Minister for Finance, Brian Cowen, TD, Announces

• Finance Bill 2006 based on sound fiscal policies that deliver value for money to the taxpayer

• Bill gives legal effect to Budget measures to ensure that high earners can no longer reduce their taxable income to zero

• A new pension initiative aimed at lower income SSIA holders and those with under funded Pensions

• More focused Revenue Powers to tackle tax avoidance and evasion

The Minister for Finance, Mr Brian Cowen, T.D. today (2 February 2006) published Finance Bill 2006, his second such Bill since his appointment. In detailing its provisions, he said:

“I view this Bill as a major milestone in this Government’s ongoing programme of economic and social policies aimed at supporting sustained economic growth and promoting improved equality and opportunity for all in society. Last October I made clear my commitment to a high standard of public financial management when I launched a series of initiatives aimed at ensuring enhanced efficiency, accountability and transparency in public expenditure. A dynamic, knowledge based Irish economy that aims to be world class in high-value added economic activities needs to be supported by sound fiscal policies that deliver value for money to the taxpayer. These principles underpin the decisions I announced on Budget Day in relation to various tax schemes which decisions are given legal effect in the Bill. The internal and external reviews of some two dozen separate tax schemes were aimed at providing analytical evidence on which to base future policy decisions in the area of tax reliefs.”

The Minister pointed out that this Government had radically restructured the tax system in the past eight years. It will continue to implement enlightened policies to ensure a fairer and more equitable tax system for everyone. The challenge to him as Finance Minister was to bring forward policies that supported growth and employment and were seen by the ordinary taxpayer as fair and equitable. He believed that this Bill met those tests. It contained a wide range of measures which would enhance or extend a number of tax reliefs both for business and consumers. At the same time, the Minister said, the Bill gives legal effect to the measures announced in the Budget to ensure that those high earners using certain tax reliefs must pay a minimum amount of tax and can no longer reduce their taxable income to zero. It also contains measures giving the Revenue Commissioners enhanced powers to tackle tax avoidance and maximise compliance.

The Minister gave details of a series of new measures included in the Bill.

“Among these is a special measure to help persons starting or building up a pension by encouraging them to transfer some or all of their SSIA savings into pension savings. This incentive is specially aimed at those on lower incomes”, the Minister said. This fulfils a promise the Minister made on Budget day in relation to pension provision.

The Minister referred to the measures announced on Budget Day which are given effect or confirmed in the Bill including:

• increases in the personal and PAYE credits to ensure the removal of all those on the minimum wage from the tax net
• increases in the standard rate bands to ensure the exclusion of workers on the average industrial wage from the higher tax rate
• the restriction on the use of Tax Reliefs by High Income Taxpayers, already mentioned
• the phasing-out of various existing tax schemes and exemptions
• the ending of the Remittance Basis of Taxation for certain non-domiciled employees
• the continuation of the stamp duty exemption for young trained farmers for a further 3 years, the increase in the tax exemption limits for income from farm leasing for over 5 years and the extension of certain existing Capital Acquisitions Tax, Capital Gains Tax and stamp duty reliefs to cover the EU Single Farm Payment Entitlement in appropriate circumstances.
• the introduction of a new scheme of tax relief for heritage property donated to a proposed new Irish Heritage Trust
• the introduction of a tax disregard for certain childminders who mind up to three children in their homes
• adjustments to the rules governing “top-hat” pension provisions and Approved Retirement Funds
• increases in VAT registration thresholds to help small business
• an exemption from excise duties for biofuels and reductions in excise duties on certain home heating oils (Kerosene and LPG)

