There is growing alarm at the top level of Government about the future of corporation tax revenues, after exchequer returns published yesterday showed receipts from the tax plummeted for the third month in succession.
Compared with last year, receipts from corporation tax were down 45 per cent in October, following declines of 12 per cent in September and 36 per cent in August.
There is now significant nervousness in the Department of Finance in advance of this month’s returns, which will be reported in early December. November is the biggest month for the payment of many taxes, including corporation tax, and another big fall would leave a significant hole in the Government’s fiscal arithmetic.
At present there are no plans for budgetary adjustments due to the lower revenues, sources said. However, it is likely that the Government will now run a lower surplus this year.
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Minister for Finance Michael McGrath and Minister for Public Expenditure Paschal Donohoe have warned repeatedly about the windfall nature of the recent boom in the State’s corporation tax revenues, which have risen from €4 billion in 2012 to almost €23 billion last year and have doubled since 2019.
Officials now say the decline in revenues, first noticed during the summer, was not a blip and forecasts for the tax-take may be amended accordingly. One source also pointed to a marginally higher rate of unemployment reported this week as further cause for concern.
The exchequer figures show the Government collected €5.1 billion in tax in October, which was almost €1 billion or 16.4 per cent lower than collected in the same month last year.
The €1.3 billion in corporation tax receipts recorded last month was down €1.05 billion on October 2022.
Corporation tax receipts in 2023 to date are now trailing the figure recorded in the first 10 months of last year. At €15.7 billion, they are €435 million or 2.7 per cent lower than in the same period in 2022.
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The Department of Finance said the decline reflected “the weakness of exports this year, particularly in the pharmaceutical sector”. It is thought that the decline in revenues reflects the fall-off in bumper profits in a small number of large pharma companies following the end of the pandemic.
Mr McGrath said the returns “present a mixed picture” of the public finances, with higher income tax and VAT receipts this year demonstrating “the underlying strength of our economy”, but the fall in corporation tax receipts showing why it was important for the Government to avoid making permanent fiscal commitments on the basis of windfall revenues.
Peter Vale, a tax partner at Grant Thornton Ireland, described the figures as “stark” and said the timing of the trend ahead of November was “a further concern”.
A weaker corporation tax performance had been predicted but the October drop appears to be bigger than was anticipated in figures published just last month, said Tom Woods, head of tax at KPMG. “The signs are pointing to a greater fall in planned receipts than even the revised projections estimated,” he added.
