Ireland shuns €13 bn tax bonanza in favour of growth and employment
At a time when Zambia, and many other countries, are trying to maximise tax revenue from big foreign companies, Ireland is doing the exact opposite.
As a result of its low corporation tax rate of only 12.5%, the article says, many multinationals have relocated to Ireland, creating around 20% of all private-sector employment – around 300 000 jobs.
So earlier this month, when the European Commission ordered Ireland to collect €13 billion in disputed back-taxes from tech giant Apple, which has operations there, politicians and ordinary citizens reacted with fury.
“We will fight it at home and abroad and in the courts,” said the country’s Finance Minister, Michael Noonan. And significantly, a poll showed that 76% of Irish people support this view.
A 2014 report by Ireland’s Department of Finance, Economic Impact Assessment of Ireland’s Corporation Tax Policy, says: “The headline rate of corporation tax is very important for FDI [Foreign Direct Investment] decisions. If Ireland were to increase the 12.5 percent corporation tax rate, it would significantly reduce FDI flows into the country.”
The report adds that lower tax means higher economic growth: “Evidence based on a wide number of countries indicates that a 10 percent reduction in corporation tax could have anywhere between a 0.6% and 1.8% effect on economic growth rates.”
Figures from the Organisation for Economic Cooperation and Development (OECD) show that from 1998, when Ireland started to phase in the 12.5% corporation tax rate, and 2014, total tax revenues have more than doubled, from €24.8 billion to €55.4 billion.
Ireland’s stance on taxation stands in sharp contrast not only to Zambia’s, but that of many other countries, including Britain, France and the United States.
There is presently a widespread distrust of multinationals in other parts of the developed world. It translates into very high corporate tax rates, which is precisely why so many multinationals have relocated to Ireland.
The lesson from Ireland, the article says, is the importance of a low tax rate to attract foreign investment, which drives economic growth.
“Take North-Western province: in the space of barely 10 years, it has gone from a poor, rural region devoid of any notable economic activity, into a thriving mining province whose three new mines – Kansanshi, Barrick Lumwana and Sentinel – now produce more than half of Zambia’s copper,” the article says.
“Employment has grown, businesses have been created and economic development has been rapid – chaotic in the case of Solwezi, and far more planned in the case of Kalumbila – all as a result of billions of dollars of investment at a time when mining tax rates were lower than they are now.”
Zambia Chamber of Mines president, Nathan Chishimba, is quoted in the article as saying: “As a nation, we are inclined to view economic development and the eradication of poverty through the narrow prism of tax receipts and government expenditure… rather than through the wider perspective of economic growth and employment.”
“It’s not wrong to want to maximise tax revenues – after all, they fund the essential operations of government. [But] hitting current taxpayers hard discourages economic activity and new investment, and ultimately stunts future tax revenues.”
Chishimba also emphasises the importance of the Zambian tax authorities being able to monitor and collect all taxes owed.
“This is why we in the mining industry are now strongly supporting programmes designed to build institutional capacity and increase information transparency, such as the EU-funded Mineral Production Monitoring Support Project.”
Countries should focus their efforts on long-term economic growth, rather than short-term tax revenues, the article concludes.