I think the replies from the Minister to the questions make it pretty clear that he is interested not in the question of making it easier for the taxpayers to pay, but in the question of the arrears of income tax. We shall come back to that point in a few minutes.
Before I deal with the Bill as it stands, I want to refer to the Report of the Commission on which this Bill is based. The commission was set up with wide general terms of reference, deliberately framed by me in as wide and as general a form as was possible, "to enquire generally into the present system of taxation of profits and income."
I must say that I am very disappointed, indeed, that the Commission has up to this concerned itself only with ironing out certain anomalies— this one in the first Report and three in the second Report. It has not addressed itself at all to the wider issues which it was set up to consider. I think the House and the country will be very disappointed, indeed. The primary function of the Commission is set out in their terms of reference in these words:
and if it is considered that the taxation of profits and income should be terminated, or modified in any manner involving loss of revenue, to recommend alternative means of raising equivalent revenue.
The principal function they were given in a general way was to see whether it was desirable to substitute some other type of revenue raising for a tax on income and a tax on earnings, particularly, in the light of the view, widely held, that such a tax was a deterrent on enterprise. The only comment which I can see the Commission has made on that wider aspect is at paragraph 4 of the Introduction to the Report on which this Bill is based. They say there:
We have not so far considered fully the possibility of substituting for income tax an alternative form of taxation. All the representations promised us have not yet been received. However we think it right to say that, from the information so far before us, we do not see any possibility of recommending a form or forms of taxation that could substitute completely for taxation on incomes.
I think that the casual dismissal of their main function that has been given there is one that is not anything like adequate. Every anomaly that is ironed out in the existing tax code is an improvement to the existing tax code but, equally, every anomaly that is ironed out makes it more certain that we are building up the existing tax code on income into permanency in which it will be very difficult, if not impossible, to get the consideration that should have been given to this matter at the very beginning.
I think it is unfortunate that that approach was adopted. I could understand it, perhaps, in relation to the first Report but when we get the second Report as well and find that in relation to that they are still not grappling with the main issue, I think we have the right to express ourselves as being dissatisfied, though appreciating their industry.
In so far as the effects of this Bill will mean that it will be easier for people to suffer—I use the word "suffer" quite deliberately—the payment of income tax by regular instalments, the Bill will, I imagine, be accepted by both sides of the House. It is, however, both childish and ridiculous for anyone to suggest that the payment of tax, whether by direct payment, by regular periodic payment, or by deduction, is a painless process, as was suggested in the Minister's "kept newspaper" when the White Paper was issued about ten days ago. The payment of tax is bound to be a painful process. The only thing that one can do in relation to it, is to try to ensure that it is no more painful than is absolutely necessary.
I was more than struck, as I said at the outset, by the approach of the Minister to the problem with which we are dealing here. Initially in his speech, and many times in the course of replies to questions put to him, he stressed arrears, making it clear that he was bringing this Bill in primarily to make it more certain there would be no arrears rather than making it less painful to pay the tax due. He stressed that all tax would be collected. No matter what welcome there may be for this measure at the moment, this time next year there will be the reverse of whatever welcome exists now. When, this time next year, tax starts to be deducted there will be not the paean of praise that the Minister expects today; there will then be quite a different situation. That will arise in reference to the matter the Minister has stressed, namely, arrears.
As far as I can understand Paragraph 46 of the White Paper, if there are any arrears due on 5th October, 1960, the whole of those arrears must be collected by the employer by way of deduction in the half-year between 5th October, 1960, and 5th April, 1961. There are cases in which, for one reason or another, because of disputes and so forth, arrears have been accumulating over the years. There are cases of people who did not realise that they were subject to tax at all. They will now be drawn in by this measure into the income tax net for the first time. They will be included in the returns made between April and July of next year. As far as I can interpret the legislation, and its intention, the Revenue Commissioners will be entitled, as they are entitled now, to go back in all these cases over a long period of years and assess the arrears due over that period. They will insist—they will be bound to insist as I understand Paragraph 46—that all those arrears will be collected in that one half-year.
