Call for tax incentives to boost PC penetration

26 Oct 2004

In its pre-Budget statement, ICT Ireland has called on Finance Minister Brian Cowen to introduce innovative tax incentives to encourage the uptake of computer and internet usage in the home. The IBEC body that represents the majority of technology multinationals in Ireland also called for the retention of the 12.5pc corporate tax rate to encourage foreign direct investment in the sector to continue.

With PC penetration in the home at 42.3pc, Ireland is far behind Sweden (54pc) and the US (82pc) and the chairman of the ICT Ireland Taxation Committee Peter McManamon called on the Government to consider a scheme similar to that of Sweden whereby tax incentives were used to boost PC penetration. “This approach has proven to be successful with significant growth. The UK has recently adopted a similar approach under its Home Computing Initiative (HCI) proposition, by which employees can be offered PC packages with more than 50pc discount compared to the equivalent retail price. A similar type of scheme is encouraged to be adopted in Ireland.”

According to reports in earlier this year, ICT Ireland’s tax incentive dreams may potentially become a reality in the next Budget as the Government is indeed considering such a scheme.

According to Section 8 of the Finance Bill 2004, which had its second stage reading by former Finance Minister Charlie McCreevy TD in the Dáil earlier this year, workers using mobile phones, computers and high-speed internet connections provided by an employer to an employee in their home for business use could be exempt from benefit in kind (BIK) within their PAYE tax payments.

The move follows years of lobbying by TDs and civil servants for the Government to come up with the kind of measures that will “aggregate demand” for faster broadband services in urban and rural areas and forms the basis of one of the recommendations of a report due out by the Oireacthas sub-Committee on IT on how to drive broadband adoption in Ireland in the months and years ahead.

Its supporters in Government and politics are lauding the move as a “foot in the door” of a broader strategy that may see within the next few years all citizens that use computers and broadband connections at home enjoying tax free allowances on the equipment they have purchased and the cost of connectivity.

ICT Ireland also called on the Government to remain committed to retaining the existing corporate tax regime. “Any change iin stated Government policy to retain a 12.5pc corporate tax rate would be detrimental to our chances to retain and attract foreign direct investment to Ireland,” McManamon said.

He said that of the 91,000 jobs in the ICT sector at present, 55,000 are provided by foreign companies. “Low corporate tax rates have been vital in creating employment in Ireland. Over the past few years as the marginal corporate tax rate has been reducing the tax take has increased from €2.16bn in 1997 to €5.16bn in 2003.”

ICT Ireland also stressed that further changes in the PRSI system would impact negatively on payroll costs for overseas employers in Ireland and called on Minister Cowen to retain the existing PRSI ceiling.

“Overall, labour costs in Ireland have been rising faster than in other EU country for a number of years with nominal compensation per employee (before tax) growing on average by 37.1pc over the period 1998-2003. This is compared to average growth in nominal compensation per employee of just 8.7pc in Germany.

“If we continue with this pattern we are at serious risk of driving wage costs so high that we would accelerate the drop in competitiveness being experienced by many Irish businesses. Business costs are continuing to spiral with many organisations having to absorb large increases in insurance, energy and waste disposal costs in addition to rising labour costs,” McManamon said.

By John Kennedy