Despite its low corporate tax rate, Ireland is ranked among the least tax-competitive countries in the industrialised world, according to this year’s International Tax Competitiveness Index (ITCI) rankings published by the Washington-based Tax Foundation.
The pro-business think tank ranks countries on the basis of corporate, income, consumption and property taxes – headline rates and exemptions – and on the treatment of profits earned by companies overseas.
The latest index ranked Ireland 35th of 38 Organisation for Economic Co-operation and Development (OECD) states in terms of overall tax competitiveness, a fall of seven places on its 2021 ranking of 28.
The poor ranking (only Portugal, Italy and France fared worse) was linked to the State’s relatively high income and dividend taxes “and a relatively narrow VAT base”, it said.
Ireland was ranked as the 4th most competitive when it came to corporate tax but the 37th and 36th most competitive when it came individual taxes and consumption taxes.
The Tax Foundation also noted that the five lowest-ranking countries had relatively high consumption tax rates, with rates of 20 per cent or higher.
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The relatively high marginal rates of income tax paid by middle-income workers here have long been seen as anticompetitive and anti-employment by business and tax groups.
At present, the higher 40 per cent income tax rate kicks in on earnings above €36,800 for a single person. As part of changes announced in the budget, the top tax rate will now only apply to income above €40,000.
For the ninth year in a row, Estonia was found to have the best tax code in the OECD, according to the foundation’s rankings.
The Baltic nation’s top score was driven by “four positive features”, including a corporate tax rate of 20 per cent, a flat 20 per cent tax on individual income that does not apply to personal dividend income, and a property tax that only applies to the value of land, rather than to the value of real property or capital.
At the other end of the rankings, France was deemed to have the least competitive tax system in the OECD.
The Tax Foundation said that France had a wealth tax on real estate, a financial transaction tax and an inheritance tax. It also noted that the French VAT covers less than 50 per cent of final consumption, “revealing both policy and enforcement gaps”.
“According to research from the OECD, corporate taxes are most harmful for economic growth, with personal income taxes and consumption taxes being less harmful,” the Tax Foundation said.
“Taxes on immovable property have the smallest impact on growth,” it added. “A tax code that is competitive and neutral promotes sustainable economic growth and investment while raising sufficient revenue for government priorities.”
