A major review of various existing Irish tax incentive schemes was undertaken in 2005, on foot of the announcement by the Minister for Finance, Brian Cowen T.D., to this effect in Budget 2005.
The review process involved internal reviews conducted by officials in the Department of Finance and the Office of the Revenue Commissioners, as well as reviews of certain schemes by external consultants.
|From left: Financial Institutions, Auctioneers, Accountancy/Tax Professionals|
Summaries of the various reviews were published with the Budget Day documentation on 7 December 2005. The full text of the various reviews is published today, and copies of the reports can be downloaded from the links below.
A review of tax reliefs has revealed that one individual was able to take 25m from a pension fund without paying any tax on it.
Property Tax Incentives
It is estimated that the area-based tax incentive Schemes will cost the Exchequer 639 m in tax forgone in present value terms in respect of developments undertaken to end of 2004.
By the end of July 2006, when the Schemes are due to expire, it is predicted that the costs to the Exchequer will have risen to 1,933m. Almost 74 per cent of these anticipated costs will arise in respect of the Urban Renewal Scheme.
The major impact on the Exchequer is yet to come, as even those developments completed by end 2004 will give rise to claims for tax relief for a considerable future period.
These tax costs are high relative to the outputs achieved. For example, the present value of tax costs represent up to 43 per cent of the building cost associated with developments undertaken as part of the Schemes.
The tax benefits of the Scheme have accrued to relatively few higher income individuals. There has also been significant inflation of property prices as a result of the tax incentives and this has benefited a small number of landowners and developers. Thus, the Scheme has had strong negative income distributional effects, although this is to some extent inevitable when only a small number of sites are tax designated.
It is recommended, subject to compliance with EU State Aids policies, that the expiry date for the current Schemes be extended to end 2007. This would solely be to facilitate the completion of developments that have been granted planning permission under the scheme, but where work has yet to commence. Thereafter, the Rural Renewal Scheme should not be continued. It is not regarded as cost-effective approach to the problems of rural decline, and is not a model that should be employed elsewhere in the country.
Writers and Artists' Tax Exemption
From the most recently available statistics, the exemption is estimated to cost 23.9m in 2002 (in respect of 1,600 claimants). Of the 1,540 claimants identified in detail for 2002:
1,323 claimed the exemption on eligible income in the range of 50,000 or less;
91 claimed the exemption on eligible income between 50,001 and 100,000;
100 claimed the exemption on eligible income between 100,001 and 500,000;
15 claimed the exemption on eligible incomes between 500,001 and 1m; and
the remaining 11 claimed the exemption on eligible incomes in excess of 1m.
The top 26 claimants claimed the exemption on a total income of in the region of 39m with an estimated tax forgone of 12.93 million. The tax forgone in respect of the top 26 claimants represents almost 57% of the total tax forgone in respect of the 1,540 claimants. The statistics also show that these 26 claimants have paid a total of 0.75m tax on other non-exempt income in the same tax year. The tax forgone in respect of the majority of claimants availing of the exemption (i.e. 1,323 claimants), at incomes below 50,000 represents just over 10% of the total tax forgone under the scheme.
Budget 2006 Review of Tax Schemes
Indecon Review of Property-Based Tax Incentive Schemes Click here
Goodbody Economic Consultants Review of Area-Based
Tax Incentive Renewal Schemes Click Here
Internal Review of Certain Tax Schemes Click here