We are hampered in discussing some of the detailed operations of this scheme here because detailed operations will arise not under the Bill that is before us, but under the regulations that will be made. I am not making the point that the details should have been in the Bill. I quite understand that some of the provisions necessary are clearly provisions which can be more usefully covered by regulation. I merely refer to the fact that we have not the detailed operations before us and it is, therefore, difficult for us to discuss details since we do not know what the details will be. We shall only know the details when the regulations are made at a later stage.
If the situation will be as I interpret Paragraph 46, namely, that all arrears are to be collected in the one half-year immediately prior to 5th April, 1961, no matter when those arrears accumulated, and if all those arrears are tumbled down on top of the employee in that period, frankly I visualise in the first six months of the operation of this scheme wholesale emigration by people to ensure that they will not have placed on top of them an impossible liability. There should be proper and adequate provision made to provide that, where arrears have arisen through no fault of the taxpayer concerned, those arrears can be spread over a reasonable period and must not be collected all at the one time.
I am concerned also at the other end of the scale. I am concerned at the amount of trouble, difficulty and cost that will be involved in the scheme, particularly for the small employer. Paradoxical as it may seem, I do not think there will be anything like the same amount of trouble and cost involved in the case of the large-scale employer. In fact the large-scale employer is specifically excluded by the provisions of the scheme because he will continue his mechanical accounting process. He will not have to complete any cards for employees. He will continue his present mechanical accounting system, with merely an undertaking that he will not destroy any of the records of that system for a period of three years.
I am concerned, therefore, with the small employer, the person who will find a substantial volume of work thrown on him under this scheme. That will cost him quite a bit. I do not understand what is meant by the provision in relation to the small employer either in the Bill or in the White Paper. In no part of either can I find any definition of what a small employer is. Perhaps I have missed it but I cannot see anywhere any definition suggested in paragraphs 53 to 58 of the White Paper itself of what is a small employer and who, therefore, can opt to utilise the stamp method instead of utilising the card-completion method.
I can appreciate the statement that is included in the memorandum that in the initial stages there would be some additional cost to the revenue. It will take some time, naturally, to prepare forms, prepare regulations, issue cards and get the system working smoothly, but once that has been done I cannot see why it is alleged that there will be any additional cost in the operation of this scheme. I would have thought that the position would have been entirely the reverse, that the effect of the scheme is to throw over on to the employers a great deal of the administrative work. The detailed cost of assessment, the issue of assessments and all the cost of collection, except for the supervisory side of that collection, is now being taken off the backs of the Revenue Commissioners and put on the backs of the employers.
The cost of the collection of Schedule E income tax on earnings up to this has always been a very substantial figure and a very substantial proportion of the tax that was so collected. That cost is now all gone. It is being taken off the Minister's back and being put on the backs of the employers and although I am not suggesting that this scheme should not operate in that way, at the same time we should have our eyes open to the fact that we are imposing that cost on the employers, particularly on small employers, and we should try to see how we can ease the burden we are placing on them.
One way in which that burden might be eased would be to provide something of a similar nature to the discount there is at present in the payment of rates on small dwellings. Deputies are aware that in relation to dwellings, the valuations of which are low, there is a special system by which the owners can pay under discount if they so desire. Some similar type of discount might be provided for the small employer if, by this, he is going to be put to the expense of doing work that was heretofore done by the Revenue Commissioners themselves. I have no doubt that notwithstanding what the cost may be the employer will feel that the extra cost and effort he has to make under this Bill should be his contribution in the public interest. That does not detract from the fact that we should try to meet him so far as possible.
The system that has been in operation has undoubtedly created hardship. The basis on which people whose only income from which to pay the tax is the earnings on which that tax is levied, find it very difficult, naturally, to meet the tax liability on income many months after the income has been earned and perhaps spent. The existing system by which people in employment are assessed on their previous year's earnings, and having been assessed, have to pay that tax on the 1st January following the close of the year on the 5th April before that, meant there was such a big gap that it was very difficult to meet the amount involved particularly if, during the interval, there had been a diminution of earning power. To meet that situation the proposals put forward by this scheme will be acceptable and will perhaps make it less painful—but certainly not painless—to pay the tax involved.
