THE Minister for Finance has said that there is a clear need to reduce the standard rate of corporation tax closer to the 10 per cent rate which applies to manufacturing and traded services.
Mr Quinn said accordingly he was reducing the current 38 per cent rate of corporation tax to 36 per cent. He has also introduced a new rate of 28 per cent (previously 30 per cent) on the first £50,000 of taxable income.
The Minister, who unveiled a range of measures aimed at the business sector, said it was estimated that there were nearly 20,000 companies with taxable profits of £50,000 or less paying tax at the standard rate in 1994. This year's reductions combined with those previously introduced now mean that such companies will be paying tax at 28 per cent, compared to 40 per cent in 1994.
"The Government is also studying the appropriate corporations lax structure for the longer term, bearing in mind the central importance of the 10 per cent rate for inward investment including the IFSC," he said.
The IFSC allowances are due to expire in 2005 and the 10 per cent manufacturing rate in 2010.
Small businesses are to benefit from other measures announced yesterday. The Finance Bill will include provisions to enable firms to claim certain pre trading expenses in setting up business.
The Budget has also focused on access to capital another crucial factor for businesses when they reach a certain stage. Welcoming the proposed Developing Companies Market (DCM), the Minister said he would introduce a number of tax measures to promote it.
It has also been decided to reduce the capital gains tax which applies to certain shareholdings in small and medium size companies from 27 to 26 per cent from April. The reduction will also apply to the taxation of unit linked investments and life assurance.
Measures to reduce the impact of tax on transferring family businesses have also been continued.
The rate of business relief under capital acquisitions lax on certain transfers has been increased from 75 to 90 per cent. The new rate will also apply when transferring agricultural property.
However, early profit taking and other forms of redistribution, will continue to be taxed in the normal way.
The car value thresholds used for calculating capital allowances for new cars and allowable expenses for all cars which are used for business have been increased, from £14,000 to £15,000.
These measures and others business related measures will cost £27 million this year, and £100 million in a full year, the Minister, said.
Mr William McCarter, managing director, Fruit of the Loom International.
Pre Budget concerns: In general, people's take home pay, should be increased. The higher tax acts as a disincentive, swallowing up workers bonuses and overtime.
The 27 per cent and the 48 per cent rates are loo high, and certainly the 27 per cent rate should be reduced to around 24 per cent. PRSI is loo high and should be reduced for both employers and employees. Instant reaction: When I heard the Minister's speech my first reaction was that he had obviously read what I said in Monday's Irish Times! I think he's gone some of the way to addressing the concerns I had.
He reduced the 27 per cent rate to 26, which is good, and he also widened the rate, which is very important - it means people can earn more at that rate before they are pushed into the higher bracket.
He has also increased the general exemption limits, so that people can earn more without falling into the tax net, and the cut in employees' PRSI, that's all good.
The fact that there is no drop in the rate of employers PRSI disappoints me, because that's something we have to cope with, it's part of our competition. Of course we have factories in Derry as well as Donegal, so we can see the difference in the two. The reduction in corporation tax is not a bad thing, although it does not apply to us because we are on the 10 per cent rate.