Before the change of business I had practically finished making the case for a further exemption under section 340 of the Income Tax Act, 1967, to include Army pensions up to the figure of £350. If the Minister is not prepared to accept the amendment as it stands perhaps he could accept it to provide for people who served up to a certain year and not include fairly recent retirements because the people who retired more recently have got considerable advantages over what older people who retired earlier and who served earlier have got. The Minister will appreciate that Army pensions generally are very poor but when you go back to the period about which I am mainly concerned and if you take the case I was working on before the change of business that man in the course of his correspondence told me that when he joined the Air Corps he was getting 13s 6d per week. This type of man has been very badly treated by the people.
Committee on Finance. - Finance Bill, 1971: Committee Stage (Resumed).
Little removed from a shilling a week.
He served for years at this sort of level. He went out and got this small pension and found when he took up another job that it was taken back from him in taxation. There is a very good case to be made for this type of man who served in the Army. I recommend this amendment very strongly to the Minister.
I am afraid I find myself also unable to agree to this amendment. The argument advanced by Deputy Clinton is quite convincing in regard to the case he has made but, of course, a very good case can be made for many other categories. This gets us back to a point we dealt with on a previous amendment and that is the undesirability of departing from the code of income tax being applied as far as possible on the same basis to everybody.
Perhaps I can illustrate how strongly this line has been taken in similar cases urged in the past when I remind the House that income tax is payable on Old IRA pensions.
Which is wrong too.
The Deputy would probably agree with me when I say that if exemption were to be given that category perhaps should come before any other. Deputy Tully mentioned earlier in another connection that representations had been made to exempt from income tax payments made to part-time firemen, for whom a very good case can be made too. In effect, what this amounts to is an increase in pension and a very strong objection which I would have to this kind of exemption, apart from the one on general principle which I have mentioned, is that it is not an appropriate method of providing an increase in pension because pensioners in the lower income groups who are not liable to tax would not derive any benefit at all from it and it would only be those in the higher income brackets who would obtain an increase. I have some figures here. A single man with no other income will not be liable for income tax unless his pension exceeds £399 per annum. In the case of a married man where neither he nor his wife has any other income there will be no liability unless the pension exceeds £674 per annum. In cases like that no benefit would accrue to such people from this exemption. For both the reason of general principle and also for the latter reason, that it would operate more for people with some income above the minimum than those at the bottom of the scale, I am afraid I cannot agree to the amendment.
The Minister freely admits that these Army pensions are very bad pensions. I am sure he will appreciate that the only way these can be increased is by the Minister for Finance agreeing that they should be increased. He objects to this amendment mainly because it is an increase, in fact, in pension. Is there any way in which the people who have been wronged, and I say wronged deliberately, can be compensated except in some way of this kind? There is no attempt to bring these people up to parity and no apology from anybody. The facts are known—that these people gave the service, that they worked for practically nothing, that they retired on very small pensions and that in spite of this they are to have no increase to bring their pensions up or no relief from income tax where they are taxable.
The Deputy will appreciate that these pensions have been increased from time to time in line with general increases in public service pensions.
So small it is insignificant.
I want to raise a rather technical matter if I may. This section, which is an amendment to both sections 443 and 444 of the Income Tax Act, 1967, must be read in relation to the object of these sections. These sections provide that under certain circumstances income settled by a parent on his infant child is deemed to be income of that parent. The explanatory memorandum in relation to section 14 says the section is designed to "remove an anomaly in those provisions of the Income Tax Acts which secure that income settled by a parent on his child will, in certain circumstances, be deemed to be the income of the parent". Because those provisions operate only if the child was under the age of 21 years and unmarried at the commencement of the year of assessment in which the income is paid, they do not apply in the case of a child born later in the year. The section provides that in future the income will be deemed to be that of the parent if the child was under the age of 21 years and unmarried at the date of payment.
While the section does remove this anomaly, I think it is possible that it has an effect outside and beyond what is described as its purpose in the explanatory memorandum. In the case of a discretionary settlement whose objects include not only infant children of the settlor but also other persons such as adult persons or strangers, section 443 does not apply so long as the income is accumulated and is not paid to or for the benefit of an infant child. I can understand that the introduction into a discretionary settlement of objects, possible beneficiaries, in addition to infant children defeated the operation of section 443 and defeated the object of that section so long as the income was not, in fact, paid to an infant child.
