Patrick O'Donovan (Limerick County, Fine Gael) | Oireachtas source

It would be useful to consider the proposed Bill in the context of the principles and general concepts that underpin tax policy and legislation. The OECD, in its Fundamental Principles of Taxation, notes that there are a number of broad tax policy considerations that have traditionally guided the development of taxation systems, and these include certainty and simplicity. The OECD explain that a simple tax system makes it easier for individuals and businesses to understand their obligations and entitlements, and the Government agrees. However, the OECD lists other principles which should also underpin the design of tax systems, and these concern neutrality, efficiency, effectiveness and fairness, as well as flexibility.

If a statutory body existed to promote simplicity or simplification, this would imply that this was the most important consideration and, often, this may not be the case. There needs to be an interaction between the principles and, at times, there may be tensions and, therefore, an appropriate balance will need to be achieved. For instance, complexity rather than simplicity may result in efforts to achieve equity and to avoid unintended consequences. Therefore, where the focus of tax design or review is purely or primarily on simplification, this could reduce the focus on equity, efficiency or neutrality in the tax system.

Administrative complexity is often a direct consequence of legislative complexity, particularly where Government seeks to advance a range of policy objectives through the system of taxation. Therefore, any proposals for administrative simplification will need to have regard to the potential impact on the range of policy options. Some considerations may include progressivity, ability to pay, revenue raising measures and measures to address externalities, for example. Therefore, any proposals for simplification will need to have regard to any intended or unintended consequences to constrain the policy options available. The present arrangements, where all relevant principles are taken into account in the design or modification of the tax system, including the principle of simplicity, is a balanced and fair way of approaching the formulation of tax policy in complex environment. In addition, it would seem important to note that the Commission on Taxation did not recommend such a body. To the extent that it commented on simplicity, it was to identify it as one of a number of principles that ought to apply in the design of tax expenditures.

There is another very important point and, indeed, a distinction to be made here: tax law is the responsibility of Minister for Finance and the Oireachtas, whereas the administration of tax law is primarily the responsibility of Revenue. This distinction should not prevent the proposed OTS from making recommendations regarding both law and administration. In addition, the Bill as drafted would require the Minister for Finance to provide formal comment on any report carried out by the proposed OTS and we could have a situation where the Minister is commenting on issues that legally and correctly fall within the remit of Revenue. It is not clear how this is appropriate or how it could be accommodated. Therefore, it is important that the distinction is understood and any recommendations are appropriately directed. This means there would be significant issues to be considered in order to ensure that the proposed OTS could fulfil its mandate.

For example, the issue of taxpayer confidentiality would need to be resolved. Conducting effective reviews of administrative processes might necessitate some access to Revenue systems and records. This would need to be managed carefully and within a precise legal framework that protects taxpayer confidentiality at all times. Taxpayer confidentiality is provided for in section 851A of the Taxes Consolidation Act 1997. That section allows some disclosure of taxpayer information, for example, to the Department of Finance solely to support the policy making process, and the powers of Office of the Comptroller and Auditor General also allow access to Revenue systems. These accesses and disclosures are managed very carefully, and the relationship with the proposed OTS would need to be similarly legislated for and managed.

On the issue of simplification, we would see a potential risk in that if we make returns as user-friendly or business-friendly as possible, such simplification may see the level of information to be submitted with the tax payment reduced. This has consequences in terms of reducing data available to inform evidence-based policy decisions. This is an unintended consequence of making our tax administration system more friendly.

There are a number of studies that can be pointed to that show Ireland already fares very well on the tax compliance burden by international standards. Most obviously, in the World Bank-PwC annual report on paying taxes, Ireland ranks consistently number one in Europe for ease of paying taxes. It is questionable, therefore, how much scope there is to reduce the compliance burden further without sacrificing the ability to collect the data required to maintain accountability and performance systems in regard to tax collection and to inform policy design and implementation. Added to this is the risk that it is unlikely that any policy-neutral simplification could be achieved. It is very likely that there would be winners and losers and a potential cost to the Exchequer.

Next is the question of value, specifically, what the proposed OTS would add to the policy making and tax administration processes already in place.

The proposed legislation appears to mirror the ends and objectives of that agency. The role of the UK equivalent is to seek to reduce tax compliance burdens on both businesses and individual taxpayers. It reports to the Chancellor of the Exchequer, who retains control of policy.

