Ireland needs to overhaul its personal taxation system while investing heavily in housing, climate and broadband if it wants to continue to attract overseas investment, professional services firm KPMG has said.
In a submission to the Commission on Taxation and Welfare, the body set up to advise the Government on how best to finance the State, KPMG said the global deal on tax combined with the shift to remote working had changed "the investment landscape".
Digitalisation allows “business to be conducted from anywhere in the world, reducing for many businesses the importance of physical location, and facilitating remote working arrangements including across borders”, it said.
These changes are taking place at a time when the relative attractiveness of Ireland’s corporation tax rate “is likely to be reduced as the world converges on a minimum tax rate for large multinational corporations”.
KPMG said the other factors that are taken into account in deciding a location would assume greater relative importance than they have in the past.
Chief among them will be a country’s personal tax regime and the cost to employers of locating people in a country, it said.
“Therefore, any long-term strategy aimed at attracting and retaining FDI [Foreign Direct Investment] and domestic entrepreneurship must include reform of the taxation system aimed at reducing the marginal cost of employment in Ireland for both businesses and individuals,” it said.
KPMG called for the entry level to the top marginal rate of tax to be increased and social insurance contributions by employers, employees and self-employed to be capped.
Taxpayers in the Republic are paying personal tax at marginal rates of 48.5 per cent on salaries above €36,800 and 52 per cent on salaries above €70,044, which are among the highest rates in the world.
The consultancy also queried the rules governing share-based remuneration, which it described as complex and unattractive in comparison with other countries.
‘Significant challenge’
KPMG’s submission also highlighted the housing issue here and the importance of the availability of quality, affordable accommodation for employers and employees.
“The housing crisis will continue to be a significant challenge for Ireland, and measures aimed at increasing the supply of houses and reducing the cost of housing for people living here must be an immediate priority for the State,” it said.
On climate, KPMG said the State had set itself ambitious goals of reducing greenhouse gas emissions by 51 per cent by 2030 and to reach net-zero emissions no later than 2050.
“Achievement of these targets is not only an imperative in the context of fighting climate change, but their achievement is also crucial in order for Ireland to maintain its attractiveness as a location, particularly as both businesses as well as individuals strive to reduce their carbon profiles,” it said.
