The first set of Exchequer returns since Budget Day saw the Minister set aside €550m of October’s tax receipts for the new Covid Restrictions Support Scheme for businesses.
When the adjustment for the Covid Restriction Support Scheme is stripped out, October’s income tax figures were on a par with October 2019. This is quite a remarkable performance, particularly when many taxpayers will have chosen to defer income tax payments.
October is a quiet month for VAT receipts. After a significant drop at onset of COVID, the figures have begun to stabilise. The large spending package in Budget 2021, including the commitment to maintain the wage subsidy and pandemic unemployment schemes, will be critical in supporting consumer spending through the crucial Christmas period, in particular given the current level 5 restrictions.
Of some concern today will be the figures for corporation tax. Even after adjustment for the Covid Restriction Support Scheme, the October corporation tax figures were significantly behind the same month last year.
There is a lot of uncertainty as to where the corporation tax figure will land for the full year. Today’s very disappointing figures will raise concerns that tax receipts in November, the key month for corporation tax, will be well behind last year. This could see the year to date surplus of circa €1bn eroded completely.
It is also possible that significant losses incurred by companies in 2020 will see corporation tax receipts deflated not only in November but also through 2021 and possibly beyond. The impact of tax losses represents a permanent hit to the Exchequer and could spell the end of large corporation tax surpluses for at least a couple of years.
Tax changes in the US are also likely following the election, which may impact on Ireland’s tax offering. Conversely, pressure on governments to raise corporation tax rates and revenues as a result of COVID may make Ireland’s 12.5% rate relatively more attractive. However pulling the other way will be both ongoing global tax reform efforts at OECD level coupled with the EU’s desire to see greater harmonisation of tax regimes.
In summary, while the latest Exchequer figures provide evidence of a resilient economy in the face of COVID, there will be a concern that the impact of COVID is finally being felt in the corporation tax numbers.