Various industry groups and finance experts have welcomed some of the measures in the Irish Government’s Budget in terms of the doubling of the R&D tax credit and provisions for venture capital to boost job creation. However, controversial moves like the property tax and increases in PRSI could have ramifications on the home front, they warn.
Inaction on IP tax rules
Budget 2013 did not address issues relating to the taxation of intellectual property and, as a result, global technology companies may choose to locate in the UK, according to Cormac Kelleher, tax expert at Mazars.
Under the new UK ‘patent box regime’, UK resident companies will be able to tax IP receipts at a rate of 10pc, which is lower than the Irish rate.
Kelleher added: “Sadly, Budget 2013 is lacking in attracting new and much-wanted FDI. It is vital that steps be taken to copper fasten Ireland as a location of choice for the holding of IP.
“In previous years, steps have been taken to incentivise multinationals to locate their IP in Ireland. The fruit of this labour is evidenced in the number of global technology companies present in Ireland.
“The ability to tax IP income at a rate of 12.5pc is often cited as one of the key reasons for deciding to locate in Ireland. The UK has announced a ‘patent box regime’. With effect from April 2013, UK resident companies will be able to tax IP receipts at a rate of 10pc. The 2.5pc lower rate being applied by our closest neighbour is a matter which needs to be considered and promptly reacted to. Let us hope that the issue is appropriately addressed in the Finance Bill.”
Pressure on wage costs
ISME welcomed the changes in start-up corporation tax, cash receipts for VAT and the doubling of the R&D credit, along with the foreign earnings reduction. It said that for a small open economy that relies heavily on road transport, the decision to introduce a diesel rebate for haulage contractors was overdue and most welcome.
However, ISME CEO Mark Fielding said the scrapping of the €127 weekly exemption from PRSI will cost each employee in the State an extra €261 per annum and will put pressure on wage costs.
“This Budget, while necessarily harsh, has taken the first steps to kickstart the economy. While tough measures are required to balance the day-to-day books, a much more strategic approach is needed to address the underlying bank-induced debt, the totally unaffordable public-sector pension bill and the inappropriate union-dominated structure of the public sector.”
“The decision to scrap the much-needed redundancy rebate altogether means that the cost of redundancy has risen by a staggering 150pc in a year, negatively impacting on those businesses already hardest hit. With the number of redundancies expected to increase it would have made more economic sense to ease the cost of labour for those vulnerable businesses.
“While acknowledging the difficult budgetary decisions faced by the Government, the cuts in private-sector pension reliefs is a mistake, which will put further pressure on employers’ wage costs and will reduce the level of retirement savings. The cuts will be particularly hard on the self-employed, who normally do not provide for their pensions until late in life,” Fielding said.
Return on investment, delivering the Smart City
The decision to extend the Employment and Investment Incentive (EII) to 2020 was another positive move in support of small business but some tweaks are necessary to ensure it is helping to increase employment to the fullest, according to Dublin Chamber. The scheme, which only received European Commission approval a year ago and replaced the Business Expansion Scheme, had a lacklustre take-up, with indications that funds raised through the scheme would amount to just over €30m by 2013.
Dublin Chamber said it believes the decision to reduce the investment period from three years to five years needs to be reversed as the period is too short for businesses to earn the necessary return on the investment.
“This relief goes straight into job creation and its extension is very positive for business looking for risk capital,” said Dublin Chamber CEO Gina Quin. “However, while the new scheme broadens the eligibility criteria for businesses, the take-up of the EII has been very poor.
“We appreciate that the objective of the three-year investment period was to make the scheme more attractive for investors by shortening the investment period. Instead, it has become a demand problem, as for many companies the period was too short to secure the funds, put the investment to work, adjust the business model, and generate a return sufficient to repay the investment.”
Quinn said funding of the project to centralise DIT’s Grangegorman campus will strengthen Dublin’s brand as a global centre for higher education, according to Dublin Chamber of Commerce. It was announcement as part of Budget 2013 that Government financing of the €5bn would mean that construction would begin next year.
“The investment in Grangegorman makes sense in terms of the Government’s jobs agenda as the north inner city area has suffered from persistently high unemployment and low levels of educational attainment,” said Quin.
