Sharon Keogan: Push for Automatic Tax Reporting on DSP Payments

It's great to see you in here Minister Khediri and I wish to raise this matter that while it may appear technical on the surface, has very real consequence for ordinary people in this country. I'm calling on the Minister, yourself, to make a statement on the need to move towards a more universal system where all taxable Department of Social Welfare protection payments are automatically reported to the Revenue Commissioners. At present our system is inconsistent. Many DSP payments are already reported to the Revenue in real time. Payments such as state pension, job seekers benefit, maternity benefit and one parent family payment are integrated into the PAY allowing tax to be collected during the year in a relatively smooth and predictable way. However, that is not the full picture. There remains a category of taxable DSP payments, often older and more specialised schemes, where this integration has not taken place. The following payments are not automatically reported. The bereaved partner's pension, the blind pension, the death benefit, the deserted wife's allowance, the deserted wife's benefit, the disablement payment. Instead we rely on individual receipts to declare them manually. The consequences of all of this is very real. Imagine a person who has worked all their life, now in receipt of a modest pension alongside a smaller welfare payment. Or think of someone's grandmother who receives one of these legacy supports. They are not tax experts. They reasonably assume that if the state is paying them an income, their tax due is being handled. And then at the end of the year, without warning, they receive a tax bill. Not because they did anything wrong, but because the system relied on them to know something that would not be obvious to most people, that their particular payment was not reported automatically. That creates stress, it creates confusion, it undermines confidence in the system. And it is especially frustrating because it is entirely avoidable. There is a further dimension to this, because many of these payments are older legacy schemes. They are by definition more likely to affect older and more vulnerable citizens. They are the people least equipped to navigate a complex tax system, and they are the ones most exposed to its gaps. Which brings me to the central point. This is the modern digital age. We have a PAY system that operates in real time across the vast majority of incomes. Public bodies share data seamlessly. The state already has the mechanism in place, as shown by the many DSP payments that are already integrated. So why are we not joining the dots? Now, do I have to say well done to the government for adding the carers benefit allowance to the automatic reporting system, but I do have to say that it is a bit shocking that this was only done this year. That should not be the case. If the state makes a payment, and that payment is taxable, then it should follow as a basic principle that it is automatically reported the revenue. That should be the default systematic assumption, not something that depends on the type of scheme or when it was introduced. Instead, what we have is a patchwork system. Payments have been added here and there over time, often in response to issues as they arose, rather than designed from the outside as part of a coherent whole. Now, to be fair, let's focus on the positives. Ireland overall has a very good tax system, compared to many other countries. It is efficient, relatively simple, and real-time in its operation. I have to say the Revenue Commission is probably the best arm of the state. But it is precisely because of that strength that we should be aiming higher. Where gaps exist, particularly gaps that affect ordinary people in their day-to-day lives, we should be closing them, and this is one of those gaps. So accordingly, I am asking the Minister to set out whether the Government intends to move to a universal model of automatic reporting on all taxable DS payments, and if not, to explain why a reform that is so practical, so achievement, or so clearly necessary, has not yet been implemented, or if they are going to maybe make all these payments tax-exempt. Thank you, Minister. Thank you very much, First Minister. I would like to thank Senator Kilgan for raising this and firstly, Senator, as you have intimated, it is important to note that individuals are responsible for income reporting to Revenue Commissioners. Any Department of Social Protection that is taxable, the decision letters clearly state when the payment is awarded, this information is shared with Revenue or whether the customer needs to notify Revenue themselves. It is a general principle of taxation that in the absence of a specific exemption, all income from whatever source is income for tax purposes, and this includes amounts paid to an individual by the Department of Social Protection. Responsibility for taxation policy, including the tax treatment of social welfare payments, rests with the Minister for Finance and is administered by the Revenue Commissioners. All payments from the Department of Social Protection are considered taxable unless specifically exempted from income tax. The legislation governing the taxation of social welfare payments is in sections 19 and 126 of the Taxes Consolidation Act 1997, which was amended in 2018 to clarify which payments are exempt from the charge to tax. It should be noted that these payments are subject to income tax but exempt from the universal social charge and PRSI. In order that Revenue can ensure that the right amount of income tax is collected in a timely manner, my department reports details of these taxable payments to them on an ongoing basis. There are currently 20 scheme types on this taxable payments report, with nearly 1 million customers, including state pension contributory and non-contributory, illness benefit and invalidity pension payments. There are a few very small schemes with only approximately 18,000 customers in total that are not yet included on the report. My department exchanges the taxable payments report with the Revenue Commissioners each week, giving details of the customer scheme and taxable amount. Such data exchanges between the department and the Revenue are permitted within the Social Welfare Consolidation Act 2005. Where a person also has an additional source of employment or occupational pension income, the mechanism used to collect tax due is by reducing the person's annual tax credits and rate bound by the annual amount of their social welfare income. This ensures that the Department of Social Protection payment is paid gross to the recipient whilst the salary or pension as paid by their employer will have any tax due on both the social welfare payment and the employment deducted from it. Senior officials from my department engage regularly with Revenue through a joint high-level group which meets to discuss matters of mutual interest. The high-level group are currently in discussions about including those last few taxable social welfare schemes on the taxable payments report. We should endorse your remarks, Deputy, about the Revenue Commissioners and their work. I want to thank you for raising this issue and I will continue to keep in touch with you on the issue as we progress towards sharing the information. Thank you and look Minister, I thank you for engaging me with me on this particular issue today. Informing people is not the same as designing a system that works for them. The system shouldn't depend on whether a citizen happens to understand a technical distinction between reported and non-reported payments. Where the state can take care of the issue, it should take care of the issue, simple as that. These payments are complex, then it's pushed on to the citizen and that's not acceptable, nor is it an efficient way. You're taking the burden off the complex administration where the civil service is best able to handle and putting it on to the citizen who is less equipped to understand the issue, which will only result in more time and resources being spent to correct errors. We all know when you owe the revenue, you owe the revenue, whether it be in life or in death, and that payment is taken. Maybe it's something that you could take on board in relation to it, and maybe in relation to making the tax exempt completely in recruiting carers. Thank you. Thank you, Senator. The matter of tax exemption is a matter for the Minister of Finance, but I can assure you we want to ensure that our payments, which are lifeline to so many, do not lead to a build-up of tax liability. I absolutely want to avoid a situation of surprise or anxiety. I'm totally with you in that. That's why we share the data in relation to taxable social welfare payments. We share those on a weekly basis to allow the tax to be deducted throughout the year rather than at the end of the year. As I've gone through the method, it's very clear, Senator, I can assure you that on decision letters that issue, would that customer themselves need to notify revenue or whether we include it. So it's the customers told whether they need to notify revenue or whether we include it on the taxable payments report. As I said, we have schemes. There's about 18,000 customers on six schemes now that aren't on the weekly taxable payments report, and we are working towards including them. But I can assure you we want to emphasise I don't want a situation where customers of the Department of Social Protection end up with a build-up of tax liabilities, and we're working towards that.