There was huge focus on today’s Exchequer figures, representing the tax take for March.
As expected, the figures are significantly less than originally expected by the Department. Just last month figures had been running almost 14% ahead of 2019 comparatives. That figure has now fallen to 1%.
VAT payments in March reflect consumer spending in January and February. The huge dip in March VAT receipts – 50% behind the original target for the month – does not so much reflect a drop in spending during those months but rather the decision by many companies to defer VAT payments in March (with interest on late payment waived by Revenue in most cases).
For as long as the current “lockdown” continues, VAT receipts will suffer. Consumer spending will clearly be significantly lower while many businesses will likely look to defer future VAT payments. The decrease in consumer spending represents a permanent loss of VAT revenue while the deferral of payments by businesses may also become a real cost to the Exchequer if businesses are unable to make good these payments in the future.
The position in respect of income tax is not quite as bleak, with receipts holding up reasonably well so far, despite the ability for businesses to defer PAYE payments due during the month.
However, given the large number of employees now out of work, income tax receipts are likely to deteriorate significantly next month, and will remain weak for the foreseeable future.
While March is a relatively quiet month for corporation tax receipts, a major concern is whether we will see a big dip in receipts from companies in later months. Given the economic impact of COVID19, it is inevitable that corporation tax receipts will fall substantially.
In the past, corporation tax receipts in Ireland acted as a buffer against any weaknesses elsewhere. This will not be the case in 2020, with May receipts being the first major indicator of the scale of decline.
With limited transactions/deals expected in the coming months, we can also expect a large drop off in capital tax receipts.
In summary, March 2020 saw tax receipts fall 20% compared with March 2019, mainly driven by lower VAT receipts. While the scale of the drop is difficult to predict, it is clear that future months will be equally challenging, with the possibility of a corporation tax windfall helping to balance the books looking very unlikely. It could make for some tough decisions come Budget time in October.
