Written Answers - Tax Code.

Tuesday, 3 November 2009

Dáil Eireann Debate
Vol. 693 No. 1

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  303.  Deputy Mary Upton  Information on Mary Upton  Zoom on Mary Upton   asked the Minister for Finance  Information on Brian Joseph Lenihan  Zoom on Brian Joseph Lenihan   the tax reliefs and tax breaks currently available; the estimated taxes forgone on a yearly basis per relief; if he will provide this information in tabular form; and if he will make a statement on the matter. [38216/09]

Minister for Finance (Deputy Brian Lenihan): Information on Brian Joseph Lenihan  Zoom on Brian Joseph Lenihan  I am advised by the Revenue Commissioners that the total identifiable costs to the Exchequer of all income tax and corporation tax allowances, reliefs, exemptions and tax credits available, are set out in the following tables for 2005 and 2006, the most recent year for which the necessary historical information is available in the required detail. Relevant notes relating to items in the tables are also included.

Index of Tables and Notes

(a) Note on the Cost of Tax Credits, Allowances and Reliefs 2005 & 2006

(b) Table of Tax Credits, Allowances and Reliefs 2005 & 2006

(c) Notes on Table IT 6

(d) Green Paper on Pensions — updated estimate of cost for 2007

(e) Estimate of cost of Tax Incentives/Income Exemption for 2007.

(a) Cost of Tax Credits, Allowances and Reliefs 2005 and 2006

The following table IT 6 shows the estimated cost in terms of revenue forgone of the personal tax credits and the main reliefs and deductions allowable under the income tax system. A number of reliefs which apply both to individuals and companies is also included and the cost shown in relation to these reliefs covers income tax and corporation tax.

[210]An adjustment is included in the cost figures applying to income tax to compensate for incomplete numbers of tax returns on record at the time of compiling the estimates.

The tax credits and reliefs listed in the table serve varying purposes. Many are essentially structural reliefs through which individual tax liabilities are adjusted to reflect relative taxable capacity. The main personal tax credits are a good example of this since they may be regarded as part of the progressive income tax structure representing a band of income chargeable at a zero rate. Others, such as relief for interest paid in full or investment in corporate trades, are tax-based incentives in favour of specific groups or activities which are designed to promote certain aspects of public policy.

In computing taxable profits, account needs to be taken in some way of the depreciation of capital assets incurred in earning those profits. To this extent, the figures in the table of the “costs” of capital allowances should not be regarded as measuring a “loss of tax revenue” on profits. To compute such “loss”, regard would have to be had to the excess of the amount of the capital allowances at current rates over the amount of the normal allowances.

The figures shown for the basic personal tax credits (married, single and widowed) are the costs of these tax credits as if all other tax credits and the exemption limits did not apply. They do not include individuals who are not on Revenue records because their incomes are below the income tax thresholds. The cost figures for the exemption limits are based on the excess of the exemption limits over the basic personal tax credits.

The figures of cost are for 2005 and 2006 and all figures are based on tax due in respect of assessments for each year and not on tax receipts within that year.

The figure against each credit or allowance represents the additional tax which would become payable if the tax credit or allowance were withdrawn assuming no consequent change in the behaviour of taxpayers (for example, in relation to the reliefs for savings), or the amounts of payments (for example, interest payable on certain savings schemes might need adjustment to take account of the new tax liability).

The numbers of claimants of each credit or relief are shown for both years to the extent that they are available. The numbers included are the taxpayers who would be adversely affected by the withdrawal of the respective credit or relief.

In the calculations, each tax credit or allowance has been dealt with separately and on the assumption that the rest of the tax system remained unchanged. It would be therefore inaccurate to calculate the effect of withdrawing all the credits, reliefs and allowances by simply totaling the figures. For example, the costs shown for capital allowances and stock relief are also calculated on the basis of separate withdrawal of these reliefs. Their combined cost would be greater than the sum of the separate costs because allowances are not always fully set off against available profits. For instance, a person with €1,000 gross trading profits, €1,000 capital allowances and €1,000 stock relief would pay no tax if either of the reliefs were withdrawn but would pay tax on €1,000 profits if both reliefs were withdrawn. In this case, the cost of each relief separately is nil but the combined cost is tax on €1,000. Basic data is not available to enable an estimate of the combined cost of these reliefs to be made.

