I move:—
That the Dáil agree with the Committee in Resolution No. 2.
Resolution No. 2—Excess Surtax.
The Minister used some words that rather puzzled me. Are we to understand from what he said that, on this stage, no explanation can be given with regard to the incidence, scope and ramifications of each Resolution? It was our impression that this was the occasion on which explanations of the kind were given because on Budget day those Resolutions are more or less taken en bloc. Occasionally, there is a division on one of the Resolutions. My impression is that it was usual to have an explanation given of the Resolutions on this stage. Suppose the surtax rate on an individual remains fixed at £1,500, what will be the effect of a later tax on an individual in connection with excess profits— on an individual whose income is not £1,500, but is in excess of his income for last year? Take the case of a man whose business produced him an income of £1,000 last year. If his profits for 1940-41 were £1,400, does the £400 in that figure come in under this particular Resolution as the amount on which he will be assessed?
As far as this Resolution goes, in the case put up by the Deputy, there will be no effect, adverse or otherwise.
Has the Minister considered the likely effect of these proposals on raising prices? The taxation is retrospective inasmuch as it goes back to the 6th April, 1940. It seems to me that section 4 of the Resolution will deprive certain classes of income receivers from certain advantages they were entitled to under the operation of Section 34 of the Income Tax Act, 1918, for losses sustained by them in other directions. I would like to understand why, in dealing with profits, the Minister proposes that they be computed without regard to certain provisions in the Income Tax Act of 1918.
I have here one or two examples that I may perhaps quote for the information of Deputies. As Deputy Mulcahy has said, Deputies would like to have some knowledge of these matters before we reach the discussions on the Finance Bill. The following example illustrates the circumstances in which liability to excess surtax arises. A.B.'s total income from all sources for surtax purposes for 1940-41 was £9,000. His total income in each of the three previous years of assessment is as follows: 1937-38, £5,000; 1938-39, £4,000; 1939-40, £7,000. He is entitled to the average of the best two of these three years as his standard total income. That would make his standard, on those figures, £6,000. His total income for 1940-41 accordingly exceeds his standard income by £3,000. That is No. 1. He is a trader, and the amount of profits included in the 1940-41 total income is £6,500. His trading profits included in assessments were as follows: 1937-38, £3,500; 1938-39, £2,500; and 1939-40, £5,500. His standard profits are the average of the best two of those three years, namely, 1937-38 and 1939-40, that is, £4,500. The profits included in the 1940-41 assessment accordingly exceed his standard profits by £2,000. That is No. 2. A.B. becomes chargeable to excess surtax on No. 1 or No. 2, that is, on the £3,000 total income excess or on the amount by which the profits included in the 1940-41 assessment, which exceeds his standard by £2,000. No. 2, the profits, is the lesser, and the charge will be on the £2,000. Excess surtax at 7/6 in the £ on the excess profits of £2,000 amounts to £750; less appropriate allowance in respect of ordinary surtax, £500; making the excess surtax payable £250. The total tax payable on the £2,000 excess is as follows: Income-tax on £2,000 at 7/6 in the £, £750; ordinary surtax, £500; excess surtax, £250; making a total of £1,500. I will send the Deputy a copy of those figures.
Arising out of the illustrations which the Minister has given us, I thought that this excess profits duty or excess surtax had to be calculated on a year prior to September, 1939. That would bring you to September, 1938, and the best two of the three years prior to September, 1938, would be selected. Now, the Minister has given us illustrations for 1938-39 and 1939-40. I was under the impression that under the Resolution, the calculation had to be made on an accounting period ending prior to September, 1939. That would bring you back to September, 1938.
What the Deputy had in mind relates not to surtax but to corporation profits tax.
But the Minister has spoken of the profits on the business; when that comes along he will have to go back prior to September, 1938?
Yes.
