The tax take and tax compliance are at the heart of policy decisions being considered currently by the Government. There is a significant range of realistic options available now in relation to the burden of tax in an economy generating significant exchequer surpluses. At the same time, the appropriate policy response to the Ansbacher revelations and the forthcoming report of the Public Accounts Committee hearings must be prepared. A wide range of options present themselves, but in relation to compliance, companies may be the main actors, rather than legislators or regulators. It is not proven that new laws or regulations are needed in advance of companies themselves reviewing how sound their compliance culture and procedures are.
Tax policy
The general environment for tax reductions is influenced heavily by the strong preference in the government for a new partnership agreement. The argument between rates and bands for personal income tax is caught between the demands of the union side and the commitment, particularly of the Progressive Democrats, to reducing the marginal rate. ICTU does not oppose reducing the higher rate of income tax per se, but ‘as an alternative’ to widening bands.
The pre-Budget positions indicate significant disagreements in relation to corporation tax. The Government is committed to the 12.5 per cent corporation tax rate, as are Fine Gael and Labour. ICTU wants the 12.5 per cent rate replaced by a 20% rate.
The Government and ICTU agree on reform of the thresholds for capital acquisitions tax (CAT) for family members living in an inherited home, although ICTU contends the justification applies to a minority of cases.
The argument for abolishing capital acquisitions tax altogether is made in this month’s Tax Monitor by KPMG. 'No other tax is as cruelly unjust as this one' says Jim Muddiman. It falls mostly on the PAYE sector, since special rules apply to farming and business sectors. What started as a fairly universal tax on gifts and inheritances of very substantial amounts only has now become a tax on moderate wealth, and runs counter to the policy of encouraging people to saving and retirement provision. While it is probably too late to have this recommendation accepted for this budget, it raises questions deserving of answers.
On the business tax from, last month FINANCE reported the Mr McCreevy's openness to changing the new dividend withholding tax. This month, Fine Gael and the Labour Party set out their approaches to business tax. Michael Noonan of Fine Gael sensibly calls for detailed consideration of the real effects of ‘surcharge’ corporation tax or clawbacks from the 12.5 per cent rate. The Labour spokesman, Derek McDowell, believes that much of business tax is now an area of consensus. In broad brush strokes, this is a valid claim. But differences over details persist, which could end up as very significant.
Professor Brendan Walsh does a service in pointing out, in his analysis this month of the ESRI Medium Term Review, the preference of the ESRI for raising the prospective corporation tax rate of 12.5 per cent to 17.5 per cent after 2010. There are still many policy makers and partnership negotiators who are not well-disposed to low corporation and personal income taxes.
After PAC
Three contributors offer reflective pieces this month some of the likely effects of the PAC enquiry and the revelations about the extent of Ansbacher account holders made in September.
Aidan Pender of the Institute of Public Administration argues that practices in corporate governance have lagged the development of the economy. Now there is a period of catch-up. The relations between the corporate Ireland and regulators in the public sector must take account of the range of compliance requirements to be met.
Professor Edward Cahill of University College Cork puts the hearings and Ansbacher revelations in the context of corporate governance issues raised since the 1990 Companies Act responded to the practices of the Goodman group. The first steps in reviewing compliance should be in the area of internal control and the quality and independence of internal audit, particularly the board's audit committee. He suggests companies should publish their codes of conduct and codes of ethics. As professor of accounting, he is well placed to emphasise the fundamental, unsung role of internal audit and control procedures for the establishment of public trust and high compliance standards.
Mary Finan, a leading public relations consultants and a past president of the Dublin Chamber of Commerce, is of the view that that there has been no discernible impact on share prices of relevant companies since September. This is a larger issue for public relations than investor relations, she says. As one practical response, she suggests that a requirement may be necessary for auditors of financial institutions to state in the audit report that institution has fulfilled its tax liability. Audit and tax advisers will have a strong view on this measure.
The Budget is being framed in a context of unprecendented surpluses but also unprecendented events in the area of compliance and corporate standards. Deft handling of the real issues for both is required. |
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| Article appeared in the November 1999 issue.
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