low tax in Ireland?

Fat_Fingers

Apologies if this is wrong forum.. I see lots of very smart people here so maybe someone can explain to me in a plain English how is Ireland low tax country?
I see people constantly drumming about "Ireland has low tax"..
I pay 41% income tax, then that 1% levy, then 4% PRSI , then 2% Health levy , then you get it in the neck with 21.5% VAT...

Anyway, i keep reading about low tax here and yet data published show that out of 25 EU members Ireland is on the 9th position from the top. That is hardly "low tax" but more like up there in the top taxed countries.
SO why this constant talk by some people and politicians about Ireland been low tax country? What am i missing?

crapmanjoe

Fat_Fingers wrote: »

Apologies if this is wrong forum.. I see lots of very smart people here so maybe someone can explain to me in a plain English how is Ireland low tax country?
I see people constantly drumming about "Ireland has low tax"..
I pay 41% income tax, then that 1% levy, then 4% PRSI , then 2% Health levy , then you get it in the neck with 21.5% VAT...

Anyway, i keep reading about low tax here and yet data published show that out of 25 EU members Ireland is on the 9th position from the top. That is hardly "low tax" but more like up there in the top taxed countries.
SO why this constant talk by some people and politicians about Ireland been low tax country? What am i missing?

The corporation tax on trading companies is 12.5% (one of the lowest - the lowest?) in Europe

Tax isnt particulary low on the income tax side

P. Breathnach

crapmanjoe wrote: »

Tax isnt particulary low on the income tax side

Yes it is. Go to http://www.finfacts.ie/irishfinancenews/article_1014052.shtml . Scroll down until you find the table headed "Tax revenue and implicit tax rates* by type of economic activity". Browse, and you will find that we have one of the lowest incidences of tax on labour in Europe.

Fat_Fingers

Have to admit that table is not easy to understand for me.
"Implicit tax rates (ITR) measure the effective average tax burden on different types of economic income or activities, i.e. on labour, consumption and capital"

So its just average calculation and does not show real income tax.

For example Ireland has
0% on the first €18,300 (is this correct?)
20% on the first € 35,400
41% on the balance
then add all different tax levies and whatnot..

So Ireland unlike other places have 0% tax to start with and only 2 other tax brackets. In other locations you start with about 10% and go up 50% tax...

Is it safe to say because of this tax distribution system Ireland appears to have a low income tax?

professore

Yes

Elmo

http://www.worldwide-tax.com/index.asp#partthree

Some goods have a 0% VAT and 13.5% VAT.

ardmacha

There are no taxes and negligible charges levied on private houses. People wonder why vat can be 15% in the North without considering the rates paid by people there.

Simple. Get €1000 per house and no need for further levies etc, this could be scaled from €300 to €3000.

Fat_Fingers

Thanks guys, appreciated!
That link from Elmo is very easy to understand.

asdasd

i definitely think there should be shift to Property taxes.

Elmo

I personally think that most people in most country pay the same amount of tax, weather through income tax, VAT, Levies, Utlity Fees, and other sealth taxing.

leninbenjamin

asdasd wrote: »

i definitely think there should be shift to Property taxes.

genious. absolutely motherf*cking genious. you should be made taioseach for such an original and well thought out plan.

you do realise that there are very few people left in the country making money from houses? that most rentals were bought on interest only loans? that most of those purcahses are now seeing negative equity? so you raising taxes on people already up sh*t creek will some how yield revenue for the exchequer?

we've seriously missed the boat on the property taxes. 5 years ago would have been ideal. but now, raising the taxes will see more people default on loans, more downward pressure on prices and ultimately more decline throughout our economy. let's have an idea that's a little less self destructuve please.

ardmacha

we've seriously missed the boat on the property taxes.

We taxed people when they changed ownership of property. The number of transactions of this sort can vary greatly, hence the collapse in government revenue. We need charges/taxes levied on the number of houses in the country, which doesn't change much from year to year. Other governments with this tax structure have not experienced the rapid swings in revenue that the Irish government has. The 1977 FF government is responsible for abolishing rates, when they should have reformed them.

321654

ardmacha wrote: »

We taxed people when they changed ownership of property. The number of transactions of this sort can vary greatly, hence the collapse in government revenue. We need charges/taxes levied on the number of houses in the country, which doesn't change much from year to year. Other governments with this tax structure have not experienced the rapid swings in revenue that the Irish government has. The 1977 FF government is responsible for abolishing rates, when they should have reformed them.