I think this is a Resolution which we will have to vote against. The Minister said, having given us the figures, that the income-tax charge on £2,000 was £750; that the ordinary surtax was £500—I do not know what is meant by ordinary surtax —and that the excess surtax was £250. Altogether, that makes up £1,500, and the excess profits in this case amount to £2,000. If those figures are correct, the individual is left with £500 in this case, in which there has been an excess profit of £2,000. It may be—and our information is from more sources than one—that those profits have arisen out of the increased value of the stocks which were carried. In some cases, it is alleged that they have arisen entirely from the enhanced value of the stock. In that case, there is a perfectly legitimate plea in respect of the profits, assuming that we are going to reimburse the person at the end of the period should he find himself stocked with heavily priced goods saleable at a much lower price. During the late war, in regard to the taxes that were imposed by the British Government, they made provision for repayment in those cases, and the Minister for Industry and Commerce, I think, mentioned last week that this 25 per cent. is being left with the trader so that he can pile up reserves to meet the difficulties which are likely to arise if and when the war ends.
The second case is that in which, by reason of the changed circumstances of the times, the trader undergoes certain expenditure. He may have started some new line or branch of his business. Finding that the times did not permit of his profits being derived from the old business which he was doing, he gets into some new line, in which he has had to incur certain expenditure, and, although his books may show that there is a profit of £2,000, if the war were to end to-morrow that would depend very much on how far he had expended his reserves or had borrowed money in order to make this extra profit. The third case is different from either of those two. It may be an expanding business. We have here in this City of Dublin examples of businesses which began in a small way and gradually expanded. There are many more examples in Great Britain, and still more, I suppose, in the United States of America. If, in the earlier stages, those business concerns had to face a tax such as is proposed here, it is more than likely that that expansion which took place would never have been achieved, with resultant loss of employment, and perhaps an equally great loss to the services they were performing for the multitude.
Now, those are three separate cases. For the trader who is what is described rather contemptuously as a profiteer, nobody has any particular sympathy or consideration. For the man whose business is expanding, not only should there be consideration but some effort ought to be made to distinguish as between that type of person and the person who is, even if not a profiteer, benefiting by the circumstances of the times. There is the other case in which, seeing the difficulties of the period, having invested money in order to start some new line in a business, something perhaps that was not done at all before in the business, the costs which have been incurred would more than wipe out the profits if the emergency were to subside rather suddenly. I think that, at this stage, the Minister should indicate to the House whether there is any intention of discriminating as between those different classes; whether, in the case of persons who have invested moneys out of their reserves to inaugurate a type of business that they have not hitherto done, and whether there is to be any provision for expanding business.
There are two points to which I would like to direct further attention.
I will hear the Deputy, but I would remind the House that we are not in Committee.
I am quite willing to be on the Report Stage if the House is treated properly.
I shall permit the Deputy to make his point.
I stand entirely for the proper and orderly carrying out of business here, but we have been prevented from carrying it out in an orderly way, because on the Committee Stage we could have had a formal statement, but did not have it. I simply want to get at the facts, as far as possible. The Minister has indicated how this tax will affect a person with part of his income coming from industry. The tax is retrospective in that it will apply to an income up to 6th April, 1941. During the year in which the income was being earned, there was no anticipation that it would be liable to that tax. This deals with the case of a person whose income is derived from something else together with profits from industry.
During the year that is now being retrospectively taxed, a very large Army, a huge Local Defence Force and other emergency services were being built up in the State, and large numbers of men had to be clothed and equipped. The greatest possible energy and drive on the part of a large number of manufacturers was called for by the Government in order to have the equipment for the forces ready, so as to help their organisation, and in order to be prepared for any emergency. A very considerable amount of work was packed into a particular period. The firms that got work to do and that were lackadaisical spread the work over two accounting years. They are going to be hit less heavily than the industries that set out in a satisfactory way and, inside the first month or so of the emergency, which began about June of last year, got all their manufacturing work into that period, and, therefore, because of the increased employment during that period, got additional profits.
I think, from the retrospective point of view, that the tax is bad, especially when you consider the circumstances in respect of which that retrospective taxation is imposed. It is bad from the industrial point of view and also from the point of view of a Government that may have to call on people in any emergencies that may arise. It is bound to have a detrimental effect in that connection.