It is very important that members of the House should get the greatest possible knowledge of this system during the passage of the Bill. I say that because it is an open secret that we are not so much legislators here as high-level welfare officers and I have no doubt that when this Bill goes through, in every Deputy's post bag every day there will be queries about its operation and requests from constituents to try to unravel the knotty points with which they will be faced next year. Therefore, it is of the utmost importance that the fullest possible implications, not merely of the legislation as such but of the practice that is to be adopted under it, should be made known. The White Paper goes some distance in that respect but I feel that it ought to be possible also to have specimens of the tax deduction cards that are to be issued and of the stamp books system that will be utilised. The general framework of the regulations I am sure has already been made. I suggest that all these things should be placed by the Minister in the Library between now and the Committee Stage so that we may see exactly what is involved. Without them it is difficult to see how details will work out. I am not suggesting that there may not be some minor variations of the draft regulations between this and then or that there may not even be some minor variation of the tax deduction card but the general broad lines must be already framed and if this information is now made available it would help considerably our understanding and interpretation of the practice that will operate.
There are many points of detail upon which further information will be required. I want to mention some of them to-day not so much because I expect the Minister to answer in detail at the conclusion of this Stage of the Bill but so that information will be made available in some way before the Committee Stage so that we can see how we are to provide for the points that are involved. I should like the Minister to tell us whether I have correctly understood the provision that is contained in paragraph 52 of the White Paper. As I read that paragraph, the rate of interest the Minister is charging for tax that is in arrear is one per cent. per month, the equivalent of 12 per cent. per annum. Is that correct? Is it really correct that a Minister comes in here and suggests that interest on late remittances is to be charged for at the rate of 12 per cent. per annum? I cannot see what one per cent. per month means other that 12 per cent. per annum. In case there is any possibility that I may have misunderstood paragraph 52, I shall refrain from further comment on that aspect until the Minister confirms or denies it.
I am not clear what happens if an employee has had his tax deducted under this system, if it has been paid, accordingly, to the employer and the employer does not remit it to the Revenue Commissioners and the employer goes bankrupt. Is it clear beyond question that, in those circumstances, the employee cannot be asked again to make the payment that is concerned? Is it clear beyond question that, once the deduction has been made by the employer, that ends the matter so far as the Revenue and the employee are concerned?
I do not quite understand how the system of refund will operate. An employee has obtained the appropriate certificate of allowances from the inspector; the employer calculates the tax that is payable on the basis of his likely earnings during the year, and deducts accordingly. We will leave out next year because it is only a half year but, in ordinary circumstances, that is worked on for five months. The five months will be April, May, June, July and August. The employee gets ill on 1st September. The tax that has been deducted from that employee up to the end of August has been remitted by the employer to the Revenue on the 14th of each following month and it has all been remitted by 14th September. The employee comes back again, shall we say, on 1st October, after his illness, only to do half work, being still unable to do full work. There is, accordingly, a refund of tax due to him. As I understand the situation, the employer is to make repayment to him of that refund as and when a week's salary would otherwise become due. I am not clear whether it arises during the first week of illness or whether it arises only when he takes up duty again but, in either event, the answer is the same. The employer has already paid the tax to the Revenue Commissioners and yet has to make the refund. That does not matter in the very slightest if only one employee out of ten is concerned because the other nine will be having amounts due to the Revenue deducted from them and presumably it is the intention that the refund that is to be made will be deducted by the employer out of what he has collected from the others.
Supposing the position arises—it could easily arise, shall we say, on a cessation of work—that there is no such deduction there of tax by the employer. Then, it seems to me that, as the basis is set out, the employer has to pay back to the employee tax that he has already paid over to the Revenue and that he has to act, so to speak, as the banker for the Revenue Commissioners without any question of his getting 12 per cent. or any similar interest from the State for that. If my interpretation of the White Paper is correct, that does not seem to provide an appropriate method.
