| The Minister was not without much advice in framing his budget. It was unfortunate for the Minister that so much of it was conflicting and so little of it likely to increase the Government take from taxes to the degree needed by the Minister. In the event, the Budget did not respond in a clear way to most suggestions made. But it did to some. |
Who wanted capital allowances for hotels chopped, urban renewal terminated and the multi storey car park allowances brought to an end? Obviously the Minister, since he put it in his budget speech but it was also included as a suggestion in the Irish Congress of Trade Unions pre budget submission.
Not yet decided?
The fact that the Minister apparently read the ICTU submission might make it worthwhile looking at some of their other suggestions on which he has not yet acted. They propose to
• Extend the health levy to corporate income.
• Review the rules on individual residence and on the remittance basis.
• Review the operation of BES.
• End the exemption for artist’s income and bloodstock income.
• Exclude private hospitals operated for profit from capital allowances on buildings.
Impact Trade Union on the one hand wanted to charge short term and speculative gains to the top rate of income tax but on the other hand favoured tax relief for those running child care facilities and relaxation of some of the rules relating to AVCs by employees. They also favoured carrying forward unutilised CGT annual allowance for up to a three-year period.
Common areas
One of the few areas where there was fairly widespread support for a proposal was the proposal to introduce research and development credits. This was favoured by the Irish Congress of Trade Unions, by IBEC, and by the Institute of Tax. It was also something the PDs had supported in their election manifesto. This is an idea already adopted in the UK. It is highly attractive to USA multinationals seeking to invest in Europe. It would be surprising if this area will not be further considered in the Department of Finance.
Both ICTU and Impact Trade Union considered that employers who do not make a certain minimum contribution to private pension schemes should pay a higher rate of PRSI. However pensions bodies are fearful that if such an approach were adopted, any specified minimum level might become the norm, leading to an overall reduction in the private provision of pensions. In the event, by extending PRSI to benefits in kind from 2004 the Minister has increased the PRSI cost on employers for the second year running regardless of whether or not they provide pensions.
Divided voices
ISME sought the removal of the insurance levy (no action announced) and accelerated capital allowances for new businesses and small businesses. The latter suggestion certainly fell on deaf ears – the tax life of plant was extended from five years to eight years (what a pity the Minister cannot extend the physical life of plant quite as readily).
The Institute of Tax and the Law Society between them made a number of sensible suggestions aimed at making the practical operation of the tax system smoother, and especially in relation to the Institute of Tax, keeping our economy competitive. Let us hope for the best that the Minister is still pondering their suggestions because he certainly did not refer to them in the budget.
The Institute of Tax suggested the introduction of a ‘participation exemption’ ie a capital gains tax exemption on the disposal by a group of subsidiaries and on the repatriation of foreign dividend income. As they correctly pointed out, these suggestions could be implemented without cost since the Minister derives almost no revenue from these areas at present.
They also suggested that we match the UK in introducing tax deductions for the cost of intellectual property and goodwill, something that is quite important where Ireland is competing with the UK as a potential location for inward investment from the USA.
The Institute also proposed the abolition of close company and professional services company surcharge on undistributed profits. This advice runs counter to one of the Civil Service favourite proposals which is to actually extend that surcharge to the undistributed trading income of closely held companies.
The Law Society suggested that formal demerger rules be introduced for capital gains tax. Informal rules are operated by the Revenue Commissioners on a concessional basis but these are highly restrictive. The absence of formal demerger rules does not raise much revenue for the Minister but does inhibit commercially desirable transactions.
The Law Society also suggested that CGT be rebased from 1974. At present if a person is disposing of an asset which that person held on 5 April 1974, it is necessary to agree with the Revenue Commissioners what the value of that asset might have been in 1974. There are now relatively few people still working in either the Civil Service, valuation firms, or tax advisory firms who were out of long pants in 1974 and so the valuation exercise is becoming increasingly esoteric.
The Law Society suggested the introduction of a stamp duty relief where an individual incorporates a business. At present there is a wide-ranging capital gains tax relief for incorporation but, curiously, no stamp duty relief. If the Minister turned his mind to this at all, it was only in so far as he decided to increase the stamp duty rate that would normally apply inter alia to incorporation (on premises, goodwill, and debtors) from 6 per cent to 9 per cent.
The wide range of advice open to the Minister may seem confusing, but it does indicate the range of matters to which he could have turned his attention, and to which he may yet turn his attention, before the budget/Finance Act season of 2003 is over. |
Pat McDaid is a tax partner with KPMG.
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| Article appeared in the November 2002 issue.
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