Tech suppliers bidding for major federal government IT contracts will need to obtain a clean bill of health from the taxman to win government work from next year under new regulations to enforce revenue compliance and integrity.
The procurement crackdown, slated to take effect from July next year, will compel all agencies to make businesses demonstrate that they have a satisfactory tax record when tendering for government contracts over $4 million.
The move is part of the government’s wider dragnet across the black economy, announced in this year’s federal budget. It follows changes that force IT contacting suppliers to pay withholding tax up front.
Treasury on Tuesday released draft guidelines on what it is calling the Procurement Connected Policy or PCP [pdf], which is aimed at promoting "good tax behavior" and "creating an even playing field for businesses".
Assistant Treasurer Stuart Robert described the move as “disrupting suppliers that are able to make more competitive bids at the procurement point because they have save costs by not complying with their tax and superannuation obligations”.
The move effectively draws a line under labour arbitrageur activity across the federal sector.
The new policy rules will initially be limited to open tenders or to panel arrangement when the total value is estimate above $4 million over its life.
However it is not retrospective and will not demand that agencies amend existing contracts or current standing offers.
It will require businesses to provide a satisfactory statement of tax record (STR) from the Australian Taxation Office that is valid for at least two months at the time at tender closes.
This involves having “lodged at least 90 per cent of all income tax returns, Fringe Benefit Tax returns and Business Activity Statements” over the last four years – or its period of operation if less than that.
Tenderers will also need to ensure that any outstanding debt owed to the ATO is under $10,000 or that they have entered into a payment plan with the agency on the date the STR is issued.
Up-to-date tax registration requirements will similarly now be a requirement to bid for government work over $4 million.
Businesses will also be required to hold STR copies for any proposed subcontractors engaged “to deliver goods or services with an estimated value of over $4 million” for the project if this is known at the time of the submission.
However it will be up to an agency whether the prime contract maintains an up-to-date satisfactory STR is required during the course of the contract.
For STRs that expire before a contract is awarded, agencies will similarly be able to request a renewed satisfactory STR before awarding a contract.
Phased rollout of the policy that will limit requirements in the first year has already been supported by stakeholders to allow for the smooth implementation.
These results will then be assessed to refine guidance, which could lead to additional criteria for determining a satisfactory tax record.
This could include "whether the business has complied with its superannuation guarantee obligations, and whether the business or its directors have been convicted of tax evasion, phoenix activity, and bribery or corruption offences,” Assistant Treasurer Stuart Robert said.
Stakeholders will have until Friday 21 December 2018 to comment on the exposure guidelines.
The requirement that businesses have a satisfactory tax record was an upshot of the final report from the Black Economy Taskforce, released in May this year.
With Julian Bajkowski.