Just when you think you should ease up on your criticism of our native entrepreneurs (after all, its not like we can hold an election and elect a new set of entrepreneurs); just when you think you should ease up on your reproaches and accept, for good or bad, this is the lot we have to work with – along comes the Sunday Business Post’s Red C survey of Irish businesses. You just end up sighing more, exasperated and despairing. For in addition to lack of capabilities in a range of business practices (managerial, planning, R&D, labour relations, product development, etc.) we can now add another deficit – an inability of entrepreneurs to claim their own tax reliefs; a failure that reduces business profit and the living standards of the entrepreneurs themselves. I mean, can it get much worse?
The Red C poll (whose two-page spread in the Sunday Business Post of October 21st does not feature on the Post's website) surveyed 500 Irish companies ranging from the very large (over 100+ employees) to the micro (employing less than 10). What it found was nothing short of astounding:
- 63% insufficiently informed about tax reliefs
- 58% do not avail of tax reliefs
Curiously, though 83% reported knowing about tax relief for charitable donations, only 57% were aware of the Business Expansion Scheme. This scheme allows firms to raise up to €2 million from investors who can claim tax relief (that this scheme became the subject of a well-reported dispute between ICTU and the Government, ending up in the European Court only a few months ago suggests that our entrepreneurs don’t even read the newspapers). But it gets worse:
- 57% didn’t know of tax relief on IT hardware, office furniture and equipment
- 59% didn’t know of the possibility of deferring corporate tax payments during the first year of business (though admittedly, there’s little reason why older companies should be aware of this)
- 60% didn’t know of tax exemptions for certain employment grants, and
- 62% were unaware of tax relief on R&D costs
One of the reasons is that half of the enterprises surveyed didn’t even take the time and small investment of resources to seek advice form tax advisors.
We should be clear that we are not talking about own-account self-employed – those who work on their own. Those surveyed are all employers. These are people who have responsibility for people’s livelihoods. And they don’t even utilise the services of tax specialists (whether accountants, lawyers or consultants) to increase the viability of their own businesses and livelihoods. As Mark Redmond, Chief Executive of the Irish Taxation Institute, comments on the Survey:
Being well-informed on any subject, but in particular tax, is essential if a business is to effectively and efficiently manage its affairs.
It appears there are a frightening number of enterprises that are not effectively and efficiently managing their affairs. We shouldn’t be too surprised that it is the smaller enterprises that take least advantage of taxpayers’ subsidies (which, after all, are what tax reliefs, or tax expenditures, are). However, it’s also alarming that many large firms – those employing more than 100 people (and by Irish standards that’s large) are ignorant of tax issues.
30% - nearly one in three – of large companies admit to being uninformed or, in Mr. Redmond’s words, managing their companies in an ineffective and inefficient manner. These companies should be platforms for launching new export drives in the highly competitive international marketplace. Instead, they can’t even sort out their taxes.
So who do these same businesspeople blame for this sorry state? Of those who had admitted being uninformed, the majority blamed the Government – claiming there was too little information, or that the Government had promoted these tax subsidies insufficiently or that the information was too complicated.
Now, I’m as quick as anyone to blame the Government for a plethora of problems. But good grief; the argument that the information is not out there is quite simply pathetic. There are books, websites, and discussion boards: the Revenue Commissioners provides individual advice; there are city and county Development Boards and other state agencies ready to offer assistance; financial institutions also have facilities as do employers’ organisations. Sure, don’t businesspeople talk to each other? And, of course, there are all those tax advisors which our managerial class are determined not to consult (to be fair, 30% of those admitting to being uninformed accepted it was their own fault – at least they can be worked with since they’re not in denial).
If this was all there was we might be amused – how the business lobby demands tax cuts while ignoring the opportunity to reduce their tax liabilities. But there are larger, more ominous implications.
First, economic reports, institutions, commentators, etc. are going to have to factor in this widespread ignorance when they discuss our ‘competitiveness’. A crucial aspect of competitiveness is entrepreneurial acumen. The problem here, of course, is measurement. Many commentators reduce competitiveness to wages or costs or other components which are easily measurable. However, this is to miss the larger picture as Forfas pointed out in its 2006 Annual Competitiveness Report:
Competitiveness is partly about costs, prices and wages……but more about better business performance through innovation and productivity.
Unfortunately, we don’t have an easily measurable ‘smart’ index to apply to managerial practice. If we did, we might have a more informed debate over competitiveness.
A second issue is the extent to which the National Development Programme is built on a flawed premise. No one questions the need for infrastructural investment – we are, after all, at the bottom of the league when it comes to public capital stock. However, the ideology that informs the NDP – courtesy of Fianna Fail – is a kind of ‘Field of Dreams’ approach: ‘build-it-and-they-will-come’. The real question is – what if we do manage to transform Ireland with a top-class infrastructure but our enterprises are still trying to figure out their tax reliefs, still not getting professional advice and still blaming the Government for their ignorance?
The situation could be worse – subjective surveys such as the Red C poll are still reliant on the veracity of the answers. The problem is that many entrepreneurs might not own up to the fact that they are missing out on tax subsidies because it would lessen them in the eyes of others (in truth, how many of us would confess to being ignorant over something we should be expected to know). If so, we’re really into rolling rocks uphill.
So the next time you hear some commentator or business lobbyist going on about our competitiveness and how we have to freeze wages and cut public spending and slash regulations – just keep this in mind:
We could do all that and still be no better off because our entrepreneurial and managerial class are not up to being truly competitive.
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