With an already attractive corporate income tax regime in place and a recent VAT cut under its belt, authorities in Ireland could be forgiven for resting on their laurels in the forthcoming 2021 Budget, due to be delivered on October 13.
According to the macroeconomic figures and forecasts underpinning the Budget, which were published at the end of September, the impact of COVID-19 on the Irish economy, while severe, has been less damaging than expected: the economy is expected to contract by 2.5% this year but grow by 1.4% in 2021. Given some estimates earlier this year of a 10% fall, things could be a lot worse…
Although the Government has already announced that there will be no income tax or further VAT rate changes, the Government is expected to announce a number of changes to other areas of tax policy all the same. In this blog, we will be looking at some of the measures expected to be announced, many of which have been flagged up in the recently published Tax Strategy Group papers, which are usually indicative of the general direction of travel, policy-wise.
In a joint statement with Public Expenditure Minister Michael McGrath, Finance Minister Paschal Donohoe outlined two key assumptions under which the Government is operating in terms of developing the Budget:
First, COVID-19 will need to be factored into all kinds of decision-making in the near- to medium-term, especially with regard to tax and spending.
Second, that Ireland should be economically prepared for a likely "disorderly" Brexit.
With these factors in mind then, and given the recent move to temporarily reduce the VAT rate to 21%, Donohoe explained that the 2021 Budget will focus on supporting the Irish economy while also maximising revenue collections.
According to both the Tax Strategy Group papers and tax pundits, changes are expected to 'behavioural' taxes, with increased carbon and sugar levies advanced as possibilities.
Tax changes are also expected for capital and property investments. In the TSG papers, there was discussion of the tax treatment of capital in Ireland, with the possibility of tweaks to rates or exemption thresholds for capital acquisitions tax. Changes to capital gains tax and Deposit Interest Retention Tax (DIRT) were also posited as options, although significant moves in this area are unlikely to be included in this next Budget.
Health, housing and climate change have been flagged as priority areas, and in relation to carbon taxes, an increase of €6 per tonne of carbon is expected to be announced. Vehicle registration taxes may be increased for cars with higher emission levels, or the Government may instead delay such changes to 2022. Measures to support the agricultural sector to reduce emission levels have also been discussed.
Already, the Government has announced that it intends to postpone revaluing properties for local property tax purposes, for another year, to November 1, 2021. However, some expect the Budget to contain changes to stamp duty for properties worth more than €1m.
The Government is also expected to extend the country's Knowledge Development Box regime, which provides a concessionary corporate tax rate for profits derived from Ireland-based research and development activities.
As you can see, despite the near-certainty that there will be no changes to the headline rates of the key tax heads in the coming Budget, there is still quite a lot going on. However, none of the measures detailed above are set in stone either, and so, we wait!