Dáil Éireann díospóireacht -
Wednesday, 28 Jan 1998

Vol. 486 No. 1

Written Answers. - Tax Evasion Indicators.

Eamon Gilmore

Ceist:

114 Mr. Gilmore asked the Minister for Finance if his attention has been drawn to the very significant disparity between the level of personal income shown in CSO figures which in 1995 was £30,444 million and the Revenue Commission's figures for a similar period which show gross income of £17,334 million; even allowing for social welfare payments and non-taxable income, his views on whether this disparity may indicate tax evasion and require further study; if he will consider commissioning research in these figures similar to that undertaken on the difference between the live register and the labour force survey figures; and if he will make a statement on the matter. [1863/98]

Minister for Finance (Mr. McCreevy):

I am informed by the Revenue Commissioners that the disparity between CSO and Revenue figures for personal income is more apparent than real. The two sets of figures are not prepared on the same basis.

In the first place, the figures mentioned are not directly comparable on the basis of time because the Revenue figure is for gross income arising in the tax year 1994-95 and the CSO figure relates to the calendar year 1995. The CSO figure of £29,000 million for total personal income earned in 1994 is a more appropriate figure for comparison with the Revenue figure of £17,334 million.

The CSO figure must then be adjusted for comparability to exclude amounts which are either tax exempt or represent income concepts which are not income for tax purposes. The main exclusions are in respect of current transfer payments, which are either not taxable or fall below tax exemption limits, national debt interest paid to residents, mainly payable to institutions, imputed rental income accruing to houseowners, not income for tax purposes untaxed unemployment benefit and disability benefit, because of higher tax thresholds in individual cases, investment income of pension funds and life funds etc. excluding national debt interest, tax exempt, and employers PRSI, not income for tax purposes. These adjustments reduce the CSO figure to £21,000 million.

The Revenue figure of £17,334 million represents 90 per cent of the self-employed and 98 per cent of the PAYE expected totals. Adjusting for full coverage brings the estimated total to £18,100 million. This figure must then be adjusted for comparability by the subtraction of amounts for capital allowances and losses which are already recognised in the CSO figure, and by the addition of quantifiable amounts which are not in the Revenue figure, such as employee contributions to pension funds tax deductible, employer contributions to pension funds, not income for tax purposes, interest income that does not need to be declared or is not recorded, but from which tax has been deducted, and unemployment benefit and disability benefit not recorded, but from which tax has been deducted. Together they bring the comparable Revenue figure to £19,200 million.

The adjusted difference between the two sets of figures is £1,800 million. This may be largely or entirely explained by factors such as the income of some 40,000 farmers and other self-employed who are not processed annually on tax records, because their incomes are below the income tax thresholds, by other tax exempt income not already taken into account above such as stallion fees, artists income and patents income, and also by income from contributory pensions which falls below individual income tax thresholds. For example, contributory pension income included in the CSO figure comes to a total of £1,047 million but a significant portion of that amount is likely to be below individual tax thresholds and not actively processed in the tax system. Only some £430 million of social welfare pension income is included in the Revenue income figure.

Having regard to the fact that the figures come much closer together when allowance is made for the necessary adjustments which I have outlined above, and that there are reasonable explanations for the remaining differences, I do not see the need to commission further special research on the basis of these figures.

While the figures as presented are not, in their own right, indicative of tax evasion, Revenue have been tackling defaulters for some years by programmes to secure returns from those who do not file, the large scale targeted audit programme which resulted in some £133 million being collected in 1996, the random audit programme which exposes every taxpayer to the risk of audit, introduction of withholding tax and tax clearance procedures, significant use of the power to attach assets of tax defaulters, as well as other strong enforcement measures, new local collection and arrears compliance initiatives, measures to tackle black economy operators and putting in place a more active prosecution policy to address cases of serious tax evasion.

These measures, which are to be intensified under Revenue's latest corporate plan, are underpinning the improved compliance in the tax system in recent years. The measures needed are reviewed each year on the basis of Revenue's analysis of the returns and levels of compliance for that year.

There has been a dramatic increase in the tax yield from the self-employed since the onset of self-assessment. Net receipts grew from £255 million in 1991 to £527 million in 1996, a rate of growth significantly ahead of the growth of GNP at current prices. As regards 1997, overall receipts from Schedule D taxpayers, including preliminary tax, have come in at about £90 million above target for the year.

The success of self-assessment is also borne out by the impressive increase in the timely filing of returns since 1988-89. A 74 per cent figure for 1994-95 compares with 63 per cent for 1988-89. There are substantial improvements for corporation tax and CGT also.