Many would probably argue they already paid a substantial property tax when they bought their houses.

How about abolish Stamp Duty and introduce rates for all houses bought after stamp duty is abolished. Seems fair to me.

321654

Its not only the tax on your salary. After your salary comes.

VAT
Bin Charges
VRT + VAT (A tax on a f*cking tax)
Stamp Duty
DIRT
Duty
Taxes on flights
Car Tax
Tax on Credit cards
Toll charges
and many more.

We most definitely do not have a low tax economy.
Add up every cent of tax you've paid over say 5 years and see what conclusion you come to.

ardmacha

Many would probably argue they already paid a substantial property tax when they bought their houses.

There is some merit in this argument. I would say provide rebates for people who bought houses in recent years with large amounts of stamp duty, while charging full whack for anyone who bought their house before that (which includes me). These rebates would fade with time so that the government could point to an increasing tax take from this source over the next few years. Stamp duty should be reduced to a low level if not completely abolished.

Future tax rebates for mortgages and the like should have severe limits to stop the whole thing going mad again e.g. only provide first time mortgage relief on dwellings where the mortgage is <80%.

We most definitely do not have a low tax economy.

The only way to view this is the percentage of GNP, the tax take is not excessive.

DublinWriter

Fat_Fingers wrote: »

SO why this constant talk by some people and politicians about Ireland been low tax country? What am i missing?

You're missing the governmental spin, and good for you.

Ireland is a high tax country.

Permabear

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CaraFawn

Belgium actually has the lowest corporate tax in Europe, 4,5%

K-9

Fat_Fingers wrote: »

Have to admit that table is not easy to understand for me.
"Implicit tax rates (ITR) measure the effective average tax burden on different types of economic income or activities, i.e. on labour, consumption and capital"

So its just average calculation and does not show real income tax.

For example Ireland has
0% on the first €18,300 (is this correct?)
20% on the first € 35,400
41% on the balance
then add all different tax levies and whatnot..

So Ireland unlike other places have 0% tax to start with and only 2 other tax brackets. In other locations you start with about 10% and go up 50% tax...

Is it safe to say because of this tax distribution system Ireland appears to have a low income tax?

Yes, that's a reasonable summary. You'll notice our tax free amount is high ek UK it's about £5,500stg. Also you haven't included PRSI, which is considerably lower than the UK, Germany etc.

Elmo wrote: »

http://www.worldwide-tax.com/index.asp#partthree

Some goods have a 0% VAT and 13.5% VAT.

The Income tax rate should be 0-41 in that table, similar to how it rates the UK.

P. Breathnach

321654 wrote: »

We most definitely do not have a low tax economy.
Add up every cent of tax you've paid over say 5 years and see what conclusion you come to.

Don't let the facts get in the way.

nesf

Fat_Fingers wrote: »

Have to admit that table is not easy to understand for me.
"Implicit tax rates (ITR) measure the effective average tax burden on different types of economic income or activities, i.e. on labour, consumption and capital"

So its just average calculation and does not show real income tax.

For example Ireland has
0% on the first €18,300 (is this correct?)
20% on the first € 35,400
41% on the balance
then add all different tax levies and whatnot..

So Ireland unlike other places have 0% tax to start with and only 2 other tax brackets. In other locations you start with about 10% and go up 50% tax...

Is it safe to say because of this tax distribution system Ireland appears to have a low income tax?

I hope the following is useful to you:


It all comes down to how you want to look at it. Implicit tax rate (ITR) is useful because it captures the effect of all the tax bands, any extra taxes levied on incomes like wealth taxes, local taxes etc into a single easily compared number. The problem is that it doesn't give you any detail on how the tax burden is distributed within the groupings (i.e. you can't tell how the labour tax is distributed). The advantage of using the ITR is that it allows you to look at macro effects (like increased unemployment or slower growth) vis a vis the tax wedge in some sector of the economy while dealing with just a single number as representative of the tax burden. I'd be slightly sceptical of this because I think the "shape" of the tax burden is as important (if not more so) then the headline implicit level of taxation.

Tax revenues as a whole versus GDP is useful headline statistic but it doesn't give you any detail on the distribution of the tax burden so ideally you want to focus more on ITR %'s if you want a more exact picture.

