Construction: Tax reform to help workers and cut fraud
DESCRIBING the construction sector as having been at the "vortex" of Ireland's economic downturn, Finance Minister Brian Lenihan yesterday sought to reinforce protection for building workers from predatory operators hoping to capitalise on the dearth of work opportunities among the tens of thousands of unemployed.
Mr Lenihan told the Dail he was introducing "significant reform" of the Relevant Contracts Withholding Tax (RCT) in order to bring in the additional protection, while the alterations will also free up additional important cash flows for contractors.
The RCT applies where a company or an individual working in the construction, forestry or meat-processing industries engages another company or individual to provide services.
Under current legislation, the RCT ensures that a principal contractor retains 35pc of the amount payable to contractors or sub-contractors who have been hired to carry out work on a particular project if they have not produced valid revenue authorisation and a so-called Payments Card.
That money is then handed over by the principal contractor as a tax to the Revenue Commissioners.
"To foster compliance, a new withholding rate of 20pc will apply to subcontractors registered for tax with an established compliance record, with the existing 35pc rate retained for subcontractors not registered for tax," said Mr Lenihan.
"In addition, the system will be strengthened to enhance its effectiveness and reduce the opportunities for fraud."
That "strengthening" will include a stricter reporting system for principal contractors in order to enhance compliance.
"The proposed changes provide a cash flow benefit to registered subcontractors that will enable them to compete for business on a level playing field," added Mr Lenihan.
The Construction Industry Federation (CIF) said yesterday that it welcomed the new Budget measures, which will include the abolition of the monthly repayment system and replacement with an offset system.
"We estimated in our pre-Budget submission that up to €350m is being lost to the Exchequer as a result of the black economy in construction," said CIF director general Tom Parlon.
He added that changes will be welcomed by the "legitimate" construction industry.