Consultant claims tax reforms could wipe out two-thirds of accounting firms

A consultant to the accounting sector claims reforms stemming from the Government’s review of the tax systems – the Henry Report – could cause up to two-thirds of accounting firms to close, while $900 million in revenue earned from processing tax returns will disappear.

But other tax experts say this prediction is too brash given the Government has not yet released its opinion of the Henry review.

The Henry Report has been delivered to Federal Treasurer Wayne Swan, but he has said the Government will not release a response until during the first quarter of 2010.

Rob Nixon, from accounting consultancy firm Rob Nixon, says there is no way to determine what the Henry review will recommend, but proposals that have been considered could change the face of the accounting industry.

Specifically, Nixon refers to comments from Henry himself, which suggest a new tax structure could eliminate the need for many individuals to lodge tax returns. Instead, these could be done automatically by the ATO.

“All we can go on is what the proposals are, regarding the wiping out or making simpler the whole personal income tax side of things. The industry is worth about $14 billion. About six million tax returns are down at an average of about $150, and if those are gone that’s about $900 million right there.”

Nixon says this will force several smaller accounting firms, which focus on individual tax returns and not tax structures of larger businesses, to close down altogether. However, he says this is actually a good thing and will improve the industry’s performance.

“It’s going to hurt the smaller firms, because the demographics of the accounting profession will change. According to the ABS, 68% of accounting firms employ less than five people and focus on individual tax returns. They will close, then all of a sudden you have thousands of skilled workers available for hire.”

“But I think this is a positive, and doing everyone a favour. The smaller firms which survive are going to put more people on, and focus more on doing business tax.”

Nixon says this will enable companies to spend more time on their business clients, and provide a higher level of service than they could offer previously.

“The vast amount of accounting firms are just doing what they have to do for compliance with clients, and in their mind they are so busy they can’t free themselves. If you have thousands of skilled labourers now, you can service all your clients.”

“This is the same thing that happened with GST. A bunch of practitioners gave up and said it’s too hard. A bunch will retire, so we’ll get those out of the market, and then there will be a need for the unemployed, who can join existing firms.”

But Yasser El-Ansary, tax counsel at the Institute of Chartered Accountants, is more hesitant about making predictions regarding the Henry review.

“To the best of my knowledge the proposal flagged by Dr Henry is still in its early formation stage, and in fact we don’t know for certain that Dr Henry even recommended this simplified tax return proposal to the Government. Ultimately we’ll have to wait and see.”

However, El-Ansary says such a proposal wouldn’t necessarily see a large amount of accountants put out of work, but rather move their work into different areas.

“This proposal, if it does see the light of day, would be targeted at very simple taxpayers with simple affairs. Those who have just salary, income, wages, donations and whatever. This would be a system targeted at these people.”

“Besides, we’ve had a policy platform around this proposal for a number of years. It works towards simplifying the tax system. Some tax agents who derive income from clients may lose some work, but we view this as an opportunity for people to work on more complicated tax affairs.”

Garry Addison, senior tax counsel at CPA, says it is premature for such predictions to be made ahead of the report’s release.

“It’s jumping the gun a little bit to say there will be a huge impact on practices.”