Of particular interest to the general public would be the introduction of a new pension initiative aimed at lower income SSIA holders and those with under funded pensions. SSIA holders on the lower end of the income scale will be encouraged to provide themselves with improved retirement arrangements by transferring monies from their SSIA accounts into pensions. The Minister said that the Government would add €1 for every €3 transferred from an eligible SSIA account into a Personal Retirement Savings Account (a PRSA), an Additional Voluntary Contribution (an AVC) or a retirement annuity contract, subject to a maximum bonus of €2,500. Eligible SSIA holders transferring €7,500 from their SSIAs into these pensions could receive the maximum top-up of €2,500 from the Government to give them a total pension contribution of €10,000. On top of that, the exit tax to be paid on the SSIA monies so transferred into individuals’ pension accounts would be waived providing an additional top-up to the person’s pension contribution. The Minister also said that he was increasing the incentives for individuals who had underfunded their pension over the years and now wished to improve their position as they approach retirement.

The Minister highlighted a number of the other significant new measures in the Finance Bill

• Film Relief – the Minister announced improvements in the tax relief for film investment aimed at restoring Ireland’s competitive position as a film location. The percentage of expenditure that is eligible for tax relief is being raised to 80% for all films, up from the existing levels of 55% or 66% (depending on the film budget) and the ceiling on qualifying expenditure for any one film is being increased from €15 million to €35 million.

• Revenue Powers - The Minister indicated that he was including an enabling provision in the Bill which will allow the Revenue Commissioners (with the consent of the Minister) to introduce regulations governing the automatic reporting to Revenue by financial institutions of interest and other profit payments made to customers as well as certain payments made by Government Departments. The Minister said that the Revenue Commissioners and his Department would consult the financial institutions before implementing the reporting system. The Minister said that he was also proposing legislative changes aimed at addressing the use of aggressive tax avoidance schemes principally by way of a surcharge of 10% on undisclosed transactions that are ultimately determined to be tax avoidance transactions. The surcharge will not apply where full details of the transaction are disclosed in a "protective notification" to Revenue within a specified time limit. “People who are open about their tax planning arrangements will be able to show them to Revenue, and will not be surcharged if the arrangements concerned are determined to be in breach of anti-avoidance rules”, he said.

• Relevant Contracts Tax (RCT) - The Minister pointed out that he was making a number of changes in relation to the legislation governing the administration of Relevant Contracts Tax (RCT), the tax which principal contractors are obliged to deduct at a rate of 35% from payments made to certain subcontractors in the construction, meat processing and forestry sectors. The purpose of these amendments is to tighten controls and to discourage fraud and evasion.

The Minister also confirmed that the External and Internal Reviews of Tax Schemes undertaken at his initiative in 2005 are being made available to the public before the commencement of the Second Stage of the Finance Bill on 7 February. The Minister noted that his initiative in reviewing about two dozen separate schemes was aimed at providing evidence on which to base policies going forward. “The public will see from these studies the basis of some important decisions announced in Budget 2006”, he said.

Various provisions of the Bill will also facilitate business, including financial services, in particular, to assist in maintaining Ireland’s competitiveness in these sectors and to create more jobs. There will also be a reduction in stamp duty on dual-use (laser and ATM) bank cards. Where only one of the card’s functions is used in a given year, the duty will be as for single use cards.

Finally the Minister said that he was closing off a series of abusive tax loopholes in the areas of Film Leasing, Transfer of Irish Assets into a Foreign Company, Capital Gains Tax and VAT Grouping. This was aimed at re-assuring taxpayers that all those liable to tax are required to pay their fair share. The Bill will also, as usual, deal with a wide range of technical matters in relation to the tax system.

The Minister said that he looked forward to a constructive debate in the Oireachtas on the Bill and on the major policy issues surrounding the tax system.

Details of the various measures are provided in the attached list of Finance Bill measures. The list is also available, along with the text of the Finance Bill and the Explanatory Memorandum, at www.irlgov.ie/finance.

Ends

Click here for list of measures

Click here for Explanatory Memo

Click here for copy of the Finance Bill

Click here for Explanatory Note in relation to Committee Stage Amendments

Click here for Finance Act 2006