A third of all taxpayer units in the Republic, equating to more than a million earners, do not pay any income tax or universal social charge (USC), according to the Irish Tax Institute, which is calling for the State’s income tax base to be broadened.
In a new report setting out possible tax reforms for the next government to consider in order to foster a more productive domestic business sector, the institute described the unusually narrow base of the personal tax system as “an inherent weakness”.
It noted 33 per cent of all taxpayer units – either an individual or a couple – which equated to 1.15 million units, will pay neither income tax nor USC in 2024.
At the same time, the top 1 per cent of income earners will contribute almost a quarter of all income tax and USC payments. In 2022, 40 per cent of all income tax and USC receipts came from the multinational sector, it said.
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“Over reliance by the exchequer on any one group of taxpayers is a risk to the stability of the Irish tax system,” the institute said.
“Spreading the burden according to means would lighten the load on middle-income earners. It would also bring Ireland into line with competitor countries.”
In other recommendations on personal tax, the group also called for the marginal personal tax rate, including social insurance contributions, to be reduced to 50 per cent “to make Ireland more attractive for inward investment and strengthen its capacity to compete for highly skilled and mobile labour”.
It also repeated a call for the 3 per cent USC surcharge on self-employed income over €100,000 “as a matter of equity”.
Another central plank of the institute’s reform agenda centred on the relatively high cost of doing business for SMEs.
While successive governments have recognised the high cost involved, introducing a suite of tax reliefs and incentives aimed at building innovation, encouraging investment and supporting business founders, the institute claimed the measures were difficult to access and therefore falling short of their intended target.
Anne Gunnell, the ITI’s director of tax policy and representations, said: “The Irish economy is in good shape at present with all the key indicators going in the right direction. However, as a small open economy Ireland is highly exposed to the rise in protectionism and worsening geo-political tensions.”
“The main domestic vulnerabilities are Ireland’s well-documented reliance on a small number of multinational companies for tax receipts and employment; the increasing cost of doing business; the housing crisis; and a creaking national infrastructure that is constraining economic growth,” she said.
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