Michael McGrath (Cork South Central, Fianna Fail) | Oireachtas source

I thank Senator Kyne for his recommendation. The Senator's proposal relates to producing a report on the merging of the universal social charge with income tax as a means of simplifying the administrative burden of tax on businesses and organisations. By way of background, USC was designed and incorporated into the Irish taxation system in 2011 to replace two other charges, namely, the health and income levies. The primary purpose of USC was to widen the tax base and to provide a steady income to the Exchequer to provide funding for public services. Both income tax and USC are taxes on income. However, they are structurally different with some material differences between the two in the systems income base, range of reliefs available and the manner of assessment. Income tax applies to all sources of income earned by an individual as calculated in accordance with provisions of the income tax Acts. Income tax also applies to certain income of trusts and non-Irish resident companies. An individual's entitlement to tax credits and their standard rate cut-off point is determined based on his or her personal circumstances. The income tax system provides for a wide range of tax reliefs, deductions and exemptions which may be used to reduce either the amount of income on which an individual is taxable or the individual's ultimate income tax liability.Eligibility for these reliefs is subject to the individual meeting the relevant conditions attached to each measure. Within the income tax system, married couples or civil partners may be able to transfer tax credits, tax bands and reliefs from one partner to the other, whereas the USC is an individualised tax. This means that a person's liability to the tax is determined on the basis of his or her own individual income and personal circumstances. Similar to income tax, there are different rates of USC and cut-off points. However, the rates and cut-off points differ from that of the income tax regime.

The USC system incorporates different rates applicable to different levels of income and different sources of income. It should also be noted that some expenditure that qualifies for relief from an income tax perspective may not qualify for relief from a USC perspective. Such expenditure includes payments into a pension scheme and permanent health benefit contributions.

Further to this, all Department of Social Protection payments and similar type payments made under the Social Welfare Acts are exempt from USC, while some payments by the Department of Social Protection are not exempt from income tax. An amalgamation of income tax and USC into one tax would require fundamental changes to the structure of the personal income tax system and may have consequential impacts on Exchequer receipts. It would likely present a number of considerable challenges in relation to the systems underpinning both income tax and USC.

In 2016, research undertaken jointly by the Department of Finance and the ESRI found that USC represented a more stable form of revenue than income tax. The findings highlighted that USC revenues would fluctuate by less than income tax revenues whenever income is volatile, for example, where the economy moves from a boom into a bust. Given the openness of the Irish economy and its subsequent susceptibility to economic shocks, the contribution that USC makes the stability of the State’s revenue sources is considerable.

On the face of it, a single unified system of personal income tax may appear to offer advantages as compared with current arrangements. However, as Senators will be aware work was carried out on examining the possibility of an amalgamation of USC and PRSI. Many of the significant challenges outlined in the Report of the Working Group on the Amalgamation of USC and PRSI, which was published in September 2018, remain valid in the context of an amalgamation of USC and the income tax. The report is located on gov.ie.

There are no plans at present to carry out further analysis on the proposal as suggested by the Senators and therefore I cannot accept the recommendation at this time.