The Minister said that there are two standards of profit which may be accepted, and the lower one is the one that will be subject to tax. I should like him to give us some explanation in relation to paragraph 4 of the Financial Resolution. For the purpose of documentation, I will read certain subsections from Section 34 of the Income Tax Act of 1918. Sub-section (1) says:
"Where any person sustains a loss in any trade, profession, employment or vocation, carried on by him either solely or in partnership, or in the occupation of lands for the purpose of husbandry only, or in the occupation of woodlands in respect of which he has elected to be charged to tax under Schedule D, he may upon giving notice in writing to the surveyor within six months after the year of assessment, apply to the general commissioners or to the special commissioners, for an adjustment of his liability by reference to the loss and to the aggregate amount of his income for that year estimated according to this Act."
Sub-section (2) says:
"The commissioners shall, on proof to their satisfaction of the amount of the loss, and of the payment of tax upon the aggregate amount of income, give a certificate authorising repayment of so much of the sum paid for tax as would represent the tax upon income equal to the amount of loss, and the certificate may extend to give any exemption, abatement, or relief depending upon total income from all sources, authorised by this Act.
"Upon the receipt of the certificate the Commissioners of Inland Revenue shall cause repayment to be made in conformity therewith."
Paragraph 4 of the Financial Resolution deprives an excess taxpayer of any benefit which might be available to him under that section. In the case given by the Minister he indicated it would be preferable if the taxpayer in this case would pay on the excess profit of industry rather than on his excess income, because it would be the smaller amount. There is the possibility of depriving a person of the advantages of Section 34 of the Income Tax Act of 1918. You might deprive him of any advantage in electing to pay on the excess profit of his total income rather than on his income from trade. I should like to know from the Minister why the advantage, if any, of Section 34 is being withdrawn.
Admittedly, there is hardship in retrospective taxation, but to a certain extent all income-tax is retrospective. You pay on your ordinary income, not on your income of the current year but on the income of the preceding year, and you pay your surtax on the income of the year before that, so that already you have in existence in the income-tax and surtax codes the idea of retrospective taxation. We may protest against it and condemn it as much as we like in principle, but we have all adopted it. We took it over from England and have adopted and practised it here.
Unquestionably, this is going a step further. It is increasing the tax. The tax is a heavy one and it goes back partly for the benefit of those to be taxed to excess. The same principle is carried through the corporation and excess corporation profits tax. It gives them the choice over a certain number of years, selecting an average two years. Admittedly, that is carrying the principle further than was the practice heretofore, but it is partly to the advantage of the taxpayer. There is some advantage to the Government in it, too. We set out one definite year in our Resolution, one year before the period when it is proposed to put the tax into operation. It might be to the advantage of the taxpayers and, therefore, we are giving the choice of a certain number of years before the tax becomes operative so as to fix the standard year. That may be bad in principle, but it is a principle that has been adopted and practised here since this State was set up. So that, although we can object to it in principle, we have adopted it in practice.
That is not so.
You pay your income-tax not on what you earn this year but on what you earned last year.
You can pay your income-tax in this year but it is assessed on the previous year. That, however, was not taken over from the British. We did it ourselves.
I understood that that was the British custom.
No, they brought it in later, but we did not have it when we came in here. We did it ourselves.
That was my recollection, but I am informed that Deputy Cosgrave is right. At any rate, you pay on last year's income. That is the system, and it is retrospective to that extent.
It is not.
It all depends on what you mean by the word.
There is a big difference between estimating your tax this year on what you received last year, and charging tax on your earnings for the year before that.
No, it is the same thing. You earned your income last year, and it is upon that income that you are taxed. That is the same principle we have adopted here. You are not charged income-tax this year on what you earn this year. It is based upon what you earned last year. So is the surtax, but you pay on this year not on last year but on what you earned the year before that. There you have the retrospective principle also, and so far as the principle is concerned we have adopted it and put it into practice. Admittedly, this goes further and puts it back another year. It is the same principle, but an extension of it. The principle has been adopted by this Parliament here and it is the practice. We may complain and protest about it as much as we like, but we have adopted both the practice and the principle. It is heavy, admittedly, but the circumstances which we are undergoing, I think, make necessary the steps that I propose.
