05/04/23

IRELAND: KPMG calls for new, lower rates of income tax to be introduced.

As published on rte.ie, Wednesday 5 April, 2023.

Consulting group KPMG has called for new, lower rates of income tax to be introduced.

This is part of a submission to the Minister for Finance’s public consultation on Ireland’s personal tax system.

The consultation looks for suggestions on how the tax system could be reformed or enhanced.

KPMG said new graduated bands of income tax should be introduced to avoid the "cliff edge" where people jump from 20% to 40% tax.

Speaking on Morning Ireland, Olive O'Donoghue, Tax Partner at KPMG said it is more important than ever that Ireland's personal tax regime is competitive relative to what is on offer in other countries.

"The current entry point to the 40% tax rate is at a level that is lower than the average wage, leading to a squeezed middle.

"So, we are certainly calling for measures such as graduated tax bands and rates below 40% to make Ireland a lot more competitive," she explained.

When asked if the much talked about 30% tax rate would be their recommendation, Ms O'Donoghue said it would "potentially be a good fit".

"It is the midway market between the 20% and 40% rate, but ultimately the Government will need to cost these various measures," she added.

The submission highlights concerns about the highest earners paying the most tax, with the top 1% of earners paying 23% of all income tax last year.

Ms O'Donoghue described Ireland's tax system as "highly concentrated."

"If you look at estimated figures for 2023, it is estimated that 25% of income earners will pay up to 82% of the total income tax and USC take.

"So our measures are looking at how we can make the personal tax system attractive and how we continue to incentivise those 25% who are contributing so significantly to the exchequer," she added.

The submission also suggests linking income tax bands, tax credits and reliefs to inflation to avoid situations where people on average incomes are paying the highest rate of tax.

When it comes to pensions, the group has suggested lifting the caps on the amount people can claim tax relief on, while also increasing that relief to encourage more people to provide a private pension to supplement retirement income.

The submission also recommends introducing tax relief on childcare costs as part of an effort to increase the participation of women in the workforce.

On housing, KPMG suggests using the tax system to encourage investment in the private rental market.

"The shortage of affordable residential property must be urgently addressed, not only for young people living here but also if Ireland is to remain attractive for foreign investment," said Tom Woods, Head of Tax at KPMG.

"Tax measures that could assist in the resolution of the housing crisis include the reinstatement of mortgage interest relief, reform of the taxation of landlords, and the reintroduction of a form of Section 23 type relief to promote targeted investment by individuals in the rental sector," he said.

KPMG has also recommended creating income tax deductions for certain personal wellness expenses such as gym memberships and mental health services.

On Budget Day last year, the Minister for Finance said the government was committed to developing a medium-term roadmap for personal tax reform, taking account of the Report of the Commission on Taxation and Welfare published in September 2022.

The Department of Finance is due to submit a report to the Minister on this review in mid-2023.