Tuesday, 5 April 2011

March tax returns

An Saoi: The tax returns for March give us our first real feel for what is happening in the economy in 2011 through the bi-monthly VAT returns.

VAT paid in March covers the period January/ February and the VAT for November/ December was paid in January. Two of the six VAT returns due in the year have therefore been submitted and below is a comparison of VAT received for the first three months of each of the last nine years.

The figures would seem to suggest that VAT for the year is likely to fall quite a bit short of the projected figure of €10,230M. Figures for the first three months are inflated by the extension of the car incentive scheme which will end shortly. VAT payments in the first quarter normally account for around one third of annual VAT paid (31.84% (2010), 34.65% (2009), 33.71% (2008)). The underlying trend would seem to point towards VAT for the year of close to €9,500M.

The VAT figures should not come as a surprise to anyone and reflect the Retail Sales figures for January & February issued by the CSO on 28th March 2011 or the Central Bank’s Credit Card Statistics (Table A13) issued on 31st March. The real Irish economy remains in recession.

The Income Tax position also appears very problematic. The March figures were over 8.1% off the monthly target. This may be partly down to some technical explanation and if so should be corrected in the April figures. Tax deducted in March will be paid over in April and will include five weeks than the normal four and in the case of Public Sector workers, three pay fortnights rather than the normal two. However if the trend continues then the new Government will be in serious trouble.

Little or no Corporation Tax is now paid by Irish owned businesses, while a very small proportion of the net yield is accounted for by those multi nationals actually trading in the Irish economy, e.g. Vodafone & O2. The increase in yield from Corporation Tax reflects the activities of multinationals in Ireland, using Ireland as their point of sale for goods and services. The annual target for Corporation Tax of €4,020M is likely to be comfortably exceeded. The net target for March was just €10M compared to €111M actually received. Such a monthly discrepancy needs some explanation, which was not forthcoming from Dept. of Finance.

The Excise figure for March is slightly above profile, €367M against €350M. This reflects higher than expected car sales. However once the incentive scheme ends it may be difficult for the expected profile figures later in the year to be reached.

Capital Acquisitions Tax paid is just 45% of the amount paid at the same time last year, though strangely ahead of profile. The reduction in the thresholds should have gone some way to protecting the yield despite the decline in asset values.

The March returns suggest that the new Government will find it very difficult to achieve the tax figures set out just two months ago in February. Looking at the figures I would suggest the following as an early projection.

The continued deep recession in the domestic economy make it unlikely that the tax figures can be reached. If such a discrepancy arises, the Government will be under pressure to apply additional cuts to meet targets, sending the economy into a further spiral of decline.

Pressure on households to reduce debt and the lack of access to any new credit will continue to inhibit consumer spending, even if customers wanted to spend. Income taxes will remain weak as employment numbers continue to fall. Any increases in employment numbers in the multinational sector will be swamped by the tsunami of job losses in the local economy

It is not a pretty picture.

No comments: