Ireland Introduces New Household Tax

by Robert Lee, Tax-News.com, London

29 July 2011

The Irish government has introduced a levy on the majority of households in order to pay for local services and meet commitments made to its bailout creditors.

The imposition of the new Household Charge was announced by Phil Hogan, the Minister for Environment, Community and Local Government, on July 26. The tax will be payable from early 2012, at an initial rate of EUR100. Hogan said that the levy is in line with the European Union (EU)/International Monetary Fund (IMF) agreement, and is designed as an interim charge which will have effect while the government works toward the implementation of a full property tax. The Memorandum of Understanding with the EU and IMF commits Ireland to the introduction of a property tax for 2012 and to an increase in the property tax for 2013.

According to Hogan's department, the charge is another step in reforming the way local authorities are funded, as it follows the introduction of the charge on non-principal private residences (NPPR) in 2009. It will mean that local representatives can prioritise services, making funding more efficient, transparent and relevant to their community, and will contribute to fund local services such as fire and emergency services, libraries, street cleaning, lighting, and planting, among others. The Exchequer currently contributes to the funding of these services, but the Department has said that, given the current difficult Exchequer position, the funding now needs to be collected locally, through the introduction of this charge.

The tax will be collected by the Local Government Management Agency (LGMA), with the process based on the principles of the NPPR charge, or via post or online. The running of the system will be informed by four principles: there will be a self-declaration basis; administration costs are to be kept to a minimum; late payment penalties will apply, and, if the charge remains unpaid, the charge will remain attached to the property, meaning that if a property is sold, the new owner becomes liable.

Based on the number of properties liable to the charge, the levy will raise an estimated EUR160m. The revenue raised will be paid into the Local Government Fund and then allocated back to local authorities through General Purpose Grants. This system is intended to ensure that authorities with low population figures will not suffer unduly as a result. The liability date will be January, 2012 and households will have three months to pay. Failure to do so will result in late payment penalties of EUR10 a month.

There will be six exemptions available: properties that are part of the trading stock of a business (not sold or not generating an income); social housing, including voluntary and cooperative housing units; properties owned by the government or Health Service Executive; properties owned by a charity; properties where commercial rates apply, and instances where a person is forced to leave their house due to long-term mental or physical infirmity (for example, where an elderly person has moved into a nursing home). Waivers will apply in the case of those in receipt of mortgage interest supplement, and those in certain category 3 and 4 unfinished housing estates.

Hogan said of the plans, “If we want to continue to have the level of local services we expect, such as fire and emergency services, well maintained streets, public parks, waste services, libraries, open spaces and leisure facilities, we have to be willing to contribute towards paying for them."

He added, “I understand that the introduction of the charge, even though modest at less than the equivalent of EUR2 a week, represents an additional cost for all homeowners so I intend to facilitate households in paying it over a number of instalments. I have also sought to protect the most vulnerable in society by excluding those on mortgage interest supplement. Those in certain unfinished housing estates will also have the charge waived.

“It is internationally accepted that local services are administered by local authorities and financed by local service charges. Ireland is now moving along a path to a local and sustainable funding base for local government. Effective local governance requires strong local decision making. This new funding system for local government will continue to allow local authorities to prioritise expenditure to meet locally identified needs as part of the local authority’s budgetary process, making for a more efficient, accountable and effective funding system. This is local democracy in action”, Hogan concluded.

The decision to place responsibility for collection in the hands of local authorities has come under fire from Chartered Accountants Ireland. According to the Institute, the Revenue Commissioners should assume responsibility instead, and it warns of the likely inefficiencies which will arise were the plans implemented in their current form. Tax Director Brian Keegan argued, "A universally applied charge on home owners means that factors such as ability to pay have to be taken into account. Under the Four Year National Recovery plan, the new charge will eventually become some form of permanent property tax. It is important to get the collection, administration and appeals mechanism correct from the start”.

The Institute believes that this new charge would not be the same as the NPPR levy because exemptions and reliefs would have to be granted, depending on the householders circumstances, thus making it more complicated to operate. It is also pointed out that the Revenue Commissioners already hold the salient information and the collection mechanisms to administer the tax equitably and fairly. Keegan explained, “traditionally there has been strong resistance to property taxes in this country. Unlike the Non Principal Private Residence levy, a household charge will have a far wider reach, yielding very significant amounts of money over time. It would be inefficient not to devolve collection to Revenue".

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