I will make a few general comments about the Comptroller and Auditor General's report for 1999, which he discussed in his opening comments. I will not seek to pre-empt the committee's questions on the points made in the report or the points to which the Comptroller and Auditor General adverted. We regard the report as indicating that we are making progress across our office. However, as we are only making progress we can only report progress. We have more to do and we are determined to do it.
The progress is reflected in the net receipts figures which increased by £2.5 billion in 1999 over the 1998 figure and also in the reduction in the outstanding debt, which was reduced by over £100 million in that year. Despite the huge growth in tax receipts in recent years, we still need to tighten up further some of our activities in the collection and audit areas, and we will do this. Likewise, we are not satisfied with the level of outstanding debt. The Comptroller and Auditor General has drawn attention to the significant reduction and underlined the progress that has been made. That is significant for us.
I agree wholeheartedly with the view that Revenue should be coming down to a level of debt on which it is fully accountable to this committee and to the Oireachtas, having eliminated the artificiality which distorted the figures for so many years. We have been busily trying to do that. There has been a massive reduction from £3.5 billion for 1988, which represented approximately 57% of the total annual tax collection in that year. Our debt was the equivalent of 57% and it was down to a £1 billion figure for 1999 which represents 6% of the tax take in that year. However, we need to go further and our new statement of strategy, which I hope we can publish shortly, will contain important new commitments from Revenue for the period 2001 to 2003 in terms of focusing even more on the level of debt and making commitments about the time period for which debt will be outstanding and what we will do if the debt, for example, exceeds six years, three years and so forth. That will be a major change, bearing in mind that on the basis of the figures in the report, approximately 20% of our outstanding debt is still pre-1991. It dates from before the 1993 amnesty.
While we are making progress on collection, there is more to be done. The Comptroller and Auditor General mentioned paragraph 22 of the report and the special inquiry branch. I wish to comment briefly on that. We agree that despite the excellent work being done by that branch, deficiencies are identified in the report as regards, in particular, the sharing and processing of information across Revenue. One of Revenue's biggest difficulties is to make full use of all the information which is available throughout such a large organisation. We need to do better.
We have set up a project team across the office to see what information we should be capturing and how best it can be disseminated to all areas of the office. In the radical restructuring of our organisation, which we announced, we will consider what has been said about the special inquiry branch. We need to decide exactly on what changes we should make as part of the restructuring.
If it is in order, Chairman, I would like to comment on the so-called underlying tax relating to bogus non-resident accounts and the arrangements recently introduced by Revenue which are set out in our Statement of Revenue Practice dated 2 May. I take this opportunity to explain to the committee some of the dilemmas faced by Revenue in dealing with this matter and, in particular, indicate the interaction between these arrangements in the statement of practice and the 1993 amnesty, which has been the subject of some comment in the Dáil and the media.
The final report of the Sub-Committee on Certain Revenue Matters acknowledged the difficulties for Revenue in dealing with the problem of underlying tax. It stated: "The assessment and collection of tax on the underlying undeclared income in bogus non-resident accounts [as distinct from DIRT we were collecting from financial institutions] will . . . be a major undertaking involving significant resources, time and effort." The sub-committee went on to recommend that Revenue consider dealing with the assessment and collection of underlying tax in a pragmatic and effective manner while safeguarding the overall revenue of the State.
The solution upon which we have decided is pragmatic and effective and we reached it after much consideration. One media commentator suggested the nature and scale of the difficulties in terms of the problem over such a period of time were such that Revenue would walk away from it and would not really deal with it. We had no intention of doing that and the answers the Minister for Finance gave over a period on the basis of information from Revenue clearly show we were scoping exactly how we would deal with the problem in an efficient and effective way, bearing in mind that unlike the audit of the 37 financial institutions referred to by the Comptroller and Auditor General the number of cases of individual depositors could be between 25,000 and 50,000. The scale of what is involved is unprecedented.
In tackling this problem we could admittedly have taken a different approach which would not have required inducement for cases to come forward voluntarily. This would have involved using powers to get relevant information from the financial institutions and investigating each and every suspect case individually. However, such an approach would have had enormous implications for our resources, including our normal audit activity, and would have taken an incalculable number of years to bring to a conclusion. Rather than helping our ongoing efforts to improve tax compliance, to which I attach the utmost importance, it would hinder them by diverting us almost entirely to the underlying tax problem. We were also convinced that this approach would not maximise the amount of money that could be obtained for the Exchequer and the general body of taxpayers in comparison with the approach we settled on.
The Comptroller and Auditor General mentioned the NIB investigation. Up to the end of February, 2001 267 National Irish Bank cases had been settled. The investigations had been ongoing since April 1998. Most of these cases were not cases of voluntary disclosure and information required by us had to be got from lengthy and painstaking inquiries. In the case of bogus non-resident accounts we could be talking about between 100 and 200 times that number.
