Refundable Tax Credit System Proposed in Ireland

July 6, 2010 Taxation in Ireland

Dublin -  Irish Government BuildingA proposal has been raised in Ireland to introduce a system of refundable tax credits, whereby an estimated 113,000 low income earners would be entitled to receive extra tax refund payments.

On July 6th the Green Party of Ireland released a statement supporting a Refundable Tax Credit (RTC) system. The RTC was proposed by Social Justice Ireland (SJI) in their report Building a Fairer Tax System: The Working Poor and the Cost of Refundable Tax Credits, released the previous day. The SJI, an independent political group concerned with social policy justice in Ireland, claimed that RTCs would be a cost-efficient fiscal policy to improve the economic situation of over 240,000 Irish nationals, after accounting for the children and dependants of low-income workers.

Currently, taxpayers in Ireland are allocated a tax credit on their income, which is not liable to be levied with personal tax rates. Typically, the credit is used to offset annual tax liabilities. The tax credit amount is calculated for individuals based on eligibility to several Government allowances and reliefs. Under the RTC proposal, earners with incomes too low to fully utilize their entire tax credit will be given a cash refund on the residual amount. According to the SJI, the RTC system is necessary to improve the overall fairness of the Irish tax system by extending the fiscal benefits of employment over receiving state welfare, and also allowing low-income earners to benefit from possible future tax credit increases.

The Irish Government has previously considered instating a RTC system, but dismissed its benefits after calculating a EUR 3 billion cost for implementing the concept. However, the SJI report disputes the figure, claiming that the total annual expense to the Government is unlikely to exceed EUR 140 million. Political analysts have commented on the discrepancy, saying that it might lead to the Government being obliged to once again consider the Refundable Tax Credit System under renewed political pressure.

Photo by jmenard48