Ireland needs to end its dependence on multinationals and broaden its support to indigenous businesses, tax experts said yesterday, as they called for a €1 billion package to boost entrepreneurship.
"While Irish tax policy must ensure that Ireland remains a competitive location for foreign direct investment, it is equally imperative that entrepreneurial risk-taking and innovation are recognised and rewarded," Lorraine Griffin, head of tax with Deloitte said, launching the professional services firm's pre-budget review, as she added that foreign direct investment (FDI) and indigenous businesses are "two core pillars" of the Irish economy and "we need both".
“We can’t put all our eggs in the one basket,” she said.
To this end, Padraig Cronin, vice chairman and tax partner with Deloitte, said that the government should put together a €1 billion package to support entrepeneurship, including widenening the PAYE tax credit to the self-employed.
“This would make a real statement that gets international attention,” he said. A key difference in this year’s Budget, said Mr Cronin, is that in years gone by, the Government would not have been assured that every euro used to stimulate the economy would have a multiplier effect.
Now, there is a “significant” chance that investment will lead to enhanced economic activity, Mr Cronin said.
Key to an entrepreneurship strategy should be encouraging entrepreneurs to stay in business longer, and scale their businesess internationally. One way of doing this, Deloitte suggests, is by introducing a tapering rate of capital gains tax, which would encourage businesses to retain ownership for a longer period in exchange for a lower rate of CGT.
“It would be a greater incentive for long-term ownership,” says Cronin, who finds it “staggering” that after 20/30 years Ireland still hasn’t replicated the successes of companies like Kerry Group and Glanbia.
“Too many businesses sell out after five years, because they feel it’s not worth staying the course,” says Cronin, adding that another proposal could be to allow people re-invest in their business and take it out as a dividend after five years, at a tax rate of 20 per cent.
“It would be a further incentive to stay the course and not sell,” he says.
And, with Ireland’s “bag of tricks” which it can use to stimulate FDI investment increasingly limited against a background of the OECD’s BEPS project, Mr Cronin said that such restrictions don’t exist in the indigenous space.
Other potential proposals from Deloitte include using property tax to incentivise so-called empty nesters to trade-down and free up family homes. Cronin suggests that this could be done, for example, by increasing the property tax payable on a four-bedroom home if only two people are living in it.
