Reform the tax code-actually do it!

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Orga

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Does it rock the boat too much to move from discussing issues to taking action so that the situation improve? What would it take for a movement to begin to, say, reform the tax code so that an average citizen who had passed their leaving cert could complete their tax return, say a Form 11, in under 2 hours, and without recourse to a tax adviser. For the sake of the example, the average person could have a PAYE job and a small part-time self-employed job, with savings in a few institutions. The Minister for Justice is attempting to codify legislation so that all the historic stuff since and prior to the foundation of the State is current and aligned. Why then is the tax system not being examined? When I read today of 10,000+ cases examined (http://www.thejournal.ie/revenue-pension-tax-1242219-Dec2013/) I have to wonder if the windfall was due to 10,000+ people willfully avoiding tax, or it, in reality it was the labyrinthine nature of our personal tax system which gave rise to this work for Revenue, work which would not be there were the system made clear, simple, and understandable.

So, the question is, HOW should a movement begin to rock the boat...and, secondly, is this boat worth rocking?
 
Orga said:
When I read today of 10,000+ cases examined (http://www.thejournal.ie/revenue-pension-tax-1242219-Dec2013/) I have to wonder if the windfall was due to 10,000+ people willfully avoiding tax, or it, in reality it was the labyrinthine nature of our personal tax system which gave rise to this work for Revenue,
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This whole story is bizarre, in principle the issue was that people with a private pension applied to the revenue to have their tax credits and standard rate cut off allocated to their private pension.

The Revenue claimed that the pensioners did not tell the Revenue that they had a state pension and the pensioner said that the Revenue should have known that the pensioner had a state pension. I think that it is fair to say that on the basis that pensioners applied to revenue for the tax credits it could hardly be considered to be the pensioners fault. I don't think that it's due to the complicated nature of the system rather a poor system of integration between departments.
 
Orga said:
Does it rock the boat too much to move from discussing issues to taking action so that the situation improve? What would it take for a movement to begin to, say, reform the tax code so that an average citizen who had passed their leaving cert could complete their tax return, say a Form 11, in under 2 hours, and without recourse to a tax adviser. For the sake of the example, the average person could have a PAYE job and a small part-time self-employed job, with savings in a few institutions. .......

So, the question is, HOW should a movement begin to rock the boat...and, secondly, is this boat worth rocking?
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The Irish system isn't too labyrinthe and is manifestly fair/simple compared to some of our international counterparts. You will have to cite examples and comparisons to make your point.

(At the end of the day, tax law is every Budget since the foundation of the State summarised in one place. When people kick-up i.e. as a result of cuts to OAPs, then things change)
 
It may well be simple compared to other regimes, but it could be a lot simpler. But it could also be a lot more complex. The tax credits system is much simpler than the old Tax Free Allowances. For most people, their taxes are deducted at source and they don't need to make any further return.

ROS is particularly good.

Here are some complexities which could be got rid of.

Why have three taxes - PAYE, PRSI and USC, where one would suffice?

There seems to be different rules for which types of income , USC and prsi apply to.

Do some people get an exemption from DIRT?

The rules applying to pensions are so complex, that I gave up trying to understand them many years ago.

Investment income can be taxed at different rates - DIRT, income tax, exit tax.

Why are state pensions paid gross? Why not subject them to PAYE in the same way as other income and thus avoid the problem referred to above.

I am sure a trawl through the questions asked in the Tax Forum would highlight many other complexities which could be removed from the system.
 
Orga said:
So, the question is, HOW should a movement begin to rock the boat...and, secondly, is this boat worth rocking?
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Hi Orga

I don't think it would be a movement as such. I can't imagine a mass meeting outside Leinster House
"What do we want?"
"Rationalisation of the income tax system!"
"When do we want it?"
"Now!"

Why not start by documenting the problem?

Make a list of the complexities of the tax system.

Make a list of the Top 10 suggestions to simplify it.

Try to estimate how much time and money would be saved by such simplifications.

The Minister for Finance won't suddenly read it and implement it. It will take a fair amount of campaigning over a number of years but you could well be successful.

Try to find a system in another country which would act as a model, although as Kildavin says, you will probably find ours is relatively simple.

Make a pre-budget submission every year.

Do we still have a Commission on Taxation? If so, apply to be appointed to it.

Ask your local TD to raise the matter in the Dáil where you should get a lot more information on the topic.

Find out the name of the Civil Servant in charge of the area and ask to meet them.

Tell a few jounalists what you are trying to do and they may well support it.
 
Kildavin said:
The Irish system isn't too labyrinthe and is manifestly fair/simple compared to some of our international counterparts. You will have to cite examples and comparisons to make your point.

(At the end of the day, tax law is every Budget since the foundation of the State summarised in one place. When people kick-up i.e. as a result of cuts to OAPs, then things change)
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Well I can certainly confirm that! On average it takes about a day and a half to complete a typical Swiss tax return! The biggest part involves assembling and tabulating all the documents needed to actually complete the tax return!
 
