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The pre-budget submissions to the Minister for Finance make sobering reading in the midst of an apparent economic and tax revenue boom. The business sector warn of the recession current in the manufacturing sector and risks to the domestic and world economy. Some trade union and poverty sector submissions suggest a lack of enthusiasm for private enterprise and wealth creation by private individuals. The professions submissions highlight detailed problems with the tax code.
The economic themes

The submissions which include an economic review have a large measure of agreement on the relevant problems in the economy. They focus on energy policy, including the spiralling cost of all forms of energy, and the need to speed up the adoption of renewable energy sources.

Research and development is emphasised, with wide agreement that the present research and development tax credit incentive is not working (as was widely predicted when it was unveiled some years ago).
Conor O'Brien

PRSI and local authority charges are increasing the cost base of business. In the midst of a boom our competitiveness is falling rapidly and our share of international trade has suffered a sharp fall. Domestic consumption is disguising the serious position of our exports.

Inflation is getting out of control. The productivity of the state and semi state sector is in need of a major improvement.

The major tax themes

The most common matter commented on was Business Expansion Scheme (BES) renewal and reform. This was taken up by CCAB-I, IBEC, SFA, ISME, Chambers Ireland and in part by the IFA. The scheme is due to expire this year unless renewed in the budget. CCAB-I and Chambers Ireland call for an increase in the capital which a company may raise under the scheme from the present ?1m (which makes the scheme uneconomic to operate) to ?10m. IBEC surprisingly call only for an increase to ?1.5m, an amount which hardly addresses the problem of the disproportion between the costs of availing of the scheme and the low amount of capital which may be raised. The SFA suggest a €2m limit. ISME and the SFA agree on a proposed increase in the limit for tax relief to €250k per taxpayer while Chambers Ireland seeks a limit of €75k. The IFA would like to see the scheme adapted to encourage investment in renewable energy. Chambers Ireland would like to see BES used to support venture capital type investments rather than asset based investments. Chambers also favour the development of tax incentivised venture capital funds. The review of tax reliefs last year commented favourably on BES so renewal seems likely.

CCAB-I, IBEC, SFA, and ISME all suggest an overhaul of R+D tax credits. The basic problems with the existing scheme is that it grants credits only for incremental expenditure and largely confines it to inhouse research with little provision for outsourcing or subcontracting. Rather than demanding that the credit be for all R+D spending , IBEC and SFA suggest that the base year from which increments are measured be stabilised at 2003 (IBEC) or for 7 years generally , but with the incremental aspect removed for SMEs (SFA). IBEC comments on the application of the relief to clinical trials which of necessity require subcontracting and some performance outside the state. ISME would like to see a 100% credit in place of the existing 20%.

Stamp duty is discussed by ICTU, the Law Society and the IFA. ICTU oppose a reduction in the 9% rate on residential property. The Law Society would like to see the rate bands reviewed and quoted shares and ADRs exempted. They refer to the stamp duty cost that can arise on incorporation of an existing business. IFA want reliefs for farm consolidation.

Income tax relief for forms of gain sharing is sought by Chambers Ireland, ICTU, and ISME. Gain sharing can be likened to share options without the necessity to issue relatively unmarketable shares to the employees.

There is widespread support for state action to encourage a move to renewable energy. CCAB-I favours theVAT zero rating of biofuels and extension of the tax relief for investment in renewable energy under section 486B. The IFA want BES extended to schemes for production of biofuels. ICTU call for lower electricity prices so as to avoid encouraging the emergence of private enterprise competitors for the ESB. Many submissions call for reduction of excise duties on diesel.

The Institute of Taxation focused their submission on a single issue – the importance of drastically increasing our coverage of double tax agreements and taking steps in domestic law to remove withholding taxes and other barriers to financial trade with major non treaty economies. They are supported in this by IBEC.

Both CCAB-I and the Law Society favour a rebasing of the open market value basis of determining base cost for CGT purposes from April 1974 to a more recent date e.g. 1991.

Pensions feature in several submissions but there is disagreement on the merits of mandatory pension provision by employers. Several submissions support SSIA type state support for private pensions as an alternative to tax relief.
Chambers Ireland, the Law Society and SFA urge more support for childcare while Chambers Ireland and ICTU make detailed proposals for life time learning and training, including removal of the benefit in kind tax that employer provision of support for education can attract.

Chambers Ireland and SFA propose a wider base for local authority charges, and capping of business rates and levies.
Suggestions by the Law Society to extend the 20% flat income tax to all forms of interest income , and by the SFA to extend it to a limited extent to dividends paid to owner managers of family companies run counter to ICTU’s complaint that tax rates on capital seem lower than on earned income.

Other important tax suggestions
Some significant suggestions are to be found in submissions which regrettably have not attracted as wide attention as their merits deserve.

- draw attention to the increasing administrative burden on business arising from the administration of the tax system, which has been moved from the state to business to a remarkable extent over the last 25 years.
- stress the importance of excluding Irish tax on the overseas income and overseas gifts and inheritances of expatriates seconded to Ireland by inward investors.
- Point out the need to change the basis of preliminary tax payments for companies so as to permit payment by reference to prior year results rather than having to guess the final results of a current year. It is extraordinary that this has not been attended to already. The present system is an affront to reason, an attack on productive effort and pointless as a means of raising revenue. In a related matter, the Law Society ask that the payment dates for CGT be extended as at present they often fall before the closing date for a transaction when the consideration becomes payable.
- Call for an end to professional service surcharge on close companies. This is a legacy of a time when the use of a company in a service industry was seen as tax avoidance and is an anachronism in what we aspire to be a knowledge based economy.

The law society
- ask for demerger reliefs in place of the very limited Revenue concession that operates at present.

- suggest that discretionary trust levies should be postponed while a beneficiary is under 25 years of age. The present age limit of 21 years penalises parents who wish to withhold major assets from relatively immature heirs. In contrast ICTU warns against unspecified use of trusts for tax planning, something which has been legislated against for many years.
- points out that current VAT rules requiring detailed records of expenditure on buildings going back to 1972 are impracticable and burdensome.

Chambers Ireland
- call for ending stamp duty on credit cards so as to encourage electronic commerce.
- propose a complex rebasing of local authority finance on a form of site tax, and the introduction of a standard VAT rate of 18% in place of the existing 13.5% and 21% rates.

The system for submissions
While some submissions are marred by ideological passions and special pleadings for specific sectors, most of them – and in particular the submission of Chambers Ireland and those of the professional institutes – are thoughtful informed commentaries on our economy and tax system. They deserve attention at the highest level. It would be a good idea for these submissions to be openly debated by those making submissions before the Dail committee on public finance in advance of Budget Day each year. This would not interfere with the freedom of a Finance Minister to frame his budget as he sees fit but it would provide an alternative voice to that of the public service, which, excellent though it is, has not a monopoly of wisdom. It would also expose those submissions which have too narrow a sectoral focus and those

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