I thank the Chairman for giving me this opportunity to make a short opening statement. The focus of the meeting is on chapters 21 and 22 of the 2016 report of the Comptroller and Auditor General, entitled Tax Debt and Write Outs and Allocation of Encashment and Film Withholding Taxes, respectively. The meeting is also to consider the 2016 appropriation accounts, as well as the Revenue accounts for 2016 and 2017.
I will first address the findings of the Comptroller and Auditor General in the two chapters of his 2016 report, setting out some of the background for context, as well as providing an update on progress in implementing the recommendations made.
Revenue plays a vital role in the economy by collecting taxes and duties due to the State. In 2017 we collected a net €50.76 billion in taxes and duties. This is the seventh consecutive annual increase and was €2.8 billion more than in 2016. Provisional net tax collection to 31 May 2018 was €20.48 billion, which was €1.2 billion ahead of the figure for the same period last year. Revenue's core strategy is to maintain and improve timely voluntary compliance, tackle non-compliance and prevent the occurrence of tax debt. The maintenance of high rates of timely compliance, categorised by case size, in other words, by the amount of tax at risk in the event of late or non-payment, is a key measure of our performance and closely monitored. Table 1, attached to my opening statement, sets out the rates of timely compliance each year in the period from 2013 to date.
It is clear the overwhelming majority of taxpayers want to be and are voluntarily compliant. We acknowledge and value the important role of compliant taxpayers, businesses and their agents. One of our core targets in the next three years is to reduce debt levels by increasing the rate of timely compliance for all other cases from 89% to the mid-90s range. The Comptroller and Auditor General's 2016 report explains that tax debt falls into two main categories, namely, debt that is available to collect and debt that is not available to collect. The latter mianly comprises debt that is the subject of appeal to the Tax Appeals Commission and insolvency related debt.
The Comptroller and Auditor General's report reflects €2.29 billion in total tax debt outstanding as at 31 March 2017. Of this, €1.19 billion was not available for collection, while €1.1 billion was available for collection, equating to 1.68% of gross collection. By comparison, at the end of March 2018, total tax debt was down 4% to €2.2 billion. This includes €1.24 billion not available for collection and €958 million available for collection, representing 1.35% of gross collection. The committee will be interested to hear that the amount available for collection in 31 May 2018 was down to €845 million.
To safeguard tax receipts due to the Exchequer and in support of the compliant majority, Revenue intervenes early when tax payments and filing obligations are not met. Recognising that the more entrenched the debt becomes, the more difficult it is to resolve, our approach offers businesses and taxpayers an opportunity to deal with tax payment problems before they become unmanageable through early engagement. When viable businesses or taxpayers with temporary payment problems engage with us honestly, we work with them to reach an agreed solution. On 31 March 2017 there were 12,437 such businesses and taxpayers in phased payment arrangements in respect of €116 million in tax debt. At the end of March 2018, there were 10,833 phased payment arrangements in place, covering €99 million in tax debt.
The small minority of taxpayers who either refuse to engage with us or refuse to pay their tax are met with enforcement action. On 31 March 2017, €328 million of debt available for collection was subject to enforcement proceedings. During 2017 we referred more than 40,000 warrants to the sheriffs, while over 3,700 cases were referred for court recovery action, yielding a combined €181 million in debt collected.
In order to secure a tax debt, Revenue may place a notice of attachment on a third party. Attachment is an escalated option and normally used only where sheriff or solicitor enforcement has failed to secure payment of a debt or it is likely to be the only effective collection option. In 2017 we issued 6,440 notices of attachment, yielding €32 million for the Exchequer. During 2017 we successfully petitioned the courts to liquidate 34 defaulting companies, while 22 individuals were adjudicated bankrupt by the courts on foot of a Revenue petition and 273 personal insolvency arrangements were agreed .
