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Dáil Éireann debate -
Thursday, 11 Jul 1963

Vol. 204 No. 6

Finance Bill, 1963—Committee Stage (Resumed).

NEW SECTION.

I move amendment No. 40:

Before Section 66, but in Part VII, to insert a new section as follows:

"This part of the Act shall at the election of the society only apply in respect of profits earned subsequent to the 5th day of April, 1963 and any assessment that may be raised for the year 1963-64 shall, if the society has so elected, be raised as if the society was a new business commencing on the 6th day of April, 1963."

The manner in which Part VII of this Bill deals with societies registered under the Industrial and Provident Societies Act of 1893 is a trifle complicated. As I understand it, the effect of the Part is that in future no society will get the exemption from income tax which has heretofore obtained, unless it comes within the exceptions set out in this Part of the Bill. I should like the Minister to confirm if I am correct in thinking that to that extent this Part of the Bill consolidates the law in relation to these societies. If I am correct in that assumption, then we go on to the provisions in the Bill that, for the first time in the year 1963-64, the current income tax year, these societies are now to be made liable to tax.

The Minister made it clear in the course of his earlier remarks that he was introducing these provisions for the purpose of stopping a loophole in his anti-avoidance measures. That can be perfectly well understood. I am concerned, however, to ensure that in such stopping of the loophole that existed, no damage will be done, in the first place, to genuine existing societies and, in the second place, to ensure that the ordinary arrangements operate by which any new business brought into charge for the first time is entitled to be assessed on the profits it brings into account during that first year.

We shall have an opportunity at a later stage of discussing the exemptions and the societies that should be brought into the tax net properly, and particularly whether the exemptions provided for actual societies in the section and the exemptions the Minister introduces in amendment No. 45 are such as to provide that the appropriate society is truly exempted. However, apart from that, there is the other question, that is, that where person starts a new business, that person, when he does that, is taxable for the first year when he starts in the actual capacity that first year. If he starts a new business on 6th April in any year, he is taxable for that year on the exact profits earned in it and then, for the following year, he goes to the ordinary taxation on the profits of the preceding year.

In a partnership, for example, where there are three partners and one leaves before the end of the financial year the remaining partners have the right to decide whether they will be taxed on the profits of the preceding year or on the actual profits of the first year in which the new partnership operates. I have, in this amendment, tried to apply by analogy the same proposals. I do so particularly because I am worried about the effect this Part of the Bill will have on those societies which have been carrying on building activities.

The Minister is aware that by reason of Section 6 of the Finance Act of 1935, people who develop land are assessable under that section to profits on the capitalised value of the ground rent they create. That section was introduced because certain builders found a way out by selling the houses they had erected at their exact cost and taking their whole profit on the ground rents which they subsequently sold. That has been the law since 1935 but if the effect of this Part of the Bill was that societies carrying on building last year were to be assessed, as a matter of mandatory provision and without choice of election, on the profits they earned last year, it would mean that they would be assessed not merely on any building profits as such but, in addition, on the capitalised value of any rents they might have created last year, even though they had disposed of them prior to 5th April last.

I think the effect of that will be that virtually all the societies that were carrying on building, and particularly the societies doing speculative building, will have to be liquidated at once. They made all their arrangements last year in the belief that the operations they were carrying out were, in fact, free of tax and that they would be entitled to adjust their future arrangements and operations on that basis.

Now they are being brought into the tax net. I am making no point as to whether they should or should not be brought in but I am interested to ensure that when they are being made liable for tax as from 6th April this year, the effect will not be to put them into liquidation. I fear that unless there is some arrangement by which, during the current year, they can be taxed on the profits they are earning this year, after they have got due and adequate notice in the Budget, because if they are taxed on the profits they are earning and on the arrangements they made before they got that notice, the result will be to force virtually all of them into liquidation.

The Minister is as aware as I am, and if he is not so aware, his advisers can readily tell him, that as well as the provident society that was in fact a family concern and was in fact solely a tax avoidance operation, there were many other societies which were operating in this way throughout the country, in not so small towns, and working on the basis of getting, sometimes through the local authority and sometimes otherwise, a site for six or eight or ten of them together. They were getting that site and they were joining together to carry out a development plan for themselves and when that development came, they were, as a result, able to provide for their own housing needs, get the additional housing grant that is payable to a building society under the housing Acts, and borrow the balance of what they wanted by way of loans from the local authority under the Small Dwellings Act.

The local authority was in the situation under the Small Dwellings Act that it could only take a first charge and therefore that meant if there was to be any development charge provided for, it had to be provided by way of a ground rent. The ground rent was sometimes done by way of a lease, a terminating lease for a period. I know of one case where there was a terminating lease for 35 years. There was a rent payable for 35 years to pay off the development charge and at the end of that time, the lease remained there but it was a lease at 1d. a year. It was, if you like, a device for the purpose of enabling the local authority to provide, on a small dwellings loan, the balance of the money which the purchaser or member of the society wanted to put up for the erection of his house.

As I see it, unless some arrangement is made in this Part of the Act to ensure that the people who got together in a society and did that type of operation, are taxed on the profits of this year, not on the profits of last year, it will mean utter chaos and confusion and I fear it will mean for the tailend of the couple or so people developing in that scheme, whose leases may not have been created, serious financial loss. I want to stress to the Minister that the proposal I make involves no loss to the Revenue, unless it is a fortuitous loss. I am not suggesting in any way that the societies concerned should be freed of income tax for any year. The Minister has decreed, and I am not arguing about it, that as from 6th April last, any society other than an exempted society—and roughly, I would call an exempted society an agricultural society—shall be liable to tax. As I understand the provisions of this Part, if the Minister does not accept an amendment somewhat on the lines I have introduced, these societies will for this year be liable to income tax in 1963/64 on the profits they earn in 1962/63 and in 1964/65 will be liable for the profits they earn in 1963/64, and so on.

Under my proposal, exactly the same situation would arise as arises in respect of any new business—for 1963/64, they will be liable for tax in respect of profits earned during 1963/64 and in 1964/65, they will be similarly liable for the profits they will earn in 1963/64. In other words, the profits earned during this coming year will be the basis of assessment by the Revenue on that society for two years and the only loss, if one could call it that, would be the fortuitous loss that might arise if this year's profits were in fact less than last year's. Even if that were so, I would think that the Revenue should not gain that extra tax, first of all, because these people are a new business coming into the tax net and secondly, people are entitled to expect to be able to plan their affairs on the basis of the law in existence at any one time.

I could understand it better, although I might not agree with the proposal in the Bill as such, if it were something that had been liable to tax always and if a person with a good knowledge of the tax laws had found a way around. That is not the case. Industrial and provident societies have never been liable to tax so far as I am aware—certainly never in the past 20 years or so. They are being brought into the tax net now and there seems to be no reason why they should not be treated in exactly the same way as any other new business is treated when it is brought into the tax net.

Let me go back on an analogy again for the Minister, for although I may be sarcastic about other matters at times, this is a matter which is very technical and it is understandably difficult for him to follow it. If you have a firm carrying on any business, say, a solicitor's business, and there are four partners in that firm, they make up their accounts every year to 5th April, the last day of the income tax year, and on 4th April, 1963, one of those four partners dies. The other three will, of course, be liable, properly, for tax and then this new firm starts off the new income tax year. They have the right, and properly the right, to say whether they are going to be deemed to be a continuation of the old firm or whether they are going to be treated as a new firm and be taxed on their actual profits. It is exactly the same suggestion I am making in this amendment. May I just add that the amendment is far from perfectly drafted? It would take a very long draft to put it in its exact form but it is drafted in such a way as to make it clear to the Minister and his advisers what is its purpose.

Let me take another example. Supposing three persons : Messrs. A, B and C go out today to start a new business, a motor garage business, shall we say? They will be taxed for their first full year on the actual profits earned in that year and it will not be until after they have gone through a full year's trading that they will be taxed, as all of us are taxed, on the profits of the preceding year. These societies, for the purposes of income tax, are new businesses and should be treated as such for taxation purposes, and unless there is an amendment of the Bill of the nature of this amendment, they will not be so treated.

I am not able to say whether the Deputy's amendment is properly drafted or not but I know what its purpose is. We accept that its purpose is to require us to give a society the option to take last year's profit or this year's profit, as they elect. If the amendment applies, as it appears to, to agricultural societies, it is unnecessary. The other societies we had in mind when drafting the Bill were societies formed with the object of avoiding tax. A very good example indeed was the one quoted by the Deputy of a building society, where a speculative builder formed a co-operative society and where the person for whom a house was built became a member but surrendered his share when the house was completed.

Some of them do not surrender their shares.

It happened in some cases. It is a very obvious method of trying to avoid income tax and the society mentioned by the Deputy could hardly have been formed for any other purpose. This provision was brought in to stop that particular form of tax avoidance. That being so, I cannot see that there is any great complaint against the Government for bringing in the Bill in this form— treating the society as a continuing body as far as income tax is concerned. By treating it as a continuing body, income tax will be charged this year on the basis of profits earned last year. I am not convinced the Deputy has made a case for changing that. Therefore, we should leave the Bill as it is.

I would have no quarrel with the Minister if the only people hit by this were the people who deliberately formed a provident society for the purpose of a development, themselves taking all the profits, but as well as hitting them, the Minister will hit the people who come together to do their own work by means of a society.

In such a case, I cannot see that there would be big profits because the object of such a group would be to provide themselves with houses as cheaply as possible.

Certainly, but because of the provisions of Section 6 of the Finance Act of 1935, the ground rent would be capitalised. That is not a factual profit. If there were only the profit on the sale of the houses, there would not be any substantial assessment because such a group would naturally give themselves the houses as cheaply as possible, to use the Minister's phrase, but, as a device to get round the difficulty of having to provide in some shape or other for their development costs and still be able to give a first charge to the local authority under the Small Dwellings (Acquisition) Acts, they would have to do that and that is the way they in fact do it. If the Minister is adamant on this, I do not think I will get any further, but I submit he will find that in hitting the guilty, he will also hit the innocent.

Amendment, by leave, withdrawn.
SECTION 66.

I move amendment No. 41:

In page 40, lines 13 and 14, to delete the definition of "balancing charge".

This amendment proposes to delete the definition of "balancing charge" because it is already provided for in Part V of the Finance Act of 1959.

I do not see why it was put in if it was unnecessary.

It was a mistake to put it in.

It is well to know somebody over there can make a mistake.

Does not the effect of bringing these societies into the net mean that a balancing charge will be required in certain circumstances?

Yes, but it is still provided for in Part V of the 1959 Finance Act.

Amendment agreed to.

I move amendment No. 42:

In page 40, lines 25 to 28, to delete the definition of "selling by wholesale".

This is a drafting amendment. The definition of "selling by wholesale" is transferred to Section 69, which is the only section in which it appears.

In exactly the same words?

Amendment agreed to.
Question proposed : "That Section 66, as amended, stand part of the Bill."

When the Minister defines "capital allowance" in line 15, does that mean the society will now have, in relation to capital allowances, exactly the same provisions open to them as if they were a company at any time at which that capital allowance could have arisen?

At any time?

I believe so.

I should like to be a little more certain than that. What is the situation in relation to capital allowances that can be carried forward from year to year? Where do we start with them? Do we start with them on 6th April, 1962, or whatever the accounting date was before they became liable? There were allowances back before then.

They will commence from now, of course—from 5th April this year.

That is what I think. Therefore, it is not at any time. Is it not the situation that the owner of a company who had a capital allowance available to him which may not fully be expended, so to speak, for tax purposes on 5th April, 1962, could have his accounts for the year starting on 6th April, 1962, influenced by that capital allowance of the preceding year? If that is the case, then the society should be in the position of being equally able to do so and he should be treated as if he could have got credit for the capital allowances against his profit and loss account of last year where he is taxed on the profits of last year. Surely any capital allowance that arises in respect of any period for the profits of which he is now being assessed should be taken into account? Would it not therefore be capital allowance in respect of any expenditure as from 6th April, 1962?