In reply to Deputy Cosgrave's point about different types of cases, I cannot see, speaking purely as Minister for Finance, that in fixing a tax I can inquire into how these profits were made: whether they were made because of increased value in stocks or because of greater energy being put into the business, greater initiative and greater foresight on behalf of the company or individual concerned. What, I think, I have to examine is whether excess profits have been made, bringing the person liable to surtax. I have no doubt that there could be a good case made out for certain industries, perhaps, getting special consideration because of special circumstances, but on the whole if I have to tax profits I cannot see how I could ask the Revenue Commissioners to examine whether these profits were made because of a big increase in the value of stocks or because of greater energy, initiative and foresight being put into a business, or new types of businesses being started by industrialists or individuals of any kind. It is probably true that during the period we are dealing with—the last two or three years—stocks of all kinds have increased in value. An industrialist with foresight, who had stocked up before the war, was a lucky man because stocks of all kinds have gone up at a very rapid rate no matter what kind of stocks they are. It is not possible in many cases to replenish these stocks now, and the longer they can be kept the greater their value. I do not see, however, that in connection with this Resolution, or indeed any other Resolutions relating to the excess tax that will come in, I could lay down any conditions that would enable the Revenue Commissioners to differentiate between different companies as to how they made their profits.
I should like to put one question to the Minister. Take the case of a one-man business with profits of £1,600—that would be the total income of that particular individual from all sources—and take the case of a professional man earning £1,600. It is all very confusing, but is the effect of all this that both of these people will have to pay their ordinary income-tax and that, in addition, the one-man business will pay surtax on excess profits on £600, and the professional man on £100? Is that the net result of it?
No.
It depends on what his income was last year.
Perhaps I did not make myself clear. Assume that the figure is £600—in whatever way it was found—£600 for excess profits over £1,000. That individual's earnings are £1,600—that is the one-man business. Will he not have to pay surtax on £600?
No.
He would pay excess surtax if his average were £1,000.
No, he would not.
I asked the Minister to say why the payers of this excess surtax are being deprived of the possible advantage of Section 34 of the Act of 1918. Perhaps the Minister could tell me?
No hardship will result because, in the following year, your losses will be taken into account.
Would that save a private individual or a company or both?
Both.
Surpluses can be set against deficiencies?
Oh, no.
Question put.
The Dáil divided: Tá, 51; Níl, 21.
Tá
- Allen, Denis
- Bartley, Gerald.
- Beegan, Patrick.
- Boland, Gerald.
- Bourke, Dan.
- Brady, Brian.
- Breathnach, Cormac.
- Breen, Daniel.
- Breslin, Cormac.
- Buckley, Seán.
- Carty, Frank.
- Cooney, Eamonn.
- Crowley, Tadhg.
- Davin, William.
- Derrig, Thomas.
- Everett, James.
- Flynn, Stephen.
- Hannigan, Joseph.
- Harris, Thomas.
- Hickey, James.
- Hogan, Daniel.
- Ruttledge, Patrick J.
- Ryan, James.
- Sheridan Michael.
- Smith, Patrick.
- Traynor, Oscar
- Hurley, Jeremiah.
- Keane, John J.
- Kelly, Thomas.
- Keyes, Michael.
- Kissane, Eamon.
- Lemass, Seán F.
- Little, Patrick J.
- Loughman, Francis.
- Lynch, James B.
- McCann, John.
- McEllistrim, Thomas.
- MacEntee, Seán.
- Meaney, Cornelius.
- Morrissey, Michael.
- Mullen, Thomas.
- O Ceallaigh, Seán T.
- O'Grady, Seán.
- O'Loghlen, Peter J.
- O'Reilly, Matthew.
- Pattison, James P.
- Rice, Brigid M.
- Victory, James.
- Walsh, Laurence J.
- Walsh, Richard.
- Ward, Conn.
Níl
- Benson, Ernest E.
- Broderick, William J.
- Brodrick, Seán
- Cosgrave, William T.
- Dillon, James M.
- Dockrell, Henry M.
- Doyle, Peadar S.
- Esmonde, John L.
- Fagan, Charles.
- Giles, Patrick.
- Hughes, James.
- Keating, John.
- Lynch, Finian.
- McFadden Michael Og.
- McMenamin, Daniel.
- Mulcahy, Richard.
- Nally, Martin.
- O'Higgins, Thomas F.
- O'Sullivan, John M.
- Reidy, James.
- Ryan, Jeremiah.
Tellers:—Tá: Deputies Smith and Allen; Níl: Deputies Doyle and Bennett.
Question declared carried.