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Dáil Éireann díospóireacht -
Tuesday, 5 Nov 2002

Vol. 556 No. 3

Written Answers. - Tax Collection.

Richard Bruton

Ceist:

294 Mr. R. Bruton asked the Minister for Finance if he will review the practice of applying DIRT to bank interest when the interest rates are lower than the rate of inflation and savers are actually being taxed on negative returns; and if he will make a statement on the matter. [20221/02]

The general position is that income from assets, including deposit accounts, is taxable. DIRT is purely a collection method. Since its introduction in 1986, it has always been the case that DIRT is payable on bank interest, irrespective of the rate of inflation. Even if it were desirable to allow for the CPI effect, there would be major difficulties with the proposal suggested by the Deputy.

Firstly, DIRT is deducted at source. If the Deputy's proposal was adopted it would necessitate a system which compares the consumer price index to interest payments in respect of every deposit account before deciding on DIRT liability. This would make the administration of this simple tax deduction much more complex.

Secondly, if the change sought by the Deputy was introduced, it may become possible for financial institutions to devise savings products in such a way as to reduce the tax payable, even when interest rates generally exceed inflation, simply by paying interest rates just under the consumer price index for the first years of the product, and paying a bonus on exit.

Thirdly, when the natural level of deposit interest rates offered are just above the rate of interest, the regime suggested by the Deputy may result in those rates being reduced in order to remove DIRT liability.

DIRT is an important source of revenue, and the cost of removing it from Exchequer receipts would be substantial. It is estimated that the yield from DIRT in 2002 will be about €210 million. If DIRT was not payable in the circumstances outlined by the Deputy, it would be necessary to either increase other taxes, reduce spending, or increase borrowing by a substantial amount. I have accordingly no such plans to change the tax code as it relates to DIRT.
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