More tax questions than answers

Sheila Killian: The 2012 Estimates published over the weekend make for interesting reading in the context of what has already been leaked from the budget. In particular, the tax forecasts raise two or three questions. With luck, answers will be provided when we get more details on the budget proposals next week.

The first thing to note is that for all taxes the take in 2012 is predicted to be at least as high, if not higher, than that in 2011. The msot striking prediction is on Income Tax. Despite Leo Varadkar's promise that there will be no tax change affecting people's incomes, the take is predicted to rise from 13.8 billion to ust over 15 billion. That's a 9% increase. If there's really no change to Income Tax, that could mean that what's being forecast here is some combination of nine per cent more people working and paying in tax in Ireland, or nine per cent pay increases across the board. Neither of these seems likely in 2012, especially in light of the predicted increase in Corporation Tax - presumably mirroring company profits in Ireland - of less than 2%. Perhaps the tax take will be increased by changes to the Universal Social Charge, the bands or a reduction in credits. Or perhaps the base is being broadened, or avoidance is to be tackled in a very significant way. Either way, it will be interesting to learn how this increase is revenue is to be achieved.

The take from Capital Acquisitions Tax is expected to rise by 6%, following a reform of the rules. Capital Gains Tax revenue is expected to stay static, despite a widely-flagged rate increase. This isn't surprising, given the scarcity of gains these days. Nonetheless, a higher rate will eventually bring in more revenue, and should also dampen the enthusiasm for tax schemes based around re-characterising income as gains. Customs, Excise and Stamp Duties are also predicted to remain fairly flat in 2012.

On VAT, despite the 2% increase to the top rate promised in the leaked documents, the overall take in 2012 is expected remain fairly steady at 9.76 billion, increasing by less than 1%. This makes a certain amount of sense - when prices rise, people wil buy less. Still, it begs a more fundamental question, why bother with a regressive and controversial change that is not expected to bring in much-needed revenue? I think we may return to this question, after the clarification of the budget speeches.

Posted in: Economics • Taxation • Taxation

Tagged with: income tax • VAT • budget

Dr Sheila Killian     @sheilakillian

Dr Sheila Killian is Assistant Dean, Research and Director, Principles for Responsible Management Education at the Kemmy Business School, University of Limerick. Her research addresses sustainability, accountability and the common good, with a focus on professional expertise, tax policy and business school education. She holds a PhD in taxation from UCD.

Prior to joining UL, Dr Killian worked as a tax advisor with Arthur Andersen, KPMG and Ernst & Young, and in air-finance and educational software development. A Fellow of the Institute of Chartered Accountants of Ireland, she is the author of Corporate Social Responsibility: a Guide with Irish Experiences (2012).