03/03/22

IRELAND: Tax system ‘unfairly stacked’ against family businesses.

As published on irishtimes.com, Thursday 3 March, 2022.

The Irish tax system is “unfairly stacked” against family businesses, the Family Business Network has claimed.

In a submission to the recently established Commission on Taxation and Welfare, the network said the Republic currently has the third highest rate of capital gains tax (CGT) in the OECD (Organisation for Economic Co-operation and Development), one of the lowest entry points for the marginal rate of income tax and one of the highest VAT rates in the world.

“From the heavy tax burden placed on family business succession, to an uncompetitive income tax regime, family-owned firms in communities across Ireland are restricted in their ability to compete internationally,” it said.

Reducing the headline CGT rate, it claimed, would increase investment in the indigenous jobs sector and increase tax returns for the exchequer.

It urged the commission to cut the standard rate of CGT from 33 per cent to 20 per cent in a bid to boost investment in the sector.

It also called for “the obstacles” surrounding family business succession to be removed, suggesting the commission give consideration to temporarily reducing the capital acquisition tax rate to 20 per cent for two years, and increasing the lifetime limit for entrepreneurial relief to €5 million.

Amid the debate on the State pension, it warned against attempts to use only employer PRSI to replenish the social insurance fund, which it would consider an unfair tax on new jobs.

John McGrane, executive director of the Family Business Network, said: “As the largest employer in the State, family businesses want to help develop a taxation system that incentivises not only the sustainability but also the growth of indigenous firms.”

“We believe that the Commission on Taxation and Welfare provides the opportunity to do just that,” he said.

“But it’s vital that the commission tackles the punitive cost of doing business in Ireland with the tax system unfairly stacked against family businesses.”

Mr McGrane said family businesses were calling for a constructive revamp of Ireland’s tax system.

At an open public meeting on Wednesday night, Commission member and economist Tom McDonnell said the commission had received over 200 submissions - 82 from organisations and 135 from individuals - as part of a recent public consultation process.

Dr McDonnell said the submissions dealt with a wide-ranging number of issues, including property, the proposed site value tax, corporation tax and its sustainability into the future; pensions and social insurance rates, and the possibility of introducing a wealth tax.

On income tax, he said a number of respondents felt income tax should be increased for high earners while other felt it should be reduced.

The high cost of childcare and how this acted as a barrier to work in Irish society was also highlighted in several submissions, he said.

There were also submissions on need to tax high-emission polluters as part of the State’s shift to a low carbon economy, including the possible use of road use and congestion charges, but also how the State should help communities make a “just transition”.

Commission member and University of Limerick economist Stephen Kinsella told the meeting that a more extensive site value or land tax would be “extremely advantageous” in dampening the speculation associated with land, which drove property prices and rents and that it was within the Government’s gift to devise it.

Anne Gunnell, director of tax policy at the Irish Tax Institute, told the meeting that tax competition was changing in the wake of the OECD’s global tax deal and that the focus would now be more on the marginal cost of employment in various countries. She said the State’s relatively high income tax rates made Ireland uncompetitive.