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Increased penalties and stronger action have hindered the use of the technology but more needs to be done to combat the shadow economy, says review.
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ATO ‘must rearm’ against sales suppression tech
29 March 2023
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The ATO is warning anyone using electronic sales suppression technology (ESST) that it is only a matter of time before they get caught thanks to legislation that strengthens its hand.
Minister for Financial Services Stephen Jones said the government was empowering the ATO to police the shadow economy and ESST was a focus.
“The government is committed to ensuring the ATO has the resources they need to crack down on tax dodging,” said Mr Jones.
“Electronic sales suppression technology and similar tools exist with one purpose in mind – tax evasion. They rob the community of funding for necessary services, and they provide an unfair tax advantage to the few at the cost of the many.”
“Australian small businesses should have confidence that their competitors are paying their fair share of tax.”
A review of additional powers since 2018, which criminalised the manufacturing, possession and use of ESST, found that the measures were having an effect.
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The maximum penalty for possession was $105,000, using ESST to falsify tax records could attract a fine of up to $210,000 while those manufacturing ESST software could be hit with a $1,050,000 fine.
The review found that since the implementation of stronger penalties and greater powers for the ATO, the body had conducted more significant compliance action totalling 46 cases, about $1 million in penalties and raising $7.4 million in tax liabilities.
It was also found that ESST had evolved past a physical tool that alters data in the point-of-sale (POS) system but could also be embedded into other parts of a business’s electronic systems.
This included the use of ESST with cloud-based software that worked with the POS system, remote access that could facilitate individual and bulk deletions, and the suppression of HR and payroll data to enable falsifying employee and wage records.
The ATO was concerned about a technique called the zapper, which could operate through the internet with all the same capabilities as a standard ESST but without any physical evidence. It could remotely crash hard drives, which made verification of accurate records extremely difficult.
In light of the ATO’s success with stronger punishments, the review said more needed to be done as the complexity and scope of ESSTs and the shadow economy continued to grow.
“Further compliance action is required to bring this within tolerance, that includes disrupting entire supply chains, dealing with those who are involved in developing sales suppression technology, providing help and guidance for those who want to do the right thing and influencing, shaping behaviour away from use,” said the review.
“The risk and impacts of sales suppression technology continues to exist in the shadow economy and is a contributor to the tax gap. Since the act was introduced in October 2018, the scale and complexity of ESST use has grown.”
“The ATO will continue to work proactively with OECD partners to manage and disrupt international behaviour driving ESST manufacture, distribution and use.”
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