dioThe old saying is that there are two certainties in life: death and taxes. However, the second part of that equation is looking less certain, with the Australian Taxation Office owed more than $35 billion.

A new report from the inspector-general of taxation, Ali Naroozi, has found that the amount of money owed to the Federal Government is rising fast, despite also revealing a large number of complaints about aggressive debt collection practices.

ATO data show the tax man was owed $35.3 billion in 2013-14, which is equivalent to nearly 2.3 per cent of Australia's annual economic output that year.

The amount of tax debt outstanding was up 9.7 per cent on the previous financial year.

The report showed that around 24 per cent of the debts were disputed, meaning they may not end up being owed, while another 19 per cent were owed by insolvent firms or bankrupts who could not pay.

However, that still leaves $20.3 billion owed to the Federal Government that, in theory, the ATO should be able to collect immediately.

The inspector-general's figures show that small businesses are the main offenders for late payment, with 60 per cent of collectable debts within this sector.

While big business may stand accused of minimising its tax bill, once it has a liability it tends to pay, accounting for only 0.01 per cent of collectable debts.

It was the smallest of small businesses that accounted for the lion's share of the debt, with "micro businesses" with turnovers under $500,000 making up three-quarters of the small business debts.

Individual taxpayers accounted for 16 per cent of collectable outstanding tax debts.

ATO reaps billions via private debt collectors

One way the Tax Office has been trying to recover more of the debts owed to it - although clearly with limited success - is by using external debt collection agencies.

Beginning with a pilot program in 2005-06, the ATO has used external collectors to pursue small debts.

Between September 2011 and June 2013 alone, the ATO advised Mr Naroozi that more than 800,000 cases worth $3.6 billion had been referred to external debt collectors, with $2.36 billion collected.

Mr Naroozi has given qualified support for the use of external debt collectors, but said the ATO needs to do a better job of communicating with the public about it.

"They need to transparently share information about their use of third party debt collectors, basically they need to address the concern of the public because there is some opposition to it," he told ABC radio's The World Today program.

One of the risks associated with using private debt collectors is the possibility of individuals' tax records being leaked, or being used by those companies to assist in collecting non-ATO debts.

Mr Naroozi said no one had contacted him with any examples of such behaviour, but if someone had observed such actions they should report it.

"To my knowledge, that has not been raised with us," he said.

"They do have fairly robust arrangements about disclosure of taxpayer confidential information, so my suggestion would be that if that is the case they should share that information with me and they can do that confidentially."

'Concerns about unfair or harsh treatment'

While the Tax Office needs to get better at recovering debts, Mr Naroozi said it also needs to ensure fairness and consistency in its processes.

"[The] review was conducted because of particularly tax payer concerns about unfair or harsh treatment when it came to debt collection," he sai

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Mr Naroozi said a key area of concern is garnishee orders, which allow the tax office to take control of a portion of a debtor's bank accounts or other payments to them, such as from customers.

"The examples we are given that for fairly nominal amounts of debt a fairly large amount in an account was garnished," he said.

Mr Naroozi said part of the problem seemed to be related to the size of garnishee orders that could be made by relatively inexperienced, low level staff.

"What we've suggested is that, rather than allowing junior officers to garnish tax payers accounts of up to $50,000, that there should be more instances where they are required to get approval from more senior officers before they can do that," he said.

However, the ATO told the inspector-general that the number of debt-related complaints received in 2013-14 (3,720) represented less than half a per cent of the debt cases managed by it.

Figures from the Tax Office show complaints have been relatively steady over the past two years, and down on 2012 levels.