Corporation Tax rate to be examined
An inquiry into Corporation Tax in Northern Ireland is to be carried out by a committee of MPs at Westminster, it was revealed yesterday.
The Northern Ireland Affairs Committee will consider whether the level of corporation levies should be made the same as in the Irish Republic or what alternative measures could make the economy more competitive.
A 12.5 per cent rate in the Republic prompted the successful Celtic Tiger years, making it a host location to multinational companies in high value sectors like pharmaceuticals.
Chancellor George Osborne has announced that he plans to reduce the main rate of corporation tax across the UK from 28 per cent to 24 per cent over the next four years. He will review measures to rebalance the Northern Ireland economy and make it less dependant on the public sector.
The Committee has said it wants feedback on a range of issues, including possible legal barriers to a change in corporation tax.
Fears that EU law would make it illegal for Northern Ireland to have a different rate from the rest of the UK have been allayed by the so-called Azores ruling.
Named because of the fact that the Azores has a different rate from the rest of Portugal, the ruling said it was legal as long as the territory with the smaller rate bore the full fiscal consequences.
Among the issues the Committee will consider this Autumn are:
n What would be the benefits of equalising the corporation tax rate in Northern Ireland with that of the Republic of Ireland?
n What alternative measures could be introduced by the UK Government to make the Northern Ireland economy more competitive?
n Is a reduction in corporation tax the simplest and quickest way to make the Northern Ireland economy more competitive, and how long would it be before Northern Ireland realised the benefits?
n What would be the effect of reduced tax revenue in Northern Ireland?
n What evidence is there from other countries that having different corporation tax rates on a regional basis is effective?
n What are the implications for other regions of the UK if there were different levels of corporation tax within the UK?
Earlier this year, an independent think tank, the Economic Reform Group, said that a reduction was the only policy change which could lift Northern Ireland out of its economic doldrums.
As part of their coalition agreement, the Liberal Democrats and Conservatives said they would produce a paper “examining potential mechanisms for changing the corporation tax rate in Northern Ireland”.
In 2007, a review commissioned by the last government and led by Sir David Varney said that any reduction in the rate would have a short-term impact on revenue which would not be outweighed by long-term benefits.
Earlier this month, a government department admitted that lower corporation tax may have been a factor for companies investing in the Republic rather than Northern Ireland.
In the past five years, 21 companies were in talks with Invest NI, the body responsible for attracting investment, but subsequently went south.
Northern Ireland’s main political parties have also called for a reduction in the rate of corporation tax in line with the Republic.
However Finance Minister Sammy Wilson has warned any intervention which seeks to reopen the issue of Northern Ireland’s block grant may have damaging consequences.
Glyn Roberts, Northern Ireland Retail Trade Association chief executive, welcomed the inquiry.
“There is no doubt that more foreign direct investment for Northern Ireland as a result of a lower corporation tax rate would be a win-win, both creating new jobs and the knock-on effect this would have for our indigenous small businesses,’’ he said.
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Tuesday 14 February 2012
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