Tax shortfall narrows for first time this year

A strengthening of income and corporate tax receipts in May helped narrow the gap between the Government’s tax revenue targets and what it is actually collecting for the first time this year.

The Government took in just over €5.28bn in tax revenue in May, latest exchequer returns show. This figure was 1.5%, or €76m, ahead of the monthly target.

The latest monthly performance also boosted the Government’s tax revenues for the year-to-date up to €19.4bn. That is still 1.4% — or €268m — short of target for the first five months combined, but the shortfall is down from one of 2.4% as of the end of April. Furthermore, May marked the first month in which that shortfall — between forecast and actual tax receipts — narrowed in 2017.

May is important in that it is the second-largest tax collection month of the year. After a relatively disappointing set of returns for April, the Department of Finance was looking to May’s performance as a better indicator for the full year.

Driving the improvement in May were recoveries in income and corporation tax receipts which have underperformed for months — the former puzzlingly so given the steady improvement in employment numbers.

Income tax receipts amounted to nearly €1.45bn last month, up by 8.4% year-on-year, but more importantly in line with monthly targets. Income tax revenue for the year is currently 2.6% below target.

Corporate tax take was 3.7%, or €38m, ahead of monthly target; but remain €185m below target for the year. May’s total was also flat on a year-on-year basis.

Regarding the other elements of the so-called ‘big four’ taxes, Vat continued its strong run — meeting target to bring in just over €2bn last month, and pushing collection of it to nearly 4% above target for the year.

However, excise duties are underperforming, 4.3% short of target for the year to date, despite a monthly surplus of €15m in May.

Peter Vale, tax partner at Grant Thornton Ireland, called the May figures a “mixed bag” but an improvement on recent periods from which “a picture is starting to emerge of what level of largesse, or otherwise, the new Minister of Finance will have come October’s budget”. However, he struck a note of caution on the seemingly improving corporate tax performance.

“It is worth noting that on Wednesday Ireland will be one of a large number of countries signing up to a new Multilateral Instrument [MLI],” said Mr Vale.

“Broadly, the MLI will change the nature of existing double tax treaties and include new provisions which, among other things, will make it easier for an Irish company to have a taxable presence in another country. This has the potential to suck a portion of corporate profits out of Ireland’s grasp and into another jurisdiction, thereby putting pressure on future corporation tax receipts here.

“It had been difficult to reconcile the recent weaker corporation tax numbers with the very robust corporation tax figures for 2015 and 2016. The view then was that higher corporation tax figures would be sustainable as large groups moved their valuable intellectual property away from traditional tax havens to ‘onshore’ locations such as Ireland.

“While that view should still hold, it wasn’t translating into higher corporation tax receipts, thus the May figures represent a welcome return to form.”