Hi Jim

Is that because Switzerland has low taxes?

It probably takes a bit more time for an artist in Ireland to complete their return to justify the tax exemption than it does for an ordinary self-employed person.

Brendan
 
Some really good ideas already, thanks everyone!

When talking about the tax system, I'm not just referring to the way in which the tax is levied/calculated, though that is a large part of it. I'm also referring to the level of unnecessary duplication involved in filing. I'm also thinking about how information which is available (and shared) across the public service is so poorly connected and so little used.

At its simplest, the question of taxes surely comes down to: this is what I earned/possess this year, and this is what I spent to be able to earn it, so tell me what to pay in taxes.

Brendan, my question about the how of achieving change was intended to get thinking going that might take a route different to the traditional models of change: revolution (no one pays taxes until things change-tried for the LPT and failed) and the model of influence and persuasion, working within the system that you propose. In any political system there's a balance, and a tension, between these two types of change processes. But, surely there's a better way for change to happen, one which isn't reliant on the ideological dogma of a group with sufficient mass and one which doesn't require the long-run approach of persuading and influencing within a system that is at once mired in lobbying and wary of lobbying. So, how can you rock the boat? Is there a better way, a more effective way? Just a question...
 
Brendan Burgess said:
Is that because Switzerland has low taxes?
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Well first of all we pay taxes at three levels:
- Local Taxes (the main part)
- County (a small amount)
- Federal (a very small amount)

Next there are no allowances, everything must be supported by documentation:
- Travel to work
- Lunch costs at work
- Business expenses
- Insurances etc....

And of course since most Swiss are heavily invested in equities and bonds there is usually a lot of dividends and interest to be documented.

We also do not have any PAYE system, we are paid gross, so you pay one lump sum or per quarter, your choice.
 
Orga said:
At its simplest, the question of taxes surely comes down to: this is what I earned/possess this year, and this is what I spent to be able to earn it, so tell me what to pay in taxes.
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Do you have any appreciation of how difficult it is to draft a tax code that is covers most of the basis, while remaining fair and reasonable to all...
 
Jim2007 said:
Next there are no allowances, everything must be supported by documentation:
- Travel to work
- Lunch costs at work
- Business expenses
- Insurances etc....
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Surely allowances are simpler, and should be part of the reform. If you have a sales rep on the road 5 days a week, surely it is easier to have a fixed lunch allowance of €10 per day, rather than to be collecting receipts and taking away the pint of beer that he bought with his own money but is on the same receipt etc.

Orga said:
Does it rock the boat too much to move from discussing issues to taking action so that the situation improve? What would it take for a movement to begin to, say, reform the tax code so that an average citizen who had passed their leaving cert could complete their tax return, say a Form 11, in under 2 hours, and without recourse to a tax adviser. For the sake of the example, the average person could have a PAYE job and a small part-time self-employed job, with savings in a few institutions. The Minister for Justice is attempting to codify legislation so that all the historic stuff since and prior to the foundation of the State is current and aligned. Why then is the tax system not being examined? When I read today of 10,000+ cases examined (http://www.thejournal.ie/revenue-pension-tax-1242219-Dec2013/) I have to wonder if the windfall was due to 10,000+ people willfully avoiding tax, or it, in reality it was the labyrinthine nature of our personal tax system which gave rise to this work for Revenue, work which would not be there were the system made clear, simple, and understandable.

So, the question is, HOW should a movement begin to rock the boat...and, secondly, is this boat worth rocking?
Click to expand...

This touches into a broader issue of simplification of public services, which goes way beyond the tax code. The new UK website https://www.gov.uk/ has done a great job of simplifying access to public services, using Plain English. They are doing a few transactions through that site also, taking a similar approach. I understand they are working on integration UK tax and social services in the same way.

If public bodies would just commit to using Plain English on all correspondence and websites, that would be a huge step in the right direction.
 
RainyDay said:
Surely allowances are simpler, and should be part of the reform. If you have a sales rep on the road 5 days a week, surely it is easier to have a fixed lunch allowance of €10 per day, rather than to be collecting receipts and taking away the pint of beer that he bought with his own money but is on the same receipt etc.
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In fact we already have what you suggest in Ireland. (In fact, we have two sytems to make it easier on such sales reps - one of an actual amount with a limit, and the other for actual costs incurred.)


RainyDay said:
This touches into a broader issue of simplification of public services, which goes way beyond the tax code. The new UK website https://www.gov.uk/ has done a great job of simplifying access to public services, using Plain English. They are doing a few transactions through that site also, taking a similar approach. I understand they are working on integration UK tax and social services in the same way.

If public bodies would just commit to using Plain English on all correspondence and websites, that would be a huge step in the right direction.
Click to expand...

