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The IMF has urged Ireland to ensure that it has a broad tax base, particularly in the context of international tax reform and domestic pressures to reform the Universal Social Charge (USC).
The IMF has published the findings of its latest mission to Ireland. It noted that healthy economic growth is expected to continue, albeit at a "moderating pace," and that Ireland faces several challenges.
On the tax front, the IMF noted that "ongoing changes in corporate taxation at the international level and discussion of further reforms in the US and the EU contribute to uncertainty given the sizable role of multinationals in the economy and their substantial contribution to the tax base."
The US Government has proposed a reduction in the corporate tax rate from 35 percent to 15 percent, while the European Commission continues to push for the adoption of a common consolidated corporation tax base.
The IMF said that such developments reinforce the need for a broad Irish tax base and "large fiscal buffers."
It added that "recent corporate tax windfalls point to concentration risks and potential volatility." It stressed that temporary revenue gains should not be used by the Government to fund permanent budget measures, and that "unexpected revenue upsides should be saved."
The IMF also noted continued calls within Ireland for the unwinding of the USC regime, introduced during the economic crisis. The Government introduced some changes to the USC at the last Budget, designed to ease the burden on lower income workers, and has pledged to phase out the levy.
The IMF said: "A more comprehensive and evenly distributed tax on individual earnings is important if Ireland is to have the resources to address priority needs in a sustainable manner."
The IMF recommended that the Government consider a review of tax expenditures, reduce VAT exemptions, and align property assessments to increasing market values. It said these measures would strengthen the revenue take.
The IMF also assessed the likely impact on Ireland of the UK's decision to leave the EU.
According to the IMF, Brexit "represents the most pressing and far-reaching challenge for Ireland." It said that the medium-term effects are expected to be negative and significant, and that the most acute risks will be faced by traditional sectors that depend on trade with the UK. This is likely to have consequences for activity and employment outside Ireland's main urban centres, it explained.
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