Revenue needs tax, but also tact
THE REVENUE Commissioners’ decision to inform 115,000 people that some may have an increased tax liability, having failed to declare and pay tax on their State pension, raises serious questions for the tax authorities and for non-compliant taxpayers.
For Revenue, why has it taken so long to address this issue? And why, belatedly, has it acted in such a hamfisted manner? It has employed a scattergun approach to a tax compliance problem that – not least because it affects the elderly – required careful and considerate handling. Instead the Revenue has shown little sensitivity and poor judgment on the matter.
Since 2005, the Revenue Commissioners have had a legal right to share information with the Department of Social Protection. But Revenue claimed that it lacked the technical means to cross-check pension data that the department held on individual taxpayers. An upgraded computer system has recently enabled it to do so, and to establish whether those with occupational pensions have paid tax on their State pension, when a tax liability arose on their total income.
But Revenue hardly needed a computer to discover what even a cursory analysis of the annual self-assessment tax returns would have shown: namely, that many liable to pay tax on their State pension had not done so. Even a random sample of annual tax returns would have indicated the extent of a tax evasion problem which has resulted in a serious financial loss for the exchequer.
Just how Revenue remained unaware of the issue for so long has yet to be explained. Certainly, its hasty decision to send out 115,000 letters to pensioners last week is a measure of its original negligence and misjudgment. Some were sent in error to holders of a non-contributory State pension while other pensioners found, having checked with the tax authorities, that they have no outstanding tax liability.
The Revenue Commissioners’ figures suggest that one in four of those pensioners surveyed from Department of Social Protection records may have underpaid on their taxes. Clearly, some acts of non-compliance were wilful tax evasion, where individuals failed to declare the State pension payment for tax purposes. According to Revenue estimates, 2,500 taxpayers with pension and other income in excess of €50,000 have failed to pay tax owing on their State pension.
Serious tax defaulters should be held liable for all taxes due in recent years, with interest and penalty payments applied. Not to do so is to reward tax cheats at the expense of the tax-compliant. The gap between revenue and spending here last year was €25 billion – the need for effective tax collection, never more pressing.
Certainly, the Revenue Commissioners should have done much more, by way of information campaigns, to inform taxpayers of their legal obligations. A tax system in recent years subject to substantial change can give rise to confusion – notably among the elderly. And undoubtedly the Revenue should have identified the problem sooner, and acted quicker to ensure so many could not flout the tax laws with impunity for so long.