How the ATO found itself embroiled in a battle over credit cards that forced a rethink

The government's ban on card surcharges was sold as a cost-of-living win for Australians.

But one unintended consequence has sparked a backlash from some businesses, with the Australian Taxation Office (ATO) moving to stop accepting credit card payments for tax bills from December — despite mounting concern from business groups and calls for a longer transition.

The ATO's move is linked to a broader shake-up of Australia's payments system that took effect this month.

First Card surcharges were banned . Second, the rate banks charge businesses to transfer money from customers to businesses was cut from 0.8 percent to 0.3 percent . And thirdly, EFTPOS, Mastercard and Visa are forced to publish the merchant fees they charge so businesses can compare rates and avoid paying higher-than-average fees.

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The fourth change flows from the lower fees banks charge on transactions because they subsidise frequent flyer and rewards points programs. Banks started raising annual fees and offering fewer perks ahead of the rate changes.

The decision followed the Reserve Bank's ban on surcharges for EFTPOS, Visa and Mastercard payments, which began on 1 October. The ATO says continuing to accept credit cards and absorbing the processing fees would cost about $200 million annually.

Other government departments, including Border Force and the Department of Foreign Affairs and Trade (DFAT), say they will continue to accept card payments.

Some small businesses use credit cards to bridge or extend the gap between when a tax bill is due and having to pay it. Losing this option means finding cash sooner or arranging alternative finance. And credit cards offer rewards like frequent flyer points when they are used.

Business groups say there is a double standard because they have to accept cards and absorb the fees or raise prices, while the tax office simply withdraws the option to pay by card entirely. They also say the consultation period has been too rushed with just two months to adapt and raise concerns.

Labor promoted the surcharge ban as a cost-of-living relief, but the ATO's response has caused a small business backlash and the government's reponse has been contradictory.

Ministers Anne Aly and Clare O’Neil urged further engagement and said a workable solution must be found for small businesses because they have "real concerns" about the ATO's move.

Minister for Defence Industry Pat Conroy told Channel 9 on Friday morning that he'd like to see the ATO, "continue to consult with small business and make sure there's an appropriate transition period".

Meanwhile, the Coalition wants the ban reversed. Opposition leader Angus Taylor said the government should force the ATO to reverse the decision on Friday.