Irish Income Tax

Introduction

Income tax was first extended to Ireland in 1853 by Gladstone who was Chancellor of the Exchequer at the time. Economists and political theorists differ slightly in identifying and classifying the criteria that are used to evaluate systems of taxation and individual tax measures but they seem to be in agreement that equity, efficiency and simplicity are all beneficial characteristics of a "good" tax system.

For raising public finance in most modern economies, taxation has been the favored method. "The burden of taxation" arises because of the prodigy that the reliance on taxation to raise public finance creates. Tax is also used to transfer resources from wealthy members of society to the less well off in an equitable manner.

Tax is distributed into three different categories: Schedule D, Schedule E and Schedule F. Schedule D is then sub-divided into four different cases, Case 1, Trading Profits, Case 2, Self-Employed professionals e.g. barristers or doctors, Case 3, National Loan Stock/Foreign Income, Case 4, D.I.R.T., Account Interest and Case 5, Rental Income. Schedule E deals with emoluments from employment/ P.A.Y.E., while Schedule F deals with Irish Company Dividends. We will be dealing with Schedule E when we discuss Income Tax.

Part 1: Amendments to Income Tax

The main amendments that the Minister introduced in relation to the Income Tax code are the introductions of tax credits, the increase of tax bands, and the reduction in the Income tax rates and the increase in the old age pension rate.

Reduction in Income Tax Rates

The Amendment to the income tax rate was the reduction of both the standard and higher tax rates. In 1996/ 97 the standard rate was 27% and the higher rate was 48%. These rates have been decreased substantially by the Minister for Finance during his time in office. In 2003 the standard rate was 20% and the higher rate was reduced to 42%. See table 1.2

Increase of the Tax Bands

The 2nd Amendment to income tax was the change of the tax bands. In 1996/ 97 the tax band for single/ widowed persons was $9,000 and $18,800 for married couples. In 2003 the tax band for single/ widowed persons stood at Ђ28,000 and for married persons stood at Ђ37,000/ Ђ56,000 for married couples. See table 1.2

Increase in the Old Age Personal Rate

The 3rd Amendment to income tax is the change to the annual income tax exemptions limits and to change the personal rate for old age and related pensions. There was an increase in the annual income tax exemption that reached Ђ15,000 for single persons and Ђ30,000 for married persons. There was also an increase in the personal rate of old age by Ђ10 per week. This brought the old age contributory pension to Ђ157.30 per week and the old age non contributory pension to Ђ144 per week. This was a big change which was an increase of 59% from 1997 to 2003. See table 1.2

Introduction of Tax Credit System

The 4th Amendment to the Income Tax was the introduction of a tax credit system. The tax credit system was introduced in 2001; it replaced the personal allowance scheme. The disadvantage of the personal allowance is that people would have a lower marginal tax rate which means lower personal allowance. Whereas the Tax Credit system has a standard rate which is fairer and more beneficial to all ordinary taxpayers. See table 1.1

Table 1.1

Personal Allowances Tax Credits

Personal Allowances Existing 2001 2003 2004

Single Person 4700 1100 1520 1520

Married Person 9400 1200 3040 3040

Age Allowance

Single/ Widowed 800 160 205 205

Married 1600 320 410 410

Dependant relative allowance Max 220 44 60 60

.

Table 1.2

Irish Income Tax Rate(96-00) Ј

Year Single/ widowed Married couple Rate

1996/1997 9,400

Balance 18,800

Balance 27%

48%

1997/1998 9,900

Balance 19,800

Balance 26%

48%

1998/1999 10,000

Balance 20,000

Balance 24%

46%

1999/2000 14,000

Balance 28,000

Balance 24%

46%

Tax Year Single/

Widowed Married

Couples

One Income Married

Couples

Two

Incomes One Parent

Family Rate

2000/2001 1-17,000

Balance 1-28,000

Balance 1-34,000*

Balance 1-20,150

Balance 22%

44%

2001 1-14,800

Balance 1-21,460

Balance 1-29,600*

Balance 1-17,131

Balance 20%

42%

2002 1-28,000

Balance 1-37,000

Balance