Vol. 474 No. 8
18 Ms O'Donnell asked the Minister for Finance the expected yield in 1997 from capital gains tax; the implications, if any, for the Exchequer of reducing the tax rates to a single rate of 20 per cent in view of the existing level of tax avoidance; and if he will make a statement on Government policy in charging such tax rates. [3972/97]
35 Miss Quill asked the Minister for Finance the expected yield in 1997 from capital gains tax; the implications, if any, for the Exchequer of reducing the tax rates to a single rate of 20 per cent in view of the existing level of tax avoidance; and if he will make a statement on Government policy in charging such tax rates. [3971/97]
I propose to take Questions Nos. 18 and 35 together.
I am informed by the Revenue Commissioners that the post budget estimate for capital gains tax revenue in 1997 is £67 million. In regard to the cost of a single 20 per cent rate the Revenue Commissioners estimate that this would cost the Exchequer £31 million. However, it should be pointed out that this reduction in revenue is based on the current level of disposals and takes no account of any behavioural changes which might happen if a single 20 per cent rate replaced the standard 40 per cent and the reduced 27 per cent rates.
While the nominal rate of capital gains tax might appear high, the reality is that, when account is taken of indexation and other reliefs, the effective rate of capital gains tax is often well below the nominal rates. A number of reliefs, including the 27 per cent reduced rate of CGT for disposals of equity in certain small and medium sized trading companies have been introduced and extended in the last few years to encourage enterprise and job creation. These targeted concessions are felt to be more effective than a general rate reduction.
With regard to the Deputy's reference to existing tax avoidance, it is unclear what specific concerns the Deputy has in mind. On the issue of a single low rate of capital gains tax, in addition to the significant potential reduction in Exchequer revenue the Government must take tax equity considerations into account and the rate should bear a reasonable comparison with the rates applying to earned income, i.e. the prevailing income and corporation tax rates. A single low rate of CGT would create a real possibility for tax avoidance and consequent loss of revenue to the Exchequer by the conversion of income into a capital gain.
