The Government's Four Year Recovery Plan, which was published at the end of last month, contains a set of revenue measures, principally taxation, which are expected to increase Government revenues by €5 billion over the 4 year life of the Plan. Of these taxation measures, the Minister for Finance announced that the abolition of the patent royalties exemption and Approved Share Option Scheme will take effect from the launch of the Plan – 14:00 on 24 November 2010.

Income Tax

Heavy emphasis is being placed on the structural reform of the income tax system with €1,875 billion sought through income tax changes alone. The key income tax measures covered in the Plan include:

• A 16.5% reduction in credits and bands over the four years of the Plan. Notably two thirds of this reduction will be implemented in 2011.
• Marginal tax rates would remain the same
• The Plan provides for the abolishment or curtailment of other tax reliefs and expenditures which are expected to yield an estimated €355 million. These include:
  • BIK exemption on employer provided childcare
  • Rent tax credit
  • Relief for trade union subscriptions
  • Ex-gratia termination and pension lump sum payments in excess of €200,000 will be taxed

Pensions

The Plan proposes a phased restriction on tax and other pension reliefs:

• Removal of PRSI and Health Levy relief on pension contributions in 2011
• Phased standard rating of income tax relief; 34% in 2012, 27% in 2013, 20% in 2014
• Reduction in the annual earnings cap from €150,000 to €115,000 in 2011

Reform of tax and other pension reliefs is expected to raise €700 million over the four year period of the Plan.

Corporation Tax

The Plan re-affirms the Government's commitment to maintaining the 12.5% Corporation Tax rate. It is noted that “the Government remains steadfastly committed to the maintenance of our 12.5% corporate tax regime as the cornerstone of industrial policy”.

Capital Taxation

The Plan proposes widening the base for Capital Gains Tax (CGT) and Capital Acquisitions Tax (CAT) and a reduction in the level of reliefs and exemptions for these taxes. The current single CGT rate of 25% will be changed to a system of differing rates for different levels of gains in 2012.

Value Added Tax

The standard rate of VAT will be increased to 22% in 2013 with a further increase to 23% in 2014.

Other Taxes

An interim site value tax will be introduced in 2012. This interim measure will involve a fixed local service contribution of about €100 per annum. A full value-based addition will be introduced in 2013. It is expected that these measures will yield €530 million in a full year. The Plan proposes the introduction of water charges which will be based on meter or volume based charges.