I believe that from the time a charge comes against him for income tax, it would be from that date. It would be presumed 1962.

It would be 6th April, 1962?

If it were 6th April, 1963, it would be most unfair.

A lot of people are in the situation that, from the date their profits come into the net, equally they get from that date the allowance——

The allowances should come in, too. That is right.

Question put and agreed to.
SECTION 67.

I move amendment No. 43:

In subsection (4), page 41, to delete "or balancing charge" in line 42 and "and balancing charge" in line 54.

This is a drafting amendment. Paragraph (c) of subsection (4) of Section 67 deals with the case of a co-operative society which has incurred capital expenditure on the purchase of patent rights. The paragraph states that any annual allowance or balancing charge in respect of the expenditure which might have been made on the society for 1962-63 or any previous year, but for the fact that the society was exempt from income tax, is to be taken into account in calculating balancing allowances or balancing charges for 1963-64 or any subsequent year.

I cannot understand, and perhaps the Minister would explain to me, why it was put in and why it is now being taken out. What is the difference? That is what worries me : what is the difference? It seems to me it should have been in and should still be in.

The reference to a balancing charge for 1962-63 or any earlier year is unnecessary since such charge could only arise on the disposal of the patent rights and if they have been disposed of prior to 1963-64 they would not be affected by the present subsection. The reference to balancing charge is therefore being deleted.

On that analogy, if the patent rights were disposed of before 5th April, 1963, they would not be assessable? Is that not what the Minister said?

It would not be necessary.

The disposal of them would not be assessable. On the same analogy, why should the ground rents created before 6th April, 1963, be assessable? Surely, what is sauce for one is sauce for the other? If the effect is—and I think the Minister is right—that the deletion of the balancing charge does clear any patent rights assigned before 5th April last why, if that is so, is the position not the same in respect of the creation of leases? I confess frankly I know very little about patent rights. Perhaps my colleague opposite knows more about them. My knowledge in relation to patents could be put on the half-farthing coin with which Deputy Sherwin wants to work the turnover tax. Is it not a fact that what is sauce for one should be sauce for the other?

Yes, I would agree with that.

Will the Minister come back to me on the other and while, as he said himself, taxing profits properly so earned in relation to building, just as he is excluding sales of patent rights up to 6th April, and profits made from the sales, equally exclude profits made from leases prior to 6th April, 1963? I think the Minister agrees that what is sauce for one is sauce for the other.

I do. I must confess I am not an expert on these balancing charges and patent rights.

I am not an expert on patent rights.

The balancing charges are to adjust an allowance given in the past. I agree with the Deputy that we must take allowances as well as profits at the same time.

And if it does not provide that, we shall have another look at it. Is that the idea?

Amendment agreed to.
Question proposed: "That Section 67, as amended, stand part of the Bill".

I should dearly love an explanation of this section. I am sure the Minister has a very full one in his brief. Could he help us? It is a very long and complicated section. The Minister has a technical explanation there.

The section prescribes how profits of a co-operative society are to be computed. I shall deal with the subsections. Subsection (1) specifies deductions to be allowed in computing the profits of a society for the purposes of Case I of Schedule D, that is, profits arising from a trade; or of Rule 4 of Case III of Schedule D, that is, profits from dealing in cattle or milk.

I thought they were going out under Section 69.

Paragraph (a) of the subsection states that a deduction is to be made in respect of the bonus paid by co-operative societies in respect of purchases and sales by the society.

The bonus being taxable?

That is deductible.

The bonus is calculated by reference to the amount the member of the society has bought: is that it?

I take it that a bonus which is given to a person on his sales is in the nature of a rebate and that it would not be taxable. It is deducted from the profits of the society.

Yes, and it is taken into account then in the assessment. It is not taken into account as a dividend paid to the members of the society? It is an ordinary discount?

It is treated as a discount. Subsection (2) brings co-operative societies into the ordinary income tax code in respect of expenses of management. Subsection (3) deals with the point we have already discussed of charging income tax for 1963-64 on the profits for the year ending 6th April, 1963. Subsection (4) deals again with the question of capital allowances, which we have dealt with as best we can. Subsection (5) authorises charging for 1963-64 income normally charged by deduction as being paid in full to co-operative societies because of exemptions hitherto in force.

That was more or less as I thought. Might I come back again to subsection (4) (a). This says:

Where for the year 1962-63 a society was entitled to exemption from tax in respect of the profits of a trade carried on by it—

(i) no capital allowance in respect of any property used for the purposes of the trade shall be carried forward from the year 1962-63, and...

We are already carrying forward the profit earned in 1962-63. Should we not carry forward the capital allowance in respect of things that happened in that year when we are taxing the people concerned in respect of the profits that arose in that year? Take the simplest example of all. A society has its accounting date on 5th April in any year. Say it starts its accounts on 6th April, 1962. It does certain building in that year. It is assessed to profits in respect of all it earned in that year. It is paying as if it were an ordinary company and not a society. Why should it not get the allowance in respect of what it did in that year when it is getting the "knock" for what it made in respect of that year? As I understand subsection (4) (a), that is the situation. It is being brought in for the "knock" and it is not getting the reduction the capital allowance would give.

The society will get the allowance for 1963-64. In the case of initial allowances, the computation will be by reference to expenditure in 1962-63.

If the building was first put up in 1962-63, does it get the initial allowance this year?

Then the allowance will be treated in reference to the year of assessment rather than the year of profits, even though the expenditure may have been in the year of profits?

The allowances are given in the year of assessment but there is reference to the year of expenditure.

Anything done since 6th April, 1962, will rank for allowance in this year?

That is right.

Question put and agreed to.
SECTION 68.

I move amendment No. 44:

In subsection (2), page 42, line 9, to delete "(b)" and substitute "(h)".

This is purely a drafting amendment.

Amendment agreed to.
Question proposed: "That Section 68, as amended, stand part of the Bill."

Where do we stand here in relation to what is allowed as a deduction? We are not, as I thought we would be, commencing this section from 6th April, 1962, but from 1st January, 1963. We have had much argumentation about that as the prospective date for corporation profits tax. I have never seen 1st January come into an income tax provision before. Is this an income tax provision or a corporation profits tax provision?

Corporation profits tax.

Then I misread it. Will the Minister explain to me what is the difference between corporation profits tax in this case and corporation profits tax in the other case? Is the Minister's drafting of this not an admission that, in fact, his other drafting was retrospective?

Surely the Deputy is not suggesting we should amend Section 68?

I am suggesting we should amend the earlier section on Report to meet the obvious anomaly in this section, and I look forward hopefully to the Deputy's support.

We would not get much out of it.

The Minister keeps to his principles where it does not mean much, but sells his principles where it means a lot of money. He has given me an idea. When we come to Report Stage, we will put down "1st January, 1963", for the earlier part of the Act and be able to quote the Minister against himself.

Question put and agreed to.
SECTION 69.

I move amendment No. 45:

To delete subsection (1) and (2) and substitute the following subsections:

"(1) In this section— `agricultural society' means a society—

(a) in relation to which both the following conditions are satisfied:

(i) that the number of the society's members is not less than fifty,

(ii) that all or a majority of the society's members are persons who are mainly engaged in, and derive the principal part of their income from, husbandry, or

(b) to which a certificate under paragraph (a) of subsection (2) of this section relates ;

`fishery society' means a society—

(a) in relation to which both the following conditions are satisfied:

(i) that the number of the society's members is not less than twenty,

(ii) that all or a majority of the society's members are persons who are mainly engaged in, and derive the principal part of their income from, fishing, or

(b) to which a certificate under paragraph (b) of subsection (2) of this section relates ;

`exempted transactions' means—

(a) in relation to an agricultural society, transactions falling within any of the following classes of transactions:

(i) the selling by wholesale of milk, cream, butter, cheese, eggs, poultry, meat or specified commodities,

(ii) the selling by retail of seeds, fertilisers or other commodities or articles, being specified commodities or articles, entering into or associated with agricultural production,

(iii) the auctioning of livestock, the artificial insemination of animals or the provision of specified services, and

(b) in relation to a fishery society, transactions falling within any of the following classes of transactions:

(i) the selling by wholesale of fresh or processed fish,

(ii) the auctioning or transportation of fish,

(iii) the selling of commodities or articles used in catching fish or of specified commodities or articles;

`selling by wholesale' means selling goods of any class to a person who carries on a trade of selling goods of that class or uses goods of that class for the purposes of a trade carried on by him.

(2) (a) The Minister for Finance may, on the recommendation of the Minister for Agriculture, give a certificate entitling a society to be treated, for the purposes of this section, as an agricultural society notwithstanding—

(i) that the number of the society's members is less than fifty, or

(ii) that persons such as are described in subparagraph (ii) of paragraph (a) of the definition of `agricultural society' contained in the foregoing subsection do not constitute a majority of the Society's members.

(b) The Minister for Finance may, on the recommendation of the Minister for Lands, give a certificate entitling a society to be treated, for the purposes of this section, as a fishery society notwithstanding—

(i) that the number of the society's members is less than twenty, or

(ii) that persons such as are described in subparagraph (ii) of paragraph (a) of the definition of `fishery society' contained in the foregoing subsection do not constitute a majority of the society's members.

(c) In paragraph (a) of the definition of `exempted transactions' contained in the foregoing subsection `specified' means specified in a certificate given by the Minister for Finance on the recommendation of the Minister for Agriculture and in paragraph (b) of that definition `specified' means specified in a certificate given by the Minister for Finance on the recommendation of the Minister for Lands.

(d) A certificate under paragraph (a), (b) or (c) of this subsection—

(i) shall have effect as from such date, whether before or after the date on which it is given, as may be stated therein,

(ii) shall be published in the Iris Oifigiúil as soon as may be after it is given, and

(iii) may be revoked by the Minister for Finance at any time.

(e) Where a certificate is revoked under the foregoing paragraph, notice of the revocation shall be published as soon as may be in the Iris Oifigiúil.

(3) Where, in the case of a trade carried on by a society, the transactions in any year or period for which the accounts of the society are made up, being a year or period throughout which the society was an agricultural society or a fishery society, include exempted transactions, so much of the profits or gains or the loss (as the case may be) of that year or period (computed in accordance with the provisions, other than this section, applicable to Case I of Schedule D) as is attributable to the exempted transactions shall be disregarded for all the purposes of the Income Tax Acts.

(4) In relation to any trade, the amount of the profits or gains or loss attributable to the exempted transactions of any year or period shall be taken to be the amount which bears to the full amount of the profits or gains or, as the case may be, the full amount of the loss for the year or period the same proportion as the aggregate of the amounts receivable by the society, by virtue of those transactions, from the sale of goods or the provision of services bears to the aggregate of all amounts receivable by the society, by virtue of transactions in the year or period from the sale of goods or the provision of services."

I am dealing with amendments No. 46 and No. 47 with this. The simple explanation for these rather lengthy amendments is that it was almost impossible to define what would be regarded as a genuine co-operative society to which relief should be given, to make it wide enough to include all and, at the same time, to make it restrictive enough to exclude what we would regard as speculative societies or societies formed for the purpose of avoiding tax. We put in certain things like costings of milk and insemination centres, which it was unlikely could be used in order to avoid tax. Other activities were suggested by various people.

In the end, I came to the conclusion that there would have to be some form under which societies of a certain class could be admitted from time to time. The best solution I could find was to provide that if the Minister for Agriculture recommended a certain class of society that should be included for exemption and if I agreed, then it could be scheduled as eligible for exemption from tax. In the case of fisheries, it would be the Minister for Lands who would make the recommendation. I do not think it is necessary to say any more.

The Minister said "a certain class of society". Surely the amendment refers to "a certain society". It is the individual society that must be included under subsection 2 (a)?

I admit that. I asked the draftsman to give me "certain classes of societies" but evidently he found it inadvisable or perhaps impossible to word it in that way. I think it is fairly obvious, to take an example of a vegetable processing co-operative which is one of those we had in mind, that a society falling within that classification would qualify for exemption.

