I am informed by the Revenue Commissioners that the Exchequer cost of €138.2 million that was estimated for 2009 in respect of the exemption of interest on savings certificates, national instalment savings and index linked savings bonds was based on applying an average marginal rate of tax to the aggregate amount of interest arising from these sources. This average rate was compiled on the working assumption that taxation of this income source would be applied at each taxpayer’s marginal tax rate, that is, at 20 % or at 41% as appropriate. The Deposit Interest Retention Tax (DIRT) rate was not applied to the interest amount. Income from these products is currently exempt from income tax so in working out the cost of the exemption one can make assumptions as to what tax rate should apply. The information given in response to the Parliamentary Question on 30 April was in the context of the providing the cost of a number of reliefs and exemptions, which would apply either at the marginal rate or the standard rate of income tax, so an average marginal rate of tax was applied to the interest on savings certificates, savings bonds and national instalment savings to work out the costs of exempting the interest.
As an alternative, one could assume that the income would be taxable at the higher rate of DIRT which applies to interest which is paid less frequently than annually. In 2009, the year for which the figures were supplied, the higher rate of DIRT was 26% from 1 January to 7 April 2009 and 28% from 8 April to 31 December 2009. On the assumption that the interest was paid evenly throughout the year, the estimated yield from applying the higher rate of DIRT to this interest income in 2009 would have been in the region of €127.7 million. The estimate does not take into account the fact that some account holders will be exempt from DIRT, including individuals aged over 65 years and whose total income, including the income subject to DIRT, is below the income tax age exemption limits (€18,000 for a single individual and €36,000 for a married couple or civil partners); and individuals who are permanently incapacitated, and whose tax credits cover their tax liability.
The total interest paid under savings certificates, national instalment savings and index linked savings bonds in 2009 was €465.04 million, whereas payments for those products in 2011 totalled just under €164.83 million. This would obviously affect the potential yield from applying tax on whatever basis to this interest.
