TMT sector hit, not favoured, by budget

The Irish Software Association and other industry bodies have indicated that the technology, communications and telecommunications [TMT] sector has not been favoured in the proposed budget and much of what has been put forward is ‘smoke and mirrors’.

Whereas corporation profits tax [CPT] will be reduced to 16% [from 20%] as of January 1, 2002, much of the Irish IT sector was either paying a lower rate [10% now rising to 12.5%], or not earning profits because of massive investment in R&D and product development.

The real impact of any reduction is negated for most TMT companies through the introduction of a new and draconian payment regime that is moving CPT and most other taxes onto a current year basis.

As regards the employers’ PRSI rate now cut to 10.75% [from 12.5%], this saving will achieve little for the TMT industry and will act as a disincentive to employ higher paid personnel.

It will reinforce the already evident trend towards contract employment in the TMT sector. The increase in VAT to 21% [from 20%] from March 1, 2002 makes little sense for the Irish TMT industry.

Presumably the 3 month timeframe [to March 1] is to allow Irish TMT companies to strategically re-locate elsewhere to lower tax regimes on the basis that Mr McCreevy is unlikely to change his mind.

The ISA Chairman congratulated the Minister on the extension of the BES and seed capital schemes.

"This is a boost to enterprise," said Billy Huggard. However industry commentators are of the view that little else in the Minister’s programme is designed to promote or support an industry whose needs have largely been ignored and seem not to be understood by the present Government.

In particular the MNC sector, the growing indigenous sector and inward investment have serious issues that have not been addressed in this budget.