I ask the Minister to go back to the draftsman on that point. It is a bad principle, and I think the Minister will agree readily in this, that he should have the right to exempt any particular taxpayer from tax. I can understand the difficulty in certain respects but I think it could be met within a class. If the Minister for Agriculture and the Minister for Finance of the time found that a particular society was a genuine case and was not included in the definitions, they would add to the definitions or regulations.

It is a very bad principle to provide that a particular taxpayer should be exempted by a Minister from the general tax laws. The tax laws must be worked on the basis that whatever applies to one class of person is operative for every member of that class. Even if it meant that the class of society had to be varied from time to time, it must be done in such a way that everyone knows that if society X is excluded and I carry on exactly the same business as that society in exactly the same way, I am equally entitled to exemption. I do not think the Minister would disagree on that. The Revenue Commissioners should deal with the individual liability of taxpayers within a general scheme and it is most undesirable that the Minister or any Minister in any Government should be brought into the individual liability of the taxpayer.

The difficulty was that I could not get a definition covering societies we think should be admitted. Creameries are easy to deal with as they are covered by the Dairy Produce Acts. They will be genuinely co-operative, as otherwise they are not eligible at all. Other societies are mentioned but it is not likely that you will have one of those promoted for big profit-making. I think they are safe enough. I could not get a definition that would admit the societies we think should be admitted and exclude those we think should be excluded. It will be equally impossible for the Minister for Agriculture and myself to give a definition of the classes that should be admitted but it is fairly obvious that where the Minister for Agriculture says that such a society, because it is processing, say, vegetable and has so many members, is eligible, then every society of that kind will be admitted.

We are at a disadvantage here in that we are not as well equipped as other countries where the registrar of societies has certain discretion. Here, the registrar has no power to remove the name of a society. He automatically registers. If the registrar had discretion, we might be able to make use of that. I agree it is wrong that a Minister or two Ministers could say that they could exempt such-and-such a society from tax, but I see no way around it.

Surely the Minister could provide in subsection (2) (a) that "The Minister for Finance may, on the recommendation of the Minister for Agriculture, give a certificate entitling a society" which complies with certain specified conditions.... Then it is not an individual society; it is any class of society that complies with some specified conditions. I can see the Minister's difficulty in defining them now but the definition should be by way of a general class and from time to time. The certificate can be one entitling any society to be treated for the purposes of the section as an agricultural society if it complies with certain specified conditions.

Clearly, the Minister has in mind certain conditions at the moment but it might be desirable to expand them at a later stage. I am not suggesting all the conditions must be specified now but I think the taxpayer—and a society is a taxpayer now—should only get exemption because it qualifies as a member of a class rather than because it qualifies as—I do not mean this in an offensive way—an object of the bounty of the Minister. The Minister says he entirely agrees with that principle. I do not see why you do not provide in the Bill that the certificate is for a class of society complying with certain specified conditions and give power to vary the conditions from time to time, to add new classes and so on, and so maintain the principle and at the same time, do what you want to do.

That is the real difficulty, as the Deputy realises. If we give a certificate because a society is complying with certain conditions in regard to the number of members, type of production and processing, our experience is that no matter how well you define those conditions, tax evaders will take advantage of them.

They are cleverer? I think you could do it all the same. If you had a society processing raspberries, say, with 77 members and a capital of £50,000, you can cover it very well by saying : "A society which processes raspberries by the so-and-so method and which has not less than 75 members and a capital of not less than £50,000." The definition can be made to suit the individual case but the principle is still preserved. Would the Minister have a look at that before Report Stage?

We have gone as far as we can in defining milk production, and so on.

I agree, but the certificate part of it is quite open, giving a certificate for a new society.

Personally, I do not like that wording.

I should like to join with Deputy Sweetman in his urging of the Minister to endeavour to find a way around this problem of defining the class of society. There is a difficult problem there but it can be overcome and the Minister does agree with the principle involved. I want to draw the Minister's attention to subsection (1) (a), the provision which requires that for a society to be an agricultural society, the number of members must be not less than 50. The subsequent definition of fishery society provides for a number of not less than 20, and it does seem to me that there can be and almost certainly is a number of genuine agricultural societies in the sense that the Minister means it in which the number would be less than 50. Perhaps the Minister would consider altering that to 20 as in the case of the fishery society? There is also the point that it is a very common practice to have one industrial provident society as holder of shares in another and there are some societies in which the majority of the society members could be in other societies. I am wondering, if that is so, would such a society qualify under the definition in subsection (1).

The point made by Deputy Colley that there may be a genuine agricultural society with less than 50 members is covered in subsection (2) (a) (i) which provides that where the number of the society's members is less than 50, the Minister for Finance may, on the recommendation of the Minister for Agriculture, give a certificate. Therefore, that difficulty could be overcome. I do not know the situation in regard to the other point raised by the Deputy, of a provident society which has shares in another provident society. I do not know of a case of that kind and I cannot say how it might stand. However, the societies I have in mind here are agricultural societies and fishery societies and I can hardly imagine such a case arising.

I would draw the Minister's attention to the provision about the number 20 in regard to fishery societies. There are only about five important fishing ports in the country and in fact if you examine it properly, you find there are really only about three. There are many small ports which would not have the required number of fishermen. Fishermen are of such a type that it is very hard for them to get together, even on a co-operative basis. They have done it in a few places but in the smaller ports, there might be only three or four boats of any account going into them and the men in the smaller boats might not join up. It is very important the Minister should have power to allow a very small number to form a society in a small fishing port.

That can be done.

Can the Minister tell me is the word "husbandry", which is the word used in subsection (1) (a) (ii), defined anywhere in the Income Tax Acts?

It is defined by case law.

Could the Minister tell us what it means?

I have a fair idea but I would want time to think how I could define it.

The provision (b) (i) mentions, in relation to an agricultural society, transactions in the following classes: the selling by wholesale of milk, cream, butter, cheese, eggs, poultry, meat or specified commodities. Would "specified commodities" cover vegetables, fruit and flowers?

It could.

Would the Dungarvan Apple Gas Storage Plant be covered in this?

I think they are covered already.

I have in mind the case of daffodil and tulip growers, Richardsons. How would they be situated?

Bulb growers?

It depends on how it is organised.

It does not come under this. It is a private individual has it.

Could the Minister give us some indication as to why fruit and vegetables, which are two very normal agricultural products, are not given specific mention?

It is extremely difficult to get a definition.

Surely if milk can be put in fruit can be put in?

The difficulty is not to define what the vegetable is but to define the type of society.

I see that. Why not say here: "The selling by wholesale of milk, cream, butter, cheese, eggs, poultry, meat, fruit, vegetables or specified commodities"? The Minister will agree that fruit and vegetables are two normal agricultural products?

They must have been left out for some particular reason and that is what I am trying to get at.

I cannot tell the Deputy what great objection there was to specifying them but what I had in mind was the great difficulty of defining the type of society that should qualify in respect of fruit and vegetables. As the Deputy knows a company in this country is going into the fruit and vegetable business in a very big way. We have to be very sure about the relationship of a co-operative society with that company if they were to supply that company with their products.

Surely there is no difference whatever between the case the Minister mentioned and a society which would supply meat to a meat packers, and yet meat is put in. It seems to me the two would run on exactly parallel lines. I cannot see any reason at all for putting in anything outside the Dairy Produce Acts and excluding other well-known items of agricultural produce. Milk, cream, butter and cheese may all be defined in the Dairy Produce Acts. I am not certain whether they are, but there is a possibility that they are in the definition. If you include poultry and meat, equally you should include fruit and vegetables.

This originated with the Commission and it was also in the White Paper. A question was put to me, I must admit, afterwards about putting in fruit and vegetables. I had some difficulty about the type of society that might be formed, and I thought I should leave it as it was supplied by the Commission.

Clover Meats are a very big co-operative society. They have very big farms, and they have meat and bacon curing plants. If they want to sell to Erin Foods, where do they come in?

A society formed for that purpose——

They are a co-operative society.

I do not understand exactly what the Deputy wants to get at.

The Bill provides for "the selling by wholesale of milk, cream, butter, cheese, eggs, poultry, meat or specified commodities". Clover Meats have enormous farms, but where do they come in in relation to fruit and vegetables?

That is the point we are discussing.

What does "specified commodities" mean? Can they be specified by the Minister?

Yes. I have no doubt at all that fruit and vegetables will come into this, but we have to get a proper definition.

What is wrong with "fruit and vegetables"?

We want to get a definition of "co-operative society".

(South Tipperary): When are we likely to get that definition?

I think that soon after the Act is passed, the Minister for Agriculture would make a recommendation.

What did the Minister have in mind when he included "specified commodities"?

It came from the Commission in those words. If Deputies want to include "fruit and vegetables" after the word "meat", I have no objection.

I have an uneasy feeling that it is left out for a purpose.

The difficulty is to define "co-operative society".

Let us put it in on Report Stage.

"Specified commodities" will still be included?

Yes, they will have to remain.

Fruit, vegetables and flowers.

The Deputy is bent on getting flowers in.

Vegetables include flowers.

Is a flower a vegetable?

Yes. Life is divided into animals and vegetables.

I am not pegging everything at the Minister at once. I appreciate that he may need some advice. Paragraph (a) (ii) provides "that all or a majority of the society's members are persons who are mainly engaged in, and derive the principal part of their income from, husbandry". It is quite a common arrangement when a genuine agricultural society is starting in an area, that having regard to the limitation in the Industrial and Provident Society Act, 1893, and when they are canvassing for subscriptions— I am thinking of one that started in my constituency—they ask the farmers when they are taking shares to take some in the wife's name so as not to break the limit.

As I understand it, they would be in trouble under this paragraph. Under the paragraph, you cannot consider the farmer's wife or his children. It has been suggested to me that you could bring in the schoolteacher or other people who are interested in forming a society in the locality. You could bring them in, but you should bring them in as a minority. They could not be allowed to have a majority. It would be too easy to provide a loophole. It seems to me that to provide "that all or a majority of the society's members are persons who are mainly engaged in, and derive the principal part of their income from, husbandry" excludes the wife and the child who is living at home.

I am afraid you would run the risk of watering it down a bit. There could be three or four big men engaged in business as well as in farming. They might want to go in for processing food, and form a co-operative society. If you got three or four farmers——

If they were to have 50, they would want to be very prolific.

It is a majority of 50— 26.

Perhaps we could leave out the children, but we should add in the wife, or the spouse. If the place is in the name of the wife, she would want her husband to represent her at the meetings.

We do not say he must own the farm but that he must be engaged in husbandry.

Surely to include the wife and children would tend to defeat the intention?

To include the children might widen it too much, but I think we should include the spouse.

I think the wife would be eligible in any case.

Will the Minister consider whether the spouse, the wife or the husband, would be eligible?

I will have a look at it. I think it includes the man and wife.

If the Minister, having considered it carefully, so certifies to us on Report Stage, I shall be quite happy, but I would rather he would take the responsibility of saying it than I. Does subsection (4) apportion the accounting years to equate with the income tax years for the beginning of this transaction, or what does it mean?

I think it means to apportion the profits.

Or is it merely an apportionment of the amount of the sales?

The apportionment of capital expenditure on machinery and plant, etc., balancing charges, and so on.

I thought balancing charges had gone. I thought we removed balancing charges. Did we not unbalance the balancing charges some time ago?

It is for apportioning profits, I believe.

That is what I thought, but is it for apportioning profits in relation to quantities or in relation to time?

Quantities.

And subsection (3) is apportioning in point of time because it says "or period for which the accounts.... are made up".

I think (3) and (4) go together

Are they both quantities?

Both are the apportionment of profits on the quantities.

Amendment agreed to.

I move amendment No. 46:

In subsection (5), page 43, to delete "a" in line 55 and substitute "an agricultural society or a fishery" and to delete in lines 56 and 57 ", under subsection (2) of this section, are, or are treated as," and substitute "are".

Amendment agreed to.

