Stamp Duty: Valuable Source of Tax Revenue or Unfair Levy that Hinders Investment?

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Research Methods
MBA Research Proposal Template

Student Name Kevin McGuinness Course MBA

1. Title (research topic)

Stamp Duty: Valuable source of tax revenue or unfair levy that hinders investment?

2. Background/context

Stamp Duty provided the exchequer with €2.73bn in tax revenues in 2005 or 7% of total exchequer returns[1] This revenue has increased dramatically in recent years due to the housing boom but since late 2006, evidence of a slowdown in property sales in prices has given a strong indication that stamp duty is likely to fall considerably in 2007 and 2008. While Ireland would be regarded in general as a low tax economy, Stamp Duty in Ireland is higher than most EU countries, with a top rate of 9% and is payable within 30 days of purchase. Many interest groups suggest reductions in stamp duty rates, whereas alternative options could include changing the administration of the tax. Conflicting views exist with regard to whether a significant reduction in stamp duty rates will increase the affordability of house prices (these are discussed in the literature review). The author wishes to test whether a change in administering the tax could have the desired effect. Specifically, the model would involve analysing a system whereby stamp duty, instead of being paid upfront, is paid over a period of time, probably in line with the length of the mortgage. This could reduce upfront costs of purchasing a house. It could be linked to the income tax relief for mortgage interest (known as TRS) Overall Research Aim: To analyse whether a particular model for stamp duty reform is capable of making residential property prices more affordable and how effective it could be in stabilising the property market. As a qualified tax consultant and a potential house buyer in the future, stamp duty and tax in general is a major area of interest of the author and with the strong public interest in house prices and the significant role of the construction industry in the Irish economy, the issue of stamp duty as a matter of government tax policy has become a massive topic in recent years. While the government has made significant and favourable changes to stamp duty in recent years, there is a perception that they may need to do more in the current economic environment. The types of research adopted will be explorative i.e. to test a new model and discover whether it is likely to be effective or manageable, and explanatory i.e. to analyse the relationship between a change in stamp duty rates and any possible change in residential property prices.

3. Initial Review of the Literature

As stated above, this topic has been very high priority for political parties, both in terms of the recent General Election and in the last number of Budgets. As a result, economics editors have made reference to it on numerous occasions in the national media. Various interest groups, such as the Institute of Auctioneers and Valuers in Ireland (IAVI)[2] have lobbied for further stamp duty reform. This has in the main involved calling for reduced rates of duty. However, Davy Stockbrokers express the view that a reduction will merely benefit the sellers and developers as they could upwardly adjust their prices accordingly. The report also stated that a reduction in stamp duty would result in the tax shortfall being financed elsewhere.[3]

4. Research Questions and Objectives
Research questions:
1. Where does stamp duty rank in terms of influencing the purchase of residential property, when compared to interest rates, affordability etc? 2. What would be the likely outcome from a significant reduction in stamp duty rates in relation to the property market? 3. Could a change in administration (as opposed to a reduction) in stamp duty contribute towards more affordable house prices in the long run?

Research objectives:
1. To discover where stamp duty is placed by the market in terms of...
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