Corporate tax on par with VAT as second source of state revenue

Corporate tax is now tied with VAT as the state’s second-largest source of revenue after another record high last year.

Year-end cash statements show business tax generated € 15.3 billion in revenue in 2021, 29% more than the previous year, amid a number of large payments from companies in the technology and life sciences sectors and an increase in the profitability of companies in general.

€ 1 out of € 4.50 received from tax (22% of total tax revenue) now comes from corporation tax.

The total of 15 billion euros for last year was more than triple the corporate tax collected as of 2014, marking an unprecedented increase in revenue.

Although the additional income proved to be a boon to the government, helping it to generate a budget surplus before the pandemic, it has been repeatedly warned not to use it for daily expenses due to the highly concentrated nature of the pandemic. the tax base and the potential for shocks.

About 56% of revenue in 2020 came from just 10 large companies, including Apple, Microsoft, Google and pharmaceutical giant Pfizer.

Finance Minister Paschal Donohoe said that while the increase in revenue was “very welcome” as it reduces the need for government borrowing, “it reminds us of the challenge that still exists as to how to avoid becoming excessively dependent on this particular tax revenue given its potential volatility “.

“It is very likely that at some point, these revenues will decrease,” he warned. “This is why we must ensure prudent management of public finances so as not to end up with a structural gap between revenue and expenditure in the years to come.”

Tax agreement

The latest backlash comes as the state signs an OECD-brokered tax deal that will effectively end the state’s prized 12.5 percent rate. The department has factored in a potential loss of 2 billion euros from the proposed changes, which include an overall minimum rate of 15 percent.

However, with most of the changes only due to be implemented in 2023 and beyond, corporate tax is expected to continue growing this year.

“The tech and life sciences sectors have been behind much of the growth,” said Peter Vale, tax partner at Grant Thornton Ireland. “With the global tax changes not expected to take effect until 2023 at the earliest, there is no reason to believe that the strong corporate tax returns of 2021 will not happen again in 2022.”

Latest Treasury statements show total tax revenue last year hit a record 68.4 billion euros, 20% or 11 billion euros more than the previous year, bringing down the Treasury deficit to 7.3 billion euros.

Aside from corporate tax, the good performance was driven by income tax and VAT, which benefited from a sharp rebound in consumer spending and employment in the second half of the year.

Cumulative tax revenue of € 26.6 billion for the year increased by € 3.9 billion (17.4%) compared to 2020, while VAT generated € 15.4 billion , i.e. 24% more than the total collected in 2020.

The figures

On the expenditure side, total gross expenditure for 2021 amounted to 87.5 billion euros, or 2.3 billion euros, or 2.6%, before 2020. The increase included 13.5 billion euros. ‘euros in expenses related to providing Covid supports to the economy.

Mr Donohoe said while the tax figures were positive, “our economic and fiscal outlook remains uncertain” because of the pandemic.

The impact of the Omicron variant, he said, had required additional government support for workers and businesses. While promising that there would be no cliff in removing such support, Donohoe warned that these measures could not last indefinitely.

“It is not viable to continue with increased levels of support for an extended period given the very high cost to the Treasury,” he said. “Once we get over this wave of viruses and successfully reopen the economy, it is essential that we move away from this widespread support. ”