The regulation of tax practitioners by the Tax Practitioners Board

Taxation Fair trading regulation Policy Economics Australia
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This audit assessed the effectiveness of the Tax Practitioners Board’s implementation and administration of the regulatory arrangements for tax practitioners under the Tax Agent Services Act 2009.

Overall conclusion

Taxpayers make extensive use of the services offered by tax practitioners. In 2011–12, tax practitioners lodged over 70 per cent of individual income tax returns and over 90 per cent of business tax returns. Accordingly, the effective regulation of tax practitioners is a critical element of Australia’s taxation regime. In 2010, after an extended period of policy and legislative development, the Tax Agent Services Act 2009 (TAS Act) established a new national regime for the regulation of tax practitioners. The new regime applies to all professionals who provide tax agent services for a fee and includes Business Activity Statement (BAS) agents as well as tax service providers. In 2011–12, there were around 52 000 registered tax practitioners. The TAS Act also established the Tax Practitioners Board, an independent statutory authority that is responsible for the new regulatory regime. For operational purposes, the appointed members are known as ‘the Board’ and collectively the Board and its supporting staff are known as the Tax Practitioners Board (TPB). The inaugural Board was constituted in November 2009 and the regulation of tax practitioners under the TAS Act commenced on 1 March 2010.

In its first three years of operation the Board has established an appropriate governance framework, introduced an effective national registration system for tax practitioners, and is developing a regulatory assurance function to ensure compliance with the provisions of the TAS Act. The Board initially focussed on clarifying its legislated powers under the TAS Act and establishing key policies for registering and regulating tax practitioners. Nevertheless, intense periods of registration activity17 have tested the TPB’s processes and there have been considerable delays in dealing with applications, prompting concerns being raised by stakeholders. In response, the TPB streamlined registration processes and has largely overcome the registration backlog. In a similar vein, the new regulatory assurance arrangements established by the TAS Act, which require the Board to administer a Code of Professional Conduct and civil penalties regime, have taken time to implement. The Board is still refining its approach and processes for some regulatory arrangements.

By way of background, upon appointment in November 2009 the Board determined its priorities, noting that it had less than four months to develop policy, procedures and systems to commence registration of tax practitioners on 1 March 2010. The approach taken by the Board in setting its priorities demonstrated an awareness of the key issues it faced in implementing the new regulatory regime. These included bringing new groups of tax practitioners (notably BAS agents) within the regulatory ambit and publishing draft policies on a number of important aspects of the new requirements. By 1 March 2010, the Board had a new national registration system functioning, albeit still requiring further development, and had begun to develop registration policies, established a committee structure and undertaken extensive stakeholder consultation. Notwithstanding these achievements, there would have been benefits in the Board formalising its implementation strategy and monitoring its progress against defined outcomes and timeframes. It would also have assisted the Board to prioritise administrative arrangements and determine timeframes for making the transition from implementation to a business‑as‑usual state.

The Board takes an active role in setting the direction for TPB operations and has implemented governance arrangements including business planning, risk management and performance monitoring. These are at various stages of maturity and, in some respects, have taken longer to establish than might be expected. The TPB’s Portfolio Budget Statements key performance indicators (KPIs) are activity measures without any associated performance targets. An important area for attention in the near future is developing appropriate KPIs for measuring the effectiveness of the program in achieving its objective, and reporting achievements against these KPIs and deliverables, including associated service standards.

The registration of tax practitioners is a key responsibility of the Board. The standard registration requirements of the TAS Act and transitional arrangements created large workload peaks often outside the control of the TPB. This situation, and the volume of applications received, challenged the registration system capability and the capacity of the TPB to process applications in a timely way. The time taken, and information systems problems, created dissatisfaction among stakeholders. From a peak in August 2010 of 18 000 applications (an existing backlog of about 8000 applications and 10 000 applications being received), the backlog at the beginning of 2013 was less than 2000 applications and continues to diminish with the introduction of streamlined applications processing and improved system capability. Of some concern though, is that the proposed quality assurance framework has not been finalised and implemented, and a number of important draft registration procedures have yet to be finalised and approved.

A key objective of the new regulatory regime is to provide assurance that tax practitioners meet appropriate standards of professional and ethical conduct. The Board has civil penalty and injunction options and may apply a range of administrative sanctions for misconduct. In the last three years, the TPB has actioned over 5090 complaints against tax practitioners, including four cases where a civil penalty was imposed by the Federal Court of Australia.

In 2011, the Board established a policy framework to guide its regulatory assurance activities, but the constituent documents were developed progressively and many of the principles, objectives, workload estimates and performance measures in the various documents do not align. The Board has adopted a risk-based approach to compliance but current compliance risks do not reflect the TPB’s strategic risks, or those outlined in other compliance documents. There are also a number of areas that still require further development, particularly building a compliance intelligence capability and implementing a formal regulatory quality assurance process. In addition, a number of key regulatory assurance procedures were still in draft form as at January 2013.

The ANAO has made three recommendations aimed at improving the TPB’s administrative arrangements and regulatory assurance function. These include: developing and reporting against KPIs and the TPB’s service standards; aligning compliance risks and streamlining the TPB’s compliance framework; and developing an intelligence gathering and analysis capability.

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