I move amendment No. 47:

To delete subsection (6).

Amendment agreed to.
Section 69, as amended, agreed to.
SECTION 70.

I move amendment No. 48:

In subsection (3), page 44, line 52, to delete "income" and substitute "profits or gains".

This is more a drafting amendment than anything else. In the definition of annual payments there is a reference to the income of the person making the payment. There is a corresponding definition of payments in subsection (2) of Section 8 of the Bill and in the income tax section of the Bill.

Is this to equate it with the seventh line of the general rules where it says "payable wholly out of profits or gains"?

That is correct.

Amendment agreed to.

I move amendment No. 49:

To add to the section the following new subsection:

"(4) This section shall be deemed to have come into operation on the 6th day of April, 1963."

I thought the whole of this Part came into operation on the 6th day of April, 1963. I thought all income tax legislation always came into operation on the first day of the income tax year.

No. The income tax comes in on 6th April, 1963, but corporation profits tax comes in on 1st January, 1963.

Does Section 67 not come into operation on 6th April, 1963?

That comes into operation automatically because it is in the Bill.

But why does this one not come into operation automatically? I always understood— the Minister was probably under the same impression—that any change in income tax comes into operation on the 6th day of April of the year in which it is introduced, even though the Minister does not bring in his Budget until 23rd April. The income tax arrangements that he operates come in on the 6th day of April.

The Deputy has to go back to Section 105—the commencing dates. Section 105 (7)——

Section 105 (6) surely.

Yes, subsection (6).

But do we say this specifically for Section 70. Why is it not caught under Section 105 (6)?

I am afraid it is a drafting point. I shall have to look at it again.

It suddenly occurs to me that there is no commencing date for the whole of Part VII except Section 70, and there is no commencing date for the penalty clause, the one we are coming to in Part VIII.

Amendment agreed to.
Question proposed:—"That Section 70, as amended, stand part of the Bill."

What does Section 70 do for a provident society—not an agricultural one—that does not operate under the ordinary income tax law for a company? It is a very long section. I thought we were making it companies; I thought the whole basis of Part VII was that we were treating every society, except a qualified agricultural society, as if it were a company for the purposes of the income tax Acts.

That is right.

But, if we started off that way, why Section 70? What does Section 70 do for a society that the ordinary law does not do for a company?

Section 70 gives relief for share interest or loan interest in full in the non-agricultural societies.

Is that not the law already?

Where is this?

There is no Schedule D at the moment.

If the Minister for Justice had been here for the past hour and a half, he would have seen that we all realise that. A society does not at present deduct tax on the payment of a dividend on its shares.

This is where they pay interest in full without deducting tax—to allow them for it. The idea is that the share interest and the loan interest will be paid by the society in full.

It is at present.

It does not arise at present because the society does not pay tax at the moment. The profits are now to be taxable for the first time. At the present time a society cannot deduct tax from its dividend because it is not charged for tax. From now on it will be charged for tax and it has to be allowed for its loan and share interest.

Section 70, as amended, agreed to.
SECTION 71.
Question proposed: "That Section 71 stand part of the Bill."

Where is the section that brings this part of the Act into operation?

It comes in on the passing of the Act.

And not in respect of anything that happened since 6th April last?

Section 71 is the application of Part VIII. It is Part VIII the Deputy is referring to?

Section 71 brings that part into operation.

The section says: ".... or, as the case may be, accounting period, whether ending before or ending after such passing". The incurring of the penalty is after the passing of the Act. It could be that these penalties would refer to something that happened before the passing of the Act and that would be quite wrong.

There is an amendment to remedy that.

Where is the amendment?

The purpose here is to catch a person who makes a fraudulent return after the passing of the Act, even though the return relates to something before the passing of the Act.

The Minister said there was an amendment to that. Where is the amendment?

I do not think there is any amendment.

Was the Minister only chancing his arm about that?

The point is that if a fraudulent declaration is made after the passing of the Act, even if it refers to a previous year, the penalty will apply, but it will not apply to a fraudulent declaration made before the passing of the Act.

If a fraudulent declaration is made after the passing of the Act in regard to a period before the passing of the Act, I agree, but it seems to me the limitation is not on the making of the fraudulent declaration but on the incurring of the penalty. The question therefore arises as to what is the date for the incurring of the penalty. Is it the date for that, the actual making of the fraudulent declaration, or is it the date after which the other steps commence?

It is quite clear to me. The section is specifically worded to relate to after the passing of the Act.

What is the date of the incurring of the penalty? Is it the time of making a fraudulent declaration or is it the date at which the penalty section comes into operation?

It must be the time the actual act or omission is done.

The act or omission is not confined to making a false statement. Section 72 provides that the failure to do any act, furnish any particulars or deliver any account in accordance with any of the provisions specified in the second or third column of the Third Schedule shall be liable to penalties. Is it not possible that a notice might have been issued for the production of information in relation to those matters and the person to whom it is issued has failed to deliver any return, statement, declaration, list or any other document, to furnish any particulars, to produce any document, or to make anything available for inspection, or fails to comply with the notice or precept? These penalties would then be made applicable in respect of something done under this section prior to the passing of the Act?

The various offences and penalties are set out in Sections 72 and 73 and the act or omission in relation to those must be committed after the passing of the Act.

I would agree if it were phrased more clearly.

If Deputy Sweetman would put down an amendment for Report Stage, we would consider it in our usual conciliatory fashion.

Question put and agreed to.
SECTION 72.
Question proposed: "That Section 72 stand part of the Bill."

Would it meet this problem if Section 72 were to read "by any person after the passing of this Act."

That might give rise to difficulty. The notice in regard to these things might statutorily have to have been given before the passing of the Act but the actual omission or commission will only arise after the date——

You could put in "after the passing of this Act" in line 17, at the beginning of subsection (b).

You could not be required to do anything before the passing of this Act.

You ought not to be.

You can be failed here.

I do not think it is necessary.

The Minister will recognise that the section is one of great complexity and that is why every ambiguity should be removed.

Then you will have to do the same in Section 73. The best way would be to amend the section which we have just passed by adding, after the brackets containing the words "incurred by commission or omission" the words "after the passing of this Act".

Is that not what it says?

No; it says "the penalties incurred after the passing of this Act." It is the omission or commission that should appear——

It seems to be the same thing—a penalty incurred by commission or omission.

Or take out the brackets and then the words "commission or omission" are governed by "the passing of the Act." They are not as it stands.

The point with which we are concerned is to ensure that Section 71 is not interpreted as meaning that where a person prior to the passing of this Act has failed to conform to a precept issued by the Revenue, or to produce a document called for by the Revenue, he shall not be deemed to have committed, after the passing of the Act, an offence.

It seems that the ordinary rules of construction make it clear that there can be no commission before the passing of the Act and if there was an omission, then it must continue after the passing of the Act.

That is the whole question. It is a question of omission. The failure to produce a document is an omission, or perhaps a precept has been issued and the person to whom it is issued has failed to produce it or to do one of the various things set out in Section 72. Is it open to the Revenue Commissioners, on the passing of this Act, to say: "You failed last June to comply with a precept and produce a document and this makes you subject to the penalties set out in Section 72"?

I do not think so. I think it is clear.

It is badly worded. If you drop the brackets——

A notice may have been issued last year, then the omission is continued since that notice was issued up to the passing of this Act, and there is no penalty for the omission. If the omission continues after the passing of the Act, then it——

I think that is what is intended but I am not happy about the way it is expressed.

We will consult the draftsman.

Suppose I am told to produce a document and I have not got it, where is the saver to provide that I do not incur penalties because I have not got it?

It seems to me that that would be a good defence. These penalties could only be imposed by prosecution and at the prosecution, it would be a good defence to say : "I am sorry; I could not produce the documents because I had not got them."

How? Surely if there is a statutory obligation on me——

Section 81, subsection (2), states:

For the purposes of this Part of this Act, a person shall be deemed not to have failed to do anything required to be done within a limited time if he did it within such further time, if any, as the Commissioners or officer concerned may have allowed; and where a person had a reasonable excuse for not doing anything required to be done, he shall be deemed not to have failed to do it——

That is all right. I knew it should be somewhere.

Question put and agreed to.
SECTION 73.
Question proposed: "That Section 73 stand part of the Bill".

Can the Minister for Justice tell me—and it is only somebody familiar with the whole code of income tax law who can clearly assess these sections—are Sections 72, 73, 74 and the following sections, concerned to close loopholes that have emerged?

These are to make changes, as recommended by the Income Taxation Commission.

As well as I can remember at paragraph 291 of the Seventh Report.

I do not wish to be offensive but there was a time when the Minister for Finance, when introducing sections of this kind, felt he had an obligation to inform the House that the Department of Finance found themselves confronted with a difficulty, that certain people conformed with normal procedures but certain people had initiated new procedures designed to avoid the intended purpose of the law, and then to give us a short outline of the device employed and to say that this section is designed to prevent this activity and to bring everyone within the scope of the law as originally designed. I notice with some alarm the tendency on the part of the Minister to say: "This is Section 72, and I move". Then, we are all meant to say: "Agreed". But I still feel that Dáil Eireann is entitled to know the purpose of the section.

Yes. The Majority Report of the Income Taxation Commission referred to this in paragraph 291 and the underlying principle of the Commission's report is accepted and enshrined in the section. The idea is that these new penalties should supplant the old system of penalties and do so in a much more intelligent and rational manner.

Not so. That is not what the Commission recommended.

I assure the Minister it does not.

The main point about it is that existing penalties which fraud or negligence attract are dealt with on the basis of multiples of the tax payable, whereas these new penalties are specific penalties related to the fraudulent returns made by taxpayers as such.

Section 73 starts off by saying "persons who fraudulently or negligently". The penalty is £100 and the amount in cases of fraud is double that. The recommendation in paragraph 291 of the Commission's report is, as the Minister has correctly stated, that the penalties should have reference to the mistake made rather than to the taxpayer's total income. The effect, however, of the Commission's report in subparagraph (c) is to provide that where the Revenue Commissioners require this arrangement in respect of trifling cases of negligence, there is a right of appeal against all penalties. I should like to have it indicated to me where is the right of appeal against all penalties in Part VIII of the Bill.

There is provision in the report for graduating penalties according to the gravity of the tax offence. The report says it should be practicable to distinguish broadly between (1), fraud, (2), wilful negligence not involving fraud, (3), habitual carelessness or inaccuracy in tax returns, or merely technical offences. Now this section starts off with the words "fraudulently or negligently". It does distinguish the amount of the difference for fraud but it does not say it is to cover the case of wilful negligence, which is what the Commission recommended. Section 73 now covers any type of negligence.

The Minister has the Commission's report in his hand and I should be obliged if he would turn to page 9, subparagraph (e). I admit fraud has been dealt with by the doubling of the penalty. Wilful negligence has not, however, because it is treated in the same way as ordinary negligence. The report says the State should not have the right to seek alternative penalties in respect of any one offence. Is it clear here that the State has not got the right to seek alternative penalties in

It still has the right.

Therefore, the Bill does not carry out the Commission's recommendation in that respect. Does the Minister not agree that at least the Dáil should have been so informed when the section was being put before us? Was it put before us on the basis that it was carrying out the recommendations of the Commission? If it was not, the House should have been so informed because otherwise it is going very near to sharp practice.

That is a rather harsh term to use in the circumstances. I said already this proposal was to substitute a more rational and intelligible form of penalties, in certain cases following the principle of what is recommended in paragraph 291 of the Commission's report.

In fact, this is a similar approach to this Part of the Bill in so far as the Commission on Income Taxation report is concerned. The same report referred to purchase tax. It suggested there should be a purchase tax for the purpose of relieving income tax, and one percipient member of the Commission added a reservation saying he opposed purchase tax generally, on the ground that there was not the slightest prospect of its being used as a substitute for income tax or any part of it. The Government then said that, for the purpose of relieving income tax contributors, there should be a universal turnover tax, which would raise £10¼ million in addition. Now we come to a series of new penalties and we are told by the Minister for Justice—who incidentally is assuming the role of Pooh-Bah in our legislature now: he now appears before us in the roles of Minister for Justice, shadow Minister for Finance and heir-apparent to the position of Taoiseach ; I wonder what other offices he will acquire in the course of the Recess, but I see Deputy Dolan looking quite anxious——

I have no intention of representing Cavan.

