Revenue needs extra resources to ensure a sustainable tax system that can attract the world’s biggest companies – The Irish Times
Last Tuesday’s budget announced various new tax measures and flagged possible challenges that could impact the sustainability of our tax revenues.
But what about the body charged with making these changes and making the tax system sustainable, the Revenue Commissioners? As the gatekeepers of the tax administration, playing an increasing role in tax policy at home and abroad, does the tax administration have the resources to put in place the world-class tax system needed to support our economy? In our view, more could be done to support this essential office.
The Revenue Service is called upon to provide world-class tax service, as expected by domestic businesses and the world’s largest multinationals based here in Ireland. This includes not only administering the tax system and collecting taxes, but also implementing tax policy changes, simplifying the tax code, managing any remixing and broadening of the tax base, and advocating positions of taxpayers internationally.
Although we are focused on maintaining a competitive and stable tax system, tax laws are ultimately only as effective as the administration that supports and controls them – and the systems, technology and people employed to administer the laws. are an integral part of this. In particular, in our experience, lack of resources results in revenue decisions taking longer than is desirable for businesses.
Revenue has already invested heavily in technology and digital transformation enabling digital audits and real-time reporting, with some 6,000 of its 7,000 employees now working from home
Revenue must be fully funded and funded to meet the major challenges of administering and expanding existing taxes while meeting new international tax standards. However, spending reports released last week as part of Budget 2023 suggest revenue is being asked to do more, much more, with the same level of funding.
The estimated income from its expenses for 2023 amounts to 507 million euros, an increase of 2% compared to 2022 levels. It is broken down into 486 million euros of current expenses (salaries, office, etc.) and 21 million euros in investments (delivery of longer-term projects).
A rewriting of the existing tax code is currently necessary with a view to consolidation and simplification. Periodic revisions and rewrites (every 15 or 20 years) should be part of the legislative process, arguably even more frequently when many changes are underway. The last consolidation of the Taxes Acts dates back to 1997, 25 years ago. Without these rewrites, old and redundant pieces of legislation remain in place, harming taxpayers and the tax administration, with an increased cost of compliance for everyone.
If we were to move away from taxing labor and profits towards wealth and assets (as suggested by the OECD, the Tax and Welfare Commission and others), this would require an investment from the taxman ( and others) to be effective. Remixing our tax base is a longer-term possibility, but there are also immediate demands from the taxman, for example, administering the new temporary business energy support program, phasing out Covid programs including TWSS and the EWSS and assist the Ministry of Finance with the consideration of a possible third income tax rate. We don’t see a corresponding investment in revenue to facilitate this.
Revenue has already invested heavily in technology and digital transformation enabling real-time digital audits and reporting, with some 6,000 of its 7,000 employees now working from home. Ireland performs well, according to the OECD, in terms of tax administration, but there are increased ambitions to develop real-time reporting and the use of data intelligence and analytics.
This will require increased capital investments. In our experience, to take advantage of digital transformation, effective change management is also necessary, alongside improving people’s skills and digitizing processes. All of this requires human and financial resources.
Tax disputes are increasing and will continue to increase if the OECD tax reform continues. But are we prepared for this increase? Revenue has invested in the tax treaty division and supporting taxpayers in international litigation in recent years, but more will be needed as the global tax landscape changes.
In the face of non-compliance, Revenue managed to optimize the use of its resources and maximize the effectiveness of its compliance interventions. On average, some €500 million is collected each year by Revenue through its audit and compliance intervention activities, meaning that it is self-sufficient from the point of view of the public purse. For a tax administration that deals with the largest companies in the world, it punches above its weight while still performing by international standards in change management and digital transformation.
The need to provide a world-class tax system risks being undermined if the supporting tax services and institutions are not also world-class. We think Revenue is doing a great job, and their work is so important. However, we are concerned that it lacks the adequate resources and support to ensure a sustainable tax system that can attract the world’s biggest companies in the future.
Susan Kilty, Head of Tax, PwC Ireland