Workers to have property tax taken from wages - confirmed
FINANCE Minister Michael Noonan is facing a series of major headaches in his urgent drive to get the new property tax introduced on time.
Mr Noonan admitted for the first time last night that PAYE workers will have the tax deducted direct from their pay packets.
But the prospect of wages being targeted at source raised a whole new series of problems, including:
- Concerns that farmers and the self-employed may be able to work the system to avoid paying the controversial new tax.
- Questions about how the tax might be collected from pensioners and others who are not earning a wage.
- Uncertainty about how the Government will measure the value of a person's land or property.
- Fears that if the tax is not introduced in January, then it will be backdated so taxpayers face higher payments during the second half of 2013.
- Opposition from city dwellers who may face a higher rate of tax for smaller houses than those in the country.
Mr Noonan yesterday said the Cabinet had yet to decide on the exact nature of the new tax, but he made it clear that wages would be targeted.
"All that has been decided is that there will be a property tax on family homes, and that property tax will be collected by the Revenue Commissioners by
Experts said collecting the tax "by deduction" meant workers would have the new property tax taken straight out of their pay packets.
It is understood the Government is planning to deduct the tax at source so as to avoid the level of non-payment it is experiencing with the household charge.
But this is expected to add to the unpopularity of the new measure, with workers likely to see a new line on their pay slips showing a deduction for property tax.
This will be in addition to deductions for income tax, PRSI (pay related social insurance), and the universal social charge.
Employers would be told by Revenue how much to deduct each week or month for property tax, while the self-employed and farmers will be required to declare and pay the tax as part of their annual tax return.
But there were indications last night that people on low incomes are set to be exempted from the new tax.
This could see some of the self-employed and some farmers avoiding the tax as their income may be below the threshold -- even though they have large homes.
This is similar to the current system of awarding third-level grants, where only the income of the farmer or self-employed person is assessed and not the value of assets like land.
Some tax practitioners claim the self-employed and farmers can manipulate their income to make it seem low.
Experts said that if the Government goes down this route, a retired farmer who no longer farms but has 200 acres could escape the property tax as his income would be very low. Leading property economist Ronan Lyons said this could lead to huge problems.
If the tax was not carefully designed, it could create a "two-tier" system, he said.
"Even if there was a perception that some people could play the system, it would make it very difficult to sustain the property tax. People would end up voting for anyone who promised to get rid of the tax."
Financial adviser Karl Deeter said a two-tier system would be created if salaried workers had no choice but to pay the tax, while others could get out of it through exemptions.
The property tax will be the successor to the current €100 household charge, which has some one million properties registered so far.
But 600,000 properties have yet to be registered by owners. In some counties, nearly half of homeowners still refuse to pay.
Mr Noonan said the Cabinet had yet to fully discuss exactly how the property tax will work. The details will be announced in December's Budget.
But this means it could be next summer before all the details are finalised, with a year's worth of tax having to be paid in six months, said Feargal O'Rourke, head of tax at accountancy firm PricewaterhouseCoopers.
"This will mean that people will find that they are paying the tax in full some time in the second half of 2013," he said.
Meanwhile, a new report by Mr Lyons warned that imposing a property tax on the value of houses rather than on the value of the site they are built on will delay economic recovery.
He said such a "value-based" property tax would mean people would have no incentive to renovate or insulate their homes.
But a site-value tax would aid economic recovery, the Oxford-based economist said. "The fairest form of property tax is a site value tax."