Barry Ward (Fine Gael) | Oireachtas source

I raise the issue of professional withholding tax, which is a matter many will not know about because the only people affected are those who collect it and those who pay it. It affects many thousands of workers in this country who provide professional services to the State through local authorities, the HSE, Departments or whatever it might be. They include engineers, medical staff, lawyers and anybody providing professional services to the State. In those circumstances, 20% is deducted from their earnings at the end of the year to cover their tax liability because these people are self-assessed taxpayers.

Most people are pay as you earn, PAYE, workers and their income tax is deducted at source, which is very convenient, but for self-assessed, and very often self-employed, taxpayers the State takes a 20% chunk at source. This taxpayer only gets paid €800 on a fee of €1,000. That might sound harsh but can in fact be a major advantage to the individual because it means that person has a 20% tax credit at the end of the year. It is of significant benefit to the State's cash flow because it means the money is available to it from the word go, as opposed to waiting a year until a tax return is filed and paid, etc.

I raise the issue today to suggest it might be worth the Department's time to consider allowing those people who fall into the professional services withholding tax bracket, to opt to pay at the 40% rather than 20% rate. Any of them likely to fall into that marginal rate may choose to pay the tax at 40%. To be absolutely clear, I am not suggesting that would be a tax increase on any of them. I am suggesting the professional services withholding tax would be collected in a different way. Rather than taking a 20% chunk at source, we would take 40%. The idea is the person has a 40% rather than 20% tax credit at the end of year.

Why is that useful for individuals? In the first instance, if it is not I suggest they do not opt for it. The idea is this would be available to them so they can choose to go down this road if they want. Second, as a self-employed person who has been in this situation, it is tremendously helpful, at the end of the year when so many bills are due and there are many other things that need to be paid, to be able to say that the bulk, or all, of my tax is already paid. It means not having to worry about that extra bill at the end of the year.

From the State's perspective, there is clearly an advantage. From a cash-flow and certainty of receipts position, the State knows exactly how much it has taken from those people providing professional services. It has that 40% in the bank, as it were, without creating cash-flow difficulties for the Exchequer. Obviously, if the person who opted to pay 40% does not make it into the top rate of tax then he or she is entitled to a rebate. However, there is still an advantage, both to the taxpayer who is better able to manage his or her tax affairs as the end of the year approaches, and to the State, which resolves a potential cash-flow issue. We constantly monitor Exchequer returns throughout the year to see what level they are coming in at. This creates a much greater level of certainty for the Exchequer regarding people who fall into this category.

I ask the Minister of State if the Department will consider creating this option for mostly self-employed, professional service providers to the State when they are paying tax at source. Much like PAYE workers, they will be able to opt to pay it at the higher rate to reduce the liability that might fall on them at the end of the year. This will help their cash-flow management and will also provide for greater cash-flow management for the Exchequer.