Thursday 8 December 2016

Even the experts are baffled by the conundrum of corporation tax

Published 31/12/2015 | 02:30

The tax take for the year is well ahead of target, thanks, in large part, to better-than-expected corporation tax returns.
The tax take for the year is well ahead of target, thanks, in large part, to better-than-expected corporation tax returns.

The chief economist at the Department of Finance memorably described it as "somewhat of a puzzle" when questioned by politicians at the Oireachtas Finance Committee.

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His boss, Derek Moran, told the Public Accounts Committee that the department was "flying blind" on the issue.

It's the corporation tax conundrum of 2015.

The tax take for the year is well ahead of target, thanks, in large part, to better-than-expected corporation tax returns. The problem is, for some time the Government couldn't really tell why.

The Revenue Commissioners has put it down largely to improved trading conditions associated with increased sales of internationally traded products.

It has carried out an analysis forecasting that much of the over-performance this year will be repeated in 2016.

That's been welcome news for Finance Minister Michael Noonan. The Economic and Social Research Institute (ESRI) has also backed Revenue's assessment.

But Revenue also pointed out that corporation tax receipts are highly susceptible to shocks.

And not everyone is convinced by its sustainability. The head of the State's budgetary watchdog, Professor John McHale, has urged caution.

"The highly concentrated nature of corporation tax receipts on its own raises risks to the Exchequer as company specific factors can impact the overall corporation tax yield," the Fiscal Council said.

"While the Revenue Commissioners have stated that majority of the increase in corporation tax in 2015 is not due to one off or windfall factors, further analysis of what is driving the apparent increase in the taxable profits of Irish resident companies is necessary to determine the sustainability of the increase in corporation tax revenues this year," Mr McHale said.

Irish Independent

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