From the external output of the UK agency it is not immediately obvious that specific issues of the kind it addresses could not be addressed here by the Department, Revenue or both. The proposal essentially to mirror the UK example here may mean an additional process without any improved output. The establishment of the proposed office of tax simplification, OTS, here in Ireland would certainly seem to add yet another means by which the Government would interact with tax stakeholders. Therefore there would seem to be a high risk of both overlap and duplication.

The Department of Finance already runs a number of public consultations each year. This contributes significantly to ensuring stakeholder views are considered in policy formation and development. There are also ad hoc independent reviews, several of which are underway or have recently been completed. The Department also engages in the tax strategy group process and facilitates pre-budget submissions and finance Bill submissions from interested parties. On the implementation side, Revenue also engages in the tax administration liaison committee process. During all stages of the finance Bill process there is significant discussion in the Oireachtas of the operation and shape of the taxation system, including any issues of simplification. This allows Deputies and Senators to raise specific points. Given all the mechanisms already in place it is difficult to see what real value would be added by a group narrowly focused on reports about reducing compliance burdens or simplifying legislation.

It is also possible to point to concrete examples of changes that have already taken place and improvements that have already been made. A good example is the pay as you earn, PAYE, modernisation project. The new real-time PAYE reporting system started on 1 January 2019. This significant reform of the PAYE system brings improved accuracy and transparency for Revenue, employers and employees. It reduces the administrative burden on employers and will ensure that employee tax deductions and contributions are correct and are reported to Revenue on time.

Finally, I would like to turn to how the proposed OTS would work. In that context I would like to make some comments on the detail of the proposed Bill. Our first issue centres on the exact context in which the proposed body will operate. The Bill suggests that the proposed OTS will be established but how exactly it would interact with the Department of Finance and Revenue is unclear. In addition, section 6(1) states that the proposed OTS must provide advice to the Minister on request. This may seem reasonable but the Bill adds that such advice must be provided "as the OTS considers appropriate". This raises the question of whether it should be open to the OTS to provide advice whether the Minister requests it or not. We do not have a definition of exactly what "simplification" could involve, beyond noting that it could include improving the efficiency of administration. It is open to interpretation and potential confusion as to the exact role of the proposed agency.

The Bill proposes that the OTS is to consist of not more than eight members, to include a chairperson, a tax director, a representative of the Revenue Commissioners and a representative of the Department of Finance. Additional members, if any, are to be nominated by the chair. The members of the OTS are to be appointed by the Minister for Finance and a person may be appointed as a tax director of the OTS only if the Minister for Finance is satisfied that he or she has the necessary qualifications and experience to direct the manner in which the OTS discharges its functions. The Minister for Finance would be required to consult the chair of the OTS before appointing a person as a tax director. As only two of the eight potential members are likely to be civil servants an additional salary cost may well be incurred, unless it is envisaged that the other members will be retained on a pro bono basis. This also seems like quite a large number of members when contrasted with Revenue, for instance, which only has three Revenue Commissioners including the Chairman.

Regarding staffing, the Bill states:

The OTS may appoint such and so many persons to be members of the staff of the OTS, and on such terms, as may be determined by the OTS with the prior consent of the Minister given following consultation with the Minister for Public Expenditure and Reform.

This administrative structure seems somewhat elaborate and could absorb scarce resources in pursuit of a potentially duplicated or even unnecessary goal. It therefore appears that quite significant costs would be incurred in setting up the proposed office and in the provision of any staff or facilities deemed necessary for it to function. To these could be added the costs that would presumably be incurred both by the Department of Finance and by Revenue in their engagement with the new body. There may also be implications for the Department of Employment Affairs and Social Protection, as section 3(2) states that the definition of taxes envisaged by the OTS would include insurance contributions. While Revenue acts as a collection agency for social insurance contributions, it should be noted that policy formulation and administrative arrangements in this area are the responsibility of the Minister for Employment Affairs and Social Protection. It is surprising that the proposed lifespan for the proposed OTS is specifically set at five years in section 6 of the Bill. Simplification is a process of continuous improvement and regular review rather than one lasting just for a specific period.

In conclusion, while I recognise that the intentions of the proposed Bill are laudable there are significant concerns. I have outlined some of the pertinent issues. We consider that there are better and more efficient and effective ways of dealing with the issues that the proposed office is intended to address.

See this speech in context