I move amendment No. 10:
Before section 10 to insert a new section as follows:
"Section 439 of the Income Tax Act, 1967, is hereby amended by the insertion in subsection (1) of a further paragraph as follows:
`(v) or being payable to a charity for a period which exceeds or may exceed four years provided that the exemption provided by this paragraph shall not be effective for purposes of surtax'."
The point of this amendment is to provide that a convenant on income in certain circumstances for a charity will be effective for relief in income tax but will not be effective by way of surtax relief for the purpose of enabling otherwise a high surtax payer to give, at the expense of the revenue, substantial sums to charity. A case could be made that if substantial sums were to be given by a surtax payer in these circumstances to a charity, the surtax payer should give them himself and should not make the selection in such a way as to give the large amount that would be involved in surtax at the expense of the revenue.
This is a matter which was dealt with at some length in the Seventh Report of the Commission of Income Taxation, and the Commission ultimately, in paragraph 355, arrived at the conclusion which is included in my amendment and which has also been submitted by other bodies concerned over past years to various Ministers for Finance. Let me say at once that I do not claim at all that the drafting of the amendment is 100 per cent effective to carry out what I have in mind. It seems to me that this was the appropriate drafting in which to implement paragraph 355 of the Commission's Report, but if, in fact, it does not do it in that way, then I want to make it clear that it is the principle I wish to urge on the Minister and on the House rather than the wording of the draft.
The position in relation to covenants was that they were allowed for certain substantial purposes in relation to charities until the Finance Act of 1940 was framed to put an end to subscriptions to charitable purposes being given by people who were paying heavy surtax. The charity got, in effect, a subsidy from the State, I agree, and, in addition to that the subscriber got a substantial reduction in the amount of his surtax. That restriction, therefore, that was included in section 3 of the Finance Act, 1940, and which was carried in with section 439 of the Consolidation Act, was one which reasonably enough prevented the surtax payer taking a covenant as a charge on his income for the purposes of reduction in surtax. The Minister for Finance of that day made it very clear, when introducing section 3 of the Act of 1940, that it was an escapement from surtax which he thought all wrong and a gap he was anxious to close.
I do not know what the amount involved in this amendment at the present time would be. Even then it was only £13,000 a year, and the Seventh Report of the Income Taxaation Commission, which I would say from recollection, was published around 1962, estimated that perhaps the amount that would be lost in surtax if section 3 of the 1940 Act were wholly repealed would be £50,000. For that reason the Commission at that time, and I in this amendment, deliberately excluded surtax, so that the revenue would not lose the £50,000 involved and would not lose any surtax on such covenanted income in the future.
At that time when the Commission was considering the matter, the Revenue Commissioners pointed out that the covenant system was likely to be entirely lopsided because people with modest remuneration would not be liable to income tax and, accordingly, would not be able to avail of a subscription to charity in this way. That may have been true then, that they were not so liable, but with the increase in monetary remuneration, apart from real remuneration, and with the manner in which allowances have remained static, people now are liable often to heavy income tax without having any excessive incomes at all. In fact, many people with most moderate incomes have now pretty heavy tax liabilities.
At that time also the provision in relation to a covenant was that it had to be operative for a period in excess of six years. It was felt then that the obligation to look ahead so far was a thing that militated against the person of moderate means. Accordingly the Commission came down flatly and recommended that the covenant to rank in this way should be one that could operate for more than four years. The Report also made it clear that the Commission were very handicapped in considering the matter of covenants because of lack of information. I do not think that can now be the position because there has been a campaign, if I may so describe it, in recent years by Revenue to obtain such information.
Various people from time to time— in particular, my colleague, Deputy P. Byrne—agitate against carrying in certain provisions here from British tax legislation. That always infuriates Deputy Byrne, and rightly so, because if it is a taxing provision we always copy it but, if it is a relieving provision, we never carry it into our legislation. It is interesting to note in this respect that the British Revenue authorities have provided relief exactly of the type we ask for in this amendment. There are many charities which would benefit considerably if this amendment were accepted. The universities have got a concession in respect of research. Science is treated as research. There are areas of university education in which it would be highly desirable to afford an opportunity to those who graduated from those universities to support the universities by tax-free subscriptions. That would be a substantial help.
There are many charities which have the greatest difficulty in carrying on and anything that might act as an incentive to people to subscribe to these very worthy charities is something of which I am sure everybody would approve. Restricting it to income tax alone, I do not think the Minister would lose by accepting the principle of this amendment. The amount would be small in the context of the Budget with which we are dealing.
Secondary schools naturally try to get help for projects of one kind or another from their past pupils. These schools would be helped considerably if this amendment were accepted and the schools would be enabled to deal with their appeals in a way in which they would be guaranteed far greater support and a much bigger response.
The Minister may argue that the effect of this amendment would be to give something to these charities at the expense of revenue. That is not so. The amount involved from the revenue point of view would be very small. Payment would be the net amount under the covenant when one takes into account that it is not to be treated as a charge against income for surtax purposes. There would be the dual effect in that it would act as an incentive, on the one hand, and represent, on the other, a saving in relation to certain aspects and permanent features of education. It would also act as an incentive in regard to other charitable works which are badly in need of funds. I accept, without question, the definition of charity as a charity operative in Ireland. If the amendment is not absolutely copperplate, it can be amended.