A special report by Mike Sheehan, Partner, Tax, Deloitte Cork
Budget 2013 has continued on a similar path as Budget 2012 with the introduction of further incentives for the SME and agri food and farm sectors. The Minister announced a helping hand to the SME sector in the form of a 10 Point Tax Reform Plan, which includes measures across a number of tax areas. In recognition of the ongoing difficult credit environment, several of these provisions are aimed at providing cash flow benefits, such as the increase in the VAT cash accounting threshold from €1 million to €1.25 million; an increase in the de-minimus close company surcharge threshold from €635 to €2,000; and a reform of the three year corporation tax relief for start-up companies to allow unused relief to be carried forward.
Other measures, such as an increase in the amount qualifying for an R&D tax credit without reference to the 2003 threshold from €100,000 to €200,000 and an extension of the Foreign Earnings Deduction for work related travel to additional African countries are positive developments. The R&D credit measure should, in particular, provide stimulus to smaller organisations engaged in research and development activities.
Given the dependence of the majority of SMEs on domestic demand, however, an important factor in creating and maintaining jobs in this sector is the level of disposable income of Irish consumers. As such, whereas the 10 Point Tax Reform Plan is certainly a step in the right direction, the impact of Budget 2013 on individual incomes will continue to play a major role in the future success of the SME sector, impacting on the demand for goods and services.
In recognition of the importance of agri food and farming sectors to the Irish economy, the Minister has extended the various stock relief measures for farmers in general, young trained farmers and registered farm partnerships for three years to 31 December 2015. He has also widened the definition of registered farm partnerships, which up to now was limited to milk production partnerships, to now include other production partnerships. The Minister has also introduced relief from Capital Gains Tax for the three year period ending on 31 December 2015 to encourage the disposal of farmland for restructuring purposes. These measures are expected to encourage the creation of additional jobs in the farming and agri food sector and improve farm efficiencies.
Following Budget 2013, there is finally clarity on the detail of the much speculated property tax. The new “local property tax” will be administered by the Revenue Commissioners with the funds earmarked for the local authorities. A rate of 0.18% will apply to properties with a value up to €1m and for properties valued over €1m a rate of 0.25% will apply on the excess. This is a welcome relief for the “mansion house owners” as it had been speculated that a flat 0.25% rate would apply to the total value of properties over €1m. Revenue has stated it will be a self-assessment tax but at the same time will issue “guidance” on the various valuations. It will be interesting to see how the “self-valuation” will work in practice as one can imagine there may be significant diversions of opinion between Revenue and home owners on the valuation of their properties. On a positive note for those owning second homes, the NPPR charge of €200 will be abolished from 1 January 2014.
While the Minister has kept his promise of not altering the income tax bands and rates, he has effectively introduced a number of stealth taxes through abolishing the PRSI exemption which will cost every PAYE worker €264 per year, increasing the DIRT rate from 30% to 33% and bringing unearned income (such as rents, interest, dividends) within the scope of PRSI from 2014.
The Minister has continued the trend of the last few years by increasing the Capital Taxes rates and reducing the lifetime exemptions. Over five successive budgets, the Capital Gains Tax and Capital Acquisitions Tax rates have increased from 20% to the current rates of 33%. In addition, over the same period, the thresholds at which Capital Acquisitions Tax becomes payable have decreased by almost 60%.
In relation to pensions it has been confirmed that tax relief will continue to be available at the marginal income tax rate and that the Pension Levy will not be renewed after 2014. However, comments made by the Minister would indicate that significant changes will come through from January 2014 in respect of larger pension funds (generating more than €60k in pension income p.a.)
Budget 2013 sees an increase in excise duty on the “old reliables”, which includes a 10% increase in the duty on a pint of beer or cider and a noteworthy €1 increase in duty on a bottle of wine. In line with expectations, Vehicle Registration Tax and motor tax across all categories will increase with effect from 1 January 2013. These increases will have an impact on Irish consumers and consequently the domestic economy, the full extent of which remains to be seen.
An on-going commitment to the 12.5% corporate tax rate, underpinning Ireland’s corporate tax strategy, was noted by the Minister, who also announced some positive changes to the R&D tax credit regime, as well as the introduction of accelerated capital allowances on aviation facilities. Beyond this, Budget 2013 was a relatively quiet affair on the foreign direct investment and multinational front. This in itself is important to preserve what Ireland has to offer in the international arena. Internationally, it is a more competitive landscape than ever before to attract and retain investment, and Ireland cannot rest on its laurels.
Overall however, Budget 2013 will underpin Ireland’s commitment to getting its house in order, which in turn will serve to enhance Ireland’s credibility and reputation amongst foreign investors and the international markets.