The Commission on Taxation report was published on September 7. This detailed document includes nearly 250 recommendations and is likely to have a considerable impact on Irish tax policy in the future. The report aims to broaden the tax base and to stabilise exchequer returns.
The following is a sample of some of the key recommendations of the report which, if implemented, will have wide reaching-effect:
1 A move from a two-rate income tax structure (20% and 41% ) to a three-rate structure, however the report is silent on the level of the third rate
2 Subjecting child benefit to income tax and introducing a child tax credit
3 As regards PRSI, the commission recommends that the employee PRSI ceiling (currently €75,036 ) be abolished and that the employer PRSI ceiling should not be reinstated. In addition, the report recommends a separate comprehensive review of the PRSI system be undertaken
4 On social welfare payments, the report concludes that, subject to a few exceptions including maternity benefit, all social welfare payments should be subject to taxation
5 In a proposal that would impact on both Irish citizens living abroad and foreign executives working in Ireland, the commission recommends broadening the existing tax residency rules and the withdrawal of the remittance basis of taxation
6 The report makes many recommendations with regard to pensions, including replacing the current method of tax relief for pension contributions with an exchequer matching provision. They also recommend the introduction of a retirement savings scheme modelled on the old SSIA scheme and limiting the tax-free element of a pension lump sum to €200,000
7 The Commission also recommends limiting the maximum tax-free ex-gratia termination payment to €200,000
8 The report recommends abolishing the existing artists exemption scheme and replacing it with a form of income averaging
9 The Commission recommends the introduction of an annual property tax, however the Government has indicated that it has no immediate plans to introduce this proposal
10 Stamp duty for principal private residences should be zero-rated. It is expected that the minister will give guidance as to his intentions in advance of the Budget given the potential impact of this provision on residential property sales up to Budget day December 3.
11 Capital Gains Tax and Capital Acquisitions Tax reliefs should be restricted on the transfer of family businesses including farms. The report recommends that the reliefs only apply on qualifying asset transfers valued up to €3 million. In addition, business property relief and agricultural relief for CAT should be reduced from 90 per cent to 75 per cent.
12 The continuation of a low corporation tax rate, currently 12.5 per cent.
13 The retention of the Research and Development tax credit and that the credit be allowed as an offset against employers’ PRSI. Interestingly, the report makes no reference to a move to a volume based system of calculating the credit.
14 In a move that is likely to be welcomed by the construction sector, the commission recommends a review of the Relevant Contracts Tax rate of 35 per cent to ensure that it does not lead to taxpayers suffering withholding tax in excess of the final tax liability. In addition, the report recommends that greater flexibility be given to revenue in relation to imposing interest and penalties for non operation of RCT where there is no loss of revenue to the exchequer.
15 Suppliers of professional services to the public sector, including pharmacists, solicitors, and engineers will welcome the recommendation to introduce a tax clearance procedure, enabling them to receive payments for professional services gross of withholding tax
16 As part of meeting our obligations under the Kyoto Protocol the commission is recommending the introduction of a carbon tax on fossil fuels.
17 Another environmental measure recommended by the commission is the re-introduction of water charges for domestic users.
The above are a selection of the many recommendations of the Commission on Taxation and we will await the next Budget in December to see to what extent the Minister of Finance will implement these recommendations.
This article was written by Terri Treacy and Caoimhe McLoughlin of KPMG Galway, telephone 091 534600