The Irish Tax Institute (ITI) has asserted that currently, in the Republic, one third of all those contributing to tax, equating to over a million earners, do not pay any kind of income tax or universal social charge (USC). According to ITI, this situation reveals an urgent need to widen the State’s income tax base. A recent report by ITI aimed at proposing tax reforms for future government consideration, underscored the inherent flaw in having such a narrow base for the personal tax system.
The Institute found that 33% of all tax contributing entities, be they individuals or couples, amounting to around 1.15 million entities, will not make any income tax or USC payments in 2024. ITI pointed out that a significant burden is being borne by the top 1% of earners who are paying close to 25% of all income tax and USC.
Moreover, the ITI expressed concern over the exchequer’s overreliance on a single taxpayer group, highlighting it as a potential risk to the stability of the Irish tax system. The Institute proposed that distributing the tax burden according to the individuals’ means could potentially ease the weight on middle-income earners and align Ireland closer with matching nations.
Other suggestions made by the group include reducing the respective personal tax rate to 50%, including social insurance contributions. This they argue would enhance Ireland’s attractiveness for inward investment and boost its ability to compete for skilled mobile labour. A further appeal was for the abolition of the 3% USC surcharge for self-employed income over €100,000, justified on the principle of fairness.
The Institute also pointed to the considerable cost of operations for small and medium-sized businesses. Despite successive governments recognising this expense and implementing several tax benefits and incentives to foster innovation, stimulate investment, and assist business founders, the institute argued that these efforts were often hard to utilise and subsequently did not achieve their full potential.
In the light of these considerations, Anne Gunnell, the ITI’s director of tax policy and representations, posited that although the Irish economy has a favourable current outlook, it is extremely vulnerable to changing protectionist measures and a potential upswing in geo-political tensions due to its open economy characteristic.
“The primary internal threats to Ireland are its notorious dependency on a limited group of international corporations for job opportunities and tax income; the escalating expense of conducting business; the ongoing housing dilemma; and an ageing national infrastructure impeding economic development,” she elaborated.
She further added, “the institution is of the belief that a thoughtful tax policy can be instrumental in tackling these issues.”