High tax stopping 'reluctant' owners selling companies
Many Irish businesses are stagnating because they're left with "reluctant owners" who are put off from selling because of the high capital gains tax rate, experts have claimed.
The Irish Tax Institute (ITI) said entrepreneurs who have done all they can with a business won't sell when they should because of the CGT rate.
Budget 2017 saw a reduced rate of 10pc, down from 33pc, applying to the disposal in whole or in part of a business up to an overall limit of €1m. But the ITI said businesses that have taken years of effort and commitment to grow can often generate more than a €1m gain.
"We're hearing from lots of different sources that Irish businesses are in many cases stagnating," said Cora O'Brien, tax policy director. "Because of the high CGT rate, business owners won't sell out at a point where they should be selling out because they're maybe waiting for the rate to go down, or they don't want to pay a third of the gain.
"Whatever the reason, that's not a good place to be. You end up with reluctant business owners who have come to the end of what they can do with the business and if you want to scale it any further, you're not releasing that opportunity and the possibility for growing the business and growing the jobs."
Its estimated that the capital gains tax rate on a €10m gain would still be in the order of almost 31pc. The ITI said the headline rate of 33pc is the fourth-highest rate among the 35 countries in the OECD.
Ahead of today's National Economic Dialogue, the lobby group said a sharply focused tax strategy for Irish indigenous firms is now needed if the Government's ambitions to diversify exports can be realised.
An ITI survey found 84pc of companies believe the current tax policies on Irish homegrown businesses need to be improved upon in Budget 2018.
Just over half export to the UK, while 56pc of companies export beyond the UK. About two-thirds of them expect their exporting business to be higher in 18 months' time. "Of concern is the fact that almost all companies who don't export beyond the UK at the moment do not see themselves doing so in the next 18 months or so," ITI said in a new report on the need for a tax strategy to boost indigenous exports. This is despite the fact that Enterprise Ireland is trying to persuade companies to diversify away from Britain.