Section 14 (1) of this Bill is designed to overcome this defect from a revenue point of view because it amends section 443 by deleting the reference to being "payable or accumulated" and inserts a proviso whereby any income which may become payable or applicable to or for the benefit of a child of the settlor in the future shall be deemed to be paid to that child or if there is more than one child, to each of the children equally. This amendment of section 443 I would regard as not unreasonable but I am troubled by the phrase used in the proviso "provided that (a) for the purposes of this Chapter, but subject to section 444..." In other words, the amendment proposed must be read subject to section 444 and this, I think, creates a difficulty which I want to raise now with the Minister so that it may be examined.
This is the difficulty as I see it. Under section 444, section 443 does not apply in respect of income accumulated for the benefit of an infant child where the settlement is an irrevocable instrument, that is, a settlement under which neither the settlor nor his wife can take any benefit. Section 14 of the Bill now amends paragraph (a) of section 444 by deleting the reference to the child being under age so that section 444 would apply to accumulations for the benefit of a child whether an infant or not. This seems to be the effect but it seems to me that it does not go far enough because the relief given by section 444 in respect of income accumulated under an irrevocable instrument would not apply where the instrument is a discretionary settlement whose objects include not only children of the settlor but also persons such as his grandchildren or other more remote relatives because in such a case it could not be said that the accumulation was for the benefit of a child or children while at the same time the amendment to section 443 would cause that section to apply to such a settlement.
This result, I think, is possible. I doubt that it was intended under section 14 as it is proposed. The purpose of both these sections in the Income Tax Act, sections 443 and 444 and the other earlier statutory provisions from which they derive, was to treat income under a settlement as still being the settlor's income where it was, in fact, paid to his infant child or where it was accumulated for his infant child under a settlement under which the settlor or his wife could benefit. If this is the effect, we are creating another quite anomalous situation because, if I am right in suggesting that it is the possible effect, then under a discretionary trust which is an irrevocable instrument whose objects are confined to the children of the settlor and only confined to them, accumulations of income would be entitled to the benefit of section 444. But if the settlement included objects in addition to the children of the settlor such as his grandchildren or some other more distant relative the accumulation of income would not have the benefit of section 444 but would fall under section 443 under the amendment now proposed.
It seems that as a result of that a very real ambiguity may be created as to the operation of sections 443 and 444 in relation to accumulations under a discretionary trust and I think we should now endeavour to remove that possible ambiguity by some appropriate provision. I have not tabled an amendment but I suggest to the Minister for consideration between now and Report Stage that the difficulty I mention might be overcome if paragraph (a) of section 444 were altered to read as follows—in other words, if we removed the present paragraph (a) of section 444: "Section 443 (1) shall not apply in respect of any part of such income which is in the said year of assessment accumulated for the benefit of the child of a settlor or for the benefit of persons who include or may include a child of the settlor nor in respect of income arising in the said year of assessment from accumulations of the income hereinbefore mentioned."
I think an amendment along those lines—the words may not be precise although I think they are—and the substitution of such a paragraph for paragraph (a) of section 444 would meet the possible ambiguity that I believe and am advised may result from the amendments now proposed to section 14. I appreciate that the Minister may not wish to deal with this matter at this stage but I should like him to consider it between now and Report Stage.
At first glance it appears that the result the Deputy apprehends is not one that will occur but I admit the matter is complex and I undertake to look into it between now and Report Stage.
Obviously I must have my amendments mixed up a little, but in relation to this section I had intended to do what is proposed in relation to section 18, namely to deal with the proposed increase in interest rates put forward in the section. The present rules of interest on overdue tax are contained in sections 550 to 552 of the Income Tax Act, 1967. The interest payable by the taxpayer is not allowable for tax purposes under section 550 (3). The Minister now proposes to increase the interest rate to 9 per cent and this is a most punitive increase. For a trading company an increase to 9 per cent is equivalent to a tax allowable interest rate of 21 per cent. It is a penal rate and will cause considerable hardship.