He is quite capable in any one of them.

The Minister for Justice has declared in public that he has no desire to represent Cavan and that must be a comfort to Deputy Dolan.

I am not worrying. I am well able to represent my county, not the same as the Deputy.

On inquiry as to the direct meaning of these very complex sections, it now transpires we are following the same procedure in regard to the sales tax. I understood the Minister to say these sections are designed to give the Revenue Commissioners the right to look for specific penalties and at the same time, to retain their existing rights in respect of existing offences—that these sections not only create new offences but new penalties as well.

In so far as any offence is covered in these sections, the penalties set out in these sections are the only penalties which these offences can attract.

I understood the Minister to say they were retaining the old offences.

They are putting in new penalties and not parting with any of the old.

With some of the old.

I am sorry to see in my colleague, Deputy Sweetman, the old drop of a Minister for Finance: he immediately evinces a certain sympathy with the Revenue Commissioners, that they must be given every ferocious sanction that is available to human ingenuity. That, of course, is a well-established Finance view. I yield to no one in my respect for the Revenue Commissioners who I have found to be a very reasonable body of men when treated reasonably.

Brendan Behan said the same about the Apaches in Paris.

I am not comparing the Revenue Commissioners with the Apaches in Paris but with the highest standard of public service known to a free democracy. I realise that when you deal with them in a reasonable manner, you deal with a very reasonable, and indeed solicitous, body of public servants who, at the same time, if you try to put your finger in their eye, will react with a ferocity most becoming to outraged public servants. Therefore, I feel it is up to us legislators to prescribe that the remedies available to them will be adequate but not excessive, lest in their excess of zeal they would go further than we would wish them to go. We are providing them now with new penalties for what the Minister assures me are new statutory offences. I am not yet clear in mind as to whether in respect of these offences the Revenue Commissioners retain the right to obtain multiplication of their original claims.

I think the position is this. With regard to a number of offences which exist in the income tax code, these offences are being wiped out and, at it were, re-enacted in a different form in this series of sections, with new penalties set out in regard to them. To that extent, a number of existing sections, and so on, in the code are being repealed and replaced. Side by side with that process, as it were, there are still offences existing in the code which are not being touched and which will still continue to attract the penalties which they attract at the moment. A case in point in Section 227 of the Income Tax Act, 1918.

Why were all the penalties not consolidated?

The Bill deals only with offences which it was considered should be altered in some way.

Question put and agreed to.
SECTION 74.
Question proposed: "That Section 74 stand part of the Bill."

This follows the same procedure?

This is, so to speak, a sort of definition section for Section 73?

In some of the penalties provided for in Section 73, there is a tax element. This section quantifies the tax element in the penalties in Section 73.

It is a definition section for Section 73?

To an extent.

Question put and agreed to.
SECTION 75.

I move amendment No. 50:

In subsection (1), page 48, line 1, to delete "First" and substitute "Third."

Amendment agreed to.
Section 75, as amended, agreed to.
SECTION 76.
Question proposed: "That Section 76 stand part of the Bill."

This section provides that, where a taxpayer dies, proceedings for penalties may be continued against his personal representative.

Time limits.

Perhaps the Minister would explain the time limits to the House?

Where a grant of probate or letters of administration is taken out within the tax year in which death takes place, the time limit is three years from the end of that year. Where there is delay in taking out legal representation, proceedings may be commenced at any time within two years after the end of the tax year in which representation is extracted.

As I understand this, it will mean that no executor, no personal representative, can ever at any time distribute the estate until after the end of the tax year two years after the date of death. That seems to be quite wrong. There must be some type of procedure by which a personal representative can distribute within a reasonable time, if the matter has not been brought to his attention by the Revenue people.

Surely any such person would deal with the Revenue people before and ascertain the exact position.

As I understand the position here, there is no provision such as there is, for example, in Section 6 of the Finance Act, 1928, in respect of Schedule A where you are selling property. You get a certificate under Section 6 of the 1928 Act. Then, if that certificate has been granted, the purchaser is not concerned. As I understand it, on this basis, the personal representative will be held up to ransom if there is a liability of which he was not aware——

This is penalties only.

——a penalty in respect of something of which he was not aware. As I understand it, it is for penalties that have been incurred either by him in his capacity as personal representative—of which he would be fully aware and about which he would be happy—or that the deceased incurred and of which he would have no knowledge, necessarily. It can be a penalty that was incurred by the deceased. It can be a case of a matter arising long afterwards. There must surely be some way in which a personal representative can, with safety, distribute on such a date and get some certificate from the Revenue people—a letter or something—and can say: "If I get that, that is the end of the matter." As this section stands, I do not think it is. If something else turns up, the personal representative is still liable within the period.

It puts an end to the period within which these proceedings can be commenced. It lays down a time limit.

I am quite aware that it lays down time limits.

Would the personal representative not be aware if deceased had done something?

Not necessarily.

This is all strange to me. Subsection (1) of Section 76 says:

Where the person who has incurred any penalty has died after the passing of this Act, any proceedings under this Act which have been or could have been commenced against him may be continued or commenced against his executor or administrator, as the case may be, and any penalty awarded in proceedings so continued or commenced shall be a debt due from and payable out of his estate.

It seems to me to be an astonishing proposition that, if a person has failed to produce a document or to conform to precepts issued by the Revenue Commissioners under Sections 72, 73 and 74 and then dies, and his personal representative, who knows nothing whatever about his transactions, proceeds to administer the estate, the Revenue Commissioners can start proceedings against him in regard to a matter of which he has not any knowledge, good, bad or indifferent.

He should have.

How could he?

He is fully familiar with the deceased's affairs. If he finds £10,000 in cash in the safe, for instance——

No. The Minister really must realise that the whole of Ireland does not revolve around the city of Dublin. Any Deputy will tell you that people in the country will ask you to act as executor of their estate, and frequently do. It is a common thing, if an old person has family complications, for him to go to an outside person, whom he trusts, to administer his estate, in order that all sections of the family for whom he has made provision are equitably treated. Executors are not always large firms of probate solicitors, accountants and so forth, familiar with all the business affairs of their clients.

What appals me at first glance at this is how do we pass legislation entitling the Revenue Commissioners to proceed against a person for an offence committed by a deceased person, of which the executor or personal representative may have no knowledge at all? How can you place an obligation upon a person to come into court and defend himself or his trust——

Deputy Dillon is not representing the position correctly. What is involved here is seeking penalties out of the estate.

Let us pause a moment, please. I approach this from the point of view of an ordinary citizen. If I accept the duty of being the executor of a will, I there and then become the trustee for the beneficiaries of the estate. I am obliged to defend my trust to the best of my ability. Proceedings are brought against me in my capacity as trustee by the Revenue Commissioners in respect of an offence committed by the deceased person. They say the deceased person failed to conform with precepts under Section 72 and failed to produce documents which he had a statutory duty to produce. I come forward as the personal representative and say I never heard of it, that I do not know what documents they are talking about. I tell them I have never seen any copy of the alleged letter they sent to the deceased, whereupon the Revenue Commissioners produce copies of correspondence. I say: "That may or may not be true, but do you expect me to come to court and defend myself against a charge relating to the action of somebody dead and buried of which I have no knowledge at all?"

The Minister's reply is that that is just too bad for you, that the Revenue Commissioners are entitled to proceed against you and, if they prove their case, to recover penalties from the funds of the trustee for the beneficiaries. That seems to me to be putting the personal representative in a perfectly hopeless position. It seems to offend against a very elementary principle of justice, that is, that you should not be asked to argue the defence in a matter of which you have no knowledge at all. You are the trustee or representative of the deceased person. Allegations are made against the deceased person of which you know nothing. The only evidence you have is such evidence as is produced by the prosecutor. I have never heard of anybody being asked to stand his trial on the basis——

Deputy Dillon is mistaking the whole purpose of this. It is not a question of standing trial and attributing guilt. This deals exclusively with the situation where a person has incurred a penalty before he died.

To incur he has to do something.

The deceased person did something before he died which incurred a penalty.

Wait a moment. Who will determine that? I come in as his personal representative and say he never did it and that I have no knowledge of this action.

This is only to enable the proceedings to be continued.

The Revenue Commissioners say he did it and I say he did not. The Revenue Commissioners say: "We will go into court to prove it" and I say: "Where is your defendant? In Glasnevin." The only person who has any knowledge of this matter alleged against him is dead and gone.

It is the same in every branch of law. In actions for tort, the same thing applies.

Very often, they will be commenced after a person has died and the principal person is not available. The court still has to decide the action.

But there is some other evidence.

There will be here —documents, assessments and all sorts of records.

The Revenue Commissioner's records?

No, the deceased's records which are now available.

Suppose the personal representative says there are no such documents?

Then the court has to come to its own decision.

It seems to me to be a perfectly astonishing proposition that we should empower proceedings to be taken against a personal representative.

It is only a question of being able to get penalties from the estate.

I have no objection at all to giving the Revenue Commissioners the right to recover from the estate penalties awarded against a deceased person before his death. The deceased person was there at the time to clear himself and to go to court and make his case. If the court decides against him, I am prepared to say: "Let the Revenue Commissioner recover." But where the person is dead and there is nobody to defend——

Let me put this case. Say you have a substantial merchant in Ballaghaderreen who dies. When the personal representative comes along to administer the estate, he discovers there is accumulated cash, which obviously represents undisclosed profits, of £50,000. Surely it would be absurd to suggest that the Revenue Commissioners should not be able to proceed against that estate and collect the penalty the deceased person incurred?

That seems to be a very sensible and reasonable proposition. But I do not think it is that at all. It comes to light that this person has assets of £100,000. The Revenue Commissioners in their experience say that fellow could not have more than £15,000 out of his income tax returns over the past 25 years. I suggest the Revenue Commissioners have their remedy. They have estate duties, succession duties and legacy duties. By the time they have finished with them. they will have collected a very substantial amount.

I argued that on an earlier section when we were determining that we ought to be able to order every bank to produce every man's deposit account to the Revenue Commissioners. I argued that, if you argue that this is simply designed to prevent avoidance of income tax, the case is unanswerable, but you must realise you are tearing down the whole vast structure of confidence existing between banks and their customers in order to remedy an evil for which, in fact, there is in existence a remedy, that is, estate duty, succession duty and legacy duty. I put it to the Minister that in the case he envisages the Revenue Commissioners have their remedy. I believe they will get out of the estate substantially the same sum as if they were to proceed against him for inadequate income tax payment in the past and then levy estate duty on the remainder.

I believe the Revenue Commissioners would be better advised to say: "This is a cute operator, but he has fallen into our hands in God's good time, and what we did not get from him in his lifetime, we will get from him now." If you take the penalties and income tax off the estate and levy succession duty and estate duty on the balance and simply say: "This is a cute operator, but he has fallen into our hands now," would the differential be very great. I doubt it. When the washing is done, you would find the Revenue Commissioners would have lost very little.

There might be no assets. It might be a question of the Revenue Commissioners penalty versus some other creditors of the estate. It is not simply a question of getting estate duty instead of income tax and penalties.

This is a most extraordinary case. According to the Minister, we are dealing with a man who has been plundering the Revenue Commissioners for 25 years and who has accumulated a vast store of savings through improper income tax returns but who turns out on investigation to be a bankrupt. He has not a penny and far from dealing with a wealthy defrauder, you are dealing with an impecunious person. You cannot have it both ways.

There is no estate duty under £5,000 for the net value of the estate. That is a fair sum to salt away.

You said £50,000.

