On Monday, 17 January, the Institute responded to the Commission on Taxation and Welfare’s (CoTW) public consultation, “Your Vision, Our Future”. The CoTW has been tasked by the Government to consider how the taxation and welfare systems can best support economic activity and promote increased employment and prosperity in Ireland.

The Consultation

The CoTW’s consultation was in the form of an online questionnaire, covering fiscal sustainability, employment, climate, housing, supporting economic activity, tax expenditures and administration. Our submission to the CoTW included our Tax and Social Insurance International Tables 2021 prepared in association with KPMG. We reproduced our responses in a report, which you can read here.

Our Submission

In our submission, we make 40 recommendations identifying areas of Ireland’s tax code which are not working as intended or are in need of reform. These recommendations are based on feedback from members of the Institute’s CoTW Working Group and cover a broad range of areas.

Personal Tax System

Ireland’s personal tax system is an important factor in its international competitiveness. Effective personal tax rates at average salaries and above are high by international standards. A broader personal tax base in which all taxpayers contribute according to their means would bring Ireland in line with other European countries whose systems are frequently held up as examples.

We also recognise that the Government needs to raise taxes to pay for the increased social provision required by the pandemic and by an aging population. Against that backdrop, it makes sense to task the Commission with reviewing the Irish welfare system in tandem with the tax system. The latter will undoubtedly have to pay for more expensive public services. But, in our view, it would be a mistake if this was to be the sole concern of the Commission’s work.

Indigenous Business

The resilience of the Irish tax system is remarkable, but the pandemic highlighted the unbalanced nature of the economy and the reliance on the powerful performance of the multinational sector for revenue and employment. The need to rebalance the Irish economy by focusing on the growth and productivity of the domestic sector has never been more pressing.

We need to capitalise on the innovation that has emerged in response to the pandemic by maximising existing reliefs to encourage investment in SMEs and to make them more accessible to start-ups.

Recruiting and retaining skilled workers is central to building a successful company and is crucial to the future growth and export potential of the business. In many cases, Irish SMEs and start-ups cannot match the salaries paid by large multinationals. The Key Employment Engagement Programme (KEEP), introduced to incentivise talent to take up employment in such companies, needs legislative amendment if it is to achieve its objective.

Ireland’s CGT headline rate, high by international standards, is a deciding factor for potential investors and it should be reduced to attract investment in Irish businesses. In our view, a reduced CGT rate of 25% should apply for active business assets.

Foreign Direct Investment

Joining the OECD Inclusive Framework international tax agreement constrains Ireland’s ability to compete on the basis of its corporation tax rate. We recommend that the Commission should consider how the tax code could be simplified and made more user-friendly. Clear, simple and efficient business taxes could be a real differentiator in attracting the foreign investment to our small, highly open economy.

In addition, any long-term strategy to attract and retain foreign direct investment in the Irish economy should include a reduction in the marginal cost of employment in Ireland for both businesses and individuals.

Housing

There is a critical need to restore certainty to the property market with a clear strategy. We believe that any proposed intervention to address housing supply, through tax or other means, must take into account its longer-term impact in the market. In some instances, changes to planning requirements may be a more appropriate policy response to issues in the property market than tax measures.

It is important that all features of the Local Property Tax (LPT) regime are reviewed at regular intervals. The tax base, rates and any specific rules included in the design of the tax, such as exemptions and referrals, should be kept under constant review, to ensure they are up to date and appropriate to current circumstances.

Climate

Climate action is at the forefront of many government agendas worldwide. We believe the existing taxation and welfare systems in Ireland should be reviewed to ensure they support the decarbonisation of the Irish economy and Ireland’s Climate Change commitments. In that context, fossil fuel subsidies, such as the Diesel Rebate Scheme, should be reviewed with a view to phasing out or replacing them where appropriate.

We also recommend exploring opportunities to replace revenues from environmental taxes as a result of the decarbonisation of the Irish economy. In addition, new incentives should be considered to support businesses in reducing their carbon emissions.

Administration

Taxpayers and the tax profession need to be able to avail of swift, reliable, and user-friendly online services when engaging with Revenue. We believe that a continued investment in Revenue’s online services and IT infrastructure is required. Additionally, it is important to identify areas of tax compliance in need of simplification.

Dispute Resolution

We propose measures to strengthen the dispute resolution procedures and recommend that an independent external body should be established. This body could intervene on behalf of taxpayers where there is an issue regarding Revenue’s approach to handling their tax affairs and, in exceptional cases, where there is inherent inflexibility in the tax system, such as, interest charges, time limits and penalties.

Read our full submission here.

Commission on Taxation and Welfare

The CoTW launched the public consultation on 20 October 2021 to gather broad perspectives about the way in which Ireland’s tax and welfare systems should be structured. The CoTW is due to submit its final report to the Minister for Finance by no later than 1 July 2022.