'While August is a relatively quiet month on the tax receipts front, there was more good news in the latest Exchequer figures.
Income tax receipts were particularly strong and appear to be holding steady at close to 20% above pre COVID (August 2019) levels, which is remarkable. With unemployment continuing to fall, it now looks clear that there will be a large income tax surplus at year-end.
August is a quiet month for VAT but evidence to date suggests that the strong VAT figures earlier in the summer will be replicated in next month's figures. It looks increasingly clear that, rather than a post-COVID temporary spending spike, consumers are continuing to spend.
There was more good news on the corporation tax front, with a surprisingly large figure of over €1bn received in what is normally a quiet month. While the latter months of the year are crucial, it now looks likely that receipts for the full year will be ahead of 2020, itself a strong year. Driving this growth is strong results from a number of larger companies, mainly in the technology sector, which if replicated in the key months of September and November could see a large corporation tax surplus at year-end.
Despite this, considerable uncertainty exists in respect of future corporation tax receipts given the push for further global changes, including in particular a minimum global tax rate. Further detail on the proposed changes is expected from the OCED in October.
With previously “warehoused” tax liabilities now coming into the Exchequer, combined with strong returns across all key tax heads, a surplus of circa €4bn over forecast looks very achievable by year end.
Despite the strong figures, it would be surprising if there were significant tax cuts in next month's Budget 2022. However, we may see some movement in the 33% capital gains tax rate, one of the highest in Europe, which can act as a disincentive to the transfer of assets to more productive use. It's possible that any cut in the rate would prompt more activity and thus be tax neutral in terms of receipts.'
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