I'm going to use the EA-15 (Euro-area countries) and the EU-27 as the comparison points here for clarity, you could drill down further into the stats if you wanted to (or were bored enough which I'm not).


a) In terms of ITR on labour: Ireland 25.1%, EA-15 34.7%, EU-27 34.8%

A substantial difference of almost 10% between the tax wedges. Compared to the EU average we've low levels of implicit labour taxation (i.e. direct taxation and indirect taxation of labour). (High and low points: Malta 21%, Sweden 44.5%)

b) In terms of ITR on Consumption: Ireland 26.9%, EA-15 21.6%, EU-27 22.1%

Here Ireland is significantly above the the EU averages, over 5% over the other Euro countries. This measure captures all direct and indirect taxation on consumption (indirect generally speaking). High and low points: Spain 16.4%, Denmark 34%.

c) In terms of the "top rate" of taxation on income (direct tax) we're above the EA-15 and EU-27 average though not by much (41% vs 40.2% and 38.7% respectively).
We're low tax compared to Denmark (59%!) but some of the Eastern European countries (Romania et al) have tax rates between 16% and 27% which makes our system look oppressive.


Combining a) and c), we have a low enough labour tax system for the EU with the majority of the tax burden placed on top earners (low average tax take + above average top band means that low average tax was not bought with cuts to the top rate but by excluding people from it).

Looking at b) we can clearly see that we are taxed indirectly on consumption at a higher rate than most other EU countries. One could argue that this finances our lower ITR on labour which makes the situation quite different to say Denmark which has one of the top ITRs on labour and the top ITR on consumption! This has been a deliberately stated policy of FF government, move the tax burden from direct taxation on labour to indirect taxation of consumption.



We are in no way a low tax country (with respect to labour) versus the rest of the world, but for an EU country we have a smallish overall tax wedge taken from labour earnings. With respect to taxation of consumption we're in the high range for an EU country but still nowhere close to the Scandinavian levels of taxation. In terms of corporation tax which I didn't go into, we've a very low rate of 12.5% with only Belgium and Cyprus being lower with 10%. UK corporation tax for reference is over double this at 30%. Only here can we be looked at as a low tax country globally.

I hope that helps.

Edit:

Just to add, if you want to really drill down and find out why the UK has such a lower VAT rate than we do you have to look at the broader spectrum of taxation (i.e. the presence of a property tax in the UK meaning there's another tax wedge taken from individuals other than the labour one and the consumption one as ardmacha pointed out above).

thebman

Does anyone else think it would be a good idea to reduce vat and increase income tax.

Primarily because a lot of people are buying up North or online to safe money.

Irish businesses can't compete. Won't we take in more money if people return to buying at home? I know they can't necessarily compete with online businesses but most people will still buy in a store if its only a little more expensive for the peace of mind of being easily able to return a faulty product.

Elmo

thebman wrote: »

Does anyone else think it would be a good idea to reduce vat and increase income tax.

Primarily because a lot of people are buying up North or online to safe money.

Irish businesses can't compete. Won't we take in more money if people return to buying at home? I know they can't necessarily compete with online businesses but most people will still buy in a store if its only a little more expensive for the peace of mind of being easily able to return a faulty product.

I would love to know the difference of margins in the north and the south before VAT is added.

Also I believe the conservatives in England were not happy with the VAT reduction.

You also have to remember the Sterling against the Euro is also the cause of shopper going up north. The UK protected itself from Imports i.e Buy British and helped its exports due to the low value of Sterling. I am incorrect to think this?

Permabear

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Elmo

donegalfella wrote: »

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The lack regulatory laws of neo-liberalism over the past 10 years has got into this mess, it is time for the government to lead, it is time for them to start regulating to prevent the scandals of government, developer, builder, banker etc. continuing into the future.

Had the government invested in road, rail and communication infrastructure both government and a regulated private sector could flourish. Instead the government sold Eircom which prevent the company re-investing into many communications infrastructure (granted due in part to a lack luster Semi state body, but the government would still have been better investing its own money which it could regulate in the company) and let a private company make millions out of a government funded road scheme. ETC ETC.

Permabear

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nesf

thebman wrote: »

Does anyone else think it would be a good idea to reduce vat and increase income tax.

No, since the two aren't affecting the same stream of cash. Labour earnings are (very broadly speaking) diverted into two separate streams, one for consumption and one for saving/investment. A tax on income is a tax on both of these, indirect consumption taxes like VAT tax one stream and not the other (reversed but the same with DIRT/capital gains depending on whether the second stream is spent on investment or put in a deposit scheme of some sort).

