The Behavioural Economics Team of the Australian government (BETA) found that, in its trial of 2,277 tax agents, those who received a letter notifying them of higher than expected work-related expense claims for clients had reduced their average client claim by $191.
The report, Improving tax compliance: deductions for work-related expenses, also found that agents increased the average tax paid by their clients by $76.
“Low-cost, well-targeted and well-designed communications, incorporating behavioural insights, can increase tax compliance and revenue to fund services for Australians,” the report said.
BETA said that if it had sent the letter to all tax agents in the trial, tax revenue would have increased by around $1.7 million.
However, it also noted that the ATO has previously established that unless follow-up compliance work is conducted after letter campaigns, the effectiveness of future campaigns is decreased.
Further, the need for follow-up action reduces the cost effectiveness of a letter-based approach.
“On the face of it, this result indicates an effective return on investment when the cost of sending the letters is compared with the additional tax revenue collected as a result of reducing deductions,” the report said.
“However, noted alongside this result, unpublished ATO reports suggest other approaches employed within the ATO to influence compliance for work-related expense claims are resulting in a greater return on investment.”
BETA said that the ATO uses a range of approaches in engaging with agents to encourage compliance, from help and education through to enforcement activities.
It also added the ATO found that the most positive return on investment and sustainable compliance impact results from activities where interaction with agents is tailored using data analytics and involves direct dialogue between an ATO officer and agent.
“The ATO uses data analytics to identify agents whose clients’ claims are higher than expected when compared to agents with similar clientele. Agents are then engaged directly to address compliance risks in relation to work-related expense claims in their client base,” BETA said.
“Over 70 per cent of Australians lodge their income tax return through a tax agent, so prompting a behaviour change among agents could lead to a larger increase in overall tax compliance.”