The figures for estimates based on tax returns have been grossed up to an overall expected level to adjust for incompleteness in the numbers of returns on record at the time the data was extracted for analytical purposes.

Finally, the estimates shown in many cases are tentative and are subject to revision in the light of later information. Some of the cost figures included in the table for 2005 reflect revisions to figures previously published in the 2007 Report.

[211](b) Income Tax and Corporation Tax

Table IT6: Cost of Tax Credits, Allowances and Reliefs 2005 and 2006

(1) Estimated cost for
2005 2006
Tax Relief Provision €m Numbers €m Numbers
INCOME TAX
Exemption limits:
General Exemption(2) 0.0 0 0.0 0
Child Addition(2) 0.3 1,000 0.2 800
Age Exemption (2) 61.5 49,600 62.0 50,100
Married Person’s Credit(3) 2,268.9 756,500 2,396.9 777,700
Single Person’s Credit(3) 1,854.3 1,330,100 2,137.2 1,494,700
Widowed Person’s Credit(3) 132.2 71,500 155.2 78,400
Additional Credit to Widowed Person in Year of Bereavement 4.7 4,000 4.5 4,000
Additional Bereavement Credit to Widowed Parent 4.3 2,400 4.9 2,300
Additional Personal Credit for Lone Parent 194.1 124,900 186.1 123,100
Homecarer Credit 63.9 87,900 61.8 85,000
Additional Credit for Incapacitated Child 10.3 10,400 16.0 11,000
Employee (PAYE) Credit 2,030.8 1,493,300 2,522.0 1,626,700
Dependent Relative Credit 1.0 15,200 1.4 15,500
Person Taking Care of Incapacitated Taxpayer 1.8 660 2.8 820
Age Credit 20.6 68,800 28.3 76,700
Blind Person’s Credit 0.8 890 1.2 880
Medical Insurance Premiums (4) 229.6 1,073,400 260.5 1,134,800
Health Expenses 134.0 260,700 167.2 348,800
Contributions Under Permanent Health Benefit Schemes, after Deduction of Tax on Benefits Received(5) 3.2 21,600 3.1 23,000
Employees’ Contributions To Approved Superannuation Schemes(6) 423.4 565,200 543.3 693,100
Employers’ Contributions To Approved Superannuation Schemes(6) 90.0 296,500 120.0 363,100
Exemption of Investment Income and Gains of Approved Superannuation Funds(6) (7) (11)* 1,050.0 N/A 1,200.0 N/A
Exemption of employers’ contributions from employee BIK (6) 370.0 296,500 510.0 363,100
Tax Relief on “tax free” lump sums(6) 120.0 N/A 130.0 N/A
Retirement Annuity Contracts(6) 357.7 121,200 435.9 125,900
Personal Retirement Savings Account(6) 42.2 32,900 56.4 45,200
Interest paid:
Loans relating to Principal Private Residence 279.0 587,800 351.6 668,400
Other(8) 22.2 4,800 31.1 4,900
Rent Paid in Private Tenancies 48.1 144,500 64.0 171,800
Expenses Allowable to Employees under Schedule E 65.0 908,800 71.2 960,400
Third Level Education Fees 14.3 29,900 15.7 30,800
Exemption of Certain Earnings of Writers, Composers and Artists 34.8 2,220 65.9 2,890
Dispositions (Including Maintenance Payments made to Separated Spouses) 18.9 6,100 20.2 7,640
Exemption of Interest on Savings Certificates, National Installment Savings & Index Linked Savings Bonds 129.5 N/A 216.3 N/A
Rent a Room 3.3 2,820 3.9 3,560
Exemption of Income of Charities, Colleges, Hospitals, Schools, Friendly Societies, etc. (9) 19.8 N/A 35.0 N/A
Donations to Approved Bodies 34.0 63,800 49.5 107,100
Donations to Sports Bodies(10) 0.2 430 0.3 580
Retirement Relief for certain Sports Persons.(10) 0.3 42 0.2 32
Exemption of Irish Government Securities where owner not ordinarily resident in Ireland (11)* 169.3 N/A 197.0 N/A
Exemption of Statutory Redundancy Payments 72.8 22,000 77.7 22,100
Service Charges 17.2 304,700 21.4 363,900
Top Slicing Relief — Reduced Tax Rate for Payments in Excess of Exemption Amounts Made as Compensation for Loss of Office 11.1 1,480 20.2 2,050
Revenue Job Assist allowance 0.4 550 0.3 360
Allowance for seafarers 0.4 200 0.3 170
Trade Union Subscriptions 11.8 272,100 19.2 294,300
Exemption From Tax of Certain Social Welfare Payments:
Child benefit* 366.6 373,500 377.4 375,300
Early childcare Supplement* N/A N/A 64.9 192,000
Maternity allowance* 9.6 10,800 12.2 14,900
Exemption of Income arising from the Provision of Childcare Services N/A N/A 0.3 230.0
Approved Profit Sharing Schemes* 55.8 55,000 87.8 87,500
Savings-Related Share Option Schemes* 6.2 N/A 2.8 N/A
Approved Share Option Schemes* 0.4 464 3.4 1400
Relief for New Shares Purchased by Employees N/A N/A 0.2 184
Investment in Corporate Trades (BES) 16 1,650 21.4 2,000
Investment in Seed Capital 1.3 42 1.2 42
Stock Relief* 2.0 N/A 2.0 N/A
Relief for expenditure on significant buildings and gardens 3.3 84 6.2 180
Donation of Heritage items 5.8 7 5.7 5
Special Savings Incentive Scheme 597.4 1,083,600 438.9 718,570
INCOME TAX AND/OR CORPORATION TAX(12)
Employee Share Ownership Trusts* 1.8 16,800 6.3 16,300
Total Capital Allowances:(13) 1877.5 266,200 2036.3 260,700
Rented Residential Relief — Section 23(14)* 239.7 4,126 252.4 4,132
Effective Rate of 10% for Manufacturing and Certain Other Activities(15) 396 3,034 384.1 2,831
Double Taxation Relief 439.1 13,200 590.0 15,400
Investment in Films* 15.7 1,500 36.4 3,500
Group Relief 421.6 1,578 255.6 1,592
Research & Development Tax Credit(16) 65.2 135 74.7 141

