An extensive GST fraud scheme that exploited Australia's Tax Office (ATO) systems for months was brought to light last year, as accountants across the country began uncovering the significant discrepancies in their clients' tax reports, according to an exclusive by Australian Financial Review.
The scheme, which vent viral on TikTok, reportedly cost the ATO $4.6 billion, involved individuals exploiting their MyGov accounts to claim refunds on non-existent GST payments.
The full extent of the fraud remained hidden until accountants raised the alarm in early 2022.
“I started seeing it through the office about March of 2022,” a western Sydney accountant revealed to The Australian Financial Review.
“It didn’t prick my attention. Then I saw a few more, and a few more, and a few more. Tax time came [from July 2022] and it was rampant, absolutely rampant.”
Banks had been warning since 2020 of a GST scam, which became the largest tax fraud in Australian history after it was promoted on the social media platform. https://t.co/1vEDVEU1mt— Financial Review (@FinancialReview) August 13, 2023
Scam spread via TikTok
Though the ATO has acknowledged the vast sums lost, insiders believe this number is likely underestimated.
Deputy commissioner John Ford declared it as “the biggest tax revenue fraud against the community in the history of the ATO”.
The fraud mechanism is deceptively simple. Perpetrators register fictitious businesses and claim to have made large expenses while setting up these non-existent ventures.
They then apply for refunds on the 10% GST component, typically without triggering any alerts within the ATO’s GST system.
With the scam increasingly shared across platforms like TikTok, it spread like wildfire.
Influencers on TikTok are being blamed for an explosion of fraudulent GST claims that banks and accountants say went unchallenged for years. https://t.co/VMEAlj2u1a— Financial Review (@FinancialReview) August 13, 2023
Snubbed early warnings
One report mentioned an individual claiming a total of $100,000 in false GST refunds in just a few months.
Alarmingly, most of these frauds were conducted under the culprits' real names, resulting in mounting tax debts and potential prison sentences.
Notably, the fraud’s explosion aligns with the ATO's shift to the MyGov app, which facilitated these fraudulent activities.
One accountant pointed out, “MyGov has given them a platform to defraud the government of $4.6 billion.”
Banks, including Westpac, had noted rising patterns of GST fraud and took preemptive measures by freezing suspicious accounts as early as late 2020.
However, their warnings fell on deaf ears, with the ATO taking no significant actions even when directly notified.
What is ATO doing?
In a bid to combat the fraud, the ATO launched Operation Protego in April 2022, ramping up personnel from 170 to more than 600 to handle the issue.
Though senior tax officers claim that the fraud situation is now under control, evidence from ground zero paints a grimmer picture.
“We had a mother and son in the office this week. He’s got a $50,000 debt on his MyGov account. His mother was horrified. So where’s the 50 grand gone?" shared a concerned accountant.
Deputy commissioner Ford holds social media largely accountable, stating that influencers - or as he terms them, "fraud promoters" - have glamorised the proceeds of this theft, diverting essential funds from sectors like health, education and defence.
The Tax Office's problems with GST aren't new. A landmark case in 2011, followed by an investigation by the Inspector General of Tax in 2016, highlighted systemic issues and the vulnerability of the ATO's fraud detection systems.
In conclusion, this recent GST fraud serves as a stark reminder of the gaps and vulnerabilities present in the tax systems, especially when technological advancements meet unscrupulous intent.
As one Sydney accountant aptly summed up the situation, “In all my years I’ve seen nothing like it”.