Richard Boyd Barrett
Question:71. Deputy Richard Boyd Barrett asked the Minister for Finance if he will clarify a taxation query (details supplied); and if he will make a statement on the matter. [29979/23]
View answerWednesday, 21 June 2023
Questions (71)
Written answers
The Universal Social Charge (USC) was designed and incorporated into the Irish taxation system in 2011 to replace two other charges, namely the Health and Income Levies. Its primary purpose was to widen the tax base and to provide a steady income to the Exchequer to provide funding for public services. It is a more sustainable charge than those it replaced and is applied at a low rate on a wide base.
The USC is an annual tax payable on an individual’s total income in a year, subject to a number of exemptions and reliefs. In particular, an individual is not liable to pay USC where his or her total income in the tax year does not exceed €13,000 and individuals aged 70 and over, or those who hold a full medical card, benefit from a lower rate of USC (provided their total income does not exceed €60,000).
Pensions, other than pensions paid by the Department of Social Protection, form part of an individual’s income for USC purposes in years in which they are paid and are charged to USC.
In computing the USC payable in a year, contributions to a pension fund are not taken into account to reduce the amount of USC payable as would be the case with income tax. As such, the USC payable by an employee is charged on the person’s gross income.
I have no plans to narrow the USC base by allowing relief in respect of pension contributions as it would run counter to the principle of keeping USC as broadly based a charge as possible. Its broad base helps ensure that the USC is a stable source of revenue for the State. While there is no specific USC relief on pension contributions, there is an exemption on retirement lump sums. Pension scheme lump sum payments at retirement are exempt from USC up to €500,000. Qualifying retirement lump sums in excess of €500,000 are subject to USC at the individual’s applicable rate.
Finally, it is important to point out that Ireland has one of the most progressive personal income tax systems in the world, which plays a crucial role in the process of income redistribution. Our redistributive tax system has been acknowledged by the IMF, the OECD and the ESRI. It is my view that a broad-based, progressive income tax system, where the majority of income earners make some contribution but according to their means, is the most fair and sustainable income tax system in the long term.