Irish Taxation Institute Presentation to Joint Committee on Economic and

Regulatory Affairs

Tax Administration Burden on Irish Business

Research Focus of Today’s Presentation

• Key findings of Irish Taxation SurveyThe burden of administrationObstacles and concerns for start-upsBES Investment

• International trends• Irish Taxation Institute key proposals

Irish Taxation Institute Survey

June 2010

Methodology

• The survey was completed by Red C through their telephone centre in Dundalk

• 500 interviews were conducted across three main company sizes in Ireland, which will allow for analysis across all three of these sectors. This sample size of 500 provides a margin of error of 4.5%

• Fieldwork was conducted between 21st May – 2nd June 2010

Tax Burden

Level of administrative burden

Levels remain relatively unchanged to what we saw in 2007, however a slight increase is evident. Larger companies however, are less likely to agree that it is a burden than smaller companies.

33 33 32

7 7 75

41 4435 36

18 16 26 19

43

Medium%

A significant burden (4)

Somewhat of a burden (3)

Not much of a burden (2)

Not a burden at all (1)

Small%

Large%

Company Size 2010

60%61% 55%

TOTAL2010

%

59%

Tax which place an unnecessarily high administrative burden

VAT and PAYE & PRSI come out as the top 2 issues which place an unnecessary high administrative Burden. Those from medium size companies are more likely than average to claim

corporation tax as a burden, as well as relevant contracts tax.

%

VAT

PAYE & PRSI

Corporation Tax

Capital Gains Tax

Relevant Contracts Tax

Stamp duty

Other

71

69

22

9

21

9

11

75

56

39

15

39

12

6

66

60

33

5

26

2

10

9

10

25

26

47

66

72

10

Medium

%

Small

%

Large

%

Company Size

Income levy 45 52 48

22 24 17 23

20 2117

23

28 29

27

26

22 20

2822

8 6 12 6

Time spent each month on tax compliance obligations

Average time spent on tax obligations is 1.5 days per month. Medium size companies spend most time each month on their tax compliance obligations, while small and large spend less time.

Medium%

Small%

Large%

Company Size

TOTAL%

Less than ½ a day

½ a day

1 day

2-3 days

More than 2-3 days

Start-Ups

20 19 2125

24 27 1914

12 920 10

5 63

5

Agreement that state administrative structures make it easy for those starting up in business

Almost half disagree that current structures make it easy to start up a business – with small companies the least likely to agree

Medium%

Small%

Large%

Company Size

TOTAL%

Disagree strongly (1)

Disagree slightly (2)

Neither (3)

Agree slightly (4)Agree strongly (5)

39 39 37 46

6 6 4 5

20 1926 23

42 4532 35

4 4 3 8

Agreement levels that a more co-ordinated and centralised approach by state related bodies would relieve obstacles starting a business

Almost 2 in 3 small companies agree that a more co-ordinated and centralised approachby state bodies would relieve obstacles starting a business.

Medium%

Small%

Large%

Company Size

TOTAL%

Disagree strongly (1)Disagree slightly (2)

Neither (3)

Agree slightly (4)

Agree strongly (5)

28 26 35 30

Tax issues which might be of concern if starting a new business in Ireland

Top three issues which might be of concern if starting a new business in Ireland are daunting & complex tax procedures, missing tax payments and file deadlines and penalties for making a mistake –

the latter of which is of particular concern to medium companies.

%

Tax administration procedures can be complex and daunting

Missing tax payment and file deadlines

Requirements to keep records

Difficulty in getting registered for tax/getting a business registered for

tax for the first time

70

77

58

32

76

75

52

31

71

70

55

3332

56

75

76

77

Medium%

Small%

Large%

Company Size

Penalties for making a mistake 70 90 77

9 9 9 4

43 44 38 46

36 3637

37

3 2 55

Likelihood that new businesses would make mistakes in their tax returns in first few years

The majority agree that it is likely that business will make mistakes in their tax returns for the first few years, with both small and large business more likely to agree.

Medium%

Small%

Large%

Company Size

TOTAL%

Very unlikely (1)Quite unlikely (2)

Neither (3)

Quite likely (4)

Very likely (5)

9 8 10 8

1 1 4

21 21 1833

75 76 7565

11

Benefits if Revenue were to provide advance guidance and information on most common mistakes made by new businesses when filing returns

Providing guidance and information on most common mistakes made by new businesses when filing returns is found to be highly beneficial among each of the company sizes, particularly small companies

Medium%

Small%

Large%

Company Size

TOTAL%

Not at all beneficial (1)Not very beneficial (2)

Neither (3)

Quite beneficial (4)

Very beneficial (5)

2 2 2 1 --*

12 14 7 11 10 9 10 165 7 8 6

6

26 24 30 2740 39 41 41

13 14 10 15

58 5760

5644 44 44 36

80 8079 75

854 3254 3

43

5

Issues which might put people off starting a new business in Ireland

The cost of failure is seen as the main issue for new starts ups among those already running small and medium companies in Ireland

Medium%

Small%

Large%

Cost Of Setting Up A Business

Not at all (1)Not very much (2)

A little (3)

A lot (4)

TOTAL%

Tax Compliance Requirements

Financial Cost Of Failure

Summary of Survey Findings

• 59% of all Irish SME’s surveyed consider their tax affairs are a burden.

• VAT is most burdensome, followed by PAYE/PRSI, income tax and corporation tax.

• Average time spent on tax administration is 1.5 days per month

• Almost half disagreed that the current state administrative structures encourage start-ups

• Complexity of administration and risk of penalties for mistakes key concerns for SMEs

• 96% of start ups would like more guidance from Revenue on avoiding mistakes

International Trends in Reducing the Burden - UK

• UK short tax return a 4 page form (self-employed with turnovers below £68,000)

• HMRC Business Education and Support Teamfree workshops on tax aimed at new businesses

• HMRC website “toolkits”checklists of issues of potential difficulty or common mistakes in preparing returns

• Independent Office of Tax Simplification launched in July

"Entrepreneurship should never be stifled because of an overly complex tax system.”

Rt Hon Michael Jack Chair of Office of Tax Simplification

International Trends in Reducing the Burden - Australia

• Australian Tax Authority launched Small Business Assistance Program

• Free workshops for new businesses on tax and record keeping

• Specific measures for small businesses with difficulty paying their taxes

Irish Taxation Institute Recommendations

• Simplify tax returns - introduce a 2 page basic income tax return (current income tax return 22 pages)

• Allow micro businesses to submit one return to cover all business taxes

• Revenue provide guidance on the most common errors and mistakes in tax returns

• Centralised and co-ordinated approach by State bodies to start-ups including a business support team

Irish Taxation Institute Recommendations

• Increase the VAT registration threshold for both goods and services to a common €85,000

• Extend the VAT cash receipts basis to businesses with a turnover less than €2million = (cash benefit)

• Simplify start up tax rules for self employed• Align interest rates on underpaid tax with market rates• Reform of the Appeals System – clarity and transparency

important