As talks continue today between the Government and the Social Partners on the inevitability of tax increases, the Institute of Chartered Accountants in Ireland (ICAI) has urged a focus on tax measures which won't further damage the economy.
"Our tax system already discriminates positively towards those on lower incomes by taking a lower percentage, and that is entirely the right approach. As the Government seeks to raise taxes, it must also consider positive discrimination towards individuals and industries whose work and efforts are most likely to preserve existing jobs and create new job opportunities" said Brian Keegan, ICAI Director of Taxation.
ICAI subscribes to the emphasis in the Government's "Building Ireland's Smart Economy" plan and its focus on developing Ireland's capacity as the location of choice for high tech business. Such businesses create high value and long term jobs, and the rewards for successful R& D are very high. "We must be very careful to ensure that as we raise taxes we do not damage our capacity to attract valuable personnel and investment, as tax policy is a very important influencer of investment decisions" said Keegan.
"The tax base is the amount of national income that gets taxed, and contrary to reports, the Irish tax base is already among the broadest in the world. In comparison with other countries, we actually have very low levels of tax relief which reduce the tax base. That wasn't always the case in Ireland, but it is now. However, we also have low tax rates. If we are to raise additional taxes, a proper balance must be struck between reducing tax reliefs further and increasing some of the tax rates."
There are important tax reliefs that must be preserved to provide some level of general stimulus. For example the Business Expansion Scheme offers businesses a way of attracting investment and funding outside of bank borrowing. The Research and Development credit system support investment by channelling money into paying salaries and developing research facilities instead of meeting tax bills.
ICAI notes the involvement of the Commission on Taxation in arriving at the most appropriate tax policies for the country. In its submission to the Commission in May 2008, ICAI emphasised the importance of the tax system in simulating high tech enterprise and in particular rewarding the innovator.