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Nov, 2011

Needless to reiterate, it isn’t great out there and the president of the Irish Tax Institute, Bernard Doherty, tells The Sunday Business Post it isn’t likely to get a whole lot better. Doherty notes we can expect the introduction of household charges and increases in VAT and capital taxes as well as possible changes affecting PRSI and pensions in the upcoming Budget but “the devil will be in the detail”. He also aggregates the tax changes over the past few years that have affected the business sector, in particular. Since the height of the boom in 2007 the economy has shrunk by 20%, leading to a 75% drop in capital gains tax (CGT), capital acquisitions tax (CAT) and stamp duty from €6.7 billion in 2007 to an estimated €1.6 billion this year. Also, the overall tax take has fallen 26% to €12 billion.

During the period, the marginal rate of tax on the cost of labour has increased to 52% for employees. Vat went up from 21% to 21.5% before falling back again and a lower 9% rate was introduced for the tourism and hospitality sectors. PRSI and the universal social charge (USC) have been introduced on shares awarded and a €15-per-ton carbon tax has increased energy costs. Certain reliefs, such as those for new shares bought by employees and the patent income exemption, have been abolished. CGT and CAT rates have also been increased from 20% to 25%, and CAT thresholds have been slashed by a third. The 0.6% pension levy was also introduced.

“High earners who had certain tax reliefs on investments, such as property and the business expansion scheme (BES), have seen their minimum effective rate move to 30%, on top of which they pay 4% PRSI and a USC at 10% or 7%, depending on whether they were self-employed or employees,” he says.

On a more positive note: “the R&D regime has been improved, and capital allowances have been introduced for intellectual property and energy-efficient equipment”. Also, the start-up corporation tax and an increase in the Vat registration thresholds to €37,500 for services and €75,000 for goods have been introduced to help small business.

Doherty then goes on to speculate on what we can expect next week. He is thankful for no income tax increases but notes the rise in Vat, the household charge and a doubling of the carbon tax. When it comes to Vat, he points out it is more than a consumer tax. As well as administration costs, some businesses have to carry the burden of Vat payments until cash comes in – and, as we all know, in the current environment in particular, this can be painfully slow. “Some businesses are also Vat-exempt or partly exempt, including doctors, dentists, other healthcare businesses, schools and many financial businesses … For them, the 2% Vat increase will be a real cost to the bottom line,” Doherty says. An extension of PRSI to income from rent, interest, dividends and so on will have an obvious impact on many people, particularly those with rental properties who have been hit in the last four years with a lowering of interest deductions to 75%, the introduction of the non-principal private residence charge (NPPR), the Residential Tenancies Board fee and BER certificates.

Business owners will be worried about mooted changes to CGT and CAT, which would likely increase the cost of passing on the family business to their children. As Doherty notes: “The move comes at a time when we are desperately trying to encourage succession planning, a new generation of entrepreneurs and fresh blood into the indigenous sector”. Doherty also delves into the additional alleged non-tax costs likely to affect businesses, including the proposals to change state redundancy rebates and illness payments. “Such changes would be seen as effectively a new tax on business,” he says.

Indeed, as we have noted before here, who needs income tax increases when you have levies and other ways of making sure we all have to pay more?

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