The Comptroller and Auditor General reported that, at the end of March 2017, €661 million in debt available for collection was not the subject of either a payment agreement or enforcement action. While €390 million of this was more recent debt, €271 million was more than one year old, had no payment agreement in place and no enforcement action initiated. The Comptroller and Auditor General recommends that Revenue conducts an annual review of such debt.
I assure the committee that entrenched debt is always the subject of regular close oversight and, as at 31 May 2018, the recovery process has been finalised in respect of €148 million, or 55%, of that older debt. Of the remaining €123 million, 93.5%, or €115 million, is under active collection involving direct engagement between Revenue and the taxpayer, while the balance of €8 million is likely to conclude in write-off as uncollectible debt due to the circumstances of the taxpayers involved. As at 31 March 2018, the comparable figures to the €661 million and the €271 million are €569 million, down 14% and €221 million, down 18%.
Turning to debt write-out, it is inevitable that business failure or individual circumstances will sometimes make collection impossible. In such circumstances, Revenue may write out the debt and suspend all collection activity. Most debt write-out is on a case-by-case basis. Debt may be the subject of partial write out, where the taxpayer is able to make some payments towards the tax due but unable to pay the debt in full. Our write-out procedures and controls facilitate closer focus by Revenue on the debt with a reasonable prospect of collection. During 2017, Revenue wrote out €147 million in tax debt. This related mainly to insolvencies and ceased trades, and represented a reduction of 30% on the write out figure of €211 million in 2016.
The report of the Comptroller and Auditor General refers to receipts of almost €31 million in encashment tax in the period 2012 to 2016 and €1 million in film withholding tax in the period 2015 to 2016 that remained unallocated to taxpayer records at the end of 2016. Unallocated receipts are transferred daily to the Exchequer. The only exception to this occurs in December each year when the transfer is suspended to facilitate the end of year balancing of the Revenue account by its accountant general. Unallocated receipts are reported in the annual revenue account on the balance sheet as an asset and under the corresponding liability.
In June 2016, Revenue introduced RevPay, an online payment facility for all major tax liabilities, including encashment tax and film withholding tax. RevPay facilitates online payment by debit or credit card, or by using a single debit authority, and the taxpayer record is updated when the payment is made. This new facility reduces reliance on electronic funds transfer, EFT, as a payment method and over time will help to reduce the level of unallocated tax balances for all taxes. In 2017, Revenue completed a project which updated the customer record for all payments of encashment tax and film withholding tax, and there are currently no unallocated receipts of encashment tax or film withholding tax.
The report of the Comptroller and Auditor General recommends that systems should be quickly updated when new taxes are introduced, and this is in keeping with the objectives of Revenue. However, the prioritisation of IT development resources requires proportionate allocation. For example, PAYE modernisation and the introduction of real time PAYE reporting on 1 January 2019 is a priority project for Revenue this year. As such, smaller developments may not always be completed as quickly as would otherwise be the case. However, like film withholding tax and encashment tax, all required changes will be assessed and prioritised in the IT development schedule and integrated with other taxes at the earliest opportunity.
In keeping with the responsibility Revenue has to protect Exchequer funds, our resources are allocated based on risk. Our debt management framework prioritises early intervention and action to drive positive taxpayer behaviour. This gives the taxpaying public confidence that the system is fair, which, in turn, drives the very high rates of voluntary compliance. In 2017, Revenue introduced a new case segmentation and compliance tracking system, providing greater oversight, enhanced whole case management and flexibility in matching debt management resources to business needs. The new system is being implemented on a phased basis and all key elements are planned to be operational in early 2019. The system has contributed to strong compliance outcomes and will also provide enhanced online customer services, thereby supporting positive compliance behaviour.
I will be happy to answer any questions raised by the committee. In that context, I draw attention to my obligation to uphold taxpayer confidentiality, as provided for in section 851(a) of the Taxes Consolidation Act 1997 and which prevents me from commenting on the tax affairs of any individual or entity.