ANALYSIS: Department has become 'bloody-minded' in drive to raise additional taxes
IN SCENES reminiscent of the previous government’s move to deny the over-70s their automatic entitlement to a medical card, pensioners were up in arms yesterday.
The revelation from the Revenue Commissioners that some 115,000 pensioners have not been paying tax on their State pension has left many fearful of the potential impact.
But as the Revenue steps up its enforcement activities, taxpayers could see it as a warning to get their taxes in order.
After all, in his budget last month, Minister for Finance Michael Noonan announced that he would collect an additional €45 million in taxes due to additional compliance activity from “new and enhanced information sources” such as the Department of Social Protection.
While the pensioners affected can expect a reduction in their weekly income going forward as a result of the Revenue rectifying the situation, most significant is whether it will pursue outstanding back taxes.
In normal circumstances the Revenue can apply a four-year look-back to collecting taxes but in cases of neglect or fraud there is no time limit.
Given the experience with medical cards in 2008, it is expected that there will be little political appetite to go after pensioners.
Indeed the Revenue itself states that where it is “uneconomic” to pursue back taxes in the case of State pensions, it will not do so. So, for a large proportion of pensioners who received a letter on Thursday, there appears to be no reason to fear a lump sum payment.
However, the Revenue has said that as part of a forthcoming analysis, it may pursue those 2,500 pensioners with income of more than €50,000. And excuses are unlikely to be listened to.
Since self-assessment was introduced more than 20 years ago, it has been up to the individual to ensure that they are tax compliant.
Indeed the Department of Social Protection asserts that when someone first receives a State pension, they are informed that the payments may be liable to tax.
Ask a tax expert and their message is clear – the Revenue is intent on raising as much tax as it can and has become “bloody-minded” in doing so.
This means that the days where they may have made a distinction between an honest mistake and fraudulent behaviour are gone.
But while there may be a valid reason for the Revenue ensuring equity in tax collection among pensioners, its method of notifying those who have underpaid has rightly been criticised as being too harsh for a vulnerable group.
Moreover, it draws into question the effectiveness of the current system.
In the United States, where filing tax returns is the norm for everyone, whether self-employed or not, there is a much greater awareness of personal tax responsibilities.
For pensioners who received the letter however, many will never have taken responsibility for their taxes in their working lives – so why would they start in retirement? They may have been in the Pay As You Earn system all their lives, and upon retirement expected this approach to continue. When they received child benefit payments, there was no requirement to declare them, and tax on interest on savings is deducted at source.
The revelation also raises some questions as to how widespread avoidance – whether intended or not – could have carried on unnoticed by the Revenue for so long.
