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The rapid deterioration of government finances as a result of the Covid-19 crisis has raised the possibility of tax collection measures in the next budget.
While Finance Minister Paschal Donohoe has ruled out increases in income tax and other major tax categories, such as VAT, as they could slow the recovery, the possibility of certain tax breaks being reduced or eliminated remains a possibility .
One area under discussion is the gift or inheritance tax, which is paid by someone who inherits property or funds from a deceased person. The UK is considering an increase in inheritance tax as a way to pay part of the coronavirus bill.
The latest returns from the Ministry of Finance show that the Government registered a deficit of 7.5 million euros at the end of April, more than double the level recorded last year.
Virus containment measures are also expected to open a € 14 billion hole in the government’s tax base, reducing it to € 49 billion by 2020.
Recovery Choking Recovery ’
“The Minister has indicated that no tax increases are anticipated in the next budget as raising taxes would stifle recovery,” said Peter Vale, tax partner at Grant Thornton Ireland.
“However, certain tax breaks may be under close scrutiny, although nothing has been announced about it. In the long term, subject to the nature of the recovery and the state of public finances, tax collection measures are, of course, a possibility.
“In the past, a broadening of the tax base or increases in the property tax was suggested, but both are likely to be politically challenging,” Vale added.
When combined with a massive increase in spending on health and social welfare, the government is forecasting a budget deficit of € 23 billion by 2020, but this is expected to be revised downward.
Extended
This is because spending on both government pandemic assistance programs is expected to increase. Both will extend beyond their June deadline, albeit with changes.
Earlier this year, the government had been targeting a budget surplus of € 2.2 billion, but the onset of the coronavirus has affected the government’s original budget plans.
The latest tax returns showed that tax revenue was approximately € 15.4 billion at the end of April, 0.6 percent or € 86 million annually, and the Finance Department noted that strong returns in the first two months of the year compensated to some extent The sharp decline in revenue in March and April. Income tax and VAT were considerably reduced monthly.
Special tax receipts
Meanwhile, excise revenue fell 50 percent year-on-year, or nearly 300 million euros, reflecting lower consumption and a drop in new car sales (VRT).
The optimistic note was the corporate tax, which continues to exceed expectations. The business tax generated more than 900 million euros during the period, 93 percent more than last year, but most of this tax head’s income flows later in the year.
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