It is estimated that some 44,000 self-employed taxpayers, including proprietary directors, will have gross incomes in excess of £25,000 in the 1993-1994 income tax year, representing over 20 per cent of the total of such taxpayers. The estimated number of PAYE taxpayers, excluding proprietary directors, at the same income levels is 107,000, or 11 per cent of the total of such PAYE taxpayers.
The example quoted by the Deputy about persons earning up to £150,000 per year was described in the paper presented at the Foundation for Fiscal Studies as an exceptional situation involving a taxpayer disposing of all of his-her income in tax-relievable investments. In the Revenue's experience there are, very few cases in this income range where the interaction of tax reliefs and incentives lead to the payment of relatively low taxes.
The thrust of tax reform policy in recent years has been to broaden the tax base by the curtailment of allowances and reliefs so as to make possible improvements in mainstream income tax. This policy has been remarkably successful. The rates of tax now range from 27 per cent to 48 per cent by comparision with 35 per cent to 58 per cent in 1987; the standard band has been widened by 74 per cent over this period and there have been significant improvements for those on lower incomes. However, a number of tightly focused reliefs remain in the tax system. The conditions which attach to these ensure that the beneficiaries must fulfil rigorous conditions in order to avail of the reliefs. Individuals are fully entitled to avail of reliefs to the extent that they fulfil the necessary conditions.
Any large scale take up of tax reliefs or incentives for investment is constrained by the fact that, despite the tax savings, such investments do not guarantee the security of the capital. Tax relief under the BES requires that the investments be held for at least five years before being disposed of. In the case of some of the reliefs for the designated areas, the investments must be held for either ten or 13 years to prevent a clawback of the relief.
Decisions by individuals to invest in designated areas, BES type schemes or in their own businesses within the terms of the appropriate legislation are simply helping to fulfil the economic objectives of the legislation giving rise to the incentives, many of which are directly related to employment creation or employment support.
The paper presented at the Foundation for Fiscal Studies made it clear that the Revenue Commissioners carefully monitor any abuse or manipulation of tax reliefs and incentives for the purpose of tax avoidance rather than for the bona fide purposes for which they were intended, that is, economic development, including especially job creation and support. Moreover, the paper pointed out the inroads being made by Revenue audit and compliance programmes in recent years into the black economy and tax evasion. Increased resources are now being devoted by the Revenue Commissioners to this whole area and they have considerable enforcement powers which can be used to good effect.
