the South Pacific. Schemes range from genuine attempts to promote and provide incentive to introduce innovations to commerce and industry which are encouraged by the government through taxation incentives such as Part 10BA of the Income Tax Assessment Act 1936 (Cth) and afforestation project incentives, to outright frauds such as the sale of contracts and investments which are nominal or totally non-existent. This paper examines the impact of tax incentives in the encouragement of tax avoidance and the international responses to Australia’s sophisticated OECD taxation environment by it’s near neighbours. South Pacific Nations such as Vanuatu and the Cook Islands openly promote of their ‘tax haven’ status and encourage Australians to use their blatantly open tax avoidance legislation to bolster their own flagging economies at the expense of Australian taxation revenue. Anti-Tax Avoidance legislation such as Part IVA of the ITAA is proving ineffective as the government finds itself losing outright control in the political arena. Reliance on coalitions and the support of minority parties in Parliament has resulted in a series of legislative compromises which is placing Australian taxation systems in real jeopardy. Poor government decisions over many generations have produced a social and political climate which has eroded taxpayer confidence in government and Australian politicians. The modern Australian taxpayer now feels he or she is not getting value for money and is more willing than ever to avoid taxation liabilities. Taxpayers, as demonstrated by the proliferation of public scandals in recent times, are all too willing to join taxation beneficial schemes and projects that are nothing more than fraudulent shams. This paper seeks an answer to effective and efficient taxation revenue systems while encouraging industry and controlling the ever-present trickster, who is all too able to prey on the unknowing, unwary or equally devious taxpayer. Australia must recognise not only its political and social position but also its geographical position in determining its taxation policy for the future.