The Sacred Cow – Raise Corporation Tax?

Sacred Cow - Irish Corporation Tax

Dare we ask the question?

I know this is a really unpopular thing to say – is it time to challenge the Sacred Cow and talk about raising the Corporation Tax rate in Ireland?

I think it is possible to do this and structure it in such a way that will still encourage companies to drive on in Ireland.

Before you think poor old Greg has totally lost his marbles hear me out ..

Why we need to look at this?

Let’s face it, people are bleeding and except for this government being prepared to grasp the nettle and take on some of those areas of excess (“real” sacred cows) that they have still left alone, they just can’t hit the regular Irish taxpayer any more – there is nothing left, nothing.

We need people to have some money in their pockets to keep the indigenous Irish economy going – inflicting more pain and extracting more cash from consumers will just do more damage than good. Aren’t we seeing this already?

Increasing the tax rate on companies who are making profits (let’s face it if you are losing money higher taxes won’t effect you) isn’t the worst thing in the world to do. At least they will be able to cope with it.

The Numbers

3.5 billion was collected last year from Corporation Tax at a rate of 12.5%. This was 10.2% of the overall tax take of 34.2 billion.

This 3.5 billion was the lowest collection of Corporation Tax since 1999 when about the same was collected when the CT rate was 28%.

The Challenge

This government must balance the books, they must collect more taxes, reduce expenditure, start generating jobs and begin to spark economic revival.

How can we do this if we scare the pants off prospective foreign investors by increasing the corporation tax rate?

We are led to believe with absolute certainty by those in “the know” that raising the CT rate is a no go area because it will start a mass exodus of these foreign investors.

Are we sure of that? Is this the main reason that is keeping them in Ireland? I’m not sure, but what do I know.

Taxes in Ireland

Big huh?

My Proposal

1. Raise Corporation Tax by 2.5% (hopefully for just a few years)

2. Introduce 100% immediate allowances for capital spend (this was done successfully in Australia)

3. Introduce tax incentives for companies who increase employee numbers.

4. Use 50% of the increase in CT tax as an investment fund for IT education (we are too far behind international standards and will have a serious problem in attracting these companies if we don’t sort out this supply pool of educated staff ) and an investment fund for indigenous Irish companies who need support at this stage to stay alive (only the ones that have a future)

While the CT tax rate would increase, for those companies that invest in capital and increase job numbers they could actually pay even less tax than now.

In a sweep we would collect more tax from those that can afford it, incentivise jobs and investment, invest in IT education and support indigenous Irish businesses. We might also have a bargaining chip in EU negotiations.

And..we would also be able to lay off the general public who are already bleeding way too much.

What do you think?

Ok, what the hell do I know? Maybe my assumptions are wrong, maybe they are too simplistic and maybe my figures are all wrong – maybe all of this is happening already and these incentives are in place?

At least lets have a discussion and flesh out this Sacred Cow before we cripple Joe Public even more without looking at the alternatives.

Is it time?

Greg Canty is a partner of Fuzion (he was an accountant at one point in time!)

Fuzion are a Marketing and PR firm with offices in Dublin and Cork

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11 Responses to “The Sacred Cow – Raise Corporation Tax?”

  1. primaryposition Says:

    Really got to agree with you Greg – we have a lot of space to look at here, if you can get over the idea that Corporation Tax isn’t a taboo subject.

    Firstly, we have space to move between our lowest rate and that of most of Europe. Secondly, as you mention, we can give entitlements to those that are creating jobs.

    There are a lot of indigenous Irish companies that service the local economy (mostly >70%) that are missing out on paying 100’s of millions of Euro because of the automatic and blanket low Corporation Tax – for example – some in the drinks and construction powerhouses, media and transport.

    As you point out, if you’re not making a profit (well, on a technicality: you can make a cash loss but incur a liability) then you shouldn’t have to worry.

