Mr. Seamus McCarthy:

The 2014 account of the receipt of the revenues of the State collected by the Revenue Commissioners was certified by me on 13 April 2015 and received a clear audit opinion. The account includes receipts of taxes and duties remitted by Revenue to the Exchequer and receipts collected by Revenue on behalf of other agencies. In total, net receipts in 2014 amounted to €50.2 billion, up around 9% year on year. Net receipts of taxes and duties amounted to €41.4 billion in 2014. Receipts collected by Revenue on behalf of other agencies amounted to €8.9 billion. Approximately 92% of the receipts on behalf of other agencies was accounted for by PRSI and health levy contributions. These contributions were remitted directly to the Social Insurance Fund.

Chapter 15 examines the implementation of the local property tax, LPT, which was introduced as a self-assessment tax on residential property commencing with effect from 1 July 2013. It replaced an interim household charge on residential property at a flat rate of €100 per year and a similar flat-rate charge of €200 per year on non-principal private residences. The report presents the situation that pertained up to and including 30 June 2014. The Accounting Officer will be able to provide information about how matters have progressed since then.

A key challenge for Revenue in implementing the LPT was the creation of a comprehensive and accurate register of residential property and ownership. Overall, the examination found that Revenue had been effective, compiling a register of some 1.95 million residential properties by the end of June 2014. The register will be in a continuous state of change, reflecting changes in property ownership and as additional relevant information becomes available to Revenue.

The report recommended that Revenue should review its controls over the inputting and updating of information in order to ensure that information was recorded accurately. This was in response to findings that, while the register was generally comprehensive and accurate, there were some gaps and errors. For example, we found that the register showed that no owner had been identified for approximately 3.5%, or 68,000, of the properties on the register at June 2014. In respect of approximately 2,700 of those properties, we established that Revenue's tax collection systems showed that property tax had already been paid. We also found that 137,300 properties had been de-registered by the end of June 2014, but that there had been tax paid already in respect of approximately 3,300 of those. On that basis, we concluded that the operational controls over changes made to the property register should be reviewed.

The report also examined the process implemented by Revenue to assist property owners in valuing their properties. This included the publication of an Internet-based guide to the expected value of certain property types in specific locations or regions. In addition, it issued its own estimates of the valuation band for 1.57 million properties based on data it was able to compile from a variety of sources. As at the end of June 2014, approximately 42% of the valuation bands actually used by taxpayers were either those proposed by Revenue or valuations submitted by taxpayers in the absence of a Revenue estimate. A substantial proportion of taxpayers did not accept the Revenue estimates. In most of those cases, a lower valuation band was submitted, including more than 270,000 cases in which the valuation submitted was two or more bands below the Revenue estimate. Revenue had commenced analysis to identify properties with declared valuation bands that were substantially different from the generality of neighbouring properties.

The examination recommended that Revenue should consider how it could use up-to-date technologies to compare declared valuations with actual sale prices of properties and carry out in-depth, on-site reviews on a sample basis of properties in designated areas in order to validate valuations submitted. The Accounting Officer agreed with those recommendations and, I understand, has provided an update on progress in that regard.

The report also recommended that the Revenue Commissioners consider collecting from taxpayers some basic information on the relevant characteristics of properties as an aid in validating declared property valuations. As examples, we suggested objective or quantifiable property characteristics such as floor or site area, type of dwelling, age of property, number of rooms, etc. At least some of this is the kind of information that is routinely provided by householders in census returns every five years. However, the Accounting Officer did not agree with this recommendation, citing the valuation validation processes it had already implemented and the possibility of harvesting data about property characteristics from sources other than the property owners.

Based on the declared valuations, the level of payment compliance for the LPT has been high. As at the end of June 2014, the overall payment compliance rate for 2013 liabilities was estimated at approximately 97%. This included the impact of mandatory deduction-at-source arrangements put in place for some 40,000 properties as at that date. Compliance measures had also been taken to collect household charge arrears in respect of an estimated 477,000 properties, with potential arrears liability of up to €95 million. At the report date, some €25 million of those arrears had been collected, including €17 million received after Revenue issued compliance notification letters in April 2014.

Chapter 16 reviews the effectiveness of systems in place for identifying rental property owners and managing taxpayer compliance in respect of rental income. The chapter also reviews progress by Revenue in implementing the recommendations of this committee following a previous report by the Comptroller and Auditor General in 2006 regarding the potential for data sharing and record matching with third-party sources of information. Gross rental income declared in 2012 amounted to €4.4 billion, of which €4 billion related to rents on properties in Ireland. The balance of €400 million related to rental income on properties outside Ireland. We found that the number of foreign rental properties declared to Revenue increased by approximately one third between 2009 and 2012. In contrast, the amount of gross rental income declared in respect of such properties declined by approximately 7% during the same period.

The review found that there had been a significant improvement since 2006 in the extent to which Revenue matched information relevant to residential rental income from third party sources to its taxpayer accounts. The range of data sources used by Revenue has increased, as has the rate of matched records. In 2012, between 88% and 94% of records from four principal sources of third party information were matched to Revenue records.

The outcome of audits of rental income in 2012 and 2013 suggests that the audits were well targeted at higher-risk cases. Over 70% of the cases audited resulted in additional yield. However, we noted that not all of the audit yield arose from undeclared or under-declared property rental income; some of the yield related to undeclared income from other sources. The review recommended changes to the categorisation of audit yield to assist the Revenue Commissioners in analysing and planning its compliance activities.

Administration and operational expenses incurred by the Revenue Commissioners are charged to its Vote. No such expenses are charged to the accounts of the receipt of revenues of the State to which I referred earlier. The 2013 Revenue Commissioners appropriation account received a clear audit opinion.

It shows that the total spend by Revenue in 2013 amounted to €393 million, up just over 3% relative to 2012. Taking account of appropriations-in-aid of €78.6 million in 2013, net expenditure amounted to €314 million. This resulted in a surplus for the year of €8.3 million liable for surrender back to the Exchequer.

Audit of the 2014 appropriation account is under way. It will be reported on and published in September.