UNDER the Partnership 2000 agreement the Government is to provide £100 million over the next three years for a business tax package which will include reductions in corporation tax.
On Wednesday, the Minister for Finance Mr Quinn is expected to announce a reduction in the standard corporation tax rate from 38 per cent to 36 per cent. The lower 30 per cent rate, which currently applies to the first £50,000 of profits, is expected to be cut to 28 per cent. A reduced rate of 10 per cent applies to certain qualifying manufacturing operations.
Any reduction in corporation tax will not affect exchequer revenue until 1998. But in a full year the cost of a two point cut in the 38 per cent rate would be close to £40 million.
Other new measures to help reduce the cost of running a business include an expected increase about £500 in the ceiling for the lower rate of Pay Related Social Insurance. A two tier system operates for the payment of employers PRSI where an employee earns less than £250 in any one week, or £13,000 in a year, his/her employer pays PRSI at a reduced rate of 8.5 per cent.
If the employees earnings exceed £250 in any week the employer is liable for PRSI at the full rate of 12, per cent on all the earnings. Mr Quinn is likely to increase the earnings ceiling to £13,500.
Employees will be encouraged to invest in their employers business through more favourable tax treatment of employee share ownership.
Farmers will benefit with a special package aimed at facilitating capital investment and from increases in capital allowances, a reduction in stamp duty and a rebate on the VAT relief on livestock.
Different sectors and interest groups have been lobbying for specific changes. Small businesses want lower tax rates, specifically a lower standard corporation tax rate. The [current standard rate is 38 per and there is a special rate of 30 per cent on the first £50,000 of profits.
The Small Firms Association wants a corporation tax rate of 27 per cent on the first £100,000 profits, which it estimates would cost £19 million a year. The Irish Small and Medium Enterprises Association wants a corporation tax rate of 10 per cent for service firms generating annual profits of up to £50,000.
The construction sector wants the current 12.5 per cent value added tax (VAT) rate on construction to be maintained. The 12.5 per cent VAT rate for building services compares with a standard rate of 25 per cent. Other businesses/sectors which qualify for a 12.5 per cent VAT charge include newspapers, hotel and holiday accommodation, short term car and boat hire, some agricultural services, heating fuel, electricity and restaurant services.
The Irish Exporters Association has proposed a sterling stabilisation fund for designated exporters, the allocation of funds to develop trade with Britain, a cut in corporation tax on service sector profits, a widening of the income tax bands and a reduction in international telephone/fax charges.
The motor industry wants a reduction in Vehicle Registration Tax (VRT) from 23.34 per cent to 20 per cent, arguing that this measure would increase rather than reduce Government revenue because more cars would be bought.
The Food Drink and Tobacco Federation wants a significant increase in the income ceiling for the lower rate of employers PRSI from £13,000 to £18,000.
The Irish Clothing Manufacturers Association wants the employers PRSI rate of 8.5 per cent to be reduced to 5 per cent, which is the rate for clothing manufacturers in Northern Ireland.
The Fashion and Footwear Federation wants VAT on adult clothing and footwear to be reduced from the current level of 21 per cent to 12 to 15 per cent.
