26/04/23

IRELAND: ‘Dangerously narrow’ tax base must be reformed, say small firms.

As published on irishtimes.com, Wednesday 26 April, 2023.

Ireland’s “dangerously narrow” tax base must be reformed to meet long-term public investment objectives around health and housing while incentivising landlords to remain in the market, a lobby group for small businesses has warned.

In a submission to the Government before Budget 2024, the Irish Small and Medium Enterprise Association (Isme) has also said that the Coalition should revisit the tax debt warehousing scheme to protect small firms from closure.

Allowing businesses experiencing cash-flow issues due to the impact of Covid lockdowns to defer their tax payments for a period, the warehousing scheme was due to be wound up at the end of 2022. The scheme has since been extended, allowing eligible businesses to work out a phased payment arrangement over a maximum of 36 months with the Revenue Commissioners until May 1st, 2024.

Isme warned on Wednesday, however, that some businesses will require “further forbearance” and potentially “write-down” of their debts due to “permanent scarring” from lockdown periods during the emergency phase of the Covid-19 pandemic.

“At the height of the scheme, over €3.1 billion was warehoused,” the lobby group said in its submission. “There are now close to 50,000 taxpayers with debts of less than €5,000 warehoused and over 27,000 taxpayers with debt in excess of €5,000, including 19,000 employers with over 315,000 employees.”

Isme said that for businesses in some sectors that had endured “a long lockdown, lost sales will not be recovered” and the Government should consider extending the 36-month phased payment period. “This may constitute the difference between viability and insolvency for some businesses,” it said.

Separately, the group has called for an overhaul of the taxation system, including property taxes, to fund expenditure.

Among other things, Isme wants the Government to reduce Ireland’s 33 per cent Capital Gains Tax (CGT), which it blames for “retarding housing construction by reducing the attractiveness of transactions in zoned land”.

“We consider a 25 per cent CGT rate would stimulate a considerable increase in yield. While we do not believe CGT yield will ever revert to its Celtic Tiger levels of €3 billion, we believe a reliable annual yield of €2 billion is achievable with a more realistic nominal rate.”

It said the “flight of landlords from the market is no longer in question” and railed against the ongoing “social demonisation” of this segment of the economy, despite housing issue being “so critical for many businesses that they have resorted to renting or purchasing houses and apartments for workers”. Against this backdrop, the group has called for an overhaul of the planning system and the removal of “PRSI liability from rental income”.

ISME is also calling for a “solidarity tax” on PAYE workers earning more than €100,000 annually or a third rate of PAYE of 43 per cent for the same cohort to “end discriminatory tax measures” against high-earning self-employed workers.

Overall, ISME said Ireland’s tax base is “dangerously narrow” and dependent on corporation tax receipts and a small number of high-earning PAYE workers.