[213](c) Notes on Table IT6

(1)Figures accompanied by an asterisk* are particularly tentative and subject to a considerable margin of error.

(2)The cost figures for the exemption limits are based on the excess of the exemption limits over the basic personal tax credits. They include the cost of marginal relief for taxpayers whose incomes are not greatly in excess of the exemption limits.

(3)The figures shown for the basic personal tax credits (married, single and widowed) are the costs of these tax credits as if all other tax credits and the exemption limits did not apply. They do not include individuals who are not on Revenue records because their incomes are below the income tax thresholds.

(4)Arising from the change over to Tax Relief at Source the figures relate to the number of policies issued. These include policies where subscriptions were paid by businesses on behalf of their employees.

(5)Part of the cost of contributions to Permanent Health Benefit Schemes is not identifiable as a result of the move to a “net pay” basis for contributions by PAYE taxpayers from 6 April 2001.

(6)See the following table “Green Paper on Pensions” for background commentary and cost figures for 2007.

(7)Arising from the work on the “Green Paper on Pensions” (2007) the basis for costing this item was changed for 2005 and is not directly comparable with the figures for earlier years. See also the following table “Green Paper on Pensions” for more recent figures.

(8)“Other” relates to borrowings for purposes such as acquiring an interest in a company or partnership or to pay death duties.

(9)The cost of exempting the income of charities, colleges, hospitals, schools, friendly societies, etc. from income tax includes the sums repaid in respect of tax credits, income tax deducted at source (certain dividends, other investment income and payments received under covenant), and also includes tax on (see Note 10) (a) donations made by the PAYE and self-employed sectors to approved bodies (b) income tax repayments on foot of PAYE donations. It also includes the cost of exempting certain bodies from the deduction on income arising from government securities. Information is not available about other income received gross.

