High earners paying more tax as reliefs cut

A CAMPAIGN to ensure the highest income earners in the State pay their fair share of tax has been largely successful, a new report by the Revenue Commissioners has shown.

An analysis carried out by the Revenue on the 2010 tax year shows the average effective tax paid by the highest earners increased from 5 per cent in 2006 to its stated target of 30 per cent four years later.

It meant this group of 387 individuals earning more than €400,000 paid an additional €53 million in tax in 2010, almost double the amount of tax they would have paid that year had the new restrictions not been in place.

Six years ago, analysis by the Revenue of the tax returns of the 400 highest earning individuals showed a substantial majority were paying zero tax or tax of 10 per cent or less.

They were availing of a plethora of tax reliefs – including property-based reliefs, artists’ exemptions and patent fee exemptions – to reduce their effective rate to a minimum.

The previous government introduced changes in the Finance Acts from 2006 on to limit the use of these tax reliefs and exemptions to this group of high earners. The restrictions were also applied, on a tapered basis, to those earning €250,000 or more.

In 2010, minister for finance Brian Lenihan introduced far more stringent restrictions to the reliefs, making individuals earning more than €125,000 subject to them. He also reduced from €250,000 to €80,000 the amount of specified reliefs that could be used without restriction. The result was a significant increase in 2010 in the number of individuals captured by the restrictions and the amount of additional tax collected.

An additional €80 million in tax was collected compared with 2009, and the number of individuals captured rose to 1,544 from 452 the previous year.

However, nearly 600 people earning more than €125,000 but less than €400,000 still had an effective tax rate of 20 per cent or less, with some 18 paying less than 5 per cent.

The major categories of relief include investments in hotels and holiday cottages, with 540 people claiming almost €125 million in relief under these headings. Another major category is dividends from stallion stud fees, patents and mining operations.

Some 55 people claimed a total of just over €20 million in exempt income as artists, writers and composers.