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Ireland's SMEs Seeking VAT, Income Tax Cuts

by Jason Gorringe, Tax-news.com, London

01 August 2017


The Irish Small and Medium Enterprises Association (ISME) has urged the Government to cut VAT and improve the income tax and capital gains tax (CGT) regimes as part of Budget 2018.

Launching ISME's pre-Budget submission, Chief Executive Neil McDonnell said: "This government must act prudently and sensibly in these challenging times. Greater investment in our infrastructure, [a] reduction in VAT, and investment in our training/skills programs will enable our economy to deal with the challenges and opportunities presented by Brexit."

According to the submission, "the top rate of VAT is acting as a disincentive to spend in the economy." ISME recommended that the top rate be reduced from 23 percent to 21 percent, to boost domestic demand. It said that the special nine percent VAT rate for the tourism and hospitality sector should be retained as a permanent rate, and expanded to all labor-intensive industries.

ISME also argued that, at 33 percent, the current headline rate of CGT is discouraging investment. The rate was increased from 20 percent in Budget 2009. ISME said that reducing CGT rates would increase the yield from the tax and stimulate investment in the economy. It recommended the reduction of all business CGT rates to 20 percent, along with the reintroduction of inflation indexation relief and "roll-over relief" for re-investment.

In a similar vein, the submission called for the CGT Entrepreneurs Relief to be improved. It offers a reduced, 20 percent rate on eligible gains, but ISME said this should be cut to 10 percent, and that the lifetime cap should be increased from EUR1m (USD1.2m) to EUR10m.

Turning to Ireland's personal tax regime, the submission noted that the marginal rate of tax is too high and that the entry threshold to this rate is too low. It said: "Currently the marginal rate is 52 percent for employees and 55 percent for self-employed. This remains as a serious inhibitor to attracting high calibre employees to work and entrepreneurs to set up business in Ireland."

ISME recommended that the Government reduce the marginal rate to 38 percent and increase the entry point to EUR40,000 for a single person.

The submission also recommended that the Government:

  • Reaffirm its commitment to the 12.5 percent corporate tax rate;
  • Increase the Earned Income Tax Credit for the self-employed to equal the PAYE tax credit;
  • Abolish the three percent Universal Social Charge (USC) surcharge for self-employed earnings in excess of EUR100,000;
  • Allow an opt-in to Pay Related Social Insurance (PRSI) for self-employed individuals and proprietary directors for illness and disability benefits;
  • Improve the Start-Up Relief for Entrepreneurs and the Employment Investment Incentive Scheme;
  • Introduce a Seed Enterprise Investment Scheme for first-time entrepreneurs, consisting of a 50 percent tax credit on investments in micro enterprises;
  • Increase the annual VAT cash receipts basis threshold for SMEs from EUR2m to EUR2.5m;
  • Increase the Home Renovation Incentive tax credit from 13.5 percent to 20 percent; and
  • Increase the capital acquisitions tax threshold from EUR310,000 to EUR600,000, to reflect current house prices.

TAGS: individuals | capital gains tax (CGT) | VAT rates | VAT special schemes | tax | investment | small business | business | value added tax (VAT) | Ireland | training | entrepreneurs | employees | corporation tax | tax thresholds | small and medium-sized enterprises (SME) | tax rates | tax reform | trade association | trade | inflation | individual income tax | Employment | Invest

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