Tax changes in the budget are more likely to come from broadening the tax base rather than raising tax rates or introducing new measures, as the Government looks to raise an additional €500 million in revenue, the Irish Tax Institute has said.

It also believes that the lower VAT rate on service businesses, including hotels, theatres and museums, is likely to disappear as planned next year, with retailers likely to have to absorb the increase.

The institute's chief executive Mark Redmond complained about the "punitive" capital tax regime. "With loan funding difficult to access, fledgling businesses are more reliant on supportive investors," he said. "However, such investment is not encouraged by capital tax rates that have increased by 65 per cent in five years – moving from 20 per cent to 33 per cent."

He said other countries had been “enhancing” their rates of capital gains and capital acquisitions tax, with tax reform in the UK, including Northern Ireland presenting “challenges” for companies with mobile investors.

The institute’s policy director Cora O’Brien said uncertainty over the changing capital tax regime was making the people who were in a position to support private equity investment nervous.

Proposed increases in the PRSI bill for the self-employed would bring the marginal tax rate for this group of more than 300,000 taxpayers to a “staggering” 56.5 per cent, noting they already had a higher marginal rate than PAYE workers.

Tax for investors
The institute has called on the Government to improve the tax environment for investors and entrepreneurs, pointing to the Barclays Wealth Insights Report which stated: "Irish high net worth individuals are likely to hold the majority [55 per cent] of their wealth in property, more than any other country globally. Only 2 per cent of wealth is held in business/entrepreneurial interests."

It wants the rate of capital gains tax at least halved for gains on the sale of business assets of shares in active trading companies and a package of income tax measures to make the system more “conducive”. These include ending the three percentage point Universal Social Charge on non-PAYE income at the end of next year.