I cannot see the Revenue Commissioners holding up their hands in holy horror when some venerable citizen passes away with £5,000 salted away after a lifetime. That represents £1,600 in pre-war money. A sum of £5,000 after a lifetime is not likely to excite the Revenue Commissioners. We cannot have it both ways; either a man has accumulated a large sum through defrauding the Revenue or when his estate is cleared up, he has nothing and in fact owes more than he has and the Revenue Commissioners are in desperate competition with his creditors and will tell his relatives that they will get nothing. These two cases are not reconciled. I presume this section is directed at the estate of persons that the Revenue Commissioners feel have effectively defrauded them over the years and accumulated, as a result of fraud, substantial assets.

The penalty could be £10 or £10,000. The principle is the same.

The principle I am concerned with is this: I have no objection to penalties determined and assessed by courts of competent jurisdiction before his death but I cannot understand the object of bringing a man's personal representative into court to answer for the alleged actions or omissions of a deceased person.

May I put an analogy that is exactly similar? A man commits a tort against a fellow-citizen. He dies. The citizen who has been injured is entitled to proceed against the estate of the deceased person for the injury done to him. That is an exact analogy of what is being done here.

What sort of tort?

What is the Latin tag?

Actio personalis moritur cum persona.

That is gone. It went in the Civil Liability Act, 1961.

In certain cases— not all.

In practically all, sufficient to justify my analogy. We have exactly the same situation here. A taxpayer for some reason, presumably defrauding the Revenue, incurs a penalty and what we are stipulating is that after his death that penalty should be capable of being procured from his estate. I think that is valid.

There is no correct analogy. These are subtle distinctions but important. We create a statutory offence—failing to make returns or produce a document, for instance. There is no analogy in commonsense between a statutory offence of failing to make a return and knocking a man down with a car and crippling him, or setting a house on fire or anything which comes within the definition of tort. There is a sound principle that when a man dies, the remedy against him for his tort dies with him. That must be founded on the proposition that as he is dead, no court can effectively hear the issue properly argued in the absence of the tortfeasor. That has been qualified by statute in order to remove the hardships that have arisen from the rigid application of the principle of the law.

In so far as we have departed from that principle by statute, we have done it with our eyes wide open for good reason. Now we are asked to depart further from that principle and to make a personal representative a contestant in a suit started for the purpose of establishing that a statutory offence has been committed by a deceased person, although the personal representative who is the defendant in this matter says in court that he never heard of it and does not know what they are talking about; that they have produced a file of papers which they allege contain a lot of correspondence they had with the deceased person. He says he is not in a position to help the court at all. Is that a desirable situation to create? Is it not more desirable to say that if the Revenue Commissioners detect any offence and prosecute anybody the penalty attaching will attach to his estate but if he dies, he is dead.

The Minister asks: what are we to do if, as a result of his failure to provide these documents, he has succeeded in accumulating £50,000 that he should have paid in income tax during his life? My answer is that you are going to get it now. You will get the substance of it now but you are creating a statutory obligation on the personal representative to defend a deceased person against accusations of which the personal representative has no knowledge. That seems to be a fantastic statutory provision.

Take the case of the person who is dead and the tax liability to which that man would have been assessed during his lifetime if there had been full and proper disclosure. As Deputy Dillon puts it, I have a drop of previous years' blood in me and I feel personally that the estate should bear that liability. However, this section does not deal with that liability. This section deals with a penalty in addition to the liability and in relation to that penalty, there are two different possible sets of circumstances.

I gather Deputy Sweetman is not concerned with the case where the proceedings were commenced before death?

I do not intend to argue the case where the proceedings have been terminated and where the court has fixed the penalty, but where proceedings have not been commenced or where, having been commenced, they have not been brought to a close, and therefore the court has not pronounced that the penalty should be payable, if I have correctly understood this penalty section, until the court comes to determine that the penalties are to be imposed, it is open to the person concerned to have lodged the defence that he was right, and the reasonable subsection we discussed a moment ago is open to him as a defence.

Whether the proceedings have been started or not, as long as they have not come to a conclusion, it appears to me that it would be wrong to have any penalties imposed as well as the tax properly payable. So far as the penalties are concerned, the man has suffered enough penalty. He has gone to his reward. The purpose of the penalty is to ensure that a person is not going to defraud the Revenue Commissioners. Nobody is going to defraud the Revenue Commissioners knowing that if he does defraud them, it will have the effect of killing himself. The odd case of suicide of that sort is not worth making a general law for.

What happens? The case comes on to court. As Deputy Dillon has stated, the personal representative has in fact absolutely no means of assessing proof whether it is a case that deserves a penalty or whether it does not. If there is a substantial fund there, then the Minister's case is that it should be met out of that fund. I am not a bit happy that subsection (1) of this section does exclude personal liability by the personal representatives as well. It says it is to be a debt due from the estate. I agree, but it does not say it is to be a debt due from the estate to the exclusion of the liability of the person sued as personal representative. The ordinary law in that case is that the personal representative is liable but with certain rights over; I am not a bit happy about that.

I am equally most unhappy about the case the Minister has mentioned, where there is a deficiency of assets to meet all the creditors. If there is a deficiency of assets, I accept the right of the Revenue Commissioners to a preferential claim in respect of the tax that would have been properly due but I think it would be all wrong for the Revenue to have a preferential claim in respect of penalties.

There is no preference for penalties.

Then the Minister was wrong a second ago.

No preference. They can still rank.

It is wrong that the Revenue should even rank as creditors for penalty. It is wrong that they should rank for penalty to the reduction of dividends of any other creditor because the matter of penalty is virtually impossible to prove when the man has gone on. I am perfectly prepared to accept that, subject to proper protection of the personal representatives, the estate of the deceased person, and only the estate of the deceased person, should be liable for the tax properly due, but it is all wrong when a man has died that the question of penalty should be still pursued because nobody can really tell what the facts were. Very often there are facts which the man himself would be able to explain to a court, for instance, that he had left things completely to an adviser. There are good and bad advisers and the adviser might have made a complete misrepresentation of the position, might have fraudulently put in returns. I know in law the taxpayer remains responsible for the fraud but it is a matter that the court would take into account as being reasonable and if the man is there, he is able to show it. If he has gone, he is not able to do so. For the very odd case in which the Revenue will be able to pursue the estate of a deceased person for penalties beyond his grave, it is not worth the candle, with the risk it runs of doing an injustice.

Question put and agreed to.
SECTION 77.
Question proposed: "That Section 77 stand part of the Bill."

I must confess I am entirely in agreement with Section 77.

Against whom is it directed?

Against certain people who fraudulently make untrue returns and by so doing, persuade taxpayers that they have got the taxpayers off a great deal of money which a reputable person would tell them they owe.

Are there such persons?

There are, and the Minister has more intimate knowledge of some of them than I have.

In my capacity as Minister for Justice.

I will not differentiate.

Question put and agreed to.
Sections 78 and 79 agreed to.
SECTION 80.
Question proposed: "That Section 80 stand part of the Bill."

Section 80 applies the penalties to corporation profits tax.

I shall discuss what I want to discuss on the Schedule.

Question put and agreed to.
SECTION 81.

I move amendment No. 51:

In subsection (1), page 50, line 10, to delete "section (2)" and substitute "subsection (2)".

This is a drafting amendment.

What is Section 106?

It provides:

The chamberlain or other officer acting as treasurer, auditor or receiver for the time being of any body of persons chargeable to tax, shall be answerable for doing all such acts as are required to be done under this Act, for the purpose of the assessment of such body and for payment of the tax, and for the purpose of the assessment of the officers and persons in the employment of such body.

Can anyone tell me who is the chamberlain? Who performs that office for the Revenue Commissioners?

Who is the chamberlain?

"...or other officer acting as treasurer, auditor or receiver...for the time being of any body or persons chargeable to tax, shall be answerable for doing all such acts as are required to be done under this Act...." The person acting.

What body of persons is the chamberlain?

"...any body of persons...

We cannot legislate in respect of a body of people without knowing who they are.

I think the significant thing is that he acts as treasurer, auditor or receiver for the time being. I believe it is a Scottish term which is equivalent to "treasurer"

Amendment agreed to.
Section 81, as amended, agreed to.
NEW SECTION.

I move amendment No. 52:

Before section 82, but in Part VIII, to insert a new section as follows:

"Nothing in Part VIII of this Act shall render a solicitor liable to penalty for any act, neglect or default where the performance of such act or the failure to perform such act is justified by the professional privilege of such solicitor for his client."

I found Part IX the most difficult Part of the Bill to understand. It is extremely complicated and complex. It is so complicated and complex that it will have to be allowed to run for a year until we have some experience of it before I could offer any constructive criticism of it. It runs into a new line of country and to offer any criticism at this stage would be quite impossible. I shall not offer any comment until I have seen it running for a year, and next year, if I do not like it, I shall, perhaps, introduce some amendments from that side of the House. On amendment No. 52, I am certain the Minister agrees with me that it is not the intention to affect privilege.

Amendment, by leave, withdrawn.
Section 82 agreed to.
SECTION 83.
Question proposed: "That Section 83 stand part of the Bill."

Would the Minister explain subsection (4)?

Subsection (4) specifies the heads under which deductions can be made. First of all, if you pay Schedule A tax, that will be allowed. The second point is where the ground rent is higher than the tax, it would be allowed. Then the ordinary cost of maintenance, repairs, insurance, etc., are allowed.

This section applies Schedule D tax to the element of profit on rental and residential lettings. In computing profit for assessing Schedule D tax, the taxpayer is entitled to charge up the value, namely, the amount of the assessment of Schedule A income tax. Will the Minister agree that, in effect, there is no net revenue out of Schedule A tax by reason of the fact that there is an equivalent set off against Schedule D tax?

In that case, it is true.

I am gratified to learn that the Minister appreciates that point. In the various arguments made in regard to Schedule A tax, I was apprehensive that the Minister did not properly understand that what he was gaining on the swings, he was losing on the roundabouts. This section highlights the complete absurdity of Schedule A tax.

Question put and agreed to.
Sections 84 to 86, inclusive, agreed to.
SECTION 87.
Question proposed: "That Section 87 stand part of the Bill."

Section 87 refers to payment in respect of an easement.

The right to maintain advertising signs would be an example.

It is an odd use of the word "easement".

Question put and agreed to.
Sections 88 to 95, inclusive, agreed to.
SECTION 96.

I move amendment No. 53:

Before section 96, but in Part IX, to insert a new section as follows:

"Nothing in Part IX of this Act shall render a solicitor liable to penalty for any act, neglect or default where the performance of such act or the failure to perform such act is justified by the professional privilege of such solicitor for his client."

I move this amendment formally for the purpose of getting on record that the intention is that the privilege of any client will not be affected. I think the Minister can assure me that such is not the intention.

That is right.

Amendment, by leave, withdrawn.
Sections 97 to 99, inclusive, agreed to.
SECTION 100.

I move amendment No. 54:

To delete subsections (3) and (4) and substitute the following subsections:

"(3) (a) The foregoing subsections of this section shall have and be deemed always to have had effect as on and from the 1st day of October, 1926, and accordingly no section 7 certificate issued during the period which began on that day and ended on the passing of this Act shall be or ever have been made void or in any way prejudiced by the addition to the sum thereby certified to be in default of any fees or expenses which might lawfully have been so added if those subsections had been in force during that period, and no levy during that period of any such fees or expenses so added which would have been a lawful levy if those subsections had been in force during that period shall be or ever have been unlawful.

(b) For the purposes of this subsection, the reference in subsection

(2) of this section to a sheriff shall be construed as including a reference to an undersheriff and, in relation to section 7 certificates issued before the 8th day of December, 1953, the references therein to six hundred pounds shall be construed as references to three hundred pounds and the references therein to fifty pounds shall be construed as references to twenty-five pounds.

(4) No section 7 certificate issued before the 1st day of October, 1926, shall be or ever have been made void or in any way prejudiced by the addition to the sum thereby certified to be in default of any fees which might lawfully have been so added if the certificate had been an execution order, and no levy before the passing of this Act of any such fees so added which would have been a lawful levy if the section 7 certificate had been an execution order shall be or ever have been unlawful."

