The government has been called to reduce income and expenditure taxes because the Exchequer tax is increasing as prices rise. This is hitting consumers with a “surprise tax”.
Consumers have to pay higher taxes as the deepening cost of living crisis is weighing on household spending.
Taxback.com CEO Joanna Murphy said workers affected by inflation will look to mitigate its impact by negotiating a pay rise this year.
But a fundamental consequence of this could be that up to 50 percent of hard-won pay raises will be taxed extra, benefiting the Exchequer rather than the employee.
This additional tax is a surprise for the Government and will ensure that the wage increase does not fully offset the impact of inflation, she said.
She called on Treasury Secretary Paschal Donohoe to ensure that the Exchequer “does not unfairly benefit from stealth tax revenue that pays wages” due to inflation.
Ms Murphy said: “At a time when workers are under significant financial pressure, the Government should eliminate this additional tax by adjusting the tax rate or margin.
She says that as larger numbers demand higher wages, rigid income tax margins will ensure that more people move to higher tax rates.
“So even though they may succeed in increasing wages by 5 percent to match inflation, if they move to or are already in a higher tax bracket, the tax officer will get half the increase that they sought from their master.”
The Taxback.com boss says that for an employee with a typical income of €40,000, a 5pc increase would net them an extra €2,000.
But around €1,000 of that will go to the Government.
“We believe the tax margins should be widened to avoid this situation and in relation to the cost of living in the future.”
She said that as the price of goods increases, so does the portion of Vat collected for each sale.
And the tax increase is reinstated even though Vat is inflationary. If left unchecked, it will lead to inflation and more wage demand.
https://www.independent.ie/business/personal-finance/finance-minister-paschal-donohoe-urged-to-widen-tax-bands-to-offset-effect-of-inflation-on-much-needed-pay-hikes-41443377.html Finance Minister Paschal Donohoe calls for widening the tax band to offset the effect of inflation on much-needed wage increases