Accountancy firm KPMG has called for a statutory mechanism to lock in the indexation of tax bands and credits, USC and PRSI thresholds, as well as capital tax thresholds to reduce the impact of inflation on taxpayers’ tax bills and reduce the pressure for pay rises.  

In its pre-Budget 2023 submission, KPMG said the government has committed to increasing tax credits and rate bands as incomes increase, but recommends that indexation be put on a statutory footing and extended to include the indexation of USC and PRSI thresholds, the CAT tax exemption thresholds along with the reintroduction of indexation relief for CGT purposes to ensure that taxpayers pay tax on real gains on the sale of assets.  

Tom Woods, Head of Tax and Legal with KPMG Ireland, said that by maintaining the real value of tax reliefs, bands and credits, businesses will be under less pressure to deliver pay increases to attract and retain talent. 

“Furthermore, given the current high inflationary environment and the relatively high CGT and CAT tax rates of 33%, it is time to re-introduce CGT indexation relief and to index the CAT tax exemption thresholds,” he added.

In its submission, KPMG has urged fiancé minister Paschal Donohoe to reduce the marginal cost of employment, which the firm says is high by international standards. 

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“Ireland should also remove unnecessary complexity from the taxation of foreign dividends and branch profits, and the rules on interest deductions to reduce the cost of doing business here and create a more clear, simple, and transparent corporate tax code,” said Woods. 

“Increasing the R&D tax credit to 35% for the first €1m of qualifying expenditure and enhancing the Special Assignment Relief Program to attract skilled professionals to live and work here could transform Ireland into an international hub for innovation.” 

KPMG’s submission highlights the negative impact of the housing crisis on FDI investment decisions and the supply of skilled workers in Ireland. 

The firm believes that the taxation of professional landlords should be reformed to allow them to access the same tax rates, expenses deduction rules, and capital tax reliefs as enjoyed by businesses operating trades. 

Targeted capital tax incentives can also play a role in driving the supply of land for residential development, and VAT on the supply of new houses should be suspended temporarily to increase the supply of affordable housing, says the submission document.    

KPMG has also called for a special CGT rate of 20% to drive capital investment in the SME sector. 

“Tax reliefs such as the EII scheme and KEEP were established to support the SME sector.  However, there are issues with these reliefs which need to be addressed to deliver the intended support to SMEs,” said Woods.