(10)The cost figures for relief for donations to Approved Sports Bodies and for certain Sports Persons are based on self assessment returns.

(11)In the absence of other information, tax has been assumed at the standard rate of income tax even though a different rate might be appropriate in many cases.

(12)The costs included for corporation tax are by reference to accounting periods which ended in the years 2005 and 2006.

(13)The cost shown for capital allowances does not include any cost associated with “unused capital allowances”, that is, capital allowances which are not absorbed by a company in the accounting period in which they arise because they exceed the amount of the company’s profits of that accounting period which are available for offset. Unused capital allowances can be offset as losses against taxable profits arising in the previous accounting period and against certain profits arising in future accounting periods and can be offset against the profits of another company in the same group of companies. It is estimated [214]that €3,340 million of unused capital allowances were claimed in respect of 2006 accounting periods but as the proportion of this item which is included in previous years losses and in group relief is not separately identifiable a reliable estimate of the cost of the capital allowance element cannot be provided.

(14)The tax cost shown for section 23 type relief is the estimated ultimate tax cost relating to the total allowable expenditure in respect of claims made in 2005 and 2006 tax returns for the first time. The cost shown is for income tax cases only.

(15)The cost does not include any notional cost associated with IFSC companies. The International Financial Services activity in Ireland represents new business which has developed as a result of, among other things, the concessionary tax rate. This means that as the cost of the concessionary rate is not just the difference between the concessionary tax rate and the full tax rate, it is therefore not quantifiable. In regard to the cost shown for the effective rate of 10 per cent for manufacturing and certain other activities, no account is taken of the fact that without these incentives, many enterprises may not have set up here. To the extent that profits earned by such enterprises would not have been available for Irish tax purposes, part of the cost figure shown might be regarded as notional.

(16)The costs shown for R&D is for claims for R&D on corporation tax returns for accounting periods ending in 2005 and 2006. However, the cost includes the cost associated with claims where the company was entitled to the credit but was unable to absorb it in that accounting year.

(d) Green Paper on Pensions — updated estimates of cost for 2007

As part of the work on the Green Paper on Pensions, a review was carried out of the current regime of incentives for supplementary pension provision with a view to developing more comprehensive and reliable estimates of the cost of reliefs in this area. The review examined, among other things, the current reliefs and incentives for investment in supplementary pensions and the data available on which to base reliable estimates of the costs in revenue foregone to the Exchequer.

The review drew on newly available 2007 aggregate data on contributions to pension schemes by employers and employees arising from a P35 initiative introduced on foot of provisions that were included in Finance Act 2004 with a view to improving data quality. Estimates of the cost of tax for private pension provision updated for 2007 are included in the table below.

Estimate of the cost of tax and PRSI reliefs for private pension provision 2007.

Estimated costs Numbers*
€ million
Employees’ Contributions to approved Superannuation Schemes 590 708,100
Employers’ Contributions to approved Superannuation Schemes 150 **385,100
Estimated cost of exemption of employers’ contributions from employee BIK 540 385,100
Exemption of investment income and gains of approved Superannuation Funds 900 Not available
Retirement Annuity Contracts (RACs) 420 Not available for 2007
Personal Retirement Savings Accounts (PRSAs) 65 56,400
Estimated cost of tax relief on “tax-free” lump sum payments 130
Estimated cost of PRSI and Health Levy relief on employee and employer contributions 240 Not available
Gross cost of tax relief 3,035
Estimated tax yield from payment of pension benefits 410
Net cost of tax relief 2,625

The breakdown and make-up of these estimated costs of reliefs differ from presentations of costs in this area for previous years in a number of respects and are not directly comparable. For further details on the cost of tax and other reliefs and the changes in the methodology, refer to pages 106 and 107 of the Green Paper on Pensions which is available at www.pensionsgreenpaper.ie.

