Stormont should have some power over income tax rate setting, report says
Stormont should have partial control over the setting of income tax rates and brackets in Northern Ireland, a commission has recommended.
In its final report, the Independent Tax Commission for Northern Ireland also stated that there should be a transfer of Stamp Duty Property Tax, Landfill Tax and Air Passenger Tax to the decentralized legislature.
The only revenue-generating power that was previously used by the executive is the charging of regional tariffs for households and businesses.
Although the administration gained the ability to set its own corporate tax rate in 2015, it never used it to deviate from the UK-wide corporate profits tax.
In its report, the commission made 23 recommendations which provide a framework for implementing further fiscal decentralization for Northern Ireland.
Chairman Paul Johnson said: “As a commission, we have established that there is a strong case for ceding some taxing powers to Northern Ireland to accompany the extensive powers currently enjoyed by the executive over public spending.
“Delegating additional powers would increase the executive’s accountability to the people of Northern Ireland and provide additional tools to stimulate the economy, raise or lower local people’s taxes and change behaviour.”
Mr Johnson acknowledged the report was being launched at a time when Northern Ireland did not have an executive in place, but said the recommendations would take time to consider and reach consensus.
He added: “We hope all parties will take the opportunity to review our report as they prepare for the resumption of devolved government.”
Mr Johnson said: ‘We recommend partial income tax decentralization under which the NI Assembly would have some control over income tax rates and potentially brackets, but where the administration would continue to be carried out by HMRC.
“Most importantly, it would give the NI Assembly the ability to increase revenue, reduce taxes, or vary the progressivity of its tax system, without taking on the added complexity and significant administrative and compliance burden that a complete decentralization of the tax.
He added: “We also recommend the complete decentralization of stamp duty land tax, landfill tax and air passenger duty.
“We recommend that if these taxes are decentralized, the executive should establish a local revenue authority to administer them.
“This will increase local politicians’ accountability for these taxes and provide greater policy flexibility and innovation, while building institutional capacity in Northern Ireland.”
The report also indicates that it is useful for the executive to complete the decentralization of corporate taxation.
Mr Johnson said: “This should be done in close cooperation with the UK Government, with an understanding of how the additional powers would be used and agreement on how any reduction in the main rate of corporation tax would be paid.”
The commission also considered the possibility of the executive branch requesting the decentralization of excise duties.
Mr Johnson said: “Given the existence of the land border with the Republic and their relevance to decentralized health and transport policies, we consider it would be helpful for the NI executive to seek decentralization excise duties on fuel, alcohol and tobacco, but in the longer term.
“We have identified complex administration and compliance issues and further work is needed to determine exactly how the decentralization of these tasks could be operationalized and the corresponding costs involved.”
He concluded: “There is no technical barrier to decentralizing a number of other long-term taxes, but if Northern Ireland is to move towards greater tax decentralisation, we believe that ‘it should start with no more than one major tax, income tax, and a few smaller taxes, and progress from there.
“While there are benefits to be gained from fiscal decentralization in terms of political accountability and the adaptation of local policies to local needs, increased fiscal decentralization carries risks.
“If incomes were to grow more slowly than in the rest of the UK, Northern Ireland could lose. And it is possible to make policy mistakes.
“Ultimately whether or not devolution happens remains a choice for politicians in Northern Ireland and the UK, but we believe that some fiscal devolution could be an important step towards more accountable devolved government. for the people of Northern Ireland.”
The commission was one of two tax bodies set up by Finance Minister Conor Murphy under the terms of the New Decade Deal and New Approach which restored power sharing to Stormont.
The other is the NI Fiscal Council, which will provide ongoing independent oversight of Stormont’s budget process.
Speaking at the launch of the report, Mr Murphy said: “This landmark report clearly identifies the potential benefits of increased local control over taxation.
“More taxing powers would allow locally elected ministers to set taxes according to local needs and circumstances.
“It would give us more options to grow the economy, increase utility revenues and encourage the transition to zero carbon.
“Administering more taxes also presents practical challenges and the report makes useful recommendations in this regard.”