The Tax Strategy Group (TSG) published its annual papers on 10 August 2022. The group is chaired by the Department of Finance and comprises senior officials and advisers from several governmental departments and offices. The TSG is not a decision-making body, rather its purpose is to set out different options and issues to be considered as part of the annual budgetary process. In this year’s papers, the TSG notes the key challenges Ireland currently faces are our aging population, the digital transition, and the green transition and also notes the country’s reliance on FDI-sectors. The papers include income tax proposals to help alleviate inflation pressures on taxpayers as well as policy proposals on climate measures, corporate tax, VAT and capital taxes.
The TSG referred to the OECD recommendations for improving Ireland’s tax system:
- Broadening Ireland’s tax base
- Streamlining the VAT system
- Transition Ireland’s tax mix from distortionary taxes.
Readers will be interested to note the various options considered by the TSG in terms of personal income taxation policy for Budget 2023:
- Option 1 – Full indexation of tax credits and bands
- Option 2 – Partial indexation of tax credits and bands
- Option 3 – Third rate of income tax of 30 per cent
As part of our annual position paper, The Next Financial Year, we noted that possibility of introducing a third rate of income tax. A key consideration when introducing such a measure is the entry point at which workers would pay tax at the mooted 30 per cent intermediary rate of income tax. It appears that the Government is now considering indexation of tax credits and/or tax bands as it will likely benefit a much wider cohort of the taxpaying population. Partial indexation is the most flexible option and allows the Government to apply different fiscal parameters when indexing different areas of the tax system.
The full list of papers released by the TSG is as follows:
- TSG 22 – 01 Economic Context for Taxation Policy which sets out the economic and fiscal context for taxation policy.
- TSG 22 – 02 Income Tax which includes a summary of tax yields, information on the distribution and burden of income tax and USC, international comparisons and policy considerations for reform, including a discussion of personal income tax policy options (as mentioned above).
- TSG 22 – 03 Corporation Tax which examines a range of topics including corporation tax trends, an update on the Apple State Aid case, and a discussion on the recent reviews of the R&D tax credit and the KDB.
- TSG 22 – 04 Property Related Tax Issues which looks at the Help to Buy Scheme, Residential Zoned Land Tax, and Local Property Tax, and also considers a Vacant Property Tax.
- TSG 22 – 05 Social Protection Budget Package – Budget 2023 Issues which examines the general role of social transfers, presents information on overall Department of Social Protection expenditure, discusses a range of illustrative welfare Budget measures, and then considers the PRSI system.
- TSG 22 – 06 Climate Action and Tax which examines energy and environmental taxation, including motor vehicle taxes, setting out the structure and current operation of taxation regimes which come under this category of tax.
- TSG 22 – 07 Value Added Tax which reviews the Value-Added Tax (VAT) rates and structures, provides options for change and looks at VAT developments at EU and domestic level.
- TSG 22 – 08 General Excise Paper which looks at non-environmental excise duties. It outlines the rates that have been applied and the revenue yielded from excise duties on tobacco products, alcohol products, and betting duty in recent years.
- TSG 22 – 09 Capital & Savings Taxes & Stamp Duty which covers capital gains tax, capital acquisitions tax, stamp duty, DIRT and life assurance exit tax and examines rates, yields and exemptions associated with these taxes. The paper sets out the current position on each and examines potential options for change in the context of Budget 2023.
- TSG 22 – 10 Response to Covid – Support Schemes which sets out a high-level overview of the main policy supports under the remit of the Department of Finance.
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