Dáil Éireann debate -
Tuesday, 23 Apr 1963

Vol. 202 No. 1

Financial Resolutions. - Resolution No. 11—Corporation Profits Tax.

Dr. Ryan

I move:—

(1) THAT in relation to accounting periods ending on or after the 1st day of January, 1962—

(a) corporation profits tax under Part V of the Finance Act, 1920, shall be increased as follows:

(i) charge of an amount equal to 15 per cent of the profits shall be substituted for charge of an amount equal to ten per cent thereof;

(ii) as respects the first two thousand, five hundred pounds of profits, instead of no tax being charged thereon, there shall be a charge thereon of an amount equal to five per cent thereof;

(b) paragraph (b) of the proviso to subsection (1) of section 52 of the Finance Act, 1920, as amended by paragraph (a) of subsection (2) of section 35 of the Finance Act, 1941 (No. 14 of 1941), shall be further amended by the substitution of "twenty per cent" for "fifteen per cent."

(2) THAT special provision may be made by the Act giving effect to this Resolution as respects accounting periods which began before and ended on or after the 1st day of January, 1962, for the purposes of the preceding paragraph.

I have explained this, I think.

Mr. Sweetman

I want some further explanation in relation to this Resolution. This refers to 1st January, 1962, which, at first, makes it look as if it were a retrospective tax. The answer could possibly be if the assessment to corporation profits tax in 1963-64 is based on the accounting period which arose after 1st January, 1962. If that is so, then I could partly understand it, but I am not quite clear on this why it is not in respect of any accounting period after 5th April, 1962, as apart from 1st January. If a company had its corporation profits tax accounting year ending, shall we say, on 31st January, then it seems to me that on this it would go back to the year ending on 31st January, 1962 and, in addition to that, be taxed under this Resolution for the year ended 31st January, 1963, so that it would be caught on the double. If it were merely up to 5th April, I could have appreciated it better.

Dr. Ryan

It was thought, when increasing this, that it was more equitable, as it were, to create the same period for all companies, taking each from 1st January, 1962.

Mr. Sweetman

Does it not mean that some companies will get a retrospective tax—some companies? Any company will have a retrospective tax which happened to have its accounting year ending between 1st January and 5th April—is not that so?

Dr. Ryan

Yes.

Mr. Sweetman

Retrospective taxation is one of the things about which I will fight to the last ditch. Any company that has an accounting year ending between 1st January and 5th April will find this section retrospective and any company which has an accounting year after 5th April in any year will not. Is not that the situation?

Dr. Ryan

I do not know. We had some discussion about this but I was convinced, as a result of that discussion, that it was fair and equitable to make it the same period for everybody, even though you may have to get some companies to divide two accounting periods and take a proportion from each. At any rate, you would be covering the same period for them all.

Mr. Sweetman

I do not mind getting some companies to divide a period at all but all I am trying to ensure is that there is no principle of retrospective taxation in it.

Dr. Ryan

I do not think so.

Mr. Sweetman

It seems to me there might be a retrospective taxation for a company which had an accounting period, say, ending 31st January, 1962. Will the Minister give me this assurance, that if there is any element of retrospective taxation in it, he will so provide an escape clause in the Finance Bill that that retrospection will not be there in the Bill, as apart from the Resolution?

Dr. Ryan

I could not give that undertaking just now. I do not exactly understand what retrospection means as far as that would be concerned. After all, a change of surtax or income tax, apart from PAYE, up to this was always retrospective, was it not?

Mr. Sweetman

No, never.

Dr. Ryan

Always.

Mr. Sweetman

No.

Dr. Ryan

It went back over the last year.

Mr. Sweetman

No, never.

Dr. Ryan

The increase of surtax was on the last year's income.

Mr. Sweetman

I am quite happy about that, but this goes back 15 months. If it were going back only 12 months, I would have no objection. It seems to me that by taking 1st January, the assessments for 1962-63 will be re-opened, because the assessments for 1962-63 were made in respect of income arising before 5th April, 1962. This goes back to 1st January, 1962.

Apart from that am I right in thinking that the effect of this Resolution is to bring every business in the country into the corporation profits tax net? As I see it, the effect of the Resolution is that the smallest company business will now have to pay corporation profits tax. Corporation profits tax was regarded as, if you like, a privilege of the large companies. Now the smallest companies will have to pay corporation profits tax, as I understand paragraph (ii) on the top of Page 4. Do I correctly understand that? That seems most unjust and most unwise. Whatever about the bigger companies, why bring the very small companies into the net?

Dr. Ryan

As I say, I do not understand exactly what the Deputy has in mind so I cannot give that undertaking. I will give an undertaking to examine it again, in view of what the Deputy has said. It will, of course, apply to every company.

Mr. Dillon

I want to put this case to the Minister. He is now proposing to extend the corporation profits tax to the limited liability companies whose total profits are below £2,500.

Dr. Ryan

Yes, five per cent.

Mr. Dillon

The vast majority of such companies are family concerns who have incorporated themselves for accounting convenience, and possibly for family arrangements in order to divide the proceeds of the company amongst several members of the family. Many companies are, in fact, retail distributing companies—shops in rural Ireland—and at the same time those companies are being very hard pressed in town and city by the invasion of the big British combines setting up supermarkets, and their only hope of survival is in some degree to re-equip themselves to provide self-service facilities in their shops.

A firm whose total profit now is £2,000 per year will be asked under this Resolution to pay in addition to the income tax to which it is already liable, an additional sum of £100 a year. I suggest to the Minister that he does not realise that he is taking from such firms the very narrow margin they have at present, and ought to employ to modernise their premises and bring them up to date in order to have a chance of surviving. Small family businesses in this country are gradually being squeezed out of existence. I think that is a bad thing. It is a bad thing that they should be forced to sell out to an amalgamation.

I do not know what the Minister is trying to catch in this Resolution. I cannot imagine he will get very much out of five per cent on companies earning less than £2,000 a year. It will represent an average charge of £100 a year on these companies. I suggest to the Minister that they are already making their contribution in income tax and that they are least fitted to bear this additional burden. This is the kind of straw that might break the camel's back. I do not think it will produce much revenue for the Exchequer, and it will jeopardise very seriously a number of family concerns which are put to the pin of their collars to survive.

Mr. Sweetman

Did the Minister not make provision last year that corporation profits tax could not be deducted as an expense before payment of income tax?

Dr. Ryan

That is right.

Mr. Dillon

How much does the Minister expect to get out of five per cent on £2,500, and under?

Dr. Ryan

The Deputy must remember that it includes the first £2,500 for the big people as well.

Mr. Dillon

I agree; I see that.

Dr. Ryan

If you take that into account, the amount is significant from my point of view, but I would not like to give a figure at the moment.

Mr. Dillon

Perhaps the Minister would look into the possibility of providing exemption from corporation profits tax in the case of a business whose total profit is less than £2,500. I cannot in conscience make a case that it will constitute an unbearable burden for the company whose profits substantially exceed £2,500 but it does, in my judgment, constitute a real menace to the survival of the small family business. It should be quite possible administratively to say that where the total profit is less than £2,500, corporation profits tax will not apply.

Mr. Sweetman

Am I right in thinking that corporation profits tax is not deducted for income tax?

Dr. Ryan

No; income tax is paid on the full profit.

Mr. Sweetman

Therefore, it is an additional impost, and he will have to pay tax on his turnover as well. I will agree to the Resolution on the understanding that the Minister looks into it.

Resolution put and agreed to.