The property tax will be on a graduated scale based on the size or value of a house and the details are due to be worked out over the next few months.
Under the terms of the EU-IMF programme a graduated system of property tax was not due to be put in place until 2014 but Ministers have taken a decision to speed up the process.
The Government has approved a decision to establish an expert group to recommend an appropriate system of property tax which would be established on a graduated basis rather than a flat charge.
The expert group, which will be chaired by a representative of the Revenue Commissioners, is due to report back to Minister for the Environment and Local Government Phil Hogan by next April.
The Cabinet agreed to proceed to a quick decision on the basis of the report from the expert group with a view to having a comprehensive property tax system in place by 2013.
Whatever system is agreed by the Government, most householders will have to pay considerably more than the €100 flat charge for 2012 which is due to be paid by the end of next March.
The absence of a property tax is widely regarded by economists and policymakers as one of the weaknesses of the Irish tax system. One of the key ambitions of the EU-IMF programme is to widen the tax base so that extra taxes do not fall on work as the Government tries to raise extra revenue.
The Commission on Taxation, which reported in 2009, stated: “We consider that as a matter of general principle all property should be subject to recurrent taxation, either through the local government commercial rates system or an annual tax on residential property.”
The commission recommended a system of property tax that would raise €1.2 billion a year, which is eight times greater than the €160 million that will be raised by the €100 charge.
Under the commission’s proposed scheme a charge of €188 would be paid on houses valued at up to €150,000; €563 on houses between €150,000 and €300,000; €938 on houses up to €450,000; €1,313 on houses valued at up to €600,000; €1,699 on houses up to €750,000; €2,188 on houses valued at up to €1 million; €3,125 on houses up to €1.5 million and 0.25 per cent of the valuation on houses over that.
The commission’s calculations were based on 1.9 million houses paying the tax at a rate of 0.25 per cent to the midpoint of the valuation band.
The report also did a calculation applying a rate of 0.3 per cent at the midpoint of the valuation band designed to raise €1.5 billion and the rates were higher again.
Under the scheme proposed by the commission, the current second home charge of €200 a year would be absorbed into the new property tax system.
The system proposed by the commission was based on self-assessment and whatever scheme is ultimately adopted by the Government is also likely to be on a self-assessment basis.
It is unlikely that the scheme to be adopted by the Government will be as onerous as that proposed by the commission, particularly given that there are local and European elections in 2014, the year after the charges are likely to come into effect.
Water charges are due to come into operation later in 2014 once the country has been fully metered as part of the programme to widen the tax base.
Residential property was subject to local government rates from the foundation of the State until 1978 when the system was abolished by Fianna Fáil after the party won power on the basis of a number of election promises, including the abolition of rates, made in its 1977 election manifesto.
A residential property tax was introduced by a Fine Gael-Labour Party government five years later. It was based on a charge of 1.5 per cent of the value of a house when the market value exceeded a specified rate.
The tax, which was based on self-assessment, never raised a significant amount of revenue, mainly due to lack of compliance. It was abolished in 1996.
