Pre Budget 2015: Dublin Chamber’s Proposals Patrick King 24 September 2014
Dublin Tax Importance Regional Tax Breakdown (2011) 80% 70% Proportion of total 60% 50% 40% 30% 20% 10% 0% Dublin Cork Galway Limerick Income Tax PAYE* 51.93% 8.60% 4.34% 2.99% Income Tax non-PAYE* 44.34% 11.13% 4.43% 3.48% VAT (domestic) 62.19% 10.24% 2.51% 1.93% Corporation tax 59.39% 20.95% 1.92% 3.84% Capital Gains tax 47.49% 7.99% 4.10% 2.17%
Business Trends Dublin Business Index Index questions 2012 2013 2014 Level of business (past 3 months) 73 57 65 Expected level of business (next 3 83 68 72 months) Confidence in Irish economy (vs 3 82 months ago) 48 64 Average selling price per unit willl be… 53 45 48 Operational costs will be… 59 54 53 Profitability will be… 63 49 53 Employment will be… 66 56 52 Green = Higher Yellow = Same Red = Lower
Chamber Approach • Budget deficit to 3% of GDP in 2015 • Highly aware of cost and cash flow impact • Aim to maximise job creation to Exchequer cost ratio • SME ability to achieve potential core to approach – SMEs struggling to grow due to finance and working capital • All businesses in Dublin need a competitive tax system, infrastructure and support structures • ‘Incremental Change ’ vs ‘Disruptive Change’
Summary of Recommendations Disruptive Incremental Change Change Early access to pension lump sums Revise Employment & Investment Incentive Scheme for SME investment Facilitating Finance for Personal loans to SMEs SMEs Personal equity investment by entrepreneurs Provide alternative to existing Ensure competitive tax environment Boosting income taxation system Maintain & extend tourism rate of Competitiveness Improve Special Assignees Relief VAT Programme Revise Foreign Earnings Deduction Promote Public Private Partnerships Promote office development in Maximising the city’s Dublin economic contribution Increase capital expenditure and maximise economic return Increase cash basis threshold for VAT Abolish professional services withholding tax Cash Position of SMEs Increase close company surcharge Open-up Public Procurement for SMEs
Employment & Investment Incentive • EII welcomed broadening Business Expansion Scheme (BES) • Poor take up of EII : ~ € 40m in 2013 • Partly due to economy • Opportunity to significantly increase to peak levels • Recommendations: – Increase investment period from 3 to 5 years – Remove non-assisted area restrictions – Remove phased nature of the relief – Address the complexity of the EII legislation – Allow subsidiaries in a group to apply for EII
Employment & Investment Incentive 1400 Case Study #1 Company sector: Food Manufacturing and Services sector 1200 Turnover: € 11.2 million Net profit: € 144,000 Net assets: € 599,000 Number of employees: 30 1000 Projected Cash flow in € 000s 800 3 Year EII 600 5 Year EII 400 200 0 2014 2015 2016 2017 2018 -200
Employment & Investment Incentive 700 Case Study #2 Company sector: Engineering and Tooling sector 600 Turnover: € 4.5 million Net profit: € 155,000 500 Net assets: € 438,000 Number of employees: 36 400 Projected Cash flow in € 000s 300 200 3 Year EII 5 Year EII 100 0 2014 2015 2016 2017 2018 2019 -100 -200 -300 -400
Employment & Investment Incentive 700 Case Study #3 Company sector: Manufacturing sector 600 Turnover: € 1.39 million Net profit: € 147,000 500 Net assets: € 871,000 Number of employees: 21 400 Projected Cash flow in € 000s 300 3 Year EII 200 5 Year EII 100 0 2014 2015 2016 2017 2018 2019 -100 -200 -300
Early Access to Pension • Potential – Source of non-bank finance • € 80bn in Irish Pension Funds • Of which € 30bn is individual or defined contribution – At drawdown no tax payable on 25% of pension funds (to a maximum of € 200,000). – However, it is not possible to access any part of the pension fund prior to age 60. • If € 7.5bn raised, € 45m Exchequer cost
Early Access to Pension • Proposal: – Allow to make use of an individual’s lifetime tax - free lump sum. – Withdrawals of tax free cash from pension funds should be deducted from the overall lifetime tax- free lump sum limit. • Conditions: – SME or Startup and a capital expenditure – Create an ‘investment capital trust’ into which the tax free funds would be released
Personal Loans to SMEs • Peer-to-peer situation – Ireland = € 5 m – UK = £ hundreds of millions • Improve direct financing options • Amend personal tax code to allow individuals to earn tax-free interest from SME loans – UK’s Individual Savings Account (no- or low-tax).
Personal Loans to SMEs • Two approaches proposed: – An annual tax-free allowance on interest earnings • Approach similar to the rent-a-room scheme • An amount of € 10,000 pa for same – An annual investment allowance • Limit on amount lent via personal loans to SMEs • Interest on any income gained would be perpetually tax-free
Problems of a High Headline Rate • Attracting skilled overseas workers and executives • Headline rate of income tax at 52% major deterrent • SARP poor performance: – Ireland had 6 applications (2012) – Netherlands had 12,000 applications (2009)
Problems of a High Headline Rate Average Income Tax Rate 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% € - € 50,000 € 100,000 € 150,000 € 200,000 € 250,000 € 300,000 € 350,000 € 400,000 € 450,000 • However, effective rate paid by these typically no higher than 40% Source: http://www.revenue.ie/en/about/publications/statistical/archive/2011/income-distribution-statistics.pdf
Problems of a High Headline Rate • Optional flat rate of tax at 40% with all bands and allowances eliminated. • Simplified system more appealing headline rate of tax, with minimal loss in tax revenue for the State.
Thanks to Taskforce • Brendan Foster (Chair) • Ciaran Blackall, Blackall Financial • Peter Cross, Trasna • Michele Connolly, KPMG Consulting • Bernard Doherty, • John Healy, KBC GrantThornton • Dermot Clohessy, IDA • Joe Tynan, PwC • Margaret Flemming, JLL • Edel Carter, GrantThornton • Joe Redmond, Fexco • Ray Browne, Fujistu • Aebhric McGibney • Paul Hallam, PM Group • Orlaith Delargy Thank you for your time & interest www.dubchamber.ie/docs/budget-submission-2015
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