News

Irish tax was cut profoundly before the financial crash hit in 2008. With the desperate need to pay the bills after this fragile period, the tax increased again.

However, from 2013 onwards, our tax bills have held steady, changing only slightly throughout the years with corporation tax revenue paying for the bulk of Government expenditure.

A crisis similar to that, suffered in 2008 is now amongst us. As a result of the pandemic, it looks like Ireland is heading back into an era of high taxes with the Fine Gael promise to abolish the Universal Social Charge (USC) now disregarded.

It is difficult to increase taxes without hitting people’s incomes and in the next Budget, it is almost inevitable that your tax bill will be rising – whatever way it is done, whether it is via higher tax rates, changes in tax credits or a new solidarity tax.

It is important to note, however, that this new taxing is to pay for the pandemic borrowings. Ireland has been able to borrow at rock bottom rates and the increase in public debt caused by the pandemic, is not one of concern for the Treasury in the short term.

Despite this, it is uncertain where interest rates will be when borrowings are refinanced in the future.

Borrowing may be cut over time due to growth and as the pandemic begins to fade. This may help boost tax revenues and reduce the need for emergency spending.

Why will taxes have to rise?

The Government’s day-to-day spending is now increasing, partly due to the fallout from the pandemic, reflecting the impact on the health service and social welfare supports in areas such as sick pay, the Pandemic Unemployment Payment (PUP) and other supports.

Not only this, but corporation tax receipts are also likely to be hit by talks on global reform and up to €3 billion in taxes could be at risk from the electrification of motor vehicles.

So where will this additional tax revenue come from?

In the Economic and Social Research Institute’s (ESRI) recent report, it was pointed out that increasing the income tax rates from 20 to 21 per cent or 40 to 41 per cent rate, would see a gain of €1 billion annually in tax receipts.

Higher earning households would take the worst hit and raising VAT rates by just one point would bring in €690 million. Internationally, the trend seems to be leaning towards hitting high earners and businesses that have been less impacted by the pandemic.

Also, a wealth tax may be discussed further. This has historically proven to be difficult as much of the wealth in Ireland is accounted for by value in family homes and there has not been a sensible way forward for the local property tax yet.

Alternatively, there is corporation tax. A recommended global minimum tax rate of 16 per cent may now be on the cards and Ireland may be faced with the decision to either stick at the 12.5 per cent corporate tax rate or increase the rate up to 16 per cent.

Either way it is inevitable that tax increases, either corporate, personal or consumption focused, are on the cards.

Where tax is concerned, McMahon & Co. recognise the importance of considering the implications of all taxes on your circumstances. Our job is to help you plan your business activities so as to maximise the available tax reliefs and discuss with you in advance the tax implications of business decisions.

For more help or advice on related matters, contact us today.