MEASURES such as tax relief for investors lending to small firms, halving capital gains tax (CGT) to 12.5%, and tax-friendly employee share options could help sustain 620,000 endangered indigenous jobs, says the Irish Taxation Institute (ITI).
The Institute yesterday warned the Government that innovative tax measures were needed to avoid further job losses in Irish small and medium-sized enterprises (SMEs). The ITI is proposing that its tax initiatives cover a minimum five-year period, with a threshold to ensure benefits are limited to SMEs.
ITI chief executive, Mark Redmond, explains: “The big issue is cash flow. The Government has already offered a PRSI exemption to companies taking people off the dole queues. We’re hopeful these measures may also gain approval, as they’re aimed at saving jobs for small businesses. We are talking about a tax incentive allowing investors to give loans to small businesses. If the loan is interest-bearing, it should match the DIRT-bearing loan rate of 25% rather than the marginal rate of 41%.
“This proposal is solely geared towards job creation. There is a cost to the Exchequer in terms of the tax relief, but that is outweighed by keeping people in employment. Similarly, the ITI believes cutting CGT from 25% to 12.5% would encourage equity investments in SMEs. With this initiative, it proposes a minimum five-year holding period on the investment. The idea is to minimise the investor’s eventual exit pain. A similar measure would allow companies to buy back the investor’s shares at reduced CGT.
The Institute’s third proposal takes a slightly longer term view of the recovery. A nationwide survey of the ITI’s 4,000 tax consultant members found that their corporate clients are having difficulty retaining key staff members. The country’s cash-strapped small firms need some measure other than pay increases to hold onto their top performers.
The ITI is seeking an attractive tax regime, such as reduced CGT, for share options granted by SMEs to attract key workers, keep them and motivate them to perform.
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