Ireland’s corporate tax receipts for May increased by €1.22 billion compared with revenue from May 2019, and overall tax revenues increased by 1.3 percent, despite an economic slowdown caused by the pandemic.
Based on information from the Revenue Commissioners, the higher corporate tax receipts are a result of increased profitability and not one specific factor, and a significant contributor is last year's economic activity, the Department of Finance said in a June 3 release.
In its Fiscal Monitor for May 2020, the Department of Finance said the overperformance of corporate tax receipts could be attributable to large payments from a small number of firms. It said June may provide a better indication of the performance of corporate tax receipts for the remainder of 2020.
Income tax revenue fell by 7.8 percent, or €137 million, compared with May 2019, but the government noted that this is less of a decline than originally forecast. “Income taxes are proving to be more robust than estimated for now. June income tax receipts will be important in providing a clearer assessment,” Finance Minister Paschal Donohoe said, as quoted in the release.
VAT and excise tax revenues declined sharply compared with May 2019, falling by 35 percent and 36 percent, respectively. According to the Fiscal Monitor, May is the first month to reflect the effects on VAT revenue caused by the economic and social COVID-19 restrictions introduced in March. The VAT and excise revenue declines account for €1 billion in lost revenue.
“Today’s figures show that the expected steep decline in consumption taxes has been offset by a rise in corporation taxes and relatively resilient income taxes,” Donohoe said.
In its May 20 country report, the European Commission urged Ireland to broaden its tax base to ensure stability and said Ireland is highly dependent on corporation tax revenue, with the top 10 companies accounting for 45 percent of that revenue. Noting the volatile and transitory nature of the receipts, the report says broadening the tax base would make revenue more resilient to fluctuations in the economy.
“In relation to corporation tax, as I have said many times before, receipts of this order will not last forever. Even if receipts prove resilient during the current crisis, they will decline in the near future. As such, excess returns should be used to reduce the extraordinary amount of borrowing the State is taking on to fight this crisis,” Donohoe said.