THE EARLIER Budget date this year may have led the corporate sector to hope that the spirit of Christmas would continue into January. The most that can be said is that this hope has been fulfilled in part only.
Following last year's reduction in the corporation tax rate from 40 per cent to 38 per cent and a signalled intention to make further reductions this year, the Minister has delivered, but with a distinct bias in favour of the smaller business sector.
A new low 30 per cent corporation tax rate on the first £50,000 of taxable income will apply from April 1st, 1996. It appears that this lower rate will not extend to companies' chargeable gains.
Groups of companies will enjoy the new rate only on the first £50,000 of group income. Maximum savings per group will not exceed £4,000 annually.
The new 30 per cent rate will in due course do something to help the cash flow of smaller companies and hence their competitiveness. The reduction will also have an interesting spin off consequence for shareholders in smaller companies.
Heretofore, part only of the corporation tax paid by a company has been attributed or imputed to a shareholder by way of the tax credit attaching to a dividend.
However, with a corporation tax rate of 30 per cent and, assuming the standard tax credit remains at 23/77ths (29.87 per cent), an almost complete imputation will be available on low profits.
This result will be welcomed by shareholders, particularly those who do not work in the business and.a who cannot be remunerated by way of tax deductible salary.
The corporate cash flow will also be improved in many cases by revisions in employer's PRSI contributions. However, the impact will be somewhat uneven.
For instance, an employer will save PRSI of £50 a year on paying a gross wage of £10,000 and £30 a year on a gross of £15,000. However, at £30,000 a year, PRSI will actually lost the employer an additional £68.
Labour intensive industries in the manufacturing sector are likely to benefit most.
Some announced improvements in tax administration will be welcomed by the business community.
These include "a systematic review of tax forms including design frequency, reporting thresholds and so on and "the use of technology for more secure and speedier tax payment and repayment arrangements, including direct debit systems."
No further details have been supplied and it remains to be seen what practical implications these measures will have.
Budget statements provide an opportunity to take stock and consider not only what the Minister has done but what he has failed to do.
The list of gripes must include retention of the 40 per cent rate for the chargeable gains of companies.
He did not act to remove the 20 per cent surcharge on undistributed investment or rental income of closely held companies, which now appears to be at odds with his initiative in bringing forward the 30 per cent low rate (and his reduction in the surcharge on undistributed professional income).
No tax incentives have been brought forward to encourage development of the internationally traded services sector.
The Minister estimates that the new Corporation Tax rate initiative will cost the Exchequer £23 million in a full year. This compares with his costing of last year's two per cent rate reduction at £43 million in a full year. CORPORATION tax provides almost 10 per cent of total tax revenues £1,145 million in 1995. This take is likely to grow significantly in 1996 despite last year's rate reduction.
Ireland's corporation tax rate is still significantly higher than that of the main overseas territories into which corporate Ireland invests and this acts as a major disincentive to the repatriation of profits. The Minister might have been somewhat more faithful to the spirit of Christmas past.