National Recovery Plan 2011-2014
The following are highlights from the unveiling of the National Recovery Plan 2011-2014 on Wednesday 24th 2010
As you are no doubt aware, the government unveiled their National Recovery Plan 2011 – 2014 this afternoon. The Plan is the government’s roadmap to economic recovery. The reason behind publishing the four year plan at this time is well documented. It is an attempt to assuage the fears of the markets regarding our ability to fund the repayment of our borrowings and in some measure, to inform the public of tax measures which are required to bridge the budget deficit that exists nationally.
There will be spending cuts of €10 billion over the four year period with taxation measures estimated to yield €5 billion.
The Plan attempts to broaden the tax base by lowering the threshold level for entrance to the tax net and gradually bringing tax credits and rate bands down to their 2006 levels. This will mean standard rate bands for a single person will be reduced to €32,000 and the basic personal credit for a single person will be €1,630. Despite the top 8% of earners paying 60% of the income tax, tax shelters, mainly available to the top earners to reduce their tax liability, will be scaled back and in some instances abolished. The abolition of tax exemptions and tax shelters is to continue apace. The tax exemption for patent royalties, approved share option schemes and income tax relief on
rent paid are all to be abolished and the Business Expansion Scheme (BES) will be restructured.
The government have solidified their stance on the corporation tax rate declaring that it will remain at 12.5%. This is a welcome development as this rate is crucial to Ireland’s reputation as a top class destination for foreign direct investment.
The government will increase VAT rates in 2013 and 2014 bringing the headline rate of VAT to 23%. This is expected to yield €630 million in additional revenue.
The capital tax system, both CGT and CAT, will be reformed with an expected yield of €145 million in 2013. The CAT thresholds will be reduced and a staggered rate of CGT will be introduced based on the level of gains. Again the exemptions and reliefs available under CAT and CGT are to be reduced. This may present a significant tax planning opportunity for those considering the disposal / gifting of assets.
While the changes are necessary to ensure our economic stability in the future we await confirmation of the details of the changes due in the forthcoming budget. These will be outlined in detail at our forthcoming budget briefing.
For further information please contact your Baker Tilly Ryan Glennon tax team representative or e-mail tax@bakertillyrg.ie
Highlights of the Plan are as follows:
Income Tax:
• Rate bands and credits to return to 2006 levels.
• Income tax relief on pension contributions will be reduced from 41% to 34% with a new earnings cap of €115,000.
• PRSI and levy relief on pension contributions will be removed.
• Income tax age exemptions are to be phased out over 4 years.
• Ex gratia termination payments in excess of €200,000 are to be taxed.
• Introduction of a universal social charge to replace PRSI and the Health Levy.
• Trade union tax credit abolished.
• Age tax credit phased out over 4 years.
Corporation Tax:
• Rate remains unchanged at 12.5%.
VAT:
• Rate to increase by 1% in 2013 and a further 1% in 2014.
• Zero rated items to be reviewed as part of overall EU VAT review.
Capital Taxes:
• Reform of CAT / CGT in 2013.
• Introduction of staggered CGT rate in 2012 based on level of gains.
• Reduction in CAT thresholds from 2012 to reflect reduction in asset values.
Miscellaneous Taxes:
• Carbon taxes are to be gradually doubled from €15 to €30 over the 4 years of the plan.
• Abolition of certain tax reliefs:
- Artists exemption limited to first €40,000
- Patent royalty exemption abolished
- Approved share option schemes
• Introduction of an interim fixed local services contribution of €100 in 2012 with a view to the introduction of a site value tax in 2013.
• Introduction of water meters.
For a comprehensive look at the social, economic and taxation implications of the Plan please follow the link below.
http://www.budget.gov.ie/RecoveryPlan.aspx
