When account is taken of taxpayers choosing to defer payments, tax receipts for 2020 were almost identical to 2019, a remarkable result in the context of COVID.
Today’s figures for January receipts were the first indication as to what we might expect for 2021. Overall, the figures were mixed, ending the month down over €500m on January 2020.
Perhaps not surprisingly given the restrictions in place, VAT receipts for the holiday period came in 12.7% behind January 2020. With the current enhanced level 5 restrictions, there will be concern that VAT receipts for January and February will plummet further. However the fact that consumers have had time to adjust to the new environment should mean that the fall is not as pronounced as the 50% drop in VAT receipts witnessed at the start of the first lockdown.
In the medium term, the significant savings built up by Irish consumers should see a noticeable increase in spending and resultant VAT receipts, with the timing of this recovery the key uncertainty.
Income tax was a strong performer in 2020, with lower paid earners suffering the brunt of job losses, meaning that income tax receipts remained more or less static compared to 2019. January returns continued that trend, with income tax actually ahead by 3.9% on January 2020. This is a quite remarkable result and suggests that income tax receipts for the full year should hold up.
January is a quiet month on the corporation tax front. Negotiations continue at a global level, broadly aimed at shifting more profits to market jurisdictions, which would dilute somewhat the benefit of our low tax rate. With uncertainty the dominant theme, it is hard to predict where corporation tax will land for 2021. However with most major economies expecting an increase in GDP this year, there is no reason to believe that receipts for 2021 will not at least hit 2020 levels.
The Minister has previously announced that corporation tax receipts could drop by circa €2bn per annum if the new proposed global tax rules are put in place. At this point any consensus on the new rules is some time away, although the return of the US to the negotiating table will provide some impetus to the drive for change.
In summary, while the figures today are 8.8% behind January 2020, the very strong income tax figures offer some hope that the economy can rebound sharply once widespread vaccination is in place.