Thursday August 13, 2020

Comment: It’s time to abolish archaic commercial rates system for good

The current model of taxation penalises bricks-and-mortar businesses – we need to find a new and fairer way to fund local authorities

2nd July, 2020
Shoppers on Henry Street in Dublin where shops must pay commercial rates: this archaic tax is unfair on bricks-and-mortars retailers who must compete with online businesses

In 1826 King George IV signed into law the first Government Valuation of Ireland Act, and four years later Sir Richard Griffith was appointed to be the first Commissioner of Valuation to oversee its implementation. All properties were to be valued primarily based on the size of the premises and then subjected to a tax that would be used to fund local services.

For almost two centuries, that system has remained broadly in place. Following the abolition of rates on domestic properties in 1978 and a successful Supreme Court challenge in 1984 to their payment on agricultural properties, however, business is the only sector that continues to be subjected to this model of local government funding.

Commercial rates are the biggest single income source for local authorities, with around one in three euro coming from business, contributing up to €1.5 billion annually.

But the world and how commerce operates has changed enormously since the era of George IV, whose reign was noted for his opposition to Catholic emancipation.

In the digital age, the main-street retailer continues to face a rates bill based on the size of their floor space. The charge has no regard to turnover or profitability. This store, which will also be contributing to its local community in other ways through sponsorships and local employment, is in the market against online competitors that don’t face those responsibilities and are not subjected to the same rates bill.

The playing field also unfairly favours the global online operator as many don’t face the same Vat challenges of the bricks-and-mortar operator, and the continued failure by political leaders to agree on effective forms of digital taxation does not help.

Early on in the Covid-19 crisis, to help business, the correct decision was made to suspend commercial rates. Pressure is on to extend that suspension. In fact, now is the time to abolish this archaic tax.

Local government has been assured by central government that councils will be reimbursed for the losses that are suffered this year. In the long run though, we need to agree on a modern and sustainable model to fund services provided by our local authorities – from roads to environmental services, from libraries to fire services.

The programme for government contains clear and welcome commitments around revitalising our town and urban centres, but these strategies will fail if models of taxation continue to penalise businesses that open a physical door to customers.

Malcolm Byrne is a Fianna Fáil senator

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