Paschal Donohoe (Dublin Central, Fine Gael) | Oireachtas source

Deposit interest retention tax, DIRT, is deducted by Irish financial institutions from deposit interest paid or credited to the accounts of Irish residents.

The basic rate is 39%. This was provided for in the Finance Act 2016. This will fall to 37% from 1 January 2018 and by a further 2% each year until 2020 when it will be 33%. It is a final liability tax, that is, it satisfies the individual's full liability to income tax in respect of deposit interest. The individual may still be liable to PRSI on the interest. Deposit interest subject to DIRT is not subject to the universal social charge. It is estimated that as the overall cost of each 2% reduction in the rate of DIRT is approximately €6.4 million in a full year, the total annual full-year cost over the three remaining years is estimated at €19.2 million by the time the full reduction is in effect in 2020.

I am aware that prior to the enactment of the Finance Act 2016, the rates payable on a series of other taxes, including taxes on life assurance policies, have tended to move in line with DIRT. However, on that occasion, my predecessor decided not to reduce those other rates. The decision was made due to the annual cost of reducing the rates of these other taxes by 2% being tentatively estimated by the Revenue Commissioners to be, allowing for rounding, €14 million annually with tax and life assurance products alone accounting for €11 million. Therefore to immediately bring the rates into line with those applicable to DIRT would cost €28 million in 2018, rising to €56 million by 2020. It therefore remains too costly to the Exchequer to reduce the rates of these taxes in the same manner as the ongoing series of reductions in the rate of DIRT.

This summer, the tax strategy group examined the matter of taxation of investment products. The tax strategy group examined options for changing and amending that taxation. It set out some options in this regard but constrained financial resources meant that it was not possible for me to act on them in this year's budget or Finance Bill. During work on that paper, and following advice from Revenue, it became evident that there were more complex issues to be addressed, in the context of the tax regime that applies to personal investment products other than those covered by DIRT, than simply the degree of the rates of tax applied and it was soon determined that a more holistic approach might be required. I therefore propose to establish a working group of officials from my Department and Revenue to examine and address the variety and complexity of the operation and taxation of personal investment products including the interaction of these regimes. An examination of the matters set out in the Deputy's proposed amendment will form part of the group's work. It will take longer than the three months suggested in the amendment for the group to carry out its work on such complex issues in a thorough and complete manner. I will instruct the group to provide me with a co-ordinated form of proposals prior to budget 2019, allowing sufficient time for those proposals to be acted on if necessary.

The resource argument was particularly important in my decision. If one looks at the cost for this year of this decision on DIRT, and the cost of continuing the decision of the then Minister, Deputy Noonan, it was €6.4 million in a full year. The costs in respect of similar decisions on other investment products would have been €28 million for next year, rising to €56 million by 2020. Given the cost involved in the decision, I decided I would not include it in the budget. I will go ahead with the working group, which will tease out different policy issues on the matter to be presented to me in advance of next year.

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