ISME Urges Government To Boost Irish Competitiveness

by Jason Gorringe, Tax-News.com, London

18 October 2006

At a meeting on Monday with the Minister for Finance, Brian Cowen, to discuss its pre-budget submission, ISME, the Irish Small and Medium Enterprises Association, outlined that from an SME perspective this year’s Budget is of crucial importance, and could define the future of enterprises and the attitude towards entrepreneurial endeavours that are so important in helping to drive the economy forward.

Commenting on the submission, ISME Chairman Daniel Hickey observed that:

“Initiatives should be put in place to stimulate growth in the small business sector and to encourage entrepreneurship and help SMEs to grow and prosper, which by international standards they are currently failing to do.”

He informed the Minister that for too many years the concerns of small business has been ignored in favour of the multinationals and big business and suggested that it was time that this policy was corrected.

“The full implementation of the recommendations of the Small Business Forum would be a good indication that the plight of small business has been taken on board by the Government,” he stated.

Hickey outlined that a key issue in formulating this year's Budget, from an SME perspective, is to restore Irish competitiveness to allow business to compete with international trading partners, and provide a solid platform at home for the ongoing development and sustainability of the economy over the next number of years.

“With many businesses suffocating due to production costs increasing by 10% on average per annum, way ahead of our international competitors, it is essential that the Minister once and for all introduces initiatives to address the high cost environment. This is particularly important in the areas of energy and local charges, with increases in this area crippling many small companies throughout the Country,” he argued.

The Association’s pre-budget recommendations to the Minister were as follows:

Rewarding and Encouraging Entrepreneurship:

• ISME recommends that the system of tax credits on dividends should be reintroduced for owner/managers whereby the first EUR50,000 of dividends would be taxed at the standard rate of 20%.

Staff Remuneration Incentives for SMEs:

• ISME recommends the removal of the barriers that restrict use of approved profit sharing schemes and share option schemes for private companies.

Cost Competitiveness:

• Introduce an alternative energy policy without delay. Strong tax incentive measures should be introduced to encourage SMEs to invest in alternative energy projects.
• Further incentives should be introduced for investment in wind, wave, biofuels and other alternative energies.
• Address the inefficiencies that currently exist within the public sector.
• Redistribute the burden of commercial rates and water charges to other sectors including the State and domestic households.

Infrastructure:

• With the end of the SSIA scheme coming in 2007, the Government could switch its contribution to the scheme to spending on infrastructure projects.
• The Government should develop a strategic infrastructure programme for the period beyond 2006.
• All infrastructure projects should be time specific with contracts allocated on the basis that the project should be completed within a timeframe that compares to international standards. Work to be undertaken on a 24/7 basis to a much greater extent.

Access to Finance:

• Capital invested by family members for the purpose of establishing or expanding a new or existing family business should also receive some form of favourable tax treatment such as on dividends.
• The Business Expansion Scheme (BES) and the Seed Capital Scheme (SCS) should be extended to 2013.
• An increase in the BES/SCS investment ceiling to EUR2 million per company.
• To tackle the lack of genuine long term funding for SME’s seeking to grow ISME recommends the creation of a mechanism whereby those Institutions and individuals who are prepared to make long term equity investments in SMEs are granted a tax incentive.

Taxation:

• Increase the ceiling for payment of VAT on a cash receipts basis, from the current level of EUR635k, to EUR3million per annum.
• The discrimination against directors and the self-employed with regard to not being able to avail of the PAYE tax allowance should be rescinded.
• The introduction of double tax relief on all expenditure on R & D. The credit to be offset against the Corporation tax or Employers PRSI liabilities for the year in which the expenditure was incurred, or carried forward to offset against future liabilities.
• Full and immediate implementation of the recommendations of the Small Business Forum.

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