Dáil Éireann - Volume 678 - 12 March, 2009

Written Answers. - Departmental Expenditure.

[119] Deputy Richard Bruton asked the Minister for Finance the estimated cost of all tax expenditures, broken down by sector; and if he will make a statement on the matter. [10735/09]

  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 2004 and 2005, 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.

These estimates of cost are not compiled by reference to sectors.

COST OF TAX CREDITS, ALLOWANCES AND RELIEFS 2005 AND 2004

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.

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 2004 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).

[120] 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 totalling 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 2004 reflect revisions to figures previously published in the 2006 Report.

INCOME TAX AND CORPORATION TAX

TABLE IT6

Cost of Tax Credits, Allowances and Reliefs 2004 and 2005

(1) Estimated cost for

Tax Relief Provision

2004

2005

€m

Numbers

€m

Numbers

INCOME TAX

Exemption limits:

General Exemption (2)

0.0

0

0.0

0

Child Addition (2)

0.3

900

0.3

1,000

Age Exemption (2)

58.6

53,500

61.5

49,600

Married Person’s Credit (3)

2,015.5

698,200

2,268.9

756,500

Single Person’s Credit (3)

1,655.1

1,228,300

1,854.3

1,330,100

Widowed Person’s Credit (3)

125.7

73,400

132.2

71,500

Additional Credit to Widowed Person in Year of Bereavement

4.9

4,000

4.7

4,000

Additional Bereavement Credit to Widowed Parent

4.0

2,500

4.3

2,400

Additional Personal Credit for Lone Parent

150.8

101,700

194.1

124,900

Homecarer Credit

75.1

103,600

63.9

87,900

Additional Credit for Incapacitated Child

5.0

9,800

10.3

10,400

Employee (PAYE) Credit

1,512.7

1,372,400

2,030.8

1,493,300

Dependent Relative Credit

1.0

15,650

1.0

15,200

Person Taking Care of Incapacitated Taxpayer

1.3

870

1.8

660

[121] Age Credit

19.4

65,100

20.6

68,800

Blind Person’s Credit

0.7

830

0.8

890

Medical Insurance Premiums (4)

218.2

941,300

229.6

1,073,400

Health Expenses

109.6

218,100

134.0

260,700

Contributions Under Permanent Health Benefit Schemes, after Deduction of Tax on Benefits Received (5)

2.5

21,300

3.2

21,600

Employees’ Contributions To Approved Superannuation Schemes (6)

See footnote (6)

430.0

569,200

Employers’ Contributions To Approved Superannuation Schemes (6)

See footnote (6)

90.0

296,700

Exemption of Investment Income and Gains of Approved Superannuation Funds (7) * (12)

900.0

N/A

1,050.0

N/A

Exemption of employers’ contributions from employee BIK

See footnote (6)

370.0

296,700

Tax Relief on “tax free” lump sums

See footnote (6)

120.0

N/A

Retirement Annuity Premiums

318.9

115,000

357.7

121,200

Personal Retirement Savings Accounts (8)

13.7

6,300

42.2

32,900

Interest paid:

Loans relating to Principal Private Residence

231.5

477,400

279.0

587,800

Other (9)

19.6

5,500

22.2

4,800

Rent Paid in Private Tenancies

33.0

118,500

48.1

144,500

Expenses Allowable to Employees under Schedule E

122.1

867,300

65.0

908,800

Third Level Education Fees

11.1

26,600

14.3

29,900

Exemption of Certain Earnings of Writers, Composers and Artists

32.1

1,970

34.8

2,220

Dispositions (Including Maintenance Payments made to Separated Spouses)

17.1

6,000

18.9

6,100

Exemption of Interest on Savings Certificates, National Instalment Savings & Index Linked Savings Bonds

150.1

N/A

129.5

N/A

Rent a Room

2.7

2,330

3.3

2,820

Exemption of Income of Charities, Colleges, Hospitals, Schools, Friendly Societies, etc. (10)

19.3

N/A

19.8

N/A

Donations to Approved Bodies

25.9

42,900

34.0

63,800

Donations to Sports Bodies.(11)

0.2

380

0.2

430

Retirement Relief for certain Sports Persons.(11)

0.2

41

0.3

42

Exemption of Irish Government Securities where owner not ordinarily resident in Ireland (12)*

199.7

N/A

169.3

N/A

Exemption of Statutory Redundancy Payments

76.9

25,300

72.8

22,000

Service Charges

12.7

229,600

17.2

304,700

Top Slicing Relief — Reduced Tax Rate for Payments in Excess of Exemption Amounts Made as Compensation for Loss of Office

12.2

1,420

11.1

1,480

Revenue Job Assist allowance

0.4

550

0.4

550

Allowance for seafarers

0.4

230

0.4

200

Trade Union Subscriptions

10.7

248,300

11.8

272,100

Exemption From Tax of Certain Social Welfare Payments:

Child benefit*

404.9

344,200

366.6

373,500

Maternity allowance*

9.7

10,400

9.6

10,800

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

0.08

1,000

0.08

900

[122] Approved Profit Sharing Schemes*

43.5

47,400

55.7

53,000

Savings-Related Share Option Schemes*

1.7

N/A

5.6

N/A

Approved Share Option Schemes*

0.03

91

0.4

464

Employee Share Ownership Trusts*

0.1

234

1.2

5,340

Investment in Corporate Trades (BES)

