Corporation tax is currently at the level that can generate most revenue for the economy and this must be protected in the face of growing international competition, the Enterprise Strategy Group has concluded.
The group recommends that the Government should reiterate its commitment to the 12.5 per cent corporation tax rate so that the Republic's appeal as an investment location remains clear.
The current level of corporation tax is the "revenue-maximising rate" for the economy, the group believes. "We now require certainty about a continuing low tax regime," the group advises in its report, Ahead of the Curve.
This is particularly necessary, according to the report, because a number of competing nations are moving towards lower corporation tax rates.
The report points out that Switzerland and five of the 10 member-states that joined the EU in May have recently proposed or passed tax-cutting legislation.
Competition on the inward investment front is also developing in states outside Europe, such as Singapore, Puerto Rico and China, which have very low tax rates.
The Enterprise Strategy Group has also called for the system of charging VAT on e-commerce transactions to be changed to make Irish web-based businesses more competitive.
The Republic currently charges VAT at 21 per cent on business-to-consumer (B2C) transactions over the internet. This is one of the highest in Europe, leaving Irish suppliers at a "significant competitive disadvantage in the B2C market", according to the strategy group.
The report recommends that the Government push the EU to change VAT rules so that the tax could be applied at the standard rate in application where the customer lives, rather than where the product is sold.
As well as affecting indigenous companies, this makes Ireland less attractive to foreign firms that sell products such as music and software delivery over the web, according to the group. The advice on VAT was welcomed by ICT Ireland, the IBEC association representing IT companies, which said such a move would create a level playing field in a market expected to be worth €200 billion by 2006.
The Enterprise Strategy Group goes on to recommend that a 20 per cent tax credit for research and development (R&D) introduced after last year's Budget be monitored to ensure their effectiveness.
The credits are currently only available for "incremental" R&D rather than research that was already being undertaken before last year.
The group also advises that carbon taxes, due to be introduced as part of the Kyoto Protocol, should be introduced at a low level, with an increase possible at a later date if necessary.
The group recommends that the tax should be applied to all business sectors, so that each can contribute "proportionally" to the reduction of emissions.
