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Income Tax

10 August, 1985

Published, Irish Press, 15 August, 1985

The efficiency of our income tax collection system could be greatly improved, by simplifying it, by introducing self assessment for the taxpayer and imposing severe penalties on defaulters.

The system could be simplified, by increasing the size of the personal allowance to realistic levels, say £5,000, by the removal of all other standard allowances and by widening all tax bands to £5,000. Tax levels should increase in increments of 5%, from 30% to a maximum of 60%. The personal allowance and the tax bands should be indexed to the cost of living, the figure being rounded to the nearest £100. A double personal allowance should be given to a married couple, where only one partner is gainfully employed, but the tax bands should not be doubled. Instead a child allowance of £500, per annum, per child, should be paid to the non working partner. Where both partners are gainfully employed, they should be both regarded as single persons, with regard to their respective earnings and no child allowance would be paid. Certain special allowances would be allowed, subject to prior notice to and approval of the Revenue Commissioners. These should cover unforeseen situations, affecting the vital interests of the family. Examples would be very high medical expenses or uninsured damage to the family home. Where both partners of a household are taxable, the allowance should be apportioned between them in proportion to their taxable incomes.

All persons in the state in receipt of any income, should be required to file a tax return, which would involve self assessment for tax owed. Expenses regularly and necessarily incurred, such travelling to and from work, would be allowed, but only if they were unusually high. These allowances would only be allowed with prior approval and at the discretion of the Revenue. They would be the exception rather than the rule. For business people or the self employed normal business expenses such as the payment of employees would of course be allowed. Unusual or doubtful expenses or expenses where a portion could be considered to be of a personal nature, would be required to be notified to the Revenue and approval sought before they could be claimed. Failure to seek approval could result in heavy fines, if wilful deception be proved, and in any case interest would be payable on the tax not paid as a result. Expense items not cleared by the Revenue, should be notified to them in a special section of the tax return and these would result in a refund if subsequently allowed.

Severe penalties should be imposed on anyone underdeclaring their income or understating their true tax liability. Filing a tax return and payment of tax due, should be by a certain date each year, say within two months of the end of the tax year. Late payment of tax or underpayment of tax, should result in automatic interest charges, compounded monthly, and failure to file a tax return by the due date would be liable to attract large fines, say up to £100 or 10% of tax liability, whichever is the greater. Persons filing a tax return and paying tax, more than two months after the end of the tax year, would be required to compute interest charges at the rate of 2½% per month, compounded for each month or part of a month they are late, and to pay the interest with the tax. Otherwise the unpaid interest would continue to attract further interest penalties until all is paid off.

The system I have proposed would result in greater efficiency for a number of reasons. A smaller number of tax officials would be required, to conduct spot checks on tax returns, to follow up computer indicated inconsistencies and to answer queries from the public. Officials could devote more of their time to tax returns from business people and the self employed, where opportunities for tax evasion are greater. Most importantly, the shifting of responsibility for tax assessment from the tax inspector to the taxpayer, would, in my opinion, result in greater honesty from most taxpayers. I think this system, if seen to be fair and successful, could also serve as basis for local taxation, which is in a very bad state at the moment.

Current Comment
A number of years back, self assessment was introduced for the self employed. It should now be implemented for all taxpayers. It is time to end the paternalistic approach of Revenue to ordinary PAYE taxpayers. I had occasion recently to engage in extensive correspondence with the tax office, most of which was neither acknowledged or responded to by, no doubt, busy tax officials. It might be considered a waste of my time and theirs, in view of the relatively small, though significant, amounts involved - about 200 Irish pounds in all. Eventually I got the matter sorted and received a tax refund. How much simpler and more efficient it would have been if I had been allowed to make a self assessment return in the first place. If self assessment were introduced, people would quickly get used to making their annual tax return and assessing themselves for tax. Very little input would be required from the tax officials, apart from doing spot checks on the returns and adjudicating on unusual situations. I made such returns in the late 60’s and early 70’s, when a student working for the summer in the United States. The people I worked with did not have very high levels of education and yet did not have any difficulty making their returns. (26/10/99)

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