PwC: How can the Government restart the Irish SME sector?

7 Jul 2020

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As the Government prepares its July stimulus package, PwC has made a number of recommendations on how it can kickstart the SME economy.

By the end of July, the Irish Government plans to publish a new stimulus plan which will be centred on the recovery of the economy after the Covid-19 pandemic brought business in many industries to a halt for about three months.

Ahead of the publication of the stimulus plan, PwC recommended a number of initiatives. These recommendations target four key areas where the management consultancy company believes that tax policy can make the greatest impact.

While the ins and outs of the stimulus plan are not yet known, some details were revealed in June’s programme for government. To support the recovery of the economy, the Government plans to increase domestic demand and employment, while providing additional grants for small businesses.

At the end of June, An Taoiseach Micheál Martin, TD, said that the main goal of the July stimulus is to get jobs back “quickly”. He said that it will be a “sizable package” that has to meet the “very significant challenges” that have arisen as Ireland has dealt with the Covid-19 pandemic.

PwC’s pre-Budget submission

In conjunction with the DCU National Centre for Family Business and the Family Business Network, PwC launched its pre-Budget submission for the Irish SME sector, setting out key tax initiatives to support indigenous Irish businesses through the July stimulus plan.

PwC noted that there are almost 900,000 people on Government income supports already and that the impact of the pandemic on business has been “severely” felt in the SME sector.

PwC said that its proposals set out new and creative measures to stimulate demand and protect jobs; to maintain cash circulation within the domestic economy; to help achieve the current national health priorities such as remote working; and to support businesses in adapting to the new digital economy which has emerged with the advent of the crisis.

Ronan Furlong, tax partner at PwC entrepreneurial and private business practice, said: “We welcome the new Government’s focus on supporting and prioritising the Irish SME sector.

“We would urge it to continue to show imagination and consider a range of practical and achievable measures that can help to stimulate demand, protect employment and restart jobs-led growth in our domestic economy.”

The key measures

PwC has called on the Government to introduce a “borrow back tax paid” scheme, allowing companies to borrow up to 25pc of tax paid in 2019, such as PAYE, PRSI and USC. The management consultancy said that this scheme has already been introduced to countries such as Denmark, where it has been successful.

The company also called on the Government to stimulate demand in key sectors of high employment to ensure that jobs are retained and created where possible. For example, PwC suggested reducing the current 9pc rate of VAT to 5pc, including hospitality and tourism.

PwC recommended that the Government re-introduces and enhances the Home Renovation Incentive for energy efficient improvements, as well as a temporary increase in personal tax credit by €1,000 for employees of businesses transitioning from the Wage Subsidy Scheme or Pandemic Unemployment Payment.

Nicola Quinn, tax partner at PwC Cork, said: “We have identified a suite of measures, including for sectors badly hit – such as hospitality, tourism, retail and motor – along with various accelerated tax deductions aimed at preserving cash, encouraging investment and injecting demand which should ultimately save and create jobs.”

Additionally, PwC recommended that the Government incentivises behaviour that supports Covid-19 national public health priorities, such as remote working. One such incentive could be the introduction of an additional tax credit of €250 for individuals working from home at least three days a week to encourage remote working and take pressure off public transport.

The company also called for the July stimulus plan to introduce a double deduction in costs incurred on developing a well-functioning online sales platform for those companies that need to adapt to new business models.

Kelly Earley was a journalist with Silicon Republic