What is the equivalent? In Britain the rate is 6 per cent and I think the position is that no interest is payable where the tax assessed is less than £1,000. Here we are proposing 9 per cent, irrespective of the amount of tax. In addition, under subsection (2) (a) of the proposed section the period of grace is reduced from three months to two months. Subsection (2) (a) (iii) provides for the insertion of a subsection and there are provisions therein that can operate very harshly in certain cases.
Subsection (2A) (b) deals with circumstances wherein there is a dispute initially between the inspector and the taxpayer. Either there is an agreement or otherwise and there may be a notice of appeal to the appeals commissioners. There may be, and frequently is, the situation in which there is a genuine dispute as to liability in respect of a substantial portion of the assessment. The inspector may seek a payment on account, approximating to the total eventual liability. The taxpayer, from his point of view, might reasonably offer to pay the amount which it not in dispute and, in those circumstances, a payment on account may not be agreed. As things are at the moment, it may be a considerable time before the appeal is listed or decided. Under this proposal where there is genuine disagreement between the taxpayer and the inspector, unless the taxpayer lodges 80 per cent of the tax as assessed he will not get any interest benefit.
Where there is a genuine dispute, a provision of this kind will put the disputing taxpayer in a most unenviable position. He must pay 80 per cent although he genuinely believes his tax liability should be only 10 per cent or 15 per cent of the assessment. This is rigging the stage far too much against a taxpayer who has a genuine dispute. I suggest the Minister should consider modifying the figure of 80 per cent to make a distinction between the payment of a tax which is not in dispute, to provide for the case where the taxpayer pays what he genuinely believes to be the sum for which he is liable. In fact, he should be encouraged to appeal his liability in respect of the balance and appropriate measures could follow. If he loses the appeal and is held to be liable he should get benefit at least in relation to the amount of tax he has paid. It is unduly restrictive on a taxpayer who has a genuine grievance to make it imperative that he lodge 80 per cent of the tax liability.
I should like to support the opposition to this section because it is unjustifiably penal. It increases the rate of interest on unpaid tax and it decreases the time allowance for payment of tax which has been assessed and agreed. It introduces a novel section in so far as it positively discourages people from appealing and, in effect, it penalises them for appealing. It has always been implicit in the income tax code that the taxpayer has the right of appeal to a special commissioner and thence to a Circuit Court judge. It is contrary to justice if any measure is introduced that inhibits that right of appeal. This section is designed specifically to discourage a taxpayer from appealing. One must assume that the Revenue Commissioners experience——
I am sorry for interrupting the Deputy but I do not follow the Deputy's argument. Why does the Deputy say it is designed to inhibit a taxpayer from appealing?
He will have to pay interest from the day from which the tax should have been paid. He is being asked to pay interest at a severe rate.
At 9 per cent.
It is nearly a commercial rate on tax which he says is not due. To that extent I do not think it can be denied that it inhibits his right to appeal. If the appeal takes some time to determine, the interest is payable all along and the compulsion is on the taxpayer to pay tax so as to save interest on tax which he feels should be the subject of an appeal. It is unfair to him in his position as a citizen vis-á-vis the State.
I do not know whether the Revenue Commissioners feel that there have been abuses in appeals to the Special Commissioners and to the Circuit Court. The answer certainly is not to do anything which inhibits this right which has always been a characteristic of our income tax code. There is already provision in the Income Tax Act 1967, whereby the Special Commissioner on hearing an application, perhaps for an adjournment before he hears an appeal, has power to order the payment of a sum on account of the tax found due in the original assessment. This power is quite adequate to deter frivolous and time-wasting appeals without bringing in this section charging interest on tax which has not been finally adjudicated.
There is a saver in paragraph (2A) which states that if there is an agreement between the inspector and the appellant on a payment on account no interest is charged. All I can say to that is: "Thanks for nothing." The Special Commissioner can make that arrangement already. The other saver says that if the appellant wants to avoid paying interest on tax which might not be found due eventually, and if he has refused for some good reason of his own to come to an agreement with his inspector, he can pay 80 per cent. He is not the person to say what 80 per cent consists of in £sd because 80 per cent cannot be established until a time in futuro when the appeal has been finally determined. He is making a guess that if he states a sum and it turns out to be 80 per cent of what is eventually found to be due he is safe, and if it turns out to be less he is not safe.
