Corporation tax drops as sales rates rise worldwide

CORPORATION TAX rates are falling around the world, while sales taxes are are increasing, with both trends likely to be maintained, a new report from KPMG has found.

The research shows that the Republic’s corporation tax rate of 12.5 per cent is among the lowest in Europe, where the average rate is 21.5 per cent, down from 21.7 per cent a year ago.

On the other hand, the average European indirect tax rate is 19.67 per cent, compared to the main Irish VAT rate of 21 per cent. The European average last year was 19.29 per cent.

The Minister for Finance, Brian Lenihan, has said tax “will have to play some part” in narrowing the State’s deficit but has committed the Government to retaining the 12.5 per cent corporation rate that has helped secure multinational investment.

“Indirect tax is one of the more popular ways of gaining back some of the Government’s lost revenue – shifting the collection burden to the company rather than the revenue authorities,” said KPMG’s Dublin-based global head of indirect tax Niall Campbell yesterday.

KPMG judges that indirect taxes will continue to rise while corporation taxes will fall, with more than 17 countries having changed either tax rates since last year, or announcing plans to do so.

In a note accompanying the report, KMPG’s head of tax in Ireland, Shaun Murphy, pointed out that a shift to indirect taxes helps to create a “more stable source of tax revenues”, particularly because consumption taxes are less mobile.

Experience has shown the Government that raising the Irish VAT rate can carry negative consequences. The rate was raised by half a per cent to 21.5 per cent in 2008 but subsequently reduced again after an outflow of consumer spending to the North, where the VAT rate was 15 per cent. The UK has since introduced a 17.5 per cent rate.

“Next year, the numbers will look much different,” said Mr Campbell.

“We fully expect to see numerous fluctuations as many economies around the world announce indirect tax changes.”