Belfast Telegraph

Warning on cutting corporate tax rate

Cutting Northern Ireland's rate of corporation tax is unlikely to attract significant volumes of new overseas investment, a report has claimed.

Business advisers PricewaterhouseCoopers (PwC) describe cutting corporation tax as a "relatively blunt instrument" in the latest shot across the bows in the debate over bringing the main 28% rate into line with the Republic's 12.5%.

As part of the report 'Corporation tax - game changer, or game over?' PwC surveyed tax regimes in 182 countries. The survey showed that the UK, including Northern Ireland, had the sixteenth most business-friendly regime despite having a higher corporation tax rate than many other countries.

PwC also said that matching the Republic's corporation tax rate could cost the Assembly around £280m a year, with no certainty of an equivalent uplift in new foreign direct investment.

The battle over the issue has recently intensified and last year 16 top business leaders called for the devolution of tax powers to Stormont, describing lower corporate tax as a "win-win" situation for the economy.

But opponents claim that lowering the rate is a gimmick which will cost more to implement than the potential investment it might attract.

The issue was further complicated when the Republic came under pressure to lift its rate as part of the conditions for the IMF/EU bailout.

PwC tax partner, Martin Fleetwood said that there is little evidence to suggest that low corporation tax was the sole reason for the Republic's boom in the late 1990s to 2000s.

"Our research suggests that a variety of factors, of which low corporation tax was only one, contributed to the Celtic Tiger economy," he said.

He said that Westminster must give the Executive the power to cut the rate - but he said that such powers of fiscal flexibility could let the Executive vary other taxes.

Dr Esmond Birnie, PwC's chief economist in Northern Ireland, said: "A cocktail of financial incentives is more likely to be helpful than the blunt instrument of the headline corporation tax rate."