I know that there are provisions that if his assessment is reduced and he is found to have overpaid his interest there will be a refund of interest by the Revenue Commissioners to him. Again, thanks for nothing. This is equivalent to saying: "If I mistakenly cut your throat and you lose a pint of blood I will give you back a free transfusion of the same pint of blood.""Too smart by half" is the note I have opposite the section in question and I think that about summarises my feelings on it.
I do not think that the income tax code should be unduly penal and certainly the provisions in this section are penal. The assessment of income tax itself is a burden which everyone must face up to but an interest rate of 9 per cent is unduly penal. I object strenuously to the reduction in subsection (2) (ii) reducing the payment from three months to two months. This is wrong because some people in business may have to liquidate assets in order to pay this income tax. I do not think that they should be forced to dash off and get funds to pay income tax within two months. My general objection to the section is quite simple. Our income tax code should not be unduly penal and this section is unduly penal.
I want to make a cross-reference from this section to section 48. I have put down an amendment opposing section 48. My reason for that is that the rate of interest already in the income tax code which is referred to in section 15 is ½ per cent per month. Under section 48 the rate that a company can get back if they get a decision from the judge is maintained at ½ per cent. There is such a thing as being too smart by half.
I do not follow the Deputy.
This is the case because I have made the cross-reference. Look at section 48 (a) which provides:
if too much tax has been paid, the amount or amounts overpaid shall, save where the interest amounts to less than £1, be repaid with interest at the rate provided by section 14 (1) of the Finance Act, 1962...
That is expressed to be ½ per cent per month—6 per cent per year, in other words.
I think it is 9 per cent.
No, it is not 9 per cent.
Heads I win, tails you lose.
I cross-checked it. It is expressed in section 14 (1) to be ½ per cent for each month. In other words, where the Revenue Commissioners owe someone money arising out of——
May I interrupt the Deputy for a moment?
Certainly.
Section 46 amend section 14 of the Finance Act, 1962, and brings it up to 9 per cent.
What section of what Act?
Section 46 of this Bill.
That is when the tax is going from the company to the Revenue Commissioners.
What about when it is coming back from them?
I can tell the Deputy that the intention is to have a 9 per cent rate payable by the taxpayer and by the Revenue Commissioners also.
Why is this not provided in section 48?
It is not provided in section 16 either.
I think it is.
I am prepared to accept that. If that is the intention it is a pity that the Minister did not succeed in doing it in the Bill because he certainly did not succeed.
What is sauce for the goose is not sauce for the gander.
Yes, it is. That is the intention. That is what Deputy Cooney thinks is too clever by half.
I am glad I saw it.
If that is the intention, why in section 48 did the Minister not refer to section 14 (1) of the Finance Act, 1962, as amended by section 46 of this Bill? That would make it quite clear that the percentage rate would be 9 rather than 6.
We can deal with that when we come to it but I can assure the House that the intention is that in all of these cases the figure will be 9 per cent whether payable by the taxpayer or the Revenue Commissioners.
It is all right if that is the intention.
We are trying to make all things equal.
That is right. I want to say in regard to this matter that I regard this whole question of the charging of interest both under this section and under the other sections, on corporation profits tax and on death duties, as being fundamental. I should like to suggest to the House that our stance here should be that any taxpayer should be obliged to pay his tax promptly, especially having regard to the very many taxpayers who are obliged to pay on the dot by deductions by way of PAYE. Both from the point of view of equity as between one citizen and another and also from the point of view of the revenue of the State, we ought to desire that the correct amount of tax should be paid by the taxpayer promptly. I am putting this forward as a general principle. I would point out that the payment of tax promptly by taxpayers is of considerable benefit to the Revenue. As well as that, failure to pay tax promptly can lead to additional taxation having to be imposed. I suggest, therefore, that the principle I have enunciated is one with which we should all agree.
