Corporation tax revenues in Ireland were €945 million higher in 2020 than in the previous year, while overall tax revenues dropped by €2.1 billion during the COVID-19 pandemic, according to the Department of Finance.
In a January 5 release, the Department of Finance said that corporation tax revenues increased by approximately 9 percent because Ireland's pharma, information communications technology, and financial services sectors coped well under the economic conditions last year.
According to the Department of Finance, income tax revenues also remained strong in 2020, decreasing by €224 million, or 1 percent, from 2019. The release highlights that Pay As You Earn and self-employed tax revenues “exceeded initial expectations,” although this is partly attributable to the pre-COVID-19 months.
The release notes that there was a €3.2 billion drop in VAT and excise revenues because personal consumption decreased as a result of public health restrictions.
VAT revenues were approximately 18 percent less than in 2019 because of a significant decrease in consumer spending during the pandemic, the Department of Finance emphasized. The release notes, however, that “the strength of corporation and income taxes compensated to a degree for the fall in consumption taxes.”
The release says that the overall government deficit is estimated to be €19 billion, or 5.5 percent of GDP. “Although we once again enter a difficult period of tough but necessary restrictions, today’s figures point to some positive underlying trends in the economy,” Finance Minister Paschal Donohoe said in the release.
“The Government will continue to use the resources of the State to protect the most vulnerable, support businesses, and sustain incomes until our country emerges from this pandemic even stronger than before,” Donohoe said.
However, the Irish Fiscal Advisory Council (IFAC), an independent statutory body, warned in its pre-Budget 2021 statement, issued in September 2020, that because a large portion of corporation tax receipts are determined by economic activity in the previous year, the overperformance is "vulnerable to downside risks in 2021.”
The Irish government is highly dependent on corporation tax revenue, with the top 10 companies accounting for 45 percent of that revenue, despite warnings from the European Commission and IFAC to broaden the government's tax base. IFAC said that Ireland could face a sharp drop in revenues resulting from global policy changes like the OECD's base erosion and profit-shifting initiatives or changes in corporate behavior caused by the pandemic.