Unfortunately the UK doesn't have a Consolidated Tax Act like we do for most of our main taxes. Their HMRC website is good - as an Irish reader of same - if you know what you're looking for, and have an idea re itsequivalent in Irish taxation.

Domestically, there are plenty of plain Engish taxation resources.
 
Kildavin said:
In fact we already have what you suggest in Ireland. (In fact, we have two sytems to make it easier on such sales reps - one of an actual amount with a limit, and the other for actual costs incurred.)
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Yes, I'm aware of that. Jim's suggestion seemed to be a retrograde step to me, which is why I queried it.

Kildavin said:
Domestically, there are plenty of plain Engish taxation resources.
Click to expand...
Any examples?
 
Summarising the discussion so far in a "scaled way" it would seem to me that there's an 8 out of 10 happiness level with the tax system. The main areas where improvement may be needed are around explanation and information.

I didn't want to "seed" the discussion too much at the outset but it is striking that no one raised the issue of reforming the fundamentals of the tax code i.e. the why, which and where of taxes that are levied. Instead, and perhaps understandably, the discussion has revolved around the how of paying taxes. But, surely, the purpose of taxes is to raise revenue to enable the State provide the services necessary for its citizens. If this is the case then where is the visibility and transparency around the use of tax revenue? Granted the recent changes to government accounting systems have given more granularity around budgets, yet the distance to travel is still considerable. But, even more basically, if you really want to rock the boat you need to find a sufficient mass who believe in values which resonate with the population to a degree which leads to action.

Ask yourself if you support the value and dignity of human life, of all people as deserving of a basic standard of living. If you do, then do you believe that a national responsibility is the elimination of poverty? But, do you still believe it if you have to pay more taxes, if you must pay fees for your kids to go to school, if you won't be able to afford Sky TV any more, if your mother/father/siblings have to cut back their private health insurance, if hospital waiting lists get longer? So, who decides what matters, what values are important to us as a nation-where is the conversation at a national level, because I know it doesn't happen in Leinster House? If you can judge values by actions then what values do you see when you look at the Celtic Tiger era? You see, I believe that taxes, like so much of governing and government, are not a financial exercise, they are a social function and I believe that, for the most part, this most necessary of perspectives has been lost in the busy-ness and business of government and politics.
 
Orga said:
If this is the case then where is the visibility and transparency around the use of tax revenue?
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I'm not clear on what additional visibility or transparency is required, beyond the current reporting of expenditure by public bodies?
 
RainyDay said:
I'm not clear on what additional visibility or transparency is required, beyond the current reporting of expenditure by public bodies?
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Rainyday, there are two aspects to the visibility: first, the visibility around why the decisions are made in respect of tax policy and secondly, visibility around reporting outcomes, which relates to both administrative issues and the social good achieved through the use of the generated revenues.

As a simple example (of where "good" is done IMO), basic foodstuffs are zero rated for VAT (in general) while cars carry a high rate of tax - the decision to zero rate foodstuffs while rating cars more highly stems from a view which aims to generate revenue from those who have the greatest means to pay while also ensuring that those who are of lesser means are not disadvantaged from attaining a satisfactory standard of living because of taxation.

Unfortunately, policy decisions which arise in the course of budget discussions tend to focus more on the art of the possible, with phrases such as "low-hanging fruit", "easy/quick wins" being more prevalent than discussions about social balance. An example where there was little visibility of what informed the policy was the decision around the changes to jobseekers' allowances in the 2014 budget i.e. those aged 18-24 get €100/wk, if aged 25 you get €144, and aged 26 you get €188 and then this becomes more complex if you take part in a BTEA scheme. Compare this with the decision to facilitate NAMA to expend €2 billion in the period 2011-2015 and the transparency around this decision. For example, key policy decisions which have significant budgetary impacts and potentially wide-ranging social effects are not accompanied by dialogue/information/narrative. P8 of a joint IMF, OECD, World Bank and UN report for the G20 states:
Taxation is integral to strengthening the effective functioning of the state and to the social contract between governments and citizens. By encouraging dialogue between states and their citizens, the taxation process is central to more effective and accountable states. Reforms which begin in tax administration may spread to other parts of the public sector.

Link:http://www.imf.org/external/np/g20/pdf/110311.pdf

I know...I'm writing too much...
 
This discussion reminds me of a wise comment that Albert Reynolds made about the tax system during his time as Minister for Finance.

"Tax reform is a complex task requiring a balanced approach. The solutions are not always simple. Very often simplicity is the enemy of equity."
[broken link removed]

Reynolds also said once (I'm paraphrasing, and maybe not doing him full justice) "the only meaningful tax reform is tax reduction". Again, wise in its own way.
 
ps Orga, this discussion is great but the lack of paragraphs in your two most recent posts makes them very difficult to read. Can you maybe please edit them? Thanks :)
 
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