Belfast Telegraph

Business embraces hint of corporation tax cut

By Paul Gosling

Business groups have welcomed the possibility of a cut in corporation tax rates in Northern Ireland, but have stressed that the UK Government must not delay.

The option of reducing the tax, perhaps to match the basic 12.5% rate of the Republic of Ireland, was included in the eagerly awaited Treasury paper on rebalancing the Northern Ireland economy.

Northern Ireland Chamber of Commerce president Francis Martin said: “Our view is a region-specific reduction in corporation tax can be a major step in rebalancing the Northern Ireland economy and we welcome the commitment to engage local ministers on this issue.

“It is important that these talks move quickly and do not become a long, drawn-out process of deliberation. The opportunity which is presented in this Budget and in the paper on rebalancing the Northern Ireland economy must not be passed up. The UK-wide 2% reduction in corporation tax does not address the unique situation in Northern Ireland. The fact that we have a land border with the Republic, with their lower tax rate, puts Northern Ireland at a significant disadvantage when it comes to securing direct investment. This is our moment for overcoming this drawback.”

CBI Northern Ireland director, Nigel Smyth, said: “Lower corporation tax has significant potential to transform the Northern Ireland economy, though we recognise that there are difficult implementation issues to be addressed, and these are highlighted in this paper.”

The Federation of Small Businesses policy chairman, Wilfred Mitchell, said: “The FSB has been calling for devolution of corporation tax powers and a reduction in the tax to allow us to compete with the Republic when attracting foreign direct investment, as well as offering vital support and investment for our own indigenous SME sector.

“The FSB gave evidence on the matter to the Northern Ireland Affairs Committee and [has] launched our own manifesto to call for Northern Ireland to be designated an Enterprise Zone, so this broad-based political endorsement is welcome; we will be responding very positively to this paper.”

First Minister Peter Robinson said the possibility of devolving corporation tax (CT) offers “an important opportunity to grow our local economy”.

“[It] could have significant benefits in terms of raising investment both by local companies and from increased foreign direct investment.”

He urged local businesses to respond to the consultation.

One point strongly made in the Treasury report on rebalancing the NI economy is that the UK Government is committed to a rolling process of corporation tax reduction across the whole of the UK, which is being cut by 5% over the next four years. By 2014, the main CT rate in the UK will be lowered to 23%. The paper also stresses that across the EU, CT rates vary substantially — the highest is Belgium’s rate of 34% and the lowest is 10% in Cyprus. But various factors influence investment location, including infrastructure, skills, labour costs and size of the domestic market, as well as tax rates.

Nor is the headline rate of CT necessarily the rate that a company will pay. France has a range of reliefs which bring its average effective rate below that of the UK, while Ireland’s 25% tax rate on non-trading profits is twice the rate of its tax on trading profits.

The report estimates that a cut in CT rate could raise FDI by between £105m and £175m in the first year, rising to about £310m after 10 years. In addition, domestic investment might increase by between £50m and £65m in the first year, rising to about £110m a year by year 10.

The paper raises the possibility of a phased reduction in CT rate over a period of years, which would lead to a gradual balancing in reduction of block grant from the UK Exchequer.

Under EU rules, a lower CT rate would have to be matched by a reduction in central government financial support.

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