The question arises then as to how one deals with the situation in which there is some doubt as to what is the correct amount of tax. The principle of paying interest on unpaid tax is not new. The reason for raising it to 9 per cent is a very simple one. It is quite possible for people to obtain 8 per cent and upwards on deposits. Indeed, some people deliberately withhold payment of tax as long as they possibly can, investing the money involved, which should go to the Revenue, at a profit. When they have to pay in the end, and at the lower rate of interest, it is still worth their while. This represents a considerable loss to the Revenue. It is a practice we in this House ought not to aid, abet or encourage.
I am, of course, anxious to ensure that the taxpayer who honestly and in a bona fide manner wants to pay his correct tax within the due time but is in a position in which there is some doubt about what the correct amount is gets a fair deal. I suggest this section gives him a fair deal because it provides that, where he either makes an arrangement with the Revenue Commissioners for payment on account or, alternatively, if he does not or cannot make such an arrangement but ultimately pays 80 per cent of the tax found to be due—I pointed this out to Deputy O'Higgins who said, perhaps inadvertently, 80 per cent of the tax assessed; it is 80 per cent of the tax found to be due—in either of these cases he does not become liable to interest and, on determination of the correct amount, he has two months in which to pay. If he overpays he gets a refund plus interest at 9 per cent. This has been referred to here as being a penal rate, but that is the rate the Revenue Commissioners will pay him. I know what people mean when they say “Thank you for nothing” in regard to this; they mean there will be very little interest paid by the Revenue Commissioners. That may be so, but it is still a fair deal. The Revenue Commissioners pay exactly the same rate on overpayments of tax as they charge on unpaid tax. I do not think anyone could object to that in principle. The idea behind this and other sections in the Bill is very important. This is something to which I attach a great deal of importance and I am afraid I cannot, therefore, accept the arguments put forward against this section.
There is a practice for a taxpayer with a UK income to have tax recovered set off against the Irish liability on the relevant income. Because of this I am told that the collection of the Irish tax is usually held over until the end of the tax year without interest being charged. Will this practice continue? Secondly, what will be the position when a taxpayer dies and his representatives are unable to pay tax due until probate or letters of administration have been taken out?
It could be two years.
In the present state of the Estate Duty Office, to which we will be referring later, this could take many years.
On the first point raised, I understand the taxpayer in question can claim from the UK half-yearly, if necessary, to put himself in funds to pay his tax here. I shall have to look into the second point between now and the Report Stage.
On the first point, if the Irish tax is not collected, I want to be quite sure that an interest bill will not be added. With regard to a taxpayer who dies, it appears to me some period of time must be provided.
I will certainly look into that.
It appears to me that the Minister's worry is that people against whom an assessment has been raised could, for frivolous reasons, appealing and delaying the appeal, get the benefit of the high rate of interest. The Minister is after these, and properly so. The point I want to make is that these people can be inhibited from carrying on like that at the moment by the special commissioner to whom their appeal comes in the first instance. He can order a payment on account and, if it is refused, there are other sections he can apply. He is an experienced official and he will know very well whether the appeal is frivolous or bona fide. I think that is a sufficient weapon to prevent delay in the payment of tax. Since that weapon is there all the section does, I suggest, is inhibit bona fide appeals.
The provision to which the Deputy refers is being repealed here. Secondly, even if it were not, there are two matters I should mention: we do not control the special commissioner and, secondly, in many of the cases coming before him he would not be in a position to order a payment on account because very often they are cases in which there are no accounts and he has, therefore, nothing to go on. I suggest that the genuine case is covered and is getting fair play under this section. The people who will really suffer are those who are not genuine, not bona fide, and have, perhaps, got away with it in the past.
On my reading of this section there seems to me to be an omission here. This section covers overpayments where payments on account have been agreed with the inspector. That is fair enough. The overpayment is refunded with interest. There are many cases, I am told, in which in fact there is a payment on account without any agreement with the inspector. In those circumstances, if it is subsequently determined there is an overpayment, the taxpayer is out on a limb. If I read the section correctly this is a very dangerous section because in relation to a dispute about an assessment the taxpayer's agent is put in the position of saying, "Either you pay, and I suggest you pay, or else you will not get any interest in the event of an overpayment being determined subsequently in relation to the determination of tax liability". I should like the Minister's comment as to whether I read the section correctly.
