Today’s Exchequer returns, for February 2021, were another mixed bag.
After a strong performance in January, income tax figures for February dipped only marginally on February 2020, itself a very strong month.
Income tax has been remarkably resilient thus far. There was a fear that January’s figures were artificially high as a result of 2020 tax returns that were filed later than normal. February’s relatively strong showing will ease those concerns and indicates that once again income tax figures have weathered the storm, further evidence that the brunt of COVID has been borne by lower paid workers.
February is a quiet month for VAT so nothing much should be read into the figures for this month, down 13% year to date. March 2020 saw VAT receipts drop by 50% in the month; despite the lockdown this is unlikely to be repeated next month as consumers have adjusted to the new environment.
However it’s clear that Government supports continue to prop up much of the economy. Until a successful roll out of vaccines has taken place, it’s difficult to see a significant pick-up in economic activity and a return to more positive exchequer figures, particularly on the VAT and income tax front.
February is also a quiet month for corporation tax. However there will be a concern at the dip in returns for the first two months of the year. It appears that the drop is due to a small number of large payments not coming through in 2021. As such payments are likely linked to 2021 results, there will be a concern that a continuation of that trend would see large drops in corporation tax revenues later in the year. Returns for May and June will provide a much better indication of the full year picture; the hope is that the global vaccine roll-out will see many companies recover in the second half of the year, with a resultant improvement in corporation tax receipts.
Negotiations on global tax reform continue, with the US return to the table likely to increase the odds of a reform package being agreed, possibly later this summer. While any reforms will likely dilute the benefit of our low corporate tax rate, it is in Ireland’s interest that agreement is reached as quickly as possible. Lingering uncertainty can be more damaging.
In summary, the fact that tax receipts held up so well in 2020 was remarkable. While 2021 has got off to a slow start, it is too early to make a call on the full year picture. Ultimately much will hinge on the success global of the vaccination roll-out.