I should also like to refer to paragraph 49, which deals with new employees. As I understand the system, when a new employee comes along, the employer, for the first four weeks, is bound to deduct tax as if the employee was an unmarried person, without any allowances other than the single personal allowance. At the end of four weeks, if he has not got a certificate of allowances, he is bound to deduct tax at the full rate without any allowances at all. I cannot understand what is the significance or the reason or the necessity for that provision. Everyone is entitled to a personal allowance. Whether one is married or unmarried, one is entitled to the minimum allowance. The unmarried allowance is smaller than the married allowance and why there is to be the provision that if the certificate has not come in at the end of four weeks the earnings are to be treated as not being entitled to any deduction for allowances is something that I cannot understand. It seems to me that it would be quite clear that at least the minimum allowance would have to be made in any event. Why, therefore, should the practice change after four weeks, giving additional and unnecessary trouble to all concerned?
In the event of there being a married woman in employment, the scheme provides that the allowances will be apportioned by reference to the earnings of the preceding year. I am not clear whether that means merely in the first year until this scheme comes into operation or whether it is always to be the case. I should like that clarified.
I should like also to have clarified a point which I know is worrying some people considerably. It is in regard to what disclosures will inevitably be made by this system on behalf of employees by the Revenue Commissioners to their employers. If a person is, say, employed as a journalist by a newspaper on a regular salary basis and in addition to that employment does, as he is entitled to do under the terms of his employment, what I believe is termed free lance journalism outside, I think the position is that in relation to his salary he would be taxable under Schedule E, that in relation to his free lance work he would be assessable under Schedule D, it being treated as a profession. Unless all his allowances are to be set off against his salary then his employer, when he sees the certificate of his allowances, will know what he is earning outside in his profession. That obviously is most undesirable.
Equally, what will happen in the case of a person who has private income? It was referred to I know by the Minister in one way but let us take it in another way. An employee may very well not want his employer to know what private means he has assessable under Schedule D and he is perfectly entitled, if he so desires, to keep that information scrupulously to himself. But his certificate of allowances, if it takes account of that income by having allowances set off against that income and not set off against salary, will show his employer what the taxpayer concerned has in the way of outside income. That is a private, confidential matter of the taxpayer's own and it is no concern and should not be permitted to be a concern of anyone else.
Again I cannot see in this Bill or in the White Paper any suggestion as to what is to be done in relation to the offset claim that is liable for bank interest under Schedule E if the taxpayer concerned has no other income. How is the taxpayer going to be able to make certain that other people do not know that he has an overdraft if he does not wish that information disclosed? It is obviously a confidential matter which he is entitled to keep to himself is he so desires, and yet the amount of his allowance must be increased in one way and reduced in another by the bank interest involved. If he has no other income at all his earned income allowance will, I think, be calculated not on his earnings but on his earnings less bank interest and, against that, he would be allowed the amount of bank interest as a set-off against his earnings. It seems to me, therefore, that unless some other method is provided for dealing with that aspect, inevitably his employer will be able to tell when he sees the certificate of allowances whether his employer has an overdraft or not.
The general scheme that is included in this White Paper is certainly simpler than the one in operation across the water. The simplifications that have been introduced are desirable and deserve support. I should like the Minister to state if I am correct in saying that the legislation to provide these calculations that are included in Appendix 3 of the White Paper is based on the effort to get the nearest figures of liability that the simplification involves; in other words there is no intention in the altered provisions that are exemplified in Appendix 3 of the White Paper and contained in sections 15, 16 and 17 to provide relief but merely an intention to provide simplification and to ensure that under the simplification no one pays any more tax than that to which he is liable at the present time. I think it has been on that basis that the Minister has struck his calculations but I should like that categorically confirmed.
The provisions of the new system that are to be included in this Bill are ones that will make it easier to some extent for people once they have got over the initial shock to meet their liabilities. It will increase unfortunately the burden on employers, more particularly on the small employers who will not understand the matter so well, but notwithstanding that, the provisions are better in the national interest.
I would, however, urge the Minister strongly to go away from the conception of arrears being the overriding interest in this Bill and to ensure particularly that in relation to any accumulation of arrears there are discretionary provisions to enable those arrears to be spread over a longer period in such a way that the deductions will not be so harsh because, if that is not done, I am afraid the effect will be that the people concerned will pack up and go away, a course that none of us would wish.