Irish Tax Reform needs further improvements
The European Commission has described Ireland’s system of labor taxation as fragmented and complex, has criticized its range of value-added tax (VAT) rates, and called for improvements to environmental taxes.
The comments are made in the Commission’s latest package of country-specific recommendations. In its analysis on Ireland, the Commission says that while tax reforms have contributed to recent efforts at fiscal adjustment, there is further scope to improve the efficiency and growth-friendliness of the tax system.
At the European Union’s behest, the Irish Government introduced a comprehensive residential property tax as part of a series of bailout-related tax reforms. However, the Commission contends that the tax base remains relatively narrow, because certain properties remain outside of the tax net.
The tax bases for consumption and environment taxes are also narrowed by reduced rates and exemptions. In particular, the Commission found that Ireland’s zero and reduced VAT rates result in a VAT-efficiency below the EU average. Moreover, these rates are deemed an inefficient policy tool for protecting vulnerable groups.
The Commission recommends that the Government consider what can be done to broaden the tax base and thereby support fiscal consolidation. Ireland is also urged to enhance the growth and environmental friendliness of its tax system and remove environmentally harmful subsidies.