Reducing the rate of capital gains tax (CGT)from 33 per cent to 20 per cent will unlock investment and make Ireland a more attractive place to sell a business, a business lobby group has argued.
In its pre-Budget 2016 submission, the Small Firms Association (SFA), says that the current CGT rate of 33 per cent makes it less attractive to sell a business and reinvest in the Irish economy.
“Ireland has one of the highest rates of CGT amongst developed economies at 33%. This puts Ireland at a competitive disadvantage when it comes to attracting and retaining mobile investment. The SFA is calling for a reduction in CGT to 20% across the board. History has shown that a lower rate of CGT substantially boosts the overall tax take, so the Exchequer will also benefit substantially by such a move,” SFA chairman AJ Noonan said.
In addition, the SFA argued that the current CGT Entrepreneurial Relief scheme is “overly restrictive and will not work in its current format”.
“ The fact that the relief is given after the sale of a second successful business means in reality that it will take a decade before the entrepreneur will see any return and, in any event, the likelihood of having two successful start-ups in a row is questionable,” the SFA said in its submission, suggesting that the relief is amended to mirror the UK scheme, where CGT of 10 per cent is due on the sale or closure of all or part of a business, on the condition that the entrepreneur has held the share for at least a year and is a director, partner or employee in the business.
The association, which represents 8,500 member companies, also called for an end to tax discrimination against the self-employed.
" It is critical that there is at least equity in treatment between employees and proprietary directors/self-employed people if entrepreneurship in Ireland is to flourish," Mr Noonan said, noting that this could be done by ending the 3 per cent USC surcharge that applies only to the self-employed; affording proprietary directors the PAYE tax credit if they pay tax on a PAYE basis; and introducing a voluntary PRSI contribution to allow entrepreneurs to have a social welfare safety net similar to their employees.
Reducing income tax is another target of the SFA, and the association has asked the Government to increase the entry point to the marginal rate of income tax by € 1,500 in 2016 for a single person, with a corresponding increase for married couples and other tax cases. The association also called for the introduction of a tax credit for childcare costs, as “the prohibitive cost of childcare is forcing many skilled people to leave the workplace” the SFA said.
In addition, the SFA strongly advocates a 1 per cent reduction in the marginal rate of income tax and says that employer PRSI must be reviewed.