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The European Commission (EC) has expressed concerns about Ireland's narrow tax base and its reliance on corporate tax receipts.
In its Winter Semester country report on Ireland, the EC highlighted the dangers of Ireland's over-reliance on a small number of tax headings. In particular, it criticized the use of currently buoyant corporate tax receipts to fund permanent public spending increases.
The report pointed out that corporate tax receipts "tend to be a volatile source of revenue in most economies and particularly in Ireland."
According to the report, corporate tax revenue in Ireland can be "characterized as highly concentrated and prone to volatility."
It recommended that "a detailed examination of the risks linked to the composition of the Irish tax system could help to ensure that public finances have access to a broad set of revenue sources."
The report also contrasted the need for a broader tax base against the Government's decisions to extend various property tax exemptions, retain the nine percent value-added tax rate for tourism, and delay the revaluation of self-assessed property values.
It further cautioned that "cutting personal income taxes – if not adequately supported by a shift towards more growth-friendly sources of revenue – could significantly reduce revenue collection and have a regressive impact on income distribution which could increase inequality."
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