“The argument for making SIC and GIC non-deductible is that it increases the cost of tax debt thus, encouraging the likelihood of tax being paid on time and/or increase incentives for all entities to correctly self-assess their tax liabilities,” the submission said.

“With the tax debt book of the Australian Taxation Office (ATO) exceeding $100 billion and interest charges for 2024 of $8.99 billion, this seems like an appealing option to both reduce debt and increase revenue.”

However, the bodies argued that the measures would not improve the situation, as it’s unlikely increasing the cost of SIC will impact an entity’s ability to correctly self-assess their tax liability and the current cost of GIC means that many taxpayers already have a strong incentive to pay tax on time.

“Making SIC and GIC non-deductible will inappropriately increase compliance costs of honest taxpayers. It will also disproportionally impact small businesses who owe $35.2 billion (or 67 per cent) of collectable tax debt,” the submission said.

“There are already a wide range of targeted measures that the Australian Taxation Office can undertake to improve the collection of tax debt, and the latest annual report indicates that such measures are beginning to make an impact.”

Additionally, the bodies argued that making SIC and GIC non-deductible increases the impact of SIC and GIC “beyond the neutralisation of the loan benefit”.

“The extra amounts payable due to denial of a tax deduction could be viewed as a penalty which is imposed regardless of the culpability of the taxpayer,” the submission added.

The submission also said there are already measures that can be taken under the existing penalty regime for taxpayers who were found to deliberately pay their taxes incorrectly. This regime included penalties for recklessness, intentional disregard, and failure to take reasonable care.

The submission said the penalties for such offences could be increased if the government wanted to crack down on deliberate taxpayer noncompliance.

“Making SIC non-deductible results in it having a penalty component that is applicable to taxpayers who have made an honest mistake as well as those who have been reckless or deliberately fraudulent,” the submission said.

“There are already a wide range of targeted measures that the Australian Taxation Office can undertake to improve the collection of tax debt, and the latest annual report indicates that such measures are beginning to make an impact.”

While the submission noted arguments that taxpayers would be able to apply for remission of SIC and GIC so they would not be penalised in grievous cases, it puts an additional administrative burden on the taxpayer “who has been trying their best to comply with complex tax laws”.

Instead, the submission said, the focus should be on “penalising wrong doers by using the existing penalty provisions”.

“Increasing the cost of SIC and GIC also creates extra incentive to apply for a remission, which will also increase the administrative burden on the ATO of processing remission requests,” it added.

The accounting bodies also said if the government retains its policy changes to GIC and SIC, then remission decisions by the ATO concerning both GIC and SIC should be unconditionally reviewable.

If legislated, the proposed amendments would apply to SIC and GIC incurred in income years starting on or after 1 July 2025.