We took the view that a case-by-case investigation was simply not feasible and that the correct management of this problem required a more broad-based approach aimed at flushing out the greatest possible number of bogus account holders on a voluntary disclosure basis and concentrating our available resources on going after those cases who do not come forward voluntarily. If we had to make limited concessions to promote such an approach, so be it. We have clear advice that the approach we decided upon is within our care and management powers under the law. I understand that the Attorney General is of a similar view. We decided carefully on the best approach. As Chairman and Accounting Officer, I am accountable to the committee and ultimately responsible for the decisions made.
I will skip over the details of the statement of practice. Suffice to say there are two broad stages, one which will run until 15 November. Already some people want a longer period, but we are refusing that. The deadline for voluntary disclosure is 15 November. If a person makes a full disclosure during that stage we will not initiate an investigation with a view to prosecution, the name of the person will not be published and the total interest and penalties will be capped at 100% of the tax. In other words, the person will pay all the outstanding tax plus the same amount in interest and penalties. It is not a soft option under anybody's definition. For people who do not take up that option in phase 2, we will use all our powers to get all the information on the full list of bogus non-resident account holders from the banks and other institutions. We will cross off that list the people who have made a voluntary disclosure and investigate the other cases individually. At that stage all bets will be off in the sense that there will be no cap on the interest and penalties, there will be publication of settlements reached and cases are liable to be investigated with a view to prosecution.
In the time available I would like to deal with the interaction with the 1993 amnesty legislation, which has been the subject of comment. First, it is clear from the DIRT look-back audits and the discussions in the Committee of Public Accounts and the sub-committee on DIRT that most of the bogus non-resident accounts identified were in existence before 1991. There was, therefore, an obligation on the account holders concerned to comply with the terms of the 1993 amnesty. However, because of the strict confidentiality provisions built into the amnesty legislation, it is not known how many of them did not participate in the amnesty or how many participated but did not make a full disclosure. The committee will recall that a person who complied with the 1993 legislation would have been able to satisfy all obligations by paying 15% of the amounts of income undeclared, with no interest or penalties.
As regards the precise interaction with the statement of practice, it would be helpful to distinguish between three categories of bogus account holders. First, there is the bogus account holder who made a full and complete disclosure under the amnesty and kept his or her affairs in order subsequently. Such cases do not have to do anything under the statement of practice, they are completely in the clear. Second, there is the bogus account holder who kept the head down completely as regards the amnesty and made no amnesty declaration. Such cases will be able to avail of the statement of practice, but will now have to pay all the tax liability as opposed to the 15% I mentioned and in addition will pay another 100% of the tax in interest and penalties. I again point out that the vast majority of the bogus account holders we are aiming at are likely to fall into this category. Those who did not avail of the amnesty or who abused it - the third category - are the problem in terms of the bogus non-resident account underlying tax area simply because most of the account holders had money in those accounts prior to 1991, the cut-off date for the amnesty.
The third category are bogus account holders who made a declaration under the amnesty but did not make a full and proper declaration. For example, they may have claimed the 15% amnesty on part of the income but failed to declare income relating to a bogus non-resident account. Such cases will also be able to avail of the statement of practice but they will lose the benefit of the 1993 amnesty because they did not make a correct declaration at that time. In effect, they will now, under the terms of the statement of practice, have to pay the full tax, including full tax on the partial disclosure under the amnesty, plus the same amount again in interest and penalties. They will of course be entitled to a credit for the actual amount paid under the amnesty, as provided for explicitly in the 1993 legislation.
On the question of prosecution for failure to avail of the amnesty, section 9 of the amnesty legislation provides that where persons knowingly or wilfully evaded tax liabilities in respect of periods covered by the 1993 amnesty and were required to avail of that amnesty but did not do so, or did not fully comply with the disclosure requirements, they are guilty of offences. A successful prosecution of such offences would, of course, require the necessary investigations and proofs to be established in a court of law. There is no automatic prosecution or conviction.
We have discussed the question of prosecutions at this committee and in the sub-committee on previous occasions, particularly the resource issues involved and the burden of proof involved in establishing prosecution for serious tax evasion. We are making progress in implementing our more active prosecution policy and the committee has required me on various occasions to account for that and urged me to make substantially more rapid progress. As we speak there are two people serving jail sentences as a result of prosecutions for serious tax evasion which we initiated. Given the very large numbers of cases which are involved in the underlying tax, the available Revenue resources must be deployed in the most practical and effective way. Even if we knew them all, it would be impossible to investigate for prosecution every person who did not comply with the 1993 amnesty. In our view investigation with a view to prosecution is better concentrated on those persons who do not avail of the statement of practice and this will be done after 15 November next. The offences prosecuted would include amnesty-related offences on which we can establish the necessary proofs.
Chairman, I am grateful for the time you have allowed me to elaborate the statement of practice. I wanted, with your permission, to indicate our position on the decision made on this very difficult topic under our care and management powers, a Revenue decision, a matter for us to deal with in managing the tax administration. It was our problem and we had to deal with it. We made our decision for which I am accountable to the committee. I wanted to elaborate on it and I wanted to deal with the interaction in terms of the amnesty in the case of the three categories I outlined.
