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Ireland's Austerity Budget Approved

by Jason Gorringe,, London

09 December 2010

A tough austerity budget which heaps further pain on Irish taxpayers was approved by Ireland's parliament on the evening of December 7, although the government has maintained its commitment to low corporate tax.

While income tax rates have been left on hold, including the country's sacred 12.5% corporation tax, the budget lowers the thresholds at which individuals begin to pay income tax, and reduces the value of several individual and family tax credits by around 10%. Pay-as-you-earn taxpayers earning over approximately EUR16,000 per annum will come into the income tax net for the first time since 2006 as a result.

The budget abolishes the Health Levy and Income Levy and replaces it with a new Universal Social Charge in 2011 levied at four bands between 0% and 7%. This measure is, however, designed to be revenue neutral.

Under other income tax measures, the 35% Relevant Contracts Tax will be replaced with a dual rate withholding system at the following rates: 20% for subcontractors registered for tax with an established compliance record; and 35% for subcontractors not registered for tax.

Almost a dozen tax relief schemes are to be abolished from January 1, 2011. These include rent relief (to be phased out over eight years), tax relief on loans to acquire an interest in certain companies, tax relief for trade union subscriptions, tax relief on subscriptions to professional bodies, capital expenditure on new machinery and plant for use in mining, tax relief for new shares purchased by employees, and, effective November 24, 2010, the Patent Royalty Exemption. There will also be a phased abolition of property-based 'legacy' reliefs.

The austerity package will also restrict capital allowances from the date of the budget announcement, but there was a modicum of good news for business with the announcement that the three-year tax exemption for start-up companies is being extended to firms commencing trade in 2011, and that the accelerated capital allowance for expenditure on energy-efficient equipment is being extended for three years to the end of 2014.

Brian Keegan, Chartered Accountants Ireland Tax Director, noted that the tax measures announced in the budget will actually exceed the targets set out in the recent four-year deficit reduction plan, and that most of the pain will be felt in the first year. However, he welcomed the news that corporation tax will not be increased, despite mounting pressure from the European Union, which is providing funds as part of a fiscal bail-out package.

"Employees and the self employed, private sector and public sector alike are being asked to dig deep," he observed.

"The best news for business in this budget is that the Corporation Tax rate is unchanged," Keegan added. "Retaining our ability to compete for and retain investment will fuel job creation and the export-led economic recovery which is essential for the country."

TAGS: individuals | compliance | tax | investment | business | Ireland | mining | interest | employees | budget | corporation tax | contractors | tax rates

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