Paudge Connolly (Cavan-Monaghan, Independent)
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Question 284: To ask the Minister for Finance his proposals to reduce the incidence of tax avoidance in view of more than 25 of the highest earners having had no tax liability; and if he will make a statement on the matter. [30803/06]

Brian Cowen (Laois-Offaly, Fianna Fail)
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I have already acted in a systematic, detailed and radical manner to deal with the issue of inequitable use of tax incentives and allowances by a proportion of higher earners. I would refer the Deputy to Budget and Finance Act 2006. In these, I announced and introduced significant changes which mean that the potential for individuals to reduce their net liability for tax by using tax reliefs will be curtailed.

In particular, a restriction has been placed on the use of specified tax reliefs by high income tax payers. The restriction will come into effect from 1 January 2007. The list of specified reliefs includes various property based tax incentives and certain other reliefs such as the Business Expansion Scheme, film relief and donations. Also to be restricted are certain tax exemptions including artistic income, stallion fees, and patent royalties.

However, it should be pointed out that individuals will still be fully entitled to claim for normal business expenses and deductions for capital allowances on plant and machinery, genuine business related trading losses and losses from a rental business without restriction. In addition, they may also continue to claim without restriction the normal deductible items such as medical expenses, trade union subscriptions, the personal tax credits and exemptions such as that for child benefit.

Moreover, following on fundamental reviews which I have had carried out of around two dozen specific tax incentives, I have already provided that a range of existing property based tax schemes are to be phased out, subject to transitional measures the effect of which will be that no relief will be available for expenditure arising after end-July 2008. I have left in place some incentives which are justified having regard to benefits they can provide.

I should say that in any event, it is not clear where the Deputy has sourced the statistic that more than 25 of the highest earners have no tax liability. The latest figures available in relation to the tax year 2003, as included with my reply to Parliamentary Question Reference No. 29483/06 on 27 September, indicate that nobody in the PAYE sector with gross income of €500,000 or over had a nil net liability for income tax. However, 19 self employed individuals with gross income of €500,000 had a nil net liability for income tax. Persons in the self-employed category may include a broad range of individuals, for example shop owners, tradespersons and farmers as well as those in pursuit of various professions such as dentists, doctors, solicitors etc.

I am sure the Deputy will appreciate, however, that there are many reasons why a self employed person may have a nil net liability for tax.

Gross income is income before adjustments are made for items such as capital allowances, interest paid, losses and allowable expenses, including normal business expenses and depreciation on plant and machinery. For example, capital equipment purchased by a dentist in establishing a practice or farm machinery, such as a tractor, purchased by a farmer are allowable as deductions against gross income at a rate of 12.5% of the capital cost per annum for eight years. Gross income must be distinguished from taxable income which is income after adjustments for deductions of the type described, including normal business expenses.