Vat and PAYE penalties need ‘urgent reform’

Revenue penalties for incorrect tax returns are too severe, incentives for entrepreneurship are much less attractive than other EU countries and the cost of living is too high, business groups have told the Oireachtas Business Committee.

Business organisations such as the Irish Tax Institute, Chambers Ireland, the Irish SME Association (Isme) and the Irish Congress of Trade Unions (Ictu) appeared before TDs and senators to state their case to make doing business easier.

The Tax Institute’s tax policy director Cora O’Brien said that while Revenue penalising tax return mistakes was justified, the rate of penalties was not.

“Tax is difficult and as well as calculating their own income or corporation tax, businesses are also responsible for calculating and collecting Vat and payroll taxes. But when businesses get things wrong, the cost is very high in terms of both interest and penalties. Interest charged by the State on underpaid Vat and PAYE is 10% and on income tax and corporation tax it is 8%,” she said.

Ms O’Brien added: “This compares with 2.75% charged in the UK and 4% interest received from the State by taxpayers who have overpaid. Interest charged at this level is unfair and urgently needs to be addressed in the Finance Bill.”

The Institute is asking every year for it to be looked at, Ms O’Brien said. “It is not fair on taxpayers. Yes, you should have to pay interest, but not at those rates,” she said.

The Tax Institute added there are over 4,300 cases on appeal, totalling €1.5bn. The appeals process was far too slow and cumbersome, it said. Entrepreneurship was being stifled because tax relief and incentives for investment did not match other EU countries, the tax body said.

Tax Institute communications director Olivia Buckley said the Institute of Fiscal Studies had looked at relief rates for entrepreneurs in Ireland and the UK. “Ireland risks being at a competitive disadvantage in comparison,” she said.

She added that where there was “deliberate policy” encouraging entrepreneurship in cities such as Stockholm, there was high growth in the sector.

Chief executive of Isme, Neil McDonnell told the committee that small businesses were concerned about the impact of the minimum wage on costs.

Mr McDonnell said the labour cost issue needed to be tackled by reducing the costs of living, not by increasing the cost of labour. His call was echoed by Ian Talbot of Chambers Ireland who said the high cost of living, together with the shortage of supply and rising cost of housing were the real issues hindering business.

“Labour costs account for the largest outlay for most businesses in the country and are therefore of huge relevance and concern. The fruits of economic recovery and employment growth need to be seen in improved standards of living, not just playing catch up for escalating costs,” he said.

The Irish Congress of Trade Unions (Ictu) said that labour costs were a red herring in relation to the cost of business. “In reality the cost associated with employing staff in Ireland is about average by EU standards and relatively low compared to small open economy competitors such as Belgium and Austria,” said Peter Rigney.

Ictu said “excessive executive pay” had an impact on the cost of doing business, and that regulation is required to rein it in.


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