Confidence Amidst Threats, Change Bringing Taxing Times

Key findings include:

 

Growth on the agenda

83% of respondents expect their businesses to grow in the year ahead, of which nearly a third (31%) expect this growth to be more than 10%. Key business opportunities are developing new markets/products (66%); exploring operational efficiencies (52%); focusing on people with the right skills for the future (44%) and expansion through a merger or acquisition (31%).

 

Cost of doing business a key threat 

The rising cost of doing business in Ireland (84%) is an acute threat for future revenue growth, according to survey respondents.  Other key challenges include the lack of availability of key skills (67%); the potential negative impact of Brexit in a no-deal scenario (57%); the changing international tax environment (53%); global protectionist trade policies and the potential for international trade wars (41%) and the high personal tax burden (42%).  

Four out of ten (40%) singled out the lack of affordable residential housing (for the labour force) as a key impediment for business expansion in the months and years ahead.

 

Infrastructure and high personal taxes, key priorities for Budget 2019

The number one priority for Budget 2019, according to business leaders who took part in the survey, is for further investment in national and public infrastructure including roads, health service, faster broadband etc (57%).  Other key priorities for businesses ahead of Budget 2019 include continuing to reduce the high personal tax burden (53%); continuing to deal with the housing crisis (45%) and boosting Ireland's competitiveness (42%). 

Over three-quarters of respondents (77%) agreed that moving the Government finances into a surplus, as set out in the Summer Economic Statement, is the right course of action.   Added to this, over a quarter (27%) ranked continuing to build a 'rainy day' fund (to deal with the potential risks future and shocks to our economy) as a key priority.

Joe Tynan, PwC Head of Tax, said: "Reflective of Ireland's robust economic growth, the survey shows a high degree of business confidence with expansion from new products and markets being a key driver of growth. Maintaining Ireland's competitiveness is critical in the light of Brexit and other geopolitical uncertainties and the survey highlights the rising cost of doing business, available talent and residential housing as key concerns. As a small open economy on the edge of Europe, ensuring that our economy has the capacity for future FDI is critical and top priorities for Budget 2019 should include further investment in infrastructure and housing. 

“The Irish Fiscal Advisory Council has already suggested the Government run 'a small budgetary surplus' and the majority of survey respondents echo this view.  The Central Bank has also suggested setting set aside more financial resources which could be used to cushion the economy from future downturns, and one in four respondents agree that continuing to build a 'rainy day' fund is a key priority.

“The survey also highlights that the changing tax environment and geopolitical uncertainties are causing widespread disruption for businesses. For Ireland, one of our biggest concerns is how to manage our international tax reputation.  As a country, we have been very good at providing an environment where companies can align their intellectual property, employees and profits and demonstrate substance.  However, we need to be careful that we move in line with other countries, not ahead.  The recent corporate tax Roadmap provides greater certainty about the future direction of tax change and builds on the already great strides made for a fairer and more transparent tax system in Ireland as a country committed to corporate tax reform. Our challenge is to ensure that we have a sustaintable tax model that provides a level of certainty and stability for business and Ireland has the ingredients to do just that.”

 

Mixed views on many new tax proposals 

Around one in five survey respondents are positive about the impact of US tax reform (20%) and PAYE real-time reporting (17%) on their businesses. However, demonstrating the significant levels of change that many businesses are currently facing, on average, nearly seven out of ten respondents were neutral, or did not know how their businesses would be impacted by many of the new tax proposals in the pipeline.  A third (33%) said that the EU Anti Avoidance Directive (ATAD) and the new Controlled Foreign Company (CFC) regimes will have a negative impact on their business; while a quarter feel  unfavorable about US tax reform (24%), digital tax (23%) and real-time reporting (24%).  

Harry Harrison, PwC Tax Partner, International Tax, commented: "Ireland has made great progress to ensure a fairer and more transparent tax system exists and the Government should be commended for this.  However, the rate of change businesses are facing is unprecedented and it shows no sign of relenting over the coming 1-2 years. Reflecting on the amount of recent international tax developments, the survey highlights mixed views on the impact many of these changes will have on businesses.  The recently announced Corporate Tax Roadmap by the Government clearly demonstrates that Ireland is committed to corporate tax reform and to implementing international best practice, while also giving businesses direction around the timing of some key changes and showing a willingness to consult on some key upcoming developments. However, it is clear that almost every business will face challenges over the coming 12 months and they should already be considering how best to plan for the upcoming changes that will impact them most.”  

 

Call for measures to assist entrepreneurship

If given a choice, half (51%) of survey respondents called for the Minister to decrease the rate of Capital Gains Tax to 30% (from 33%);  Nearly a third (30%) said he should increase the Capital Acquisition Tax inheritance threshold and almost one in five (19%) want the Entrepreneurship CGT Relief threshold raised from €1m to €10m in line with that of the UK.  

 

Call for widening the tax base 

Almost one million earners in Ireland currently do not pay income tax.  84% of survey respondents are of the view that the Minister should widen the tax base, bringing more people into the tax net.  At the same time, 77% called for the current entry point (€34,550) for the higher tax rate to be raised. 

Keith Connaughton, PwC Tax Partner, People and Organisation, said: “The survey reports Ireland's high personal tax burden as a key threat to business growth.  Addressing the personal tax burden and the point at which earners start paying top rates will be particularly important in the post-Brexit era as the country competes internationally for skills and talent from overseas."   

 

Real-Time Reporting - final preparations underway

Three-quarters of respondents (75%) confirmed that they are planning for Real-Time Reporting (RTR) which will come into effect on 1 January 2019. This figure is up from 20% last year.  However, with just 3 months to go, nearly one-fifth (17%) of businesses surveyed admitted to still not having commenced any planning for PAYE Modernisation.

Doone O'Doherty, PwC Tax Partner, People & Organisation, said:  "Real-Time Reporting will be the most significant reform of the PAYE system in over 50 years.  From 1 January 2019, every time employers pay their employees, they will have to report the same level of detail that is currently contained in the annual P35. It is positive that preparations for RTR are in full swing in the majority of businesses surveyed. However, I would be concerned that some respondents may equate liaising with their payroll service / software provider as preparation. In reality, organisations need to be reviewing their data to ensure that it is complete, accurate and up to date and road-testing their processes to ensure that they can get the data to payroll in a timely and automated manner.  Any organisation which hasn't yet commenced this level of review and preparation needs to do so now".

 

Brexit a bigger deal than US trade reform

A third (34%) of survey respondents are concerned that we will see a no-deal Brexit with World Trade Organisation tariffs kicking in from end March 2019.  The majority (61%) are of the view that Brexit is a bigger threat for Irish exports than US protectionism.  Other key business concerns as a result of Brexit are: losing the UK as an important trading partner and supporter at the EU negotiating table; restrictions on people mobility, loss of competitiveness in the Republic of Ireland; uncertainty stalling investment and delays at borders.  

John O'Loughlin, Tax Partner, Global Customs and Trade, said: "Brexit and its likely upset is causing great uncertainty for all businesses.  No-one knows the eventual outcome at this point but PwC are of the view that there are certain aspects that can be planned for now. While we hope for the Withdrawal Agreement to be agreed, including a transition period, nothing is certain.  We urge companies to plan for all scenarios, including a no-deal scenario, as best they can and businesses should be thinking of ‘Day 1 Readiness Measures’ in anticipation of March ‘19. You can access PwC's no risk actions at www.pwc.ie."

ENDS

 

The survey was carried amongst CEOs and MDs of Irish PLCs, MNCs and large private companies as well as company tax leaders in the last two weeks having 88 respondents

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