  2. Johneric Says:

    Hi Greg,

    for anyone who has experience of corporate taxation the suggestion that additional revenue will be created from a raised corporate tax is a myth. If this is the case then we can say goodbye to thosands of jobs in Deloitte, Grant Thorton, Mckinsey et al.

    You can be sure, and it is well pracitised by both the French and the Germans, that any corporate tax rate increase will be nullified by complimentary tax rebates for purchasing new equipment, educating employees, investing in R&D, etc.. I therefore believe that raising the corporate tax rate would only pacify the socalists (who’s agenda should not be completely igorned either by the way) without actually achieving anything.

    There are far better targets out there in my humble opinion like reducing the Dial by from 166 down to 30, abolishing the Senate, reducing City Councils by 60%, allowing a single town council representative to be elected that would sit on the City Council, de-privatising some state entities in particular Bus Eireann, etc…

  3. John Conlon Says:

    Some countries with a higher headline rate attract investment because of more favourable treatments of items like intellectual ptoperty and repatriation of foreign profits.
    Holland comes to mind. Why did 2 incorporate there rather than Ireland if the 12.5% rate is so conclusive?
    I think there may be risk that if we budge on the 12.5% rate that we will be pressured by Europe to keep raising it in line with bigger countries. Realistically, if we were not a low tax area why would anyone come here? Our talented people? This implies that there are no talented people in other countries e.g. U.K., France, Germany.

  4. John Conlon Says:

    In my comment I meant to ask “why did U2 incorporate in Holland. Poor typing skills

  5. KeithH Says:

    I think in the medium term that corporation tax will rise. It is, without doubt, something that is known and discussed at Ministerial level (albeit off the record, as they say).

    I think it a good idea and an inevitability for a number of reasons, principal among them, greater fiscal unity within the EU. In order to avoid future Euro crises, not that the current crisis is solved, the EU Central Bank must have greater powers which will require transferring certain powers to a central EU government of some description.

    I’m not sure of the effective tax rate of the majority of the MNCs in Ireland but I know that it is significantly less than 12.5% – due to “tax planning” schemes in place so the likelihood of MNCs not locating in Ireland is minimal I would suggest.

    France and Germany and most other EU States have effective tax rates significantly less than their headline rates due to some of the incentives you note in your article, indeed, Ireland has its R&D tax credits which reduces CT.

    Incidentally, the R&D tax credit could be claimed by far more companies than currently is the case.

    Increasing the CT rate will demonstrate our strong commitment to Europe, in return for which some sort of debt restructuring/forgiveness, call it what you will, package may be better negotiated.

    I don’t think the negative press that would be associated with the increase in the headline CT rate (ie companies not willing to come to Ireland) would be founded on any hard facts.

    The political spin doctors, media and economists would be working overtime (thereby, generating more taxable fees and increasing Income tax !). The government will state that it is protecting the people, the opposition will state that jobs will be lost, together with our economic sovereignty

    In summary, raising the CT rate would:
    – keep our fellow EU partners sweet;
    – generate some additional tax revenue;
    – not significantly impact the MNCs that are driving our economy; and
    – create a media whirlwind that we can all sit back and enjoy

    However, underpinning all the above is that politicians are elected for four year terms so don’t expect anything until after the next election, at least.

  6. Mark O'Donovan Says:

    Before answer I think I would need to know
    1) How much additoinal revenue would you expect to raise?
    2) What is your expected cost for items 2 and 3 on you list?

    you seam to be proposing to raise tax with one hand a give away with the other. I would then question will additiona resoursces be required for acessing of R&D credits and the emloyent credits that you propose.

    Will this take money out of the economey.

    Personally I prefer clear simple tax rates and no loop holes.

    It is much more attatctive for foreign companies, as they now have to become experts in tax law. I know of a comapany that opened their office inIreland and not france was not because they would pay more corporation tax in France but becasue it was much more complicated.

    Instead of raisng corporation tax rates , on productive parts of the economey why not look at , inheritance tax, capital gains tax,

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