Small businesses call on State to reduce capital gains tax

A lobby group for small businesses has written to the Government calling on the State reduce its rate of capital gains tax in the next budget.

The Irish SME Association (Isme) has written to Minister for Finance Paschal Donohoe on the matter in light of plans by the Organisation for Economic Co-operation and Development (OECD) to adopt a global minimum corporation tax rate of 15 per cent.

The G7 and OECD countries have reached agreement but not unanimous consensus on the key aspects of a global tax deal that seeks to introduce a minimum rate of 15 per cent.

Ireland is among a handful of countries, including Hungary, that are opposed to a 15 per cent rate. Mr Donohoe has said Ireland cannot be part of an international agreement on a minimum global tax rate of 15 per cent.

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“While Ireland has had a long-standing position of advocating an OECD position on corporation tax, Isme believes Ireland must fall in line with the proposed standardised global minimum rate,” Isme said.

“Ahead of Budget 2022, and in view of the inevitable increase in corporation tax rate, Isme believes that it is an opportune time to review Ireland’s unrealistically high rate of capital gains tax.”

According to Isme chief executive Neil McDonnell, setting a 15 per cent global rate “will be pointless” unless there is also agreement on what are fair deductions allowable against it.

“Ireland’s capital gains tax is one of the highest in the world at 33 per cent, which results in the exchequer yielding far less than could be available from this tax head,” he said.

“We believe capital gains tax should be reduced to 25 per cent in Budget 2022 and should be applied to productive assets only.

“There should also be reduced rates of capital gains tax for assets and businesses held for longer periods of time, and indexation of assets should be permitted.

“At a time when Ireland’s borrowing has reached worrying levels, a reduction in capital gains tax would have the positive effect of producing a permanent uplift in yield from this tax head.”

Capital churn

Isme has advocated for a reduction in capital gains tax for some time, as outlined in its pre-budget submission.

“While we are not advocating a return to the 20 per cent rate, we believe a reduction in the current rate to 25 per cent would increase the rate of capital churn in the domestic economy and would generate a permanent uplift in yield,” said Mr McDonnell.

“We understand there are reservations about applying a lower rate of capital gains tax to passive assets such as land that might result in lower yield from disposal windfalls.

“We would therefore be agreeable to a lower rate of capital gains tax applied to investments in productive businesses, while the 33 per cent rate could be maintained for property.

“However, we also believe that a standard rate of capital gains tax should be dynamic and encourage the investment in and retention of productive companies.”

This article has been amended to correct an earlier error