Visiting the Clinics

Nov 04, 2019

Sunday Business Post, 3 November 2019

One of the damaging aspects of the Votergate controversy is that by focusing on sloppy voting habits and practices in the Dáil chamber, the good work which politicians do on a routine basis for their constituents is undermined.

The political clinic is a key element in any democracy, and our TDs and councillors are routinely asked for help and advice on all kinds of social and legal issues.  Tax, in all its complexity, features prominently in TDs clinics.  Against that backdrop, Revenue have provided a helpline for TDs dealing with their constituents’ tax queries for many years. 

Every revenue authority that was ever formed could have a tense and fractious relationship with the government, oligarchy or dictatorship of the day.  It’s in the nature of what they do, so many countries have created legal walls between the political system and the tax office.  In Ireland the system is by now quite prescriptive and Irish law stipulates that the government of the day can have no influence on how the Revenue Commissioners handle an individual tax case. 

Tax law is drafted in a manner as to give very little wiggle room to revenue officers when they make decisions.  It’s not the same everywhere.  For instance, when it comes to publishing the list of tax defaulters, the Irish Revenue must publish the names of anyone who meets the criteria for publication and have no discretion in the matter.  By contrast, under similar name and shame tax rules, their counterparts in the UK may publish names, or for that matter choose not to.  It’s up to them. 

In some areas though the Irish revenue are much closer to the legislative process than their counterparts in other countries.  In Ireland, tax law is drafted by officers from the Revenue Commissioners.  In other countries it tends to be drafted by civil servants from other departments.  Does the provision of a special helpline for TDs by Revenue further muddy the distinction between the political process and the tax collection process?

Some weeks ago, Michael Brennan of this paper reported on the success of the Revenue’s PAYE modernisation system.  At the start of the year, many employers were obliged to change their payroll software to a system more closely integrated with Revenue’s own collection and analysis systems.  By all accounts, this generated anything upwards of €100 million in additional income tax collected. 

All else being equal, this is a good thing.  The employer who operates the letter of the law when paying employees is at a competitive disadvantage to the employer who does not.  At €100 million, the amount of additional PAYE tax recovered is significant.  But in 2018, Revenue collected €17,672 billion through the PAYE system.  This suggests that the PAYE system may have been flawed, but it certainly wasn’t broken.  Now there are indications that Revenue have become intoxicated with the exuberance of their own collection technology.

A review is underway at present of flat rate expenses to employees.  In most cases these are relatively modest tax deductions granted to relatively unskilled workers for uniforms cleaning and the like.  They are available to the various categories of worker irrespective of the individual’s circumstances – hence the term “flat rate”.  It’s not even known if the withdrawal of the expenses is even necessary because according to a Parliamentary Question raised by Deputy Sean Sherlock and answered by the Minister for Finance, “it is not possible to accurately quantify the anticipated increase in tax revenue arising out of any abolition or reduction”. 

It's very hard for individual employees to make claims for legitimate expenses and deductions, partly because the tax rules are so tight but also because the correspondence with Revenue on such claims can be tortuous.  The flat rate expenses regime is pragmatic response to a requirement for fairness within the tax system, but the signals now are that many of these expenses are to be extinguished for the employees receiving them.

That's going to generate a lot of heat for many employees.  Despite last month’s Budget being largely neutral, quite a few people will find that their after-tax income is a bit less in January 2020.  I understand that the employees who will be affected by the withdrawal of the expenses will be contacted later this month. 

Revenue will be largely immune from the irritation their administrative decision will cause, but the political system won’t be.  It can be expected that the number of queries arising from the elimination of flat rate expenses will rise in the various constituency clinics. 

Just as well then that Revenue have a hotline for members of the Oireachtas. 

 

Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland