Irish Income Tax
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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
Single Person
Married Person
Age Allowance
Single/ Widowed
Married
Dependant relative allowance Max
Table 1.2
Irish Income Tax Rate(96-00) Ј
Single/ widowed
Married couple
1996/1997
9,400
Balance
18,800
Balance
1997/1998
9,900
Balance
19,800
Balance
1998/1999
10,000
Balance
20,000
Balance
1999/2000
14,000
Balance
28,000
Balance
Tax Year
Single/
Widowed
Married
Couples
One Income
Married
Couples
Incomes
One Parent
Family
2000/2001
1-17,000
Balance
1-28,000
Balance
1-34,000*
Balance
1-20,150
Balance
1-14,800
Balance
1-21,460
Balance
1-29,600*
Balance
1-17,131
Balance
1-28,000
Balance
1-37,000
Balance