Standard Business Reporting: Short Term Pain for Long Term Gain?

Abstract

This research project, funded by CPA Australia under the Global Research Perspectives Program, evaluates Standard Business Reporting (SBR) as a measure designed to reduce the tax compliance burden of Australian businesses resulting from reporting obligations imposed by the government. In evaluating the effectiveness of SBR in reducing the tax compliance costs of businesses, the research project examines: - the business to government tax reporting burden as part of business tax compliance costs and the extent of that burden addressed by SBR; - the drivers of high tax compliance costs and the adequacy of SBR in addressing these drivers; - the reporting solution offered by SBR from the perspective of benefits and savings offered to businesses that adopt SBR; - the level of understanding of the SBR solution among businesses and reporting practitioners and their readiness to adopt it as part of their reporting practices; - the experience of businesses and reporting practitioners in using SBR as a channel to lodge reports to the government, realised costs and benefits, challenges and future expectations; and - the extent to which SBR has reduced or can reduce the tax reporting burden of businesses. This Report examines the above issues and presents findings from empirical work conducted by the researchers that used a mix of qualitative and quantitative approaches involving a series of in-depth interviews with representatives of key stakeholders in the SBR initiative: government agencies, software developers and reporting practitioners, together with a cross sectional survey of businesses. While the evidence of the research does not rule out that SBR may have some potential to reduce some of the tax compliance burden of businesses in the longer term, it shows that the government’s initial business case that predicted savings of $800 million in 2013/14 was overstated. The take up of SBR to date has been significantly lower than expected, mostly due to the very low level of awareness of SBR among its potential users, namely businesses and reporting practitioners. The Report shows that the main reason for this poor awareness of SBR among its potential users is the lack of clear ownership of the task of driving the demand for SBR, as well as differences in opinions as to who would benefit from SBR. The findings indicate that there is a gap in expectations as to who should drive the demand for SBR. While the software developer community, reporting practitioners and businesses expect the government to actively drive the demand for SBR through targeted promotion, marketing and educational campaigns, the participating government agencies perceive themselves as responsible only for delivering the required IT solution. The Report also indicates a lack of conviction and consensus about the expected benefits and beneficiaries of SBR that, in turn, hinders the take-up of SBR among its potential users. The findings show that neither the reporting practitioners nor businesses are entirely convinced about SBR’s ability to reduce their reporting burdens. About 50 per cent of businesses who used SBR to lodge their reports to the government have not observed any reduction in their reporting costs and only 10 per cent of respondents who used SBR to lodge their reports observed some reduction of their reporting costs. This reduction was estimated to be about 15 per cent of their reporting costs. At the same time 80 per cent of the respondents who had not observed any reduction in their reporting costs as a result of using SBR thus far were of the opinion that in the future, when the number of forms included in SBR increases, SBR will help them to reduce their reporting costs. The research project also explored the perceptions of businesses about their current levels of regulatory, tax compliance and reporting burdens. The Report shows that businesses are frequently required to deal with many government regulations (and tax regulations in particular), and in the year ended 30 June 2011 spent $131,700 on average to comply with their tax regulations. While businesses perceive their current levels of tax compliance costs as average when compared with costs of complying with other non-tax regulations (on average about 23 per cent of their total costs of complying with government regulations), most businesses consider tax reporting obligations imposed on them by the government as either significant or very significant (on average about 31 per cent of their total costs of complying with government regulations).