While April is a relatively quiet month on the tax receipts front, the income tax figures again stood out.
Income tax receipts for the month were 13% ahead of April 2020 and perhaps of more significance, 6.5% ahead of April 2019. With the economy gradually reopening, we can expect income tax receipts to remain resilient for the rest of the year. Indeed income tax looks set to provide an unexpected surplus by year end.
April is a non-month for VAT but receipts for the year to date have stabilised at circa 10% behind the pre-COVID periods, with consumers fully adjusted to new ways of spending. The reopening of the economy may seek an initial spike in spending and then a levelling off to something approaching pre COVID levels. This should result in VAT receipts for the year significantly ahead of 2020. However consumers are likely to remain cautious for a period of time and savings levels may remain high.
The importance of government supports in propping up VAT receipts cannot be understated. The fact that there will be no “cliff edge” moment in terms of the end of these supports should help maintain spending and resultant VAT receipts.
Despite the relatively weak numbers, it will be next month before we get any firm indication of where corporation tax receipts will land for the year. At this point it looks like receipts will hold up well, with key sectors such as technology and pharma relatively unscathed from COVID.
Longer term, further changes to global tax rules look inevitable. These changes will reduce Ireland’s relative attractiveness from a tax perspective and could see corporation tax receipts fall in the medium to long term, with an annual reduction of circa €2bn suggested by the Department. In summary, the short term position looks positive but longer term uncertainty prevails.
Overall, this was another good set of tax numbers, up over 20% or €519m on April 2020. Indications are that 2021 full year figures will see a substantial increase in tax revenues compared to 2020.