Deputy O'Higgins's reading of the section is correct and I agree entirely with him. I am afraid the section does not carry out what I had intended, which was in all cases where there is an overpayment, that there would be a refund by the Revenue Commissioners with interest at 9 per cent, however the overpayment arises. It seems to me that to achieve equity there ought to be precisely the same approach to non-payment by the taxpayer as to repayment by the Revenue Commissioners. The Deputy's reading of the section is correct and I propose to introduce an amendment to ensure that overpayment arising in any manner will be refunded with interest at 9 per cent.
I am much obliged to the Minister.
I should like to raise one matter on section 17 which deals with the situation in which the taxpayer requires his appeal to be reheard by a judge of the circuit court, as is his right. Under the proposed section although he appeals to the circuit court judge the interest on his tax liability subsequently found to be due will run from the date of the determination by the appeal commissioners. Am I right in my reading of the section?
Two months after it.
Yes, two months after it.
Where is the two months?
In section 15.
I thought there was a need for some period, say 10 days or 14 days, in which the taxpayer could have the benefit of advice in relation to his rights, but I must have been thinking of another section. I may have misread the section but it did not appear to me that there was any such provision in the section. I should be glad to hear the Minister on that.
The position is that if he has made an agreed payment on account and he pays the balance within two months of the date of determination of his appeal, interest does not arise.
Coming now to this amendment to section 429, if he goes forward to the circuit judge what is the position then? Does he get any bisque at all to get advice?
Under section 428 of the Income Tax Act, 1967 a person who appeals to the High Court from a determination of the appeals commissioners or the circuit court, is obliged to pay the tax charged in the assessment pending the hearing of the appeal. The purpose of section 17 is to make similar provision for payment of the tax where, on the determination of an appeal by the appeals commissioners, the taxpayer requires his appeal to be heard by the circuit court. It is the same principle as applies in section 428 of the 1967 Act but it is applied not only in the case of an appeal to the High Court but in the case of an appeal to the circuit court.
The appeal on the 1967 Act is on a point of law; it is not on the actual assessment.
That is correct.
The circuit court is on the tax assessment.
Yes, but the same principle applies here as we have been discussing earlier. In the event of a bona fide taxpayer paying tax he is not penalised and if he overpays he gets a refund with interest at 9 per cent but a person who is using this machinery merely to delay payment so that he can earn more interest on his money, will not benefit as a result of these arrangements.
I would suggest to the Minister that the amount of tax which would be subject to an appeal to the circuit court, having regard to the law as it stands with section 15 amended, will not be of any size or consequence and certainly the person who will be going that far will not be the speculator the Minister has in mind. I would be very much opposed to the principle contained in section 17. Our income tax code is necessarily administrative. Appeals and decisions are matters of administrative law rather than of common law. The ordinary principals that we are used to in our legal system cannot necessarily apply. The tribunals are not judicial tribunals, as we traditionally understand them, and among jurists there is considerable apprehension about administrative law, its effect and how something can work unfairly against a citizen. One can see that a certain amount of it is unavoidable but there is a happy marriage between the two systems contained in this and that is the right of the citizen to go from the special commissioners to the circuit court judge. It is unfortunate to see this right being inhibited because that is what this section does; there can be no doubt about that. It is of the essence of our appellate system that the position of the parties should not be altered pending the determination of the appeal, but this section clearly says that after the special commissioners make their assessment——
The appeals commissioners.
——I take it they are the same persons—the tax shall be paid and consequently the citizen then going through the circuit court is in a worse position even if the circuit court confirms the tax and that is not altogether the point. The principle of the thing is that the relevant position of the parties should not be altered pending the appeal. This section very seriously interferes with that principle. I do not think the abuses which the Minister was apprehensive about in relation to section 15 will arise in relation to section 70 with regard to appeals to the circuit court. If a taxpayer is of a mind to speculate on unpaid tax in the manner exemplified by the Minister he will now be dealt with by section 15 and that abuse will be ended and the only person who will be interested in going to the circuit court will be a person with a genuine dispute with the tax authorities. It will not be a speculator because his teeth will have been blunted by section 15. Consequently, there are no speculators to be caught by section 17 and I would suggest to the Minister that the principle of an appeal, that the parties be left in the same circumstances, be honoured and that the taxpayer be not made pay his tax until after the appeal to the circuit court.
