Tax aspects of the new programme for government

The new programme for government contains over 15 taxation proposals. Included in those are several aimed at small businesses:

  • Establishment of a Tax and Social Welfare Commission to examine entitlements of self-employed persons and the elimination of disincentives to employment
  • Halve the lower employer’s PRSI rate of 8.5% up to the end of 2013
  • Feasibility study for introducing a Single Business Tax for micro-enterprises Companies with research and development expenditure less than €100,000 to allowed deduction for the full amount (not the incremental amount)
  • Offset of R&D expenditure against employer’s PRSI as an alternative to off-setting against corporation tax
  • Acceleration of capital allowance on software purchases (subject to cost benefit analysis)
  • Cut the 13.5% VAT rate to 12% to the end of 2013

The Single Business Tax (SBT) is an interesting proposal. The aim of the SBT will be to replace the various taxes paid by micro-enterprises (turnover less than €75,000) with a single tax in order to reduce compliance costs for eligible businesses.

The reduction of compliance costs must be welcomed. However, I think the measure would need to be voluntary so businesses can determine which regime is most cost effective. One problem I foresee is PAYE/PRSI compliance. I cannot see how this could be incorporated into an SBT as the amounts deducted and payable depend on the individual circumstances of each employee. This would mean that a substantial part of the compliance burden would remain outside the SBT.

The other main compliance area is VAT. The SBT may benefit service businesses but for businesses selling goods the registration threshold for VAT is €75,000. The SBT may not benefit them unless they have opted to register for VAT.

It will be interesting to see how this develops.

Another (non-business) provision is for the consideration of various options for a site valuation tax. There is no change here from the previous administration’s 4 year plan.

I would prefer to see the total abolition of stamp duty on all residential property with a corresponding abolition of principal private resident’s relief (PPRR). This would mean that the tax burden would shift from the purchaser to the seller on sales of residential property. I think it is a ludicrous situation where the purchaser is taxed on the amount a property has increased in value before they owned it. The current stamp duty regime puts pressure on purchasers in a rising market as they must fund the stamp duty cost (which cannot be included as part of the cost for mortgage purposes). As prices increase the problem worsens. In the current market it has the same effect as it is difficult to funs the stamp duty bill as money is scarce. It is a lose-lose situation.

It would be much more equitable for the vendor to pay capital gains tax on the sale as it is they who have benefited from the increase in value. The tax doesn’t have to be funded as it would be paid out of the proceeds. The tax would have less of a negative impact transactions in a downturn as sellers may avail of lower prices to reduce the tax bill, or to realise a capital loss for offset against other (current or future) gains.

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