Budget: tax discriminates against self-employed still
Despite some kite-flying in relation to an increase in PRSI for the self-employed, there are no changes to income tax, PRSI or the universal social charge.
The self-employed are discriminated against under the existing tax system.
A PAYE worker earning €15,000 a year will pay €399 in taxes, compared to a self-employed person, who will pay €2,349 on the same income.
The Government is finally recognising that the tax system is discouraging self-employment, and although nothing has been done to correct this for existing business owners, long-term unemployed who set up a business will be exempt from income tax on the first €40,000 of profits per annum for two years.
From a farm perspective, extension of the ‘retirement relief’ exemption from capital gains tax, on the disposal of farm land, is being extended to include land let out under long-term leases.
Up to now, farmers who let their land out to third parties could have been exposed to capital gains tax on the eventual sale or transfer of that land — particularly where that land was passed outside of the person’s immediate family.
A provision did cater for an exemption from capital gains tax for those who availed of the Early Retirement Scheme, and who subsequently sold or transferred their farms outside of their immediate families — but this new announcement lifts one of the last major roadblocks.
Following this change, there will be a clear advantage to farmers who decide to lease out their land, with a potential exemption from income tax and now a safeguarding of their capital gains tax exemption.
The flat rate of farmers’ VAT is being increased from 4.8% to 5%, and, as correctly pointed out by the Minister for Finance, Michael Noonan, the flat-rate scheme compensates unregistered farmers for VAT incurred on their farming inputs.
Those of us who care to remember will note that the flat rate of VAT was previously 5.2%, from 2007 to 2012, and even though the top VAT rate increased to 23%, from Jan 1, 2012, it was somehow calculated that farmers have needed less by way of flat-rate VAT compensation since January 2013.
One of the more worrying announcements in the minister’s speech was that a cost-benefit analysis of tax relief and incentives is to be undertaken.
Mr Noonan said: “The objective of the review is to identify what works and what doesn’t, and redirect the existing level of tax expenditure towards activities of maximum benefit to this sector of the economy. This review follows recent reviews of property, film and R&D tax expenditures.”
Tinkering with the system could have huge impact on a large number of people in a sector that employs 150,000; farming is, after all, Ireland’s largest primary generator of economic output.
There are 30 tax rules applicable solely to the farm sector.
These include allowances for construction of farm buildings, leased-land exemption, young-trained farmer relief from stamp duty, and income averaging — just to name a few.
Most of these reliefs are not designed to provide incentives to agriculture, but to take account of the uniqueness of the sector.
In many countries, a reduced or nil rate of tax applies to agriculture, recognising that agriculture is a primary generator of output and a key contributor to exports.
The farming tax provisions were already subjected to an independent review during the Commission on Taxation review in 2009, and the vast majority of recommendations under that review have already been implemented.
It will be more than interesting to see what this new review, by these two departments, will bring up.
The Finance Bill will be published before the end of the year, which will finalise the tax changes announced by the Budget.
