Department decides against minimum tax rate proposal

The Department of Finance decided not to proceed with a proposal for a minimum tax rate for very high earners, because it feared it would become the norm.

Details of the proposal emerged after a Freedom of Information request, but it is understood the department decided earlier this year not to go ahead with the idea.

"If we introduced say, a minimum tax of 10 per cent, then everyone who paid more than that would complain to their accountant that he was not doing his job," said one source. "The minimum could become the norm."

A survey carried out in 1997 by the Revenue Commissioners where the amount of tax paid by 400 individuals with incomes of more than £250,000 in the years 1993/1994 and 1994/1995, was examined, found that nearly one-fifth paid an effective tax rate of less than 20 per cent in the 1993/ 1994 tax year.

In that same year 9.75 of the 400 taxpayers surveyed paid an effective tax rate of less than 10 per cent.

The low level of tax paid by some individuals came as a surprise, but tax experts in the Department of Finance were also surprised at the number of high income taxpayers who paid a significant rate of tax. The percentage which paid an effective tax rate of more than 40 per cent was 32.5.

As well as creating a "norm" for high income earners, the department also decided the introduction of a minimum tax rate would create further discontent among ordinary PAYE workers. The idea was dropped but the Minister for Finance, Mr McCreevy, subsequently introduced restrictions on capital allowances on investments in buildings, relief available against interest to investors in rental property and other restrictions.