Tuesday, 3 November 2009
Dáil Eireann Debate
303. Deputy Mary Upton asked the Minister for Finance 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): 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.
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.
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 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.
|(1) Estimated cost for|
|Tax Relief Provision||€m||Numbers||€m||Numbers|
|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|
|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|
|Blind Person’s Credit||0.8||890||1.2||880|
|Medical Insurance Premiums (4)||229.6||1,073,400||260.5||1,134,800|
|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|
|Loans relating to Principal Private Residence||279.0||587,800||351.6||668,400|
|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|
|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:|
|Early childcare Supplement*||N/A||N/A||64.9||192,000|
|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|
|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|
|Research & Development Tax Credit(16)||65.2||135||74.7||141|
(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.
(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.
(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.
(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 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.
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.
|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|
|Multi-storey car parks||40.2||16.6||119|
|Living Over the shop||7.1||2.7||82|
|Park and Ride||6.9||2.8||32|
|Housing for the Elderly/infirm||3.4||1.4||95|
|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|
|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|
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.
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