Allow workers to pay 20% tax on incomes of up to € 58,306 – ISME

Cut the top rate of VAT to 21 per cent, reform commercial rates, reduce public spending and allow workers to earn more at the standard rate of personal tax, are just some of the measures business lobby group Isme wants the Government to consider in Budget 2020.

On tax, the Irish Small & Medium Enterprises Association (Ismi) said in its pre-budget submission that it "wholeheartedly endorses" the 20 tax recommendations made by the Irish Taxation Institute, specifically the development of a tax strategy "which will positively support and shift Ireland's export strategy".

“Our tax strategy appears to have been developed with foreign-owned [multinationals] in mind only. We need to address this with a tax strategy that encourages, not penalises, growth in the indigenous enterprise sector,” Isme said.

It also called for an end to the tax disparities and discrimination against the self-employed; for example these workers still pay an extra 3 per cent USC surcharge on incomes in excess of €100,000. Noting that our capital gains tax rate of 33 per cent is the fourth highest in the OECD, Isme said that this “negatively impacts investment and scaling in Irish businesses”. On the KEEP Scheme, a tax advantaged share scheme aimed at rewarding key employees introduced in 2018, Isme said that “it is too complicated and restrictive for use”.

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“The changes announced in budget 2019 have not addressed this, and the ‘lifetime limit’ element introduced has made the scheme less attractive,” Isme said.

The small business association also wants changes to Ireland’s high personal tax regime, with a greater proportion of salary paid at the base income tax rate of 20 per cent.

“Irish workers are taxed at marginal rates at far too low a level of income, even by comparison with Scandinavian exemplars,” Isme said, noting that the marginal rate (40 per cent) for a single worker kicks in above € 35,300, which is 10 per cent below the current average industrial wage of € 38,871.

“We suggest future taxation policy should set benchmarks against the average industrial wage, with a view to getting to 150 per cent (i.e. € 58,306). This would still be a low marginal rate threshold by international comparison.”

Cut to VAT

Elsewhere, Isme argued that the headline rate of VAT should be reduced from 23 per cent to 21 per cent.

“This reduction is long overdue. Our standard VAT rate is one of the highest in the EU,” ISME said.

The commercial rates regime also needs to be over-hauled, Isme said, noting that the legislative basis for the rates system dates from 1898, and “is unfit for purpose”.

“The current rates system requires substantial overhaul before it threatens business viability. It discriminates against town-centre operators, and encourages donut development, contrary to Project Ireland 2040.”