Dáil Éireann díospóireacht -
Wednesday, 28 Jun 1995

Vol. 455 No. 2

Written Answers. - Capital Gains Tax.

Michael McDowell

Ceist:

31 Mr. M. McDowell asked the Minister for Finance the total gross cost to the Exchequer of halving the rate of capital gains tax; the buoyancy, if any, that would result; if his attention has been drawn to the fact that a number of taxpayers emigrate in view of the high capital gains charges, resulting in the loss of valuable Exchequer revenues; and if he will make a statement on the matter. [11929/95]

Helen Keogh

Ceist:

45 Ms Keogh asked the Minister for Finance the total gross cost to the Exchequer of halving the rate of capital gains tax; the buoyancy, if any, that would result; if his attention has been drawn to the fact that a number of taxpayers emigrate in view of the high capital gains charges, resulting in the loss of valuable Exchequer revenues; and if he will make a statement on the matter. [11928/95]

Minister for Finance (Mr. Quinn)

I propose to take Questions Nos. 31 and 45 together. On the basis of current levels of disposals, it is estimated that the full year cost to the Exchequer arising from a reduction in the 40 per cent and 27 per cent rates of capital gains tax to 20 per cent would be in the region of £15 million. Information is not available on the buoyancy in capital gains tax revenue which would result from such a reduction or on the effect it would have on income tax and corporation tax yields.

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 40 per cent rate. A number of reliefs, including the 27 per cent rate for certain share investments, have been introduced or extended in the last few years to encourage enterprise and job creation. These concessions are felt to be more effective than a general rate reduction.

In setting the rate of capital gains tax, the Government must take tax equity considerations into account and the rate should bear a reasonable comparison with the rates applying to earned income. It is also important to minimise disparities with income tax and corporation tax rates in order to reduce the scope for avoidance through the conversion of income into capital gains.

I have no detailed information on the numbers who emigrate to avoid capital gains tax. I should add that under revised rules on residence which were introduced in the Finance Act, 1994, it is now more difficult for individuals who are ordinarily resident in the State to avoid capital gains tax by leaving the country. This is because under the revised rules, ordinary residence can only be shed after three consecutive years of non-residence, whereas previously it was possible for an individual to lose his or her ordinary residence on the date of departure from the State. On the other hand, the rules allow non-residents to spend more time in the State without becoming resident and thus they provide an alternative for those who might otherwise have opted for long term emigration for tax reasons.