21.1

2,600

16.1

1,650

Investment in Seed Capital

2.7

106

1.3

42

Stock Relief*

1.9

N/A

2

N/A

Relief for expenditure on significant buildings and gardens

2.5

66

3.3

84

Donation of Heritage items

5.2

3

5.8

7

Special Savings Incentive Scheme

548

1,094,300

597.4

1,083,600

INCOME TAX AND/OR CORPORATION TAX (13)

Total Capital Allowances:(14)

1683.6

272,300

1877.5

266,200

Rented Residential Relief — Section 23 (15)*

182.2

3,578

239.7

4,126

Effective Rate of 10% for Manufacturing and Certain Other Activities (16)

364.1

3,361

396

3,034

Double Taxation Relief

434.4

11,200

439.1

13,200

Investment in Films*

19.5

1,900

15.7

1,500

Group Relief

207.6

1,472

421.6

1,578

Research & Development Tax Credit (17)

70.5

73

65.2

135

NOTES ON TABLE IT 6

(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 2006.

(7) Arising from the work on the “Green Paper on Pensions” (2007) the basis for costing this item has been changed for 2005 and is not directly comparable with the figures [123] for earlier years. See also the following table “Green Paper on Pensions” for more recent figures.

(8) The figures shown for Personal Retirement Savings Accounts for 2004 are derived from personal tax returns and are understated because they do not include contributions made by employers or by employees through their employers. See 2005 and the following table “Green Paper on Pensions” for more complete figures.

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

(10) 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 and income tax deducted at source (certain dividends, other investment income and payments received under covenant), donations made by the PAYE sector to approved bodies but does not include income tax relief in respect of donations made by the self-employed. 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.

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

(12) 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.

(13) The costs included for corporation tax are by reference to accounting periods which ended in the years 2004 and 2005.

(14) 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 €3500 million of unused capital allowances were claimed in respect of 2005 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.

(15) 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 2004 and 2005 tax returns for the first time. The cost shown is for income tax cases only.

(16) 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 [124] 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.

(17) The cost shown for R&D is for claims for R&D on corporation tax returns for accounting periods ending in 2005. 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.

Green Paper on Pensions — updated estimates of cost for 2006

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 2006 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. Arising from the review, estimates of the cost of tax for private pension provision for 2006 have been made. Further work required to provide similar estimates for 2005 has now been completed and estimates of cost for that year are included in the main TABLE IT6. As similar data sources would not be available for previous years, it is not possible to provide costings on a similar basis for those years.

Estimate of the cost of tax and PRSI reliefs for private pension provision 2006.

Estimated costs

Numbers*

€million

Employees’ Contributions to approved Superannuation Schemes

540

680,000

Employers’ Contributions to approved Superannuation Schemes

120

**362,000

Estimated cost of exemption of employers’ contributions from employee BIK

510

362,000

Exemption of investment income and gains of approved Superannuation Funds

1,200

Not available

Retirement Annuity Contracts (RACs)

380

Not available for 2006

Personal Retirement Savings Accounts (PRSAs)

120

71,500

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

220

Not available

Gross cost of tax relief

3,220

Estimated tax yield from payment of pension benefits

320

Net cost of tax relief

2,900

* Numbers as included in P35 returns from employers to Revenue for 2006. Figures are as verified to date but may be understated and subject to revision.

** This is numbers of employees for whom employers are contributing to occupational pension funds as included in P35 returns to Revenue for 2006. Figures are as verified to date but may be understated and subject to revision.

[125] 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.

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 2005 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 2005, 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

347.0

137.3

3,197

Town Renewal

64.9

27.3

882

Seaside Resorts

17.7

7.3

1,190

Rural Renewal

60.1

24.7

1,534

Multi-storey car parks

69.8

26.2

104

Living Over the shop

3.8

1.3

71

Enterprise Areas

7.8

3.2

128

Park and Ride

6.8

2.7

27

Holiday Cottages

14.6

6.1

488

Hotels

176.3

67.0

1,038

Nursing Homes

30.3

12.4

498

Housing for the Elderly/infirm

2.2

0.9

57

Hostels

0.4

0.2

9

Guest Houses

0.2

0.1

7

Convalescent Homes

0.6

0.2

12

Qualifying Private Hospitals

7.7

3.2

60

Qualifying sports injury clinics

0

0

0

Buildings Used for certain childcare purposes

12.8

5.4

232

Student Accommodation

145.1

58.0

1,060

Exemption of profits or gains from Greyhounds

0.6

0.2

8

Exemption of profits or gains from Stallions

51.8

13.2

185

Exemption of profits or gains from Woodlands

14.8

5.3

1,040

Exempt Patents (section 234, TCA 1997)

409.0

75.6

1,030

Totals

1,444.3

477.8

12,857

[126] Notes:

The figures shown relate to the various reliefs/incentives and exemptions as specified in the 2005 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 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 42% 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 lump sum retirement payments;

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;

[127] 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.