The main purpose of this amendment is to validate the recovery of fees. This amendment purports to substitute two new subsections in the section. They are partly drafting amendments. They deal with the execution of judgments by the sheriff in relation to the recovery of income tax, surtax and corporation profits tax. They establish beyond doubt that the county registrar or the sheriff, when executing a Section 7 certificate, is acting as if that certificate were an order of a court of competent jurisdiction.

Really this explanation by the Minister is scarcely adequate. This subsection which it is proposed to insert in the Finance Act operates to be deemed "always to have had effect as on and from the 1st day of October, 1926, and accordingly no Section 7 certificate issued during the period which began on that day"—that day is now 37 years ago —"and ended on the passing of this Act shall be or ever have been made void or in any way prejudiced by the addition to the sum thereby certified to be in default of any fees or expenses which might lawfully have been so added if those subsections had been in force during that period, and no levy during that period of any such fees or expenses so added which would have been a lawful levy if those subsections had been in force during that period shall be or ever have been unlawful." We are, in fact, legislating here retrospectively to cover a number of acts by the Revenue Commissioners during the past 37 years.

I suppose some doubt has arisen in regard to certain levies made during that period and I think the Minister owes it to us to tell us more explicitly what his problem is. Have proceedings been started against the Revenue Commissioners in respect of some previous levy or has there been some flaw in the law under which certain levies have been made which it is now sought to put right? Manifestly, inasmuch as this is retrospective for 37 years, there is some explanation due.

I believe what has happened is that some lawyer looking through the legislation expressed some doubt as to whether there is or is not sufficient power, but no case has been tested. No one has brought any action against the Revenue Commissioners for issuing a wrong order and this is merely to establish that the law is as set out here and also to say that it has always been so. I can assure the Deputy no one has taken any action against the Revenue Commissioners.

If the Minister gives me a personal assurance this does not operate to negative any judicial proceedings that have taken place, or have been commenced, then I accept that.

Was the lawyer who expressed that view just idling through the statute book?

Yes. We thought there was an omission.

Amendment agreed to.
Section 100, as amended, agreed to.
SECTION 101.
Question proposed: "That Section 101 stand part of the Bill."

I take it the Minister will see that it is incumbent on him to notify us in respect of any of these amending sections if they affect any proceedings that have been completed or are in process? "Subsection (5) of Section 14 of the Finance Act, 1962, is hereby amended by the insertion of `and the provisions of every rule of court so relating' before `shall apply' ". These may or may not be significant amendments. It is hard to tell if one is not as familiar with the code of Finance Act law as the Minister is, but I should be glad to be reassured that none of these sections presented to the House would affect the issue of any proceedings before the court or affect retrospectively a decision already given by the court.

Again, there are no proceedings here. The Revenue Commissioners were doubtful, if they proceeded for the recovery of income tax, that they could also under the law as it stands recover interest due. This is designed to cover that point.

There are no proceedings in existence?

Question put and agreed to.
SECTION 102.
Question proposed: "That Section 102 stand part of the Bill."

What does this section actually do?

The Deputy will remember, perhaps, that under an agreement made between the Minister for Finance and the Minister for Local Government certain grants were given to the Road Fund in connection with the closing of railways, Gaeltacht roads, and so on. Being a bit hard up, as it were, in this Budget, I asked the Minister for Local Government to allow me to defer £400,000 out of the grant, but that will be given to him in the next two years.

Putting it on the "Never-never", in other words.

On the long finger.

It is not that, either.

Question put and agreed to.
SECTION 103.

I move amendment No. 55:

In subsection (6), page 63, line 40, to delete "Each" and substitute "The".

This is a drafting amendment.

Amendment agreed to.
Section 103, as amended, agreed to.
Section 104 agreed to.
SECTION 105.

I move amendment No. 56:

In subsection (4), page 64, line 10, to delete "Second" and substitute "Fourth".

This is also a drafting amendment.

Amendment agreed to.

I move amendment No. 57:

In subsection (6), page 64, line 18, to insert ", save as is otherwise expressly provided therein," before "be".

Again, this is a drafting amendment.

Amendment agreed to.
Section 105, as amended, agreed to.
FIRST SCHEDULE.

I move amendment No. 58:

In page 64, lines 36 and 37, to delete "in bulk (in bulk being interpreted as may be specified by regulations under Section 51 of this Act)".

I should like the Minister to give me some indication of what he means by "in bulk". Does it mean the bulk amount that a farmer will buy for his own purposes or does it mean the bulk amount a hardware merchant will buy for resale?

What I really had in mind was that bulk with regard to a builder, in the case of an ordinary small builder, would be a couple of bags of cement or three or four stones of sand. I did not intend to go beyond that. In the case of manure for a farmer, I would make the bulk amount one cwt., and I did not want to be bothered with shops selling packets of seeds or perhaps giving a stone of phosphate to a farmer. The bulk will be kept at a fairly low level.

Amendment, by leave, withdrawn.

I move amendment No. 59:

In page 65 between lines 23 and 24 to insert "Sales of foodstuffs."

This amendment will give everybody in the House an opportunity of deciding whether they want to vote for the inclusion of batch bread or any other sort of bread as being liable to this tax, whether they want tea and sugar, flour, milk and butter, and all the necessaries of life, subject to this tax. It is right that the House should have an explicit opportunity of voting on whether they want to exempt foodstuffs or whether they want foodstuffs to be taxed. That is the net issue in this amendment, whether they believe the necessaries of life should be taxed. We ask everyone who does not believe like that, whether they put down amendments and run away from them or not, to vote for the exclusion of foodstuffs from this tax.

Question put.
The Committee divided: Tá, 65; Níl, 68.

Tá.

  • Barrett, Stephen D.
  • Barron, Joseph.
  • Barry, Anthony.
  • Barry, Richard.
  • Belton, Paddy.
  • Blowick, Joseph.
  • Browne, Michael.
  • Burke, James J.
  • Burton, Philip.
  • Byrne, Patrick.
  • Carroll, Jim.
  • Casey, Seán.
  • Clinton, Mark A.
  • Collins, Seán.
  • Connor, Patrick.
  • Coogan, Fintan.
  • Corish, Brendan.
  • Cosgrave, Liam.
  • Costello, Declan D.
  • Costello, John A.
  • Coughlan, Stephen.
  • Crotty, Patrick J.
  • Desmond, Dan
  • Dillon, James M.
  • Dockrell, Henry P.
  • Dockrell, Maurice E.
  • Donegan, Patrick S.
  • Donnellan, Michael.
  • Dunne, Seán.
  • Dunne, Thomas.
  • Esmonde, Sir Anthony G.
  • Farrelly, Denis.
  • Flanagan, Oliver J.
  • Gilhawley, Eugene.
  • Governey, Desmond.
  • Harte, Patrick D.
  • Hogan, Patrick (South Tipperary).
  • Hogan O'Higgins, Brigid.
  • Jones, Denis F.
  • Kenny, Henry.
  • Kyne, Thomas A.
  • Lynch, Thaddeus.
  • McAuliffe, Patrick.
  • MacEoin, Seán.
  • McGilligan, Patrick.
  • McLaughlin, Joseph.
  • Murphy, Michael P.
  • Murphy, William.
  • O'Donnell, Patrick.
  • O'Donnell, Thomas G.
  • O'Higgins, Michael J.
  • O'Higgins, Thomas F.K.
  • O'Keeffe, James.
  • O'Reilly, Patrick.
  • O'Sullivan, Denis J.
  • Pattison, Séamus.
  • Reynolds, Patrick J.
  • Rooney, Eamonn.
  • Ryan, Richie.
  • Sheridan, Joseph.
  • Spring, Dan.
  • Sweetman, Gerard.
  • Tierney, Patrick.
  • Treacy, Seán.
  • Tully, James.

Níl.

  • Aiken, Frank.
  • Allen, Lorcan.
  • Bartley, Gerald.
  • Blaney, Neil T.
  • Boland, Kevin.
  • Booth, Lionel.
  • Brady, Philip A.
  • Brady, Seán.
  • Brennan, Joseph.
  • Brennan, Paudge.
  • Breslin, Cormac.
  • Crinion, Brendan.
  • Crowley, Honor M.
  • Cummins, Patrick J.
  • Cunningham, Liam.
  • Davern, Mick.
  • de Valera, Vivion.
  • Dolan, Séamus.
  • Dooley, Patrick.
  • Egan, Kieran P.
  • Egan, Nicholas.
  • Fanning, John.
  • Faulkner, Padraig.
  • Flanagan, Seán.
  • Gallagher, James.
  • Galvin, John.
  • Geoghegan, John.
  • Gibbons, James M.
  • Gogan, Richard P.
  • Haughey, Charles.
  • Hillery, Patrick.
  • Hilliard, Michael.
  • Kennedy, Michael J.
  • Kitt, Michael F.
  • Briscoe, Robert.
  • Burke, Patrick J.
  • Calleary, Phelim A.
  • Carter, Frank.
  • Carty, Michael.
  • Childers, Erskine.
  • Clohessy, Patrick.
  • Colley, George.
  • Collins, James J.
  • Corry, Martin J.
  • Cotter, Edward.
  • Lalor, Patrick J.
  • Lemass, Noel T.
  • Lemass, Seán.
  • Leneghan, Joseph R.
  • Lenihan, Brian.
  • Lynch, Celia.
  • Lynch, Jack.
  • MacCarthy, Seán.
  • McEllistrim, Thomas.
  • MacEntee, Seán.
  • Meaney, Con.
  • Medlar, Martin.
  • Millar, Anthony G.
  • Moher, John W.
  • Mooney, Patrick.
  • Ó Briain, Donnchadh.
  • Ó Ceallaigh, Seán.
  • O'Connor, Timothy.
  • O'Malley, Donogh.
  • Ormonde, John.
  • Ryan, James.
  • Smith, Patrick.
  • Timmons, Eugene.
Tellers:—Tá: Deputies Crotty and Tully; Níl : Deputies Brennan and Geoghegan.
Amendment declared lost.
Question proposed: "That the First Schedule be the First Schedule to the Bill."

On the First Schedule, the Minister, when dealing with the amendment, referred—I think he was looking at the wrong subsection—to sales in bulk of earth, stone gravel and sand when Deputy Sweetman was talking about sales in bulk. What I want clarified is what does "bulk" mean in regard to seeds, fertilisers and animal feeding stuffs? The Minister says that he intends to determine that one cwt. of fertiliser is a bulk purchase but any lesser purchase would not qualify. I regard this sales tax as being a fantastic arrangement in respect of the normal trade of this country but does the Minister realise what he is doing? How are you going to differentiate for the people in rural Ireland between sales of fertiliser in bulk as defined by him and sales not in bulk? Suppose a man comes in and buys 10 cwt. of super, or four bags of fertiliser, that is, 8 cwt. of fertiliser, and comes back a week later and says he wants three stone of fertiliser to finish a ridge of potatoes.

Is it seriously suggested that any honest merchant can distinguish between sales in bulk and in smaller lots of fertilisers for any one day during the manure season—between sales to a man who buys by the bag lot and the man who buys by the broken lot? It is absolute nonsense. It could not be done. Is it seriously suggested that a merchant dealing in animal feeding stuffs will segregate at the end of the day his cash and credit sales in respect of meal sold by the cwt. and meal sold by the stone or two-stone parcel? The thing simply could not be done. It does not make sense; it is not practicable, no matter how conscientious or careful a merchant might be.

You would have at the end of the day in respect of a dozen sales of pollard, say, or bran or pigmeal, four categories of transaction to enter. You would have your credit sales in bulk, your cash sales in bulk, neither of which would be subject to turnover tax; you have your credit sales of lesser quantities and cash sales of lesser quantities. The thing is fantastic. You can include your sales of fertiliser or feeding stuffs or exclude them, but to say you have to have them divided up is pure nonsense. It could not be done; it will not be done, but it creates a very serious problem for people who have an honest anxiety to conform with the law, whether they agree with it or not. I would be glad if the Minister would indicate how he thinks the regulations here proposed will be complied with.

