After November, May is the most significant month for tax receipts in Ireland, with a close eye on corporation tax and VAT in particular.
Broadly, the figures were very positive.
Income tax receipts remain exceptionally strong. With the economy re-opening and more people returning to work, income tax looks set to comfortably beat both last year and target receipts for 2021. Indeed if the recent trend continues, there could be a circa €1bn surplus in income tax receipts alone by year end.
VAT figures for May reflect spending in March and April, when much retail remained closed. Despite this, VAT receipts were in line with the May 2019 equivalent figure, ie pre COVID. This is a remarkable achievement and shows how consumers have adjusted to new ways of spending.
With non essential retail having now re-opened, VAT receipts are likely to rise sharply in the second half of the year. While consumers will likely remain cautious, with high savings levels, VAT receipts for the year will be significantly ahead of both last year and target, providing another surplus for the Minister.
It's also worth noting that income tax and VAT receipts have remained strong despite many taxpayers choosing to defer tax payments. Receipts will increase further once these deferred amounts are paid to the Exchequer, estimated to be over €2bn.
May is the first key month of the year for corporation tax. While receipts for the month were behind May 2020, they were ahead of target. Given that May 2020 was an exceptional month, it would be wrong to read too much negativity into today’s figures, although June will tell us more regarding the full year picture for corporation tax. The overall picture is strong receipts from companies in resilient sectors such as pharma and technology propping up weaker receipts in other sectors, such as hospitality.
To date, global tax changes have had a positive impact on Ireland’s corporation tax take. Further global changes coming down the tracks will make Ireland relatively less attractive, with the resultant drop in our tax revenues estimated to be circa €2bn per annum. However with much uncertainty regarding where things will finally land, predicting the impact on corporation tax receipts is practically impossible.
Overall, this was another good set of tax numbers, leaving tax receipts significantly higher than expected after 5 months. A substantial year end surplus over 2020 already looks likely.