Comment: An increase in commercial rates in the current economic climate could have serious implications for businesses already struggling with rising costs, argues John Dunne.

It has been a welcome development that Government in recent years has sought to reduce the tax burden on the individual and on business.

In turn, this provides an incentive for firms to develop and expand as well as providing individuals with an incentive to participate in the labour force.

But there is one area of business taxation that is forgotten about. It is an area where businesses have experienced increases over the past 10 years averaging almost twice the rate of inflation. This area is commercial rates.

The estimates process for rates is in full swing and local authorities will shortly decide on the "rateable valuation multiplier" (formerly known as striking the rate in the pound). This multiplier is applied to the valuation of the property and the rates bill is then determined.

Business does not object to paying its fair share, but since the abolition of domestic rates in 1978 and a successful Supreme Court challenge to the payment of rates on agricultural land in 1984, business is the only sector that pays rates on its property to local authorities.

The total collected in commercial rates in 1984 was €182 million (£144 million). By 1989, it was €292 million. Five years later, it was €387 million and this year businesses will have contributed more than €746 million in rates.

In other words, since becoming the sole contributing sector in 1984, the total take from the business community by local authorities has increased by more than 400 per cent.

This increase is excessive and unsustainable, particularly in the current economic climate when many firms are struggling with rising business costs such as insurance, wages and the recent announcement of a rise in the price of electricity.

Business must also pay for water, for disposal of commercial waste and charges linked to planning permission for the provision of parking and connection to water and sewerage schemes. These charges have increased almost exponentially.

While no central data are available, it is estimated that revenue from these sources is nearly equal to the total take from rates on a national basis - bringing the total local tax bill for businesses to about €1.5 billion this year.

Essentially, only certain commercial and industrial premises are subject to actually paying rates. They constitute just 8 per cent of the total properties recorded in the valuation lists.

There is a limit to the amount that any one sector of society should be expected to contribute. The Chambers of Commerce of Ireland (CCI) is calling for initiatives to ease the burden of commercial rates on business.

• Commercial rates should be frozen at their current level for the forthcoming year. This is in the context of the excessive increases imposed upon the business community in previous years. Rises in commercial rates have risen by almost twice the rate of inflation over the past 10 years.

A further rise in the current economic climate could have serious implications for businesses already struggling with rising costs. While CCI has welcomed Government plans to introduce the Personal Injury Assessment Board to address the insurance problem, this will take time.

But a freeze on rates would immediately ease the burden on beleaguered businesses.

• Any future increases in rates in subsequent years should be agreed by the local authority with the local rate-paying community, represented by the local Chamber of Commerce.

This reflects the fact that business does not object to paying its fair share but needs to be confident that spending is properly targeted and represents value for money.

• The core issue of the wholly inadequate level of support from central Government to local authorities also needs to be addressed.

Last year for instance, the Government raised the cap on commercial rates to 7.5 per cent.

At the same time, the Government itself was only willing to pay an extra 3 per cent towards the running of local authorities under the General Fund (more commonly known as the Local Government Fund). This is notwithstanding the fact that the Government's own total net voted expenditure was projected to increase by 14.4 per cent in its revised estimates.

We propose that there should be a statutory requirement on Government to increase its subvention to local authorities in the form of the Local Government Fund by at least the equivalent of the cap on commercial rates each year.

• Despite promises that the long-awaited Valuation Act 2001 would overhaul the system to make it more transparent and equitable, this has not proved to be the case. It has failed to address the issue of the narrow rates base. Unregistered guesthouses and B&Bs, in particular, continue to be exempted from the obligation to pay rates.

This issue needs to be reviewed as it constitutes arbitrary discrimination against other classes of business rate-payers left to shoulder the burden. In addition, the Valuation Act 2001 restates the exemption of State property from the payment of rates.

This exemption needs to be reviewed as such properties draw significantly on the services of local authorities and this matter will become more acute when the Government embarks on its promised programme of decentralisation.

John Dunne is chief executive of the Chambers of Commerce of Ireland (CCI)