MINISTER FOR Finance Brian Lenihan will seek European Commission approval later this month for a significant revamp of the Business Expansion Scheme (BES), which offers tax breaks to individuals who invest in small and medium-sized companies. This was the main stimulus measure for businesses in the Budget yesterday.
The scheme is to be renamed the Employment and Investment Incentive. The limit that can be raised by companies will rise from €2 million to €10 million, and the amount that can be raised in any 12-month period will increase from €1.5 million to €2.5 million.
In addition, the certification requirements are to be simplified. The new incentive will expire on December 31st, 2013.
Minister for Enterprise Batt O’Keeffe yesterday expressed confidence that the commission would back the changes.
“We don’t believe there is State aid involved,” he said. He hopes the changes will be approved in January and said the new scheme would aid job creation.
Tim O’Rahilly, tax partner with PricewaterhouseCoopers, called the changes to the scheme “positive”. “The BES scheme has grown over a number of years and become quite complex, so it’s good that it’s been looked at again,” he added.
Mr O’Keeffe highlighted the retention of the 12.5 per cent tax rate, citing it as crucial for foreign direct investment. “Foreign investments are continuing to grow and we are pricing ourselves back into the global marketplace by dramatically improving our competitiveness,” he said.
He also welcomed the extension of the three-year corporation tax exemption for start-up companies starting a new trade in 2011.
But the scheme has been amended so that the relief will be linked to the amount of employers’ PRSI paid by the company.
Mr Lenihan said this change would focus the relief on employment creation and reward new firms that create jobs. But it was criticised by Darragh Kilbride of accountants body ACCA Ireland.
“What is being given with one hand is then been taken away with the other,” Ms Kilbride said. “The relief is now going to be linked to the amount of employer’s PRSI paid by the company. Such a link undermines this relief entirely and presupposes that start-up companies will immediately go to an employment phase.”
Mr O’Keeffe said the IDA and Enterprise Ireland would create 27,500 new jobs among client companies next year.
“The €508 million capital investment for these agencies will allow us to continue to win foreign direct investments, grow indigenous exports and create high-quality sustainable jobs in the smart economy,” he added.
He expects Irish exports to rise 5 per cent in 2011. But there was criticism from several quarters that the Government had not done enough to stimulate job creation.
“There’s very little stimulus in the Budget,” said Mark Fielding, chief executive of lobby group ISME, which represents small and medium-sized business. He criticised the rise in fuel prices, which he said would add significantly to distribution costs.
Joe Carr, managing partner of accountants Mazars, said: “The bottom line is we need to create 250,000 additional jobs in the next five to seven years if we are to have a sustainable economy in which we can repay our international debts. There is little to guide and lead economic activity and job creation in this Budget.”
Eamonn Siggins of the Institute of Certified Public Accountants in Ireland described the Budget as a “tax-gathering exercise with little stimulus”.