The Minister for Finance has generally pleased the business sector with his fifth Budget but requirements to pay corporation tax earlier and an increase in VAT were a disappointment.
Businesses are particularly relieved by the reduction in the employers' PRSI rate from 12 per cent to 10.75 per cent, which will yield substantial savings and help to protect jobs.
The employers' lobby group, IBEC, said the reduction was a move in the right direction and would reduce employer's costs by about £270 million (€342 million). A spokesman said the rate cut was necessary to sustain employers commitment to the Programme for Prosperity and Fairness.
ICT Ireland, which represents companies in the high technology sector which were among those hardest hit by the abolition of the employers' PRSI ceiling in last year's Budget, said the reduction still did not go far enough to compensate the sector.
Mr McCreevy said he had planned more wide-ranging reforms of the PRSI system but was hampered by the deterioration in the public finances due to weaker economic conditions.
A cut in the rate of corporation tax from 20 per cent to 16 per cent was also welcomed and will help to ease the financial burden for many companies at a time when economic growth is slowing. The reduction is in line with the Government's previously announced programme to introduce a single rate of corporation tax of 12.5 per cent in 2003. The sting in the tail, though, is the requirement for businesses to pay this tax some seven months earlier from next year.
At the moment, companies must pay corporation tax within six months after the end of their accounting period. Under the new arrangements, the payment date will be brought forward to one month before the end of that accounting period which will affect cash flow and the administration of company tax compliance.
The new payment arrangements will be phased in over five years.
In 2002, companies will be required to make an initial tax payment equal to 20 per cent of the total amount owing, with the remainder falling due six months after the year end. The amount to be paid by the earlier deadline will increase each year until 2006 when all monies owing will have to be paid one month before the year end.
This will affect company cash flow as businesses will now be forced to find large sums of money to pay to the Revenue Commissioners seven months earlier than in the current year.
IBEC has estimated that this change could end up costing Irish businesses about €30 million. Mr O'Sullivan stressed, however, that it was only businesses that were forced to borrow funds to meet the earlier tax demands which would face more expense. IBEC said the earlier deadline was unwelcome in difficult trading conditions but was understandable and in line with common practice in other countries.
The Small Firms Association said the changed tax payment date would put a huge strain on its members cash flow, especially companies in the manufacturing and internationally traded services sector which would not benefit from reductions in corporation tax rates.
The Minister's decision to restore the main VAT rate to 21 per cent - after the cut to 20 per cent last year - was generally felt to be a blow for business. The Irish Small and Medium Enterprises Association (ISME) said this would have a substantial impact on small companies which trade internationally.
The Chambers of Commerce of Ireland described the rise in VAT as "incomprehensible", stating it would further undermine the competitiveness of Ireland as a location for Internet businesses.
CCI chief executive Mr John Dunne said the Minister for Finance had made business survival next year even more difficult to achieve.
Overall the business community was heartened by the absence of borrowing by the Government given the economic uncertainty. The commitment to the National Development Plan and proposed additional spending on roads and public transport were also welcomed as being positive for business.
Main Points
Employers' PRSI rate cut from 12 per cent to 10.75 per cent from March 1st, 2002
Corporation tax reduced from 20 per cent to 16 per cent from January 1st, 2002.
Corporation Tax payments will fall due earlier from 2002. In the next five years companies will have to pay corporation tax seven months earlier to the Revenue Commissioners.
Top rate of VAT to rise from 20 per cent to 21 per cent from March 1st 2001.