Note: Barrie Russell is a former Deputy Commissioner of the Australian Taxation Office and is a member of the roster of tax administration experts maintained by the IMF’s Fiscal Affairs Department.
Direct revenue from compliance activities (including audit) represents only a small proportion of total tax collections. In Australia, for example, direct audit revenue accounts for only around two percent of total tax collections each year.
It is important to note that compliance risk management takes place within the broader scope of a tax administration’s total risk management activity, which will include an examination of other internal and external factors that might also represent risks to success such as competing government policy objectives, staff capabilities, sustainability of business systems, the legislative framework and the health of the economy.
This compliance model was first developed by the Australian National University in partnership with the Australian Taxation Office, and later endorsed by the OECD.
Audits in these circumstances can actually have a negative impact on longer term compliance if the taxpayer concerned feels that he has been unfairly singled out for attention while others get away with the same behavior.
For example, an audit crack-down on unregistered itinerant farm workers may have a negative impact on farm output if not carefully managed.