(e) Certain property-based tax incentives and incomes exempt from tax — uptake and estimated potential cost to the Exchequer in terms of income tax and corporation tax forgone based on 2006 tax returns

Provisions were included in the Finance Acts of 2003 and 2004 to enable new statistical data on the uptake of tax relief for certain property-based tax incentives and incomes exempt from tax to be obtained from tax returns. This information, derived from changes introduced by the Revenue Commissioners to income tax returns and corporation tax returns for 2006, is set out in the following table.

The figures shown include the amounts claimed in the year but exclude amounts carried forward into the year either as losses or capital allowances, and include any amounts of unused losses and/or capital allowances which will be carried forward to subsequent years.

Tax Incentive/Income Exemption Amount Claimed Assumed maximum tax cost Number of claimants
€m €m
Urban renewal 351.7 140.5 3,436
Town Renewal 93.0 38.7 1,149
Seaside Resorts 15.7 6.4 1,167
Rural Renewal 94.0 38.0 2,137
Multi-storey car parks 40.2 16.6 119
Living Over the shop 7.1 2.7 82
Enterprise Areas 7.4 3.0 129
Park and Ride 6.9 2.8 32
Holiday Cottages 22.9 9.5 660
Hotels 277.1 106.6 1,515
Nursing Homes 35.5 14.7 538
Housing for the Elderly/infirm 3.4 1.4 95
Hostels 1.96 0.82 23
Guest Houses 0.2 0.1 7
Convalescent Homes 4.1 1.7 18
Qualifying Private Hospitals 25.2 10.6 284
Qualifying sports injury clinics 0.1 0 3
Buildings Used for certain childcare purposes 14.3 6.0 304
Student Accommodation 162.5 64.3 1,059
Exemption of profits or gains from Greyhounds 0.4 0.1 6
Exemption of profits or gains from Stallions 90.7 22.5 185
Exemption of profits or gains from Woodlands 13.6 5.4 1,231
Exempt Patents (section 234, TCA 1997) 395.0 83.8 1,120
Totals 1,662.9 576.2 5,299

Notes:

The figures shown relate to the various reliefs/incentives and exemptions as specified in the 2006 form 11 and CT1.

There were concerns that in some instances the new, separately categorised data on property incentives may not have been correctly entered on the Tax returns. Revenue drew the attention of the relevant tax practitioner bodies to these deficiencies to rectify them in the future returns and also increased awareness among its own staff involved in processing tax returns of the need to ensure, through closer examination of the returns, that they are correctly completed.

The estimated costs have assumed tax foregone at the 41% rate in the case of income tax and 12.5% in the case of corporation tax. This means the figures shown correspond to the maximum Exchequer cost in terms of income tax and corporation tax. However, the actual Exchequer cost could be lower, particularly in relation to the exempt income items, as the income could be subject to deductions for allowable expenses and other costs thereby reducing the level of income that would be actually subject to tax.

Some of the costs shown above are included in the costs shown for capital allowances and section 23 relief in Table IT6. For example, exempt income included above is not part of capital allowances.

Reliefs in Respect of which Costs are not Currently Quantifiable or are Negligible or are not Identifiable within Total Aggregates

Exemption in respect of certain income derived from the leasing of farm land

Relief for new shares purchased on issue by employees;

Relief from averaging of farm profits;

Exemption for income arising from payments in respect of personal injuries;

Exemption of certain payments made by Hemophilia HIV Trust;

Exemption of Pensions, Benefits or Gratuities Payable to Veterans of the War of Independence their Widows or Dependents;

Exemption of lump sum retirement payments;

[217]Relief for allowable motor expenses;

Tapering relief allowable for taxation of car benefits in kind;

Reduced tax rate of 10% for authorised unit trust schemes;

Reduced tax rate of 10% for special investment schemes;

Exemption of certain grants made by Údarás na Gaeltachta;

Relief for investment income reserved for policy holders in life assurance companies;

Relief for various business related expenses such as staff recruitment, rent, legal fees, and other general expenses;

Exemption in certain circumstances on the interest on quoted bearer Eurobonds;

Exemption of payments made as compensation for loss of office;

Exemption of scholarship income;

Exemption for income received under Sceim na bhFoghlaimeoiri Gaeilge


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