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Article by Board of Taxation Chairman Mr Richard Warburton on the role of the Board, as published in CPA Australia's monthly journal Australian CPA (November 2001)

There has been a lot of commentary and debate recently, particularly by those in the tax advising industry, about the state of Australia's tax laws and the processes by which they are developed. There is a widespread perception that in the course of the major reforms to our tax system over the past few years, an opportunity has been lost for achieving greater simplicity and workability in our tax laws. There is a perception that the Treasury and the Australian tax Office (ATO) have hijacked the Government's tax reform agenda to promote their own, narrow revenue-raising goals, to the exclusion of appropriate consideration of the compliance burdens imposed on taxpayers.

An underlying theme is that much better legislative outcomes could be achieved through greater and more effective involvement of tax advising professionals and other community stakeholders in the design and implementation of our tax laws. Also there appears to be a wide-spread perception that the structure and role of the Board of Taxation needs to be recast if it is to be truly effective in promoting and facilitating this community input to the development of our tax laws.

Even to a casual observer, Australia's tax laws seem inordinately complex by world standards and I certainly agree that with more effective community input to their design and implementation, we could achieve substantially better outcomes. That said, I am concerned about much of what has been said of late concerning the actual and potential role of the Board of Taxation in facilitating this more effective input. It seems to reflect a misunderstanding of what the board currently is doing, and a misconception of what a board of any kind could hope to achieve in this area.

For those unfamiliar, the Board of Taxation was created by the Government in response to a recommendation of the Ralph Review of Business Taxation. That recommendation emerged from a concern that the voice of business was not being effectively heard or countenanced by Government and its advisers in the development of taxation laws.

In adopting the Ralph recommendation, the Government nevertheless determined that the board should have a broader, whole-of-tax system view rather than just a business tax focus. It also determined that the board should be a non-statutory body with a secretariat provided by the Treasury, rather than the statutory organisation supported by a large independent secretariat that the Ralph Review proposed.

In all other key respects, however, the board essentially reflects the Ralph vision. It is an advisory body to the treasurer with 10 members, seven of whom, including myself as chairman, are part time and are appointed from the non-government sector. The remaining three members are ex officio, being the heads of the Treasury, ATO and Office of Parliamentary Counsel.

The board's mission is to contribute a business and broader community perspective to the development and operation of Australia's tax laws. Its functions, in particular, are to advise the treasurer on:

• the quality and effectiveness of tax laws and the processes of their development, including the processes of community consultation
• improvements to the functioning and integrity of the tax system
• any research the board may commission, with the treasurer's approval.

The treasurer may also direct the board to undertake particular tasks. On the face of it, therefore, the board has potentially a very broad role. It needs to be emphasised, however, that it is an advisory body. In particular, the board is not in the business of determining tax policy. This obviously must remain the role of the treasurer and government of the day who, after all, are accountable to the parliament and the voting public for the outcomes. Nor is the board in the business of directing the commissioner of taxation on how to run the ATO. This, of course, is a statutory role for which the commissioner is directly accountable to the Parliament.

So where does that leave the board? In my view, it still has a very broad and important role in helping to facilitate better tax law outcomes for Australia. As indicated in its functions, the areas of principal focus must be on:

• facilitating effective community interface with, and input to, the development and implementation of tax laws
• assessing the outcomes (eg the quality and effectiveness of the laws)
• acting as something of a "lightning rod" for government in helping to discern the community's current and emerging priorities for, and concerns with, the tax system.

As is the case with any board, the Board of Taxation can only hope to add true value in these areas by, for the most part, maintaining a broad strategic focus. That is, an approach of seeking to ensure that the right processes and procedures are set in place, and are maintained to deliver the best possible outcomes. It is then a matter best left to the managers (the Treasury, the ATO and the Office of Parliamentary Counsel) to manage these, with appropriate accountability to the treasurer. While the accountability of the managers must be to the treasurer (since, after all, its his job that is put on the line at least every three years), the board potentially has a role as an "honest broker" in seeking to resolve concerns or disputes where it is perceived that processes have broken down and, perhaps above all, in engendering trust in the processes among all parties concerned.

At the same time the board liaises directly with community groups to gauge community concerns and priorities for the tax system and is currently looking to develop more processes for keeping abreast of these views. In this role there obviously are any number of issues that the board could seek to take up, although again, its focus generally would be confined to matters having broader, systemic implications for the operation and integrity of the tax system. So arguments about whether the board should be a statutory body with an independent secretariat are , in my view, misplaced. They miss the main game, namely that with the current board, a vehicle now exists through which all parties can work to achieve our goal of better tax law outcomes for Australia. What is now needed is commitment to do so.

In its initial 12 months of operation, the board has focused heavily on discerning possible best practice arrangements for gaining effective community input to the processes of tax law design, which it could recommend for adoption by the Government. As key input to its consideration of this issue, the board has commissioned a report from KPMG Consulting Ltd. The report draws together ideas gleaned, among other things, from a community survey of views about current consultative arrangements and suggestions for the future, analysis of processes employed in other comparable countries, and from processes employed in developing other areas of law. The board expects to receive this report in the near future and will look to consult further with stakeholders in developing its recommendations.

Another area of major focus by the board has been on further developing and evaluating the so called Tax Value Method (TVM) for calculating taxable incomes. This task was assigned to the board by the treasurer at the time of its establishment in August last year and arises also from a recommendation of the Ralph Review of Business Taxation. The board's strategy for progressing this exercise is to develop a body of draft legislation and associated products (tax return forms, etc) sufficient to demonstrate and test the idea, and at the same time to commission and otherwise promote thorough testing and evaluation of it. A unique feature of this strategy is its transparency and the degree to which it allows for open input from key stakeholders and the community more generally.

Regardless of what the ultimate judgement might be about the TVM's relative merits the board's strategy does represent something of an experiment in more open and inclusive tax design process. This is the sort of process that many in business and the tax advising sector argue should be adopted in developing our tax laws more generally. So it is important, I think, that stakeholders seize this opportunity to engage in sensible and rational debate, not only to ensuring the "right" outcome on the TVM issue, but also to give confidence that such processes if more generally adopted, will not be hijacked by narrow sectional interests.

In addition to oversighting these two major projects, the board has also focused on identifying and developing processes by which it can effectively perform its other key functions: to assess and advise on the quality and effectiveness of tax legislation; and to monitor and advise on the integrity and functioning of the tax system. Inevitably, this sort of work does take a good deal of time and by its nature is not publicly visible. As mentioned, however, the board already has instituted, in conjunction with its regular monthly meetings, a program of meetings with key stakeholder representatives and these will be a permanent feature of the board's operation.

Increasingly, the board also has become involved in aspects of the Government's tax reform agenda - proffering advice to the treasurer, for example, on community concerns detected with some proposed initiatives. The treasurer, moreover, has signaled a specific role for the board in some areas, for example, in facilitating further consideration of the appropriate taxation treatment of trusts. So it is evident, therefore, is that the Board of Taxation has been very active in the relatively short period of its existence, and is looking to maintain a very pro-active agenda.

To be effective in promoting better tax law outcomes for Australia, it is essential that our community stakeholders work closely with us and not get sidetracked into peripheral debates about whether the board should be statutory, have an independent secretariat and other such issues. Lets get on with the tasks that matter.