Brian Lenihan: tax hike plan

THE Revenue Commissioners now have the software to implement a third rate of income tax should finance minister Brian Lenihan opt for a new higher rate in the forthcoming budget, a spokesman has confirmed.

There was intense speculation before last year's budget that Lenihan would go for a third rate of tax on top of the 20% and 41% rates currently in existence.

But the new rate never materialised as Lenihan was told that Revenue did not have the IT capacity to implement it.

"The introduction of a third rate of income tax would require extensive software development work by Revenue," according to tax documents released by Finance last week.

However, it was also pointed out to the minister that companies throughout the country would face major timing and cost issues in relation to the introduction of software capable of handling a new tax rate.

Payroll companies had written to the Department of Finance seeking a 12-month notice period for any major changes to the tax system.

As there were only three or four months left before such a rate would have to be in place, it was decided not to proceed.

But at the time Revenue was told to invest in "developing the capacity for a third rate of tax to facilitate the introduction of a third rate, if required".

On top of the IT and cost implications for payroll systems countrywide, there was also little enthusiasm for the introduction of a third rate, which was last introduced back in the recession-hit 1980s when the top rate spiralled to 65%.

"A third rate of tax would require a new second band. Transferability between spouses over different rates and bands would have to be clarified. This would add significant complexity to an already complex system," the minister was advised before last year's budget.