INCOME TAX:HIGH EARNERS who are part of tax incentive schemes are set to pay more tax next year, with the effective or minimum tax rate applied to such people being increased to 30 per cent from 20 per cent.
Minister for Finance Brian Lenihan said the new measure, to apply for the 2010 tax year, will yield approximately €55 million.
He said the entry point for the restriction will now occur at €125,000 with full restriction applying at €400,000. The current entry point is €250,000.
Mr Lenihan said the taxpayers would also pay PRSI and levies.
“I will examine the curtailment and removal of further reliefs in the context of the Finance Bill,” he told the Dáil.
There were no increases in income tax announced and no change to the tax bands. Mr Lenihan said the tax increases introduced in his last two budgets had placed the heaviest burden on those best able to pay. A single person on €25,000 paid an extra €500 in tax and levies, while a person on €250,000 paid almost €17,000, or 30 times more.
“The progressivity of the recent changes is beyond doubt. But we have reached the limit. We will not create jobs by increasing the penalty on work and investment.”
He said he would introduce a new system in 2011 in which there would be just two charges on income: a single social contribution replacing the current health, PRSI and income levies; and income tax. He said the fact that almost half of all income earners paid no tax at all would have to change. “The time has come to transform how we tax incomes, to simplify it, and to make it fairer and more broadly based.”
Referring to calls to increase taxes, Mr Lenihan said those urging such action had not recognised what had already been done.
Irish Taxation Institute president Olivia Lynch said attractiveness and competitiveness on the global league table were absolutely essential for Ireland. The Minister must ensure that the combined new social payment and income tax rates do not exceed a combined marginal rate of 50 per cent, she said. “All sections of society have borne the pain in the three most recent budgets. The focus now is to stabilise the country’s budgetary position and, in particular, to return the country to prosperity and create opportunities for employment.”
President of Chartered Accountants Ireland Tom Fitzpatrick said: “It would have been wrong to increase the income tax burden on both public and private sector employees, given the collapse in private sector income levels and the severe cuts in the public sector pay bill.