I would say to the Deputy that of course this, like other provisions in the Bill, is being discussed with the trade. I should imagine a person dealing in fertiliser, where he sells most of it in large quantities, will not be asked to keep separate accounts for his odd sale of two-stone or three-stone lots. This is more to deal with the small trader who sells packages of seed for flower gardens and who might on occasions sell a stone of sulphate of ammonia or of nitrate of potash or some other such preparation. It is aimed at avoiding administrative trouble for him and for the Revenue Commissioners.

I should like to know if funeral services are exempt under this Schedule.

I mentioned earlier that I intended to exclude funerals.

I am glad that what I said in that respect on the Second Stage had some effect. It would be an awful thing to tax the dead.

In relation to building, for ease of counting and for the more efficient management of the building industry, many builders operate with different companies. I have in mind a builder who does a lot of work and who has a separate company in respect of which the shareholders are exactly the same as in the main company. The second company has separate accounts, and joinery and other sales to the main company are kept in it. I think it is quite clear, but I want confirmation from the Minister, that when those various companies, all in the building trade and all with the same shareholders, pass on from one to the other the joinery plant for building purposes, they will not have to pay turnover tax because they are subsidiary companies of the main company.

The test in this particular case is in relation to local authority small houses, the £2,000 type of house, where timber is exempt. We have to draw a distinction between the timber used in building and that used in furniture. Sometimes timber is used for built-in presses and so forth, but sometimes it is used for furniture which is only screwed to the walls—mirrors, for instance. We are excluding what would properly be called furniture from exemption.

There are a few points I want to clarify. Exempted in this Schedule is the provision of services by the State and local authorities. Would radio and television advertising be exempt?

Advertising is not subject to the tax

Services provided by hospitals, nursing homes and similar establishments are exempt. Is that purely in relation to nursing and surgical services? Does it include the provision of medicines and medical appliances supplied to a patient ?

They would be free.

So any services provided when one is in hospital, including medicines and medical appliances, are free from this tax?

Of course, the logical consequence would be that medicines and drugs prescribed by practitioners would also be free. There should not be a tax on something a person buys to cure him or to keep him alive. There is the question of transport as well. Is the hire of taxis or hackney cars exempt in the same way as bus fares?

Private hire in this context is exempt.

There is a provision relating to the letting of houses and the provision of board and lodgings in establishments other than hotels. By hotels, do you mean those which come under that definition by An Bord Fáilte?

We take the Bord Fáilte definition.

The Minister will appreciate there are still a few establishments which, for some reason or another, are not registered with An Bord Fáilte as hotels.

The point there is that if they buy their food for the residents, they will buy taxed foods at retail prices. The hotel, of course, naturally, would get its food, and so on, free of tax because they have to charge tax to their customers. The point is that neither of them escapes. Where a person goes to an hotel for a meal, he pays tax on his bill but a person keeping a private lodging house pays tax because the tax is on the food.

There is no actual tax on the lodging?

On the bed and board?

Only on the provision of food?

In the lodging houses, they buy the food at taxed prices.

I asked the Minister about the possibility of the exemption of medicines supplied on prescription by a doctor.

As the measure stands, they would be subject to tax. It is a case I have been considering. I am afraid it would be almost impossible to make an exemption there. Chemist shops nowadays are very different from what they used to be. Prescriptions form a very small part of their business now. I wrote a prescription about two years ago for some person and when the chemist got it, he said he had not seen one of these things for 50 years.

The Minister seems to be concerned about the position of the turnover tax in respect of medicines, drugs and appliances. He some-what strengthens the case when he says that chemist shops at present are not exclusively chemist shops in that they deal with goods other than drugs, medicines and prescriptions. Surely it is not impossible to devise some method whereby separate returns will be kept in the chemist shops for what are regarded as drugs, medicines and appliances?

I would ask the Minister to consider at least the exemption from turnover tax of these things that are so necessary to cure people and to keep them alive. It may be difficult to segregate these things in the chemist shops as we know them. I do not know what effort the Minister has made to try to exclude them or what consideration he has given to the problem. It is very bad that we should, for want of effort in trying to exclude them, include them to the extent of putting at least a 2 ½ per cent tax on them.

It is to be assumed from this section that all guesthouses are exempt from the turnover tax, without question——

No. The guests may be exempt but they have to buy their food.

I know, and they have to pay only on the food. When the visitor or guest pays his bill, the turnover tax is not added if he avails of accommodation in a guest house rather than in an hotel. Supposing a small hotel proprietor who is at present registered with Bord Fáilte gets his registration withdrawn in order to opt out of the liability to pay turnover tax, is there anything illegal in doing that, even though his premises are well up to Bord Fáilte standard ? Would that be legal on the part of such an hotel proprietor?

A guesthouse, as defined by Bord Fáilte, would be in the same position as an hotel. They give meals to people, and so on, and therefore would be in the same position as an hotel. In other words, they would be entitled to buy what they want free of tax but would have to pay tax on their income from guests, and so on.

This is a complete reversal of what the Minister said.

That view is the opposite of the answer the Minister gave.

The boarding house or lodging house would be in the same position as a private house.

Deputy Corish asked about this section. The Minister said he was accepting the Bord Fáilte definition of hotels and guesthouses but that only a place Bord Fáilte recognised as an hotel would be liable to turnover tax and houses designated as guesthouses by Bord Fáilte would not be liable—that any guesthouse would not be liable; that only the hotel classification would be liable. I am assuming now that in the case of an hotel or guesthouse registered with Bord Fáilte the hotel would be liable for turnover tax but the guesthouse would be exempt.

They would be liable——

But you have specifically mentioned hotels in this Schedule and, earlier on, you informed Deputy Corish that guesthouses were exempt. That is my interpretation of your remarks.

Suppose one of the three or four big hotels in Dublin decided to have its registration as a hotel with Bord Fáilte cancelled. They would be exempt. It is true that they would have to pay the turnover tax on the food but in respect of that amount of money they charge purely for lodging, they would be exempt if the definition of hotel, as recognised by Bord Fáilte, were applied to this Schedule——

Not if they come down to the category of guesthouse. Look at the Section 45 definitions on the top of the page:

"hotel" includes any guesthouse, holiday hostel, holiday camp, motor hotel, motel, coach hotel, motor inn, motor court or tourist court;

I thought you were accepting Bord Fáilte's classification of "hotel".

"Hotel."

It is not Bord Fáilte's definition of "hotel". It is the definition as we have it here in Section 45.

Do I understand that hotels will buy food tax free ?

Yes, and other requisites that might be necessary to an hotel but not to the ordinary private house.

A number of hotels in this country—small hotels in country towns and in cities—buy their food supplies from local dealers. Provision will be made to ensure that they can buy that food without the tax. Must the dealer keep a separate schedule of these sales ?

Yes, that is right.

If he can keep a separate schedule of sales to such people——

Why not for medicines ?

——surely it would be possible to exempt medicines and drugs in a chemist shop ?

Does the Minister realise where he is going ?

To the madhouse.

Take any shop in rural Ireland. Take any shop in a town such as Wexford or Athlone catering for farmers, the local hotels and for a variety of purveyors. Do you realise you are asking such a person, if he is to conform to the law, to keep a growing multitude of registers of transactions of which, ordinarily, he has no record at all? The ordinary practice in an ordinary grocer's shop is that the hotel porter comes down and asks for sundries and brings them back to the hotel. According to the law now, that transaction is free of sales tax. That is to be regarded as a sale to a person who is going to use the goods in the course of his trade as an hotel keeper, a guesthouse keeper or a lodging house keeper. It is fantastic. Can you picture it? Every time a woman comes in to shop in Ballaghaderreen, you have to ask her: "Do you keep lodgers, Mam?" If she keeps lodgers or a guesthouse, as defined by Section 45, she can get the goods free of sales tax.

Section 45 says:

"hotel" includes any guest house, holiday hostel, holiday camp, motor hotel, motel, coach hotel, motor inn, motor court or tourist court;

What do you call a guesthouse?

According to the Bill, you call it an hotel.

The provision of board and lodging.

An hotel includes a guesthouse, and for the purposes of this First Schedule an hotel is an exempted activity entitled to buy free of tax.

I think this will create a frightful headache. I do not want to add to the cost of food for anybody. If you are going to ask small shopkeepers supplying small hotels to keep a separate schedule for their small transactions, you are only making confusion worse confounded.

Would the Minister clarify the position in regard to hostels and holiday hostels, which might not be open throughout the year ?

They would be classified as hotels.

Every kind of guesthouse is deemed to be an hotel under this.

Now there is a distinction, because a guesthouse is not a lodging house. You have to determine whether the lady who keeps lodgers calls her lodgers "lodgers" or "guests". If she calls them "guests", she pays no sales tax; if she calls them "lodgers", she does. Every grocer who wants to conform to the law must stop every messenger who comes in and ask: "Are you buying for the lodging house?" If the customer draws herself up and says: "We do not keep a lodging house; we keep a guesthouse," you must make a note in the book and say: "You do not pay tax."

The guesthouse pays tax and the lodging house does not ?

The guesthouse does not pay tax because it is an hotel for the purposes of the Act. Standing beside that girl is another girl, who asks for a half-pound of tea. You ask her: "Is this for the guests?" and she says : "It is for the lodgers". She must pay the tax.

It will not be like that.

Can the Minister explain to me how it will be administered?

When the Deputy gets to know the Act, he will know that a person will come in and say: "My number is so-and-so and I want the following goods." If the person has a registered number, he will pay no tax. I think most Deputies will agree that hotels, as a rule, do not buy in amounts of 6d. or 1/- They usually have an account. It should not be a very hard job for the shopkeeper making up his returns at the end of the month to say: "I received so much from hotel so-and-so on which I gave a discount of 2½ per cent and I am deducting tax on that sale."

Has the Minister any notion of what he is proposing? This is as fantastically unlike what transpires. The Minister is thinking in terms of the city of Dublin. Hotels in Dublin conduct their business with wholesalers on charge accounts. In the country a woman who runs an hotel will frequently send down for a pound of tea or a pound of sugar.

But she does not send cash. It is an account.

None of us wants to go into particulars. The degree of credit trading has declined very considerably in rural Ireland.

The Deputy is going into particulars.

A great deal of these are cash transactions and need to be cash transactions. We are not dealing with large incorporated companies with unlimited credit. We are dealing with the ordinary run of business that goes on. This whole Bill is an unfair declaration of war on legitimate retail traders and will create utter chaos and confusion in their affairs. It is being proceeded with without any regard whatever to the true circumstances of the case. I give it as my considered opinion, and I have a great deal of experience of the ordinary conditions of retail trade in Ireland, that as at present drafted, this Bill is wholly unworkable.

If you proceed with this, there is no reason why you should not exempt medicines from chemists. They go to the same trouble you are making the small shopkeeper go to.

I want to be quite clear about what is exempted and what is not. The hire charge of a bulldozer or a crane for building purposes—is it clear that that hire charge is not liable to tax?

If it is used in building, of course it would be exempt, or for drainage on a farm. I cannot imagine any case where it would not be exempt but I do not know if it is altogether exempt.

Suppose I make a door-frame for a builder and sell it to him as a unit. He puts it in a house. Is my sale to him exempt?

Mr. Ryan

I think he would have to pay tax in that case.

That is the joinery case I asked about a minute ago and I was told it was exempt. It is about time somebody knew something about this so that it can be explained in ordinary simple words to an ordinary person. No effort seems to be made to give any proper explanation to the Dáil. It purports to exempt buildings. What other aspect of building can there be other than to make the parts of a house and put them into it? I find myself completely frustrated at all steps in this matter. There is no clear indication as to what is or is not included, except in the case of two things, food and chemists' shops. Both are definitely included. These are the only things that we are told are included without reservation.

Progress reported; Committee to sit again.
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