Inoffensive Taxation

Sep 17, 2018
Sunday Business Post, 16 September 2018

Exactly four years ago, I started writing about tax for the Sunday Business Post.  Four years and some 200 articles on, I had planned that today’s piece could mark the anniversary, an occasion to write about the best innovations in tax practice and policy that have materialised over in the four-year period.  But I quickly realised that would be very hard to write eight hundred words about tax improvements in recent times.

It’s so much easier to write about the bad ideas.  Over the last four years, we have seen a proliferation of innovative ideas to part citizens and companies from their money via varying degrees of coercion from the tax system.  The EU has continued its drive towards a harmonised tax system across the continent for companies.  There is still talk of a financial transactions tax, putting a new levy on some financial instruments (which Ireland opposes mainly because we already do it).  Serious people are giving active consideration to a form of excise duty on sales by the larger e-commerce multinationals. 

Perhaps the most remarkable thing is how few of these cunning plans have come to pass.  Where there has been change, it’s had to do with cross border cooperation and more compliance obligations for taxpayers, rather than changes to the underlying methods of tax calculation and collection.  This suggests a remarkable resilience, not so much in the tax system but rather in the political system.  Democratically elected politicians tend to be keenly aware of what might wash with the electorate, and what will be utterly rejected.  That awareness leads to greater tax complexity, sometimes generated by absurd political ideas about how to impose taxation while giving the least possible offence.

The current paradigm of inoffensive taxation are the Brexit manoeuvres put forward in the Chequers document, which seek to create a protectionist environment for the UK without imposing the protectionist tax controls of customs and VAT on former EU trading partners.  Little wonder the Europeans are having difficulty with that idea.  The Chequers framework is part of a political process and will have to be treated as a stepping stone rather than as a final destination.

Closer to home, the Local Property Tax manoeuvres reported last week by Michael Brennan of this paper seem like inoffensive taxation.  LPT will increase next year because properties must be revalued next year.  Apparently there is an option being considered to mitigate the impact of increasing property values by allowing different local authorities to apply a different rate of LPT.  The notion is that in areas where property prices have substantially increased (for example in Dublin and Cork city), the rate of LPT charged will be lower than that charged in areas which have not seen such an uplift in property prices since 2013. 

This is such a bad idea on so many levels that is hard to know where to start.

Under this new schema, it seems that the more disadvantaged a county is, the higher the rate of LPT.  How can that be just or equitable?  Also the idea embeds in the tax system the notion that property values will always be on the increase.  Skewed rates might fix a problem in a rising market, but how unfair will it be to have such a multi-tier regime when property prices start to collapse? 

While the bulk of LPT is paid by individuals, a proportion is also paid by corporate landlords.  Applying different tax rates to companies by reference to where they operate sails dangerously close to contravening EU State Aid rules.  If the idea is to work at all, there might have to be a separate LPT regime for companies to equalise the rate they pay irrespective of the property location.  LPT is complicated enough in its own right already, primarily because the system makes allowances to reflect inability to pay by granting deferrals and recognising disadvantage etc. 

A multi-tiered LPT system also raises a more fundamental question.  Do we levy taxes in such a way as to support the circumstances of the economy, or is the primary goal to provide for the citizen?  These two objectives don’t have to be incompatible.  250 years ago the English philosopher Jeremy Bentham could write that that law should be drafted and imposed so as to create the greatest happiness for the greatest number of people. 

Reformed and revised LPT as envisaged might contribute to the happiness of citizens, but for how long?  Do poor roads, poor sanitation or poor water supplies justify a few percentage points off the LPT rate?  That already overburdened army officer, General Taxation, can only pay for so much.  LPT has to be reformed.  Any property tax that does not revalue the properties it charges on a regular basis is, I believe, unconstitutional.  However a multi-tiered, multicounty system is surely not the way forward.

And finally, if I might.  The fourth anniversary of this column also marks the last occasion for the current editor, Ian Kehoe, to cast his critical eye over it before publication.  He has never changed anything I wanted to write, and for that I thank him. 

Brian Keegan is Director of Public Policy and Taxation at Chartered Accountants Ireland.