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Exchequer Returns July 2017 - Peter Vale commentary

Peter Vale Peter Vale

As we approach Budget day, the exchequer figures are becoming increasingly important in terms of what scope there might be for tax cuts in October.

With this in mind, the July figures are a bit of a mixed bag, not inconsistent with some of the earlier months of the year.

On VAT, the second most important revenue generator, while the year to date receipts remain strong, the month of July was a relatively poor month, with larger than expected repayments blamed for the VAT shortfall. 

The income tax figures remain something of an enigma, with strong employment data not feeding though as expected into the tax figures. While a greater number of part-time jobs has been mooted as an explanation, it’s worth noting that the income tax figures are well ahead of last year, despite lower income tax rates and a much reduced DIRT take.

On the corporate tax front, the recently published tax strategy papers note that claims for tax relief for intangible assets expenditure have increased from less than €3bn in 2014 to almost €29bn in 2015. This huge increase likely ties into the distorted GDP figures for last year, with massive inflows of intellectual property.

Notwithstanding the additional tax allowances being claimed, corporate tax receipts have strengthened in recent months after a weak start to the year, with the figures broadly on target and well ahead of last year. In the longer term, the inflows of IP should result in even stronger corporate tax receipts, once the tax allowances have been fully utilised.

Ignoring stamp duty, capital tax receipts are slightly ahead of target for 2017, but it is striking how capital taxes have fallen as a percentage of the overall tax take since 2007, notwithstanding that the tax on capital increased from 20% to 33% in that period. Despite this, a reduction in the CGT rate in October looks unlikely, although entrepreneurs may see some additional relief.