Arguably it's a better idea to manage the tax burden through indirect taxes on consumption and investment/saving since instead of taxing both at the same rate through income tax you can tax them at different levels in order to encourage a certain kind of economic activity. A hybrid system (like we have) allows you to do both but it's horribly inefficient because you're essentially paying for two different taxation implementation systems. The problem is that it's harder to target indirect taxation in order to shape the tax burden according to wealth/income which is why we haven't seen a move to consumption only taxes yet (that, and the income tax part of Revenue et al wouldn't be impressed with their existence becoming unnecessary and would obviously strongly resist such a move, ditto with tax accountants etc).


Also, income tax law is far more expensive to collect than VAT as a ratio of money spent on enforcement vs revenue collected. I think it costs something like 2% of revenue for a direct income tax and 1% of revenue for an indirect consumption tax like VAT (from the history of taxation chapter in The Cash Nexus - Niall Ferguson, figures for the British system iirc). Considering the hideous complexity of the income tax scheme in Ireland with all the different tax credits etc I'd be surprised if it wasn't even more expensive to collect.

Time Magazine

nesf wrote: »

Considering the hideous complexity of the income tax scheme in Ireland with all the different tax credits etc I'd be surprised if it wasn't even more expensive to collect.

I did some research on this a few years ago, and we were very efficient at collecting taxes.

nesf

The Economist wrote: »

I did some research on this a few years ago, and we were very efficient at collecting taxes.

Was income taxation still more expensive to collect than VAT though? Or did you only look at income taxation collection?


Edit: I should point out that I actually think the Revenue here do a good job, I'm getting at that it's more expensive to collect income taxation because of its nature rather than bureaucratic inefficiency. Successive governments keep adding new bells and whistles to the income tax law to target some subset of voters. The end of result of this is increasing the expense of enforcement etc. Indirect consumption tax legislation tends to be way more straightforward and is (generally) almost entirely implemented by companies and you have far fewer "individuals" being taxes so to speak. You can look at it as a kind of extra tax on corporations since VAT means that they have to pay to track and collect all the relevant information for the Revenue...

thebman

donegalfella wrote: »

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Well the states practically bankrupt. We need major public sector cuts but I don't it will be enough on its own TBH. I don't have a high wage but I could take a tax hit and still have enough to spend on everything I want to buy.

donegalfella wrote: »

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I'm not even going to get stated on the Telecoms industry TBH. Its just a joke market in this country.

Time Magazine

This was 4 years ago, but I think it was cost per €100 in tax revenue I looked at.

Possibly over-stated by MNCs, mind.

silverharp

nesf wrote: »

Also, income tax law is far more expensive to collect than VAT as a ratio of money spent on enforcement vs revenue collected. I think it costs something like 2% of revenue for a direct income tax and 1% of revenue for an indirect consumption tax like VAT (from the history of taxation chapter in The Cash Nexus - Niall Ferguson, figures for the British system iirc). Considering the hideous complexity of the income tax scheme in Ireland with all the different tax credits etc I'd be surprised if it wasn't even more expensive to collect.

As someone who had to study taxation, I find much income and CT rules a licence to print money for accounting firms. Some innovation here would be a real flat tax. I have a vague mamory that in the US some reforms were proposed and the tax firms that deal with the public lobbyed to have them shelved.

Permabear

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nesf

silverharp wrote: »

As someone who had to study taxation, I find much income and CT rules a licence to print money for accounting firms. Some innovation here would be a real flat tax. I have a vague mamory that in the US some reforms were proposed and the tax firms that deal with the public lobbyed to have them shelved.

I completely agree with you, as I study taxation more and more* I'm disgusted by the amount of "waste" labour goes into a system on both the public and private side of administering income tax law. It's hard to see how a Government could force change past both public and private interest groups who were are very powerful within our political system.



*on my own time because I find it interesting, yes I'm a sad, sad man!

Time Magazine

Lads, a flat tax (assuming you're going to allow a certain level of tax-free allowance) is only marginally (badum tish!) simpler than our basic two-band system.

Complications arise when you give higher tax-free allowances (over my dead body will I call them tax credits) to widowers, etc. A flat tax would presumably have these problems too.

Did anyone here actually ever get around to reading Mirrlees' paper on optimal taxation?

nesf

The Economist wrote: »

Lads, a flat tax (assuming you're going to allow a certain level of tax-free allowance) is only marginally (badum tish!) simpler than our basic two-band system.

