Personal tax credits and rate bands should be indexed to inflation, according to a pre-budget submission from KPMG.
The professional services company called for a statutory mechanism to be put in place to reduce the impact of inflation on taxpayers and reduce the pressure for pay rises, with this indexation including the thresholds for the universal social charge (USC) and pay-related social insurance (PRSI).
The exemption thresholds for capital acquisitions tax (CAT) should also be subject to indexation, while the reintroduction of indexation relief for capital gains tax (CGT) purposes would ensure people paid tax on real gains when they sell assets, it said.
“By maintaining the ‘real’ value of tax reliefs, bands and credits, businesses will be under less pressure to deliver pay increases to attract and retain talent,” said KPMG Ireland partner and head of tax and legal Tom Woods.
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“Furthermore, given the current high inflationary environment and the relatively high CGT and CAT tax rates of 33 per cent, it is time to reintroduce CGT indexation relief and to index the CAT tax exemption threshold.”
Earlier this month, the Oireachtas committee on budgetary oversight also recommended that the Irish taxation and social protection system should be formally linked to inflation to make annual budgets less “ad hoc” and help reduce income inequality at a time of surging prices.
Inflation of 9.1%
The Irish rate of inflation, as recorded by the Consumer Price Index, was 9.1 per cent in the year to June, according to the Central Statistics Office.
Eurostat, the statistics office of the European Union, will on Friday give flash estimates of inflation readings for July for euro zone countries, using a measure called the Harmonised Index of Consumer Prices, amid the soaring cost of energy across the region.
In its pre-budget submission ahead of Budget 2023 in September, KPMG highlighted the importance of “safeguarding Ireland’s attractiveness” for foreign direct investment (FDI) and said this should include reducing the marginal cost of employment.
It also urged the removal of what it said was “unnecessary complexity” from some elements of the corporate tax code.
“At a minimum Ireland needs to align its rules on the taxation of dividends and branch profits with our competitors and remove obsolete tax provisions that are giving rise to unnecessary complexity and costs for businesses,” said Mr Woods.
Its submission also says the housing crisis is having a negative impact on FDI decisions and the supply of skilled workers in Ireland.
The taxation of professional landlords should be reformed to allow them to access the same tax rates, expenses deduction rules and capital tax reliefs as enjoyed by businesses operating trades, it added.
Among other housing recommendations, KPMG said targeted capital tax incentives could play a role in driving the supply of land for residential development, while VAT on the supply of new houses should be suspended temporarily to increase the supply of affordable housing.
