New taxation procedures not equitable, says Deloitte

New tax payment arrangements introduced this month do not strike an equitable balance between the Revenue Commissioners and taxpayers, according to a senior partner in one of the major accountancy firms.

The new rules, which came into force this month, involve a rebalancing "which is weighted overwhelmingly in favour of the Revenue", according to Mr Pat Cullen, national tax partner at Deloitte & Touche accountants.

The changes involve new procedures governing tax assessments and interest on tax payments. They affect companies and any income taxpayers subject to self-assessment, mainly company directors and the self-employed.

Under the new rules, the interest rate payable on tax refunds from the Revenue has been cut from 6 per cent to 4 per cent and from now on no interest will be paid on refunds made within six months of the filing of the tax return. However, the interest rate payable by taxpayers on overdue payments remains at 12 per cent.

These changes follow new regulations - contained in the Finance Act 2003 - under which companies must make a preliminary tax payment before their year end, rising from 36 per cent of their liability this year to 90 per cent by 2006.

Where companies overestimate their earnings and pay too much, they will in most cases receive no interest on the repayment from the Revenue.

The Revenue will only pay interest when the payment is delayed more than six months after the filing of the tax returns, or where they have made a mistake in applying tax law. The same rules will apply to self-assessment income tax payers, who pay their primary tax by end October each year.

"The Department of Finance and Revenue may claim that there are corresponding benefits to taxpayers in some areas in these changes, but such benefit will accrue to a very small number of taxpayers as compared with the huge number of taxpayers who will be disadvantaged by these changes," according to Mr Cullen, writing in a tax alert to the firm's clients.

In many cases, companies will be tempted to overestimate their tax liability to avoid penal interest penalties and will end up giving an interest free loan to the Revenue, he says, representing another charge on the business sector. "In many cases companies will be at least 12 months out of pocket with no interest on the refund," he says.

The new arrangements mean "there is only room for genuine error on one side", with no leeway given to people who make an error making a preliminary return against a tax deadline. Such changes, he argues, do not build respect in the tax system as they are not fair to the majority of tax compliant citizens.