Complications arise when you give higher tax-free allowances (over my dead body will I call them tax credits) to widowers, etc. A flat tax would presumably have these problems too.

Did anyone here actually ever get around to reading Mirrlees' paper on optimal taxation?

I'm talking about a complete move to indirect taxation on consumption not a move to a single band tax system because all the complications in the income tax system come from all the different allowances and credits and the cost of verifying and enforcing the proper use of each one. Getting rid of the income tax system in its entirety would be very efficient but remove one of the politicians' (in every country) favourite ways of bribing certain voter groups to vote for them. So not likely to happen tbh.

Time Magazine

nesf wrote: »

I'm talking about a complete move to indirect taxation on consumption not a move to a single band tax system because all the complications in the income tax system come from all the different allowances and credits and the cost of verifying and enforcing the proper use of each one.

Imports?

nesf

The Economist wrote: »

Imports?

I'm talking about purely how we tax people's labour earnings. Imports, corporate profits, capital gains etc would be outside of this.

thebman

But if you buy goods online, there is very little chance being caught for the duty if buying from abroad.

I think there is supposed to be a tax but I've never been done for it. That system would need to be expanded to actually catch more of these purchases would it not?

P. Breathnach

donegalfella wrote: »

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Yes, it was the free market, in particular access to the international market. When we had more interference, it was more difficult to borrow outside Ireland.

The builders, bankers, and developers were only doing what was rational, given what the governments were doing vis-à-vis their monetary and fiscal policy.

When everybody behaves "rationally", in the limited sense that the word has in economics, bubbles can and do develop because the pursuit of profit permits, even condones, a certain amount of irrational behaviour.

Time Magazine

nesf wrote: »

I'm talking about purely how we tax people's labour earnings. Imports, corporate profits, capital gains etc would be outside of this.

thebman wrote: »

But if you buy goods online, there is very little chance being caught for the duty if buying from abroad.

Bingo. Newry would be delighted.

nesf

thebman wrote: »

But if you buy goods online, there is very little chance being caught for the duty if buying from abroad.

I've gotten caught for it a good few times with stuff bought from American sites. This was with DHL/UPS.

nesf

The Economist wrote: »

Bingo. Newry would be delighted.

Ah, now I get you. Yup, but how much of that would happen? That's the interesting question. I don't buy the whole Newry is bringing down the Irish economy single handed argument.

It would probably mean more intrusive customs etc but as an island nation it might be possible to implement. Pure thought experiment country here, so very speculative on my part.

thebman

I've never been caught for it. Buy games/movies and other small items all the time online.

Don't buy big items online because I want some come back to a store. I bought my TV from Komplett but their ware house is just down the road for complaints.

games/movies never/rarely seem to get caught.

nesf

thebman wrote: »

I've never been caught for it. Buy games/movies and other small items all the time online.

Don't buy big items online because I want some come back to a store. I bought my TV from Komplett but their ware house is just down the road for complaints.

games/movies never/rarely seem to get caught.

Don't ever get DHL/UPS to ship stuff is the point I'm making.

P. Breathnach

nesf wrote: »

I don't buy the whole Newry is bringing down the Irish economy single handed argument.

That's fair comment: Enniskillen is helping.

No one thing is bringing down the economy (although the property bubble has been almost sufficient to ruin us); it's the combination of may things, including that it was never as up as it was represented as being.

Time Magazine

nesf wrote: »

It would probably mean more intrusive customs etc

Can't impose inter-state customs, can we?

nesf

The Economist wrote: »

Can't impose inter-state customs, can we?

I'm thinking thought experiment land where we're a non-EU island nation again. I want to explore the issues of a consumption tax only system rather than a hybrid approach.

Being part of the EU would almost certainly screw us over before even starting but I think we can charge for the difference in VAT paid afaik? Companies from within the EU *should* charge VAT at your country's rate rather than theirs I think.

Fat_Fingers

Listening radio this morning and they were talking about how in Ireland 33% workforce is not paying any income tax. And how middle class is hardest hit with tax burden.

And then there is a army of super rich also paying no tax , start from Bono, Smurfit , O’Reilly, Magnier to O’Brien, Desmond, McManus.. all 4000 of them (data from May 2008)

ardmacha

I'm thinking thought experiment land where we're a non-EU island nation again.

We are an island Nation, but are only a 26 county State, so unless Peter Robinson is in on this it is not even a useful thought experiment.

Even if it were a place that has an extremely high ratio of trade to GDP is probably better in the EU.