Global Daily Tax News, Ireland Urged To Rein In VAT, Income Tax Reliefs, (Feb 14, 2025)

In its annual Economic Survey for Ireland, the OECD has called on the Government to broaden both the value-added tax and personal income tax bases.

The report calls on Irish authorities to develop a roadmap to diversify tax revenues in the medium term. It says, "There is room to improve the medium-term resilience of revenues, given the concentration of corporation and income tax returns arising from a small number of large multinationals. Around one-third of income earners do not pay personal income taxes or the universal social charge. While the standard value-added tax rate is high, reduced rates decrease its yield."

On individual income tax, the report says, although the system is highly progressive, the exclusion of a large number of individuals should be reconsidered to broaden the tax base.

The report notes that the top-20 percent of personal income taxpayers contribute about 80 percent of the total tax paid, while a "complex, and relatively generous system of tax credits and reliefs" excludes about one-third of income earners from tax.

On value-added tax, the report says Ireland has a relatively low standard value-added tax (VAT) revenue ratio – the ratio between the actual VAT revenue collected and the revenue that would theoretically be raised if VAT was applied at the standard rate to all final consumption under full VAT compliance.

The standard rate, of 23 percent, is the fourth highest in the EU. However, the use of reduced rates is widespread. The report notes that raising the nine and 13.5 percent reduced rates by one percentage point would raise EUR583m per year.

The report says: "As highlighted in the 2020 OECD Economic Survey and recommended by the Commission on Taxation and Welfare, the VAT base should be broadened to increase its yield by merging the existing special reduced rates and increasing them incrementally over time. As a starting point, those that disproportionately benefit higher income deciles (such as those applicable to hospitality and tourism) could be gradually aligned to the standard rate."

The report also recommends higher property taxes. It proposes phasing out the temporary mortgage interest rate relief and tax incentives for landlords and tenants introduced in recent budgets. It recommends increasing local property taxes and the rates of residential zoned land. The report says: "Higher tax rates on residential dwellings and land can support tax neutrality, by reducing homeownership bias, while strengthening incentives to develop land and build."

Further, the report says pricing of emissions should be made more uniform across sectors and fuels.