The recently published Commission on Taxation report has given the government plenty to consider, with over 240 recommendations in relation to taxation, levies and charges. While the report contains a number of recommendations that have received a frosty welcome from taxpayers, there are several recommendations that are pro-business and that, if implemented, could be instrumental in propelling Ireland out of its current economic doldrums. One of those recommendations is the reduction of stamp duty on share transfers from 1% to 0%.

To many, stamp duty on share transfers would be regarded as only being an issue for wealthy investors / speculators who have the luxury of spending their recreation time gambling on the swings and roundabouts of the stock market. However, the impact of this duty is far wider reaching.

Irish stamp duty applies to transfers of shares in Irish incorporated companies, whether that transfer is executed in Ireland or abroad.

The Irish rate of 1% is the highest rate in Europe and compares to a 0.5% rate in the UK and 0% in France, Germany, Italy, the Netherlands and Luxembourg.

This 1% duty has a significant impact on the costs of raising capital for Irish incorporated companies. While there is no duty on the issue of share capital by an Irish company, the costs of raising capital are affected by the ongoing costs of trading in the shares. A sophisticated investor who has a certain rate of return in mind generally pays more for shares if the transaction costs of ongoing trading are lower. The ongoing transaction costs, such as stamp duty, therefore have an impact on the value the market puts on a company and, hence, the company's costs of raising capital. Where a company has difficulty in raising capital, this limits the company's ability to invest / expand so the overall competitiveness of Irish companies is reduced, compared to their European counterparts.

The duty also has a negative effect on the value of pensions and other savings and investments products. Pension funds and investment managers are huge players in the stock market. The more often they turn over their investments, the more often they incur a 1% duty acquiring Irish shares. These stamp duty costs can significantly erode the value of a fund and are certainly unhelpful in times when pension schemes are severely under-funded.

One final area where our 1% duty is having an adverse effect is inward investment. The government has taken significant steps in recent years to make Ireland an attractive holding company location. In the last few years, it has introduced an exemption from capital gains on the disposal of shares in subsidiary companies, favourably amended the rules for the taxation of foreign dividends and continued to negotiate double taxation agreements with international trading partners.

However, when corporate groups are weighing up the pros and cons of locating their holding companies in a particular jurisdiction, stamp duty can be a significant factor which, unfortunately for Ireland, can often turn out to be a 'deal breaker'. Our 1% duty has deterred a number of large groups from locating their ultimate holding companies in Ireland, instead opting to locate to jurisdictions with zero or nominal duty. As a result, Ireland has lost out on some significant investments, not to mention potentially large tax revenues.

There has been much lobbying over the past 10 to 15 years for the reduction or removal of stamp duty on share transfers. In the past, the government has maintained that a reduction of the rate would result in a significant cost to the exchequer and that it has not been demonstrated that the market is materially impacted by the 1% duty.

The government may not be willing to accept a recommendation for the removal of the 1% duty at this point, but a halving of the rate to 0.5% could be more palatable, particularly if it were to lead to greater trading in Irish shares, hence reducing the revenue deficit caused by the rate reduction.

There are some who would argue that a halving of the stamp duty rate would actually cause a significant increase in gross stamp duty revenues. You may recall that the reduction in the rate of capital gains tax from 40% to 20% a number of years back was followed by a four to five-fold increase in capital gains tax revenues. Maybe a reduction in the stamp duty rate would yield similar results.

So maybe the government can actually lower stamp duty, leading to an increase in competitiveness and economic activity but without reducing stamp duty revenues. Is this possible? Surely it's worth a punt.

The author is a senior tax manager with PricewaterhouseCoopers