Madam, - John McManus (Business Opinion, January 10th) criticises the failure of Government to include a review of the Business Expansion Scheme (BES) and the Seed Capital Scheme (SCS) in the external consultancy study which is one element of the current review of tax reliefs.
There are a few important points which he appears to have overlooked:
1. The Budget documentation made clear that the proposed consultancy work presently being tendered for was in respect of property-based schemes; other relevant schemes will also be covered by other work under the review.
2. More than other tax schemes, both the BES and SCS have been reviewed repeatedly and regularly from the point of view of value for money (not just from an EU State aid perspective as suggested by your writer).
3. Such reviews were published and can be found in TSG papers Nos: 98/34, 99/53, 00/15 and 03/16 on the Department's website. These can be readily accessed by the public.
4. There is a strict overall limit of €1 million on the amount that can be raised by companies under the BES. There is also a limit on investors of €31,750 (£25,000) a year. This in itself curtails the scope for "abuse" or for using the scheme to reduce the tax liability of high earners.
5. The Seed Capital Scheme is a repayment of tax paid in prior employment by persons leaving secure jobs and setting up and running new start-up businesses. The scope for "abuse" or for high earners using it to reduce their tax liability is thus quite limited.
6. The BES, which dates from 1984, and the SCS scheme, introduced in 1993, have been amended and refocused over the years by various governments to limit the scope for "abuse". Both schemes are generally regarded as meeting their aim of assisting start-ups and investment in job-creating enterprises.
Furthermore, the article observes that the review of reliefs took place because of a campaign by one political party and by the trade unions. The position is that all such reliefs are kept under continual review and the recently announced review is part of that process. The fact that high earners can reduce their tax liability significantly has been clearly identified in studies of high earners made publicly available since 1998. For example, the first of these studies showed that there were 31 cases in 1993-94 and 34 cases in 1994-95 with effective tax rates of less than 5 per cent.
Following this study considerable action to curb tax relief abuse and to limit the use of reliefs by high earners has been taken since 1997 by the current Government.
Finally, tax reliefs were introduced and extended by all governments in the past and are not peculiar to any one administration. It also should be noted that tax reliefs and tax exemptions are not the sole preserve of higher earners, as some would have us believe. - Yours, etc.,
JOHN CONLON, Press Officer, Department of Finance, Dublin 2.