“In doing this, the project will help in selling the region to SMART economy-focused multinationals who are looking to invest in skilled workers that are driving the future global economy. The move is particularly significant given that one in 10 higher education students in the country attend DIT.”
Entrepreneurs will be hard hit
Eamonn Siggins, chief executive of the Institute of Certified Public Accountants, said the changes to the PRSI rules could have a punitive effect on entrepreneurs, particularly sole traders.
“We are concerned, however, with plans announced to broaden the income base for PRSI, and in particular the measure to increase the minimum level of annual contribution from the self-employed from €253 to €500. A self-employed person will now have to pay a minimum of €500 PRSI. This measure disadvantages self-employed people, particularly those on low incomes, such as sole traders, and those starting their own businesses.
“In seeking to establish a fairer link between what people contribute, and the benefits that people accrue, the Government has in fact further exasperated the disparity between employed and the self-employed. Those in self-employment already have minimal access to social welfare benefits, so this measure will only serve to maintain a two-tiered system whereby the self-employed pay more to receive less.
“A further consequence of this measure is that it will increase the temptation for sole traders, at the lower end of the earnings scale, to revert to cash and operate in a black economy. These are precisely the same people who are likely to come off the live register, start their own businesses, contribute to the restoration of economic growth, and when earnings permit, start contributing to the tax take,” Siggins warned.
Cutting CO2 emissions and revving up the clean car market
The number of CO2 bands which determine the rate of road tax for a vehicle has been increased from seven to 12.
Commenting on the changes, Motorcheck.ie co-founder Shane Teskey said: “Given the relatively small increase applied to the less polluting cars I believe we can now expect car manufacturers to work even harder at bringing their key models in at lower CO2 rates. Today’s market has just over Xpc of the range under 120g/km – a figure which will likely increase following the revised rates."
“Band A which is the most popular tax band in Ireland and accounts for 53pc of total sales this year has been split into five sub-divisions meaning the rate of tax will increase from €10 to €40, depending on the CO2 output of the car.
“Band B, the second most popular band accounting for 38pc of sales has been split into two sub-divisions. The increase here will be either €45 or €55 per annum again depending on the CO2 rate of your car.”
Getting people back to work made harder
Chambers Ireland warned that a sustainable recovery for Ireland will be more difficult to achieve given the lack of ambition in the savings announced.
Ian Talbot, Chambers Ireland chief executive said: “The route to sustainable recovery is job creation. Getting people back to work not only increases revenues through taxation, it also reduces the pressure on public services. This Budget has not gone far enough in creating the right environment to achieve this.
“While the 10-point tax reform plan and credit-specific initiatives for small business are welcome, they could be more ambitious. For instance, we welcome the raising of the turnover ceiling before companies become liable for VAT on invoices rather than on payment received; however, the Chamber Network called for an increase in the ceiling to €2.5m and we are disappointed that it has only been increased to €1.25m.
“The retention of the 9pc VAT rate for the hospitality sector will also help to secure employment and grow job opportunities in these areas. Additionally, we are pleased that the Government took note of calls not to transfer the cost of sick pay to employers. We also view the new 10-year €175m venture capital fund for new and expanding Irish companies over the medium term, along with the expansion of the R&D tax credit as welcome announcements.”
Lights, cameras and action on Ireland’s film potential
In a move which demonstrates Government commitment to the future of the Irish film and television industry, the Government extended incentive for the film television and animation industry until 2020.
In light of the findings from an Economic Impact Assessment of the current Film Tax Relief Scheme, Section 481 the minister has indicated that the incentive will include further enhancements from 2016 and will be restructured to take the shape of a tax credit.
These measures are designed to create further employment and increased production activity in the film, TV and animation industry.
James Morris, chairman of the Irish Film Board said: “The extension and future enhancement of the Irish tax incentive for the film and television industry demonstrates the commitment of the Irish Government to the future of the Irish film and television sector and Ireland’s creative industries. These changes will strengthen the sector as an important contributor to the Irish economy, and will help Bord Scannán na hÉireann/the Irish Film Board to attract major film and television production activity to Ireland.
“Despite the economic difficulties Ireland has experienced over the past few years, the Irish film, television and animation industry has experienced high levels of production activity, contributing over €150m, in terms of Irish spend on jobs and services, to the Irish economy in 2011,” Morris added.
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