On this section I would ask the Minister to bear in mind the case of the man who has not got the wherewithal to pay it. Earlier this evening I was making the case of the five-acre market gardener who is assessed in retrospect and who brings his case before the Special Commissioner who says he must pay because he is to be regarded as having income from a trade. He is an ordinary working man. He starts this business. He does not know that he is liable to income tax because he sees the farmers all around him paying no income tax. It is reasonable that he should be in this state of ignorance in those circumstances. The Special Commissioner says that according to section 54 he is liable to pay it. He has not the money to pay. He has to sell his five acres and his total livelihood is gone because the Special Commissioner says it must be paid before the case goes to the circuit court. The only course open to him when the Special Commissioner says he must pay is to go to the circuit court. This type of case should be covered and is certainly not covered here. It means that the man's assets must be sold and the livelihood of a whole family destroyed in order to meet the requirements of section 17.
In regard to the point raised by Deputy Clinton, I would point out that in any case in which a person is paying tax he is paying it on profits which he has already earned.
And spent.
He may have spent it but, if he has, that should not put him in a better position than the people who are paying under PAYE. It seems to me that in genuine cases of hardship arrangements can be made with the Revenue Commissioners but they have to be genuine cases of hardship and, of course, he will be liable for interest on the deferred payment.
That is fair enough but to have to sell his assets is a different thing.
Nevertheless, the fact that he has already spent the money is rather difficult for him but it should not put him in a privileged position as against other people who have paid before they spent.
Furthermore, in regard to the point raised by Deputy Cooney, I would suggest that the procedure which is laid down allows an appeal to the circuit court. I think the Deputy is mistaken in thinking that only genuine cases would go that far, that the speculators, as he calls them, would not go that far. In fact, our experience is that a number of people do appeal to the circuit court and when the case is coming on for hearing, they then drop their appeal. Of course, the reason is perfectly obvious: they are making money out of this.
They will be already caught by section 15.
They are caught under section 15.
Their wings will be clipped by the earlier section.
They have to go to the Special Commissioner and are caught at that stage.
In that case, if they have paid their tax—is that what the Deputy is suggesting?
That only the fellow who has a genuine dispute over a balance will be left. He is the only person who will be left.
Is the Deputy suggesting that in that case, pending his appeal to the circuit court, he should not have to pay his tax?
I am, yes.
Surely that is an inducement to any taxpayer who wants to carry on as a speculator? It is an inducement to appeal.
That is what the courts are for.
It is an inducement to go on appeal to the circuit court, as people are doing at present, and dropping their appeal when it gets to the courts.
No. May I make it clear? A taxpayer is assessed by the inspector and, at the moment, if he disagrees with the inspector he goes to the Special Commissioner who may order a payment on account or may not—that is irrelevant for the purpose of the argument. The Special Commissioner makes an assessment and the taxpayer may then appeal against that to the circuit court and at the moment there are no restrictions on him to abuse the various steps of appeal. As proposed by section 15, the first stage, from the inspector to the Commissioner, there is an inhibition on that, in the sense that the inspector's assessment, if not paid, carries interest or if an amount agreed is not paid the assessment carries interest or if an amount which is afterwards found to be 80 per cent of the tax due is not paid, it also carries interest. If the person in question is a speculator, his wings are now effectively clipped. He will not even go that far because he will be caught for interest from the time he leaves the inspector. Consequently, if he is that type of person, his gallop is finished at that stage because he is subject to interest. But, if you have a person who has a genuine grievance with regard to his assessment, something going to the roots of his case, so to speak, he bona fide makes an agreement with the inspector. He pays the agreed figure. There is still an outstanding sum. He goes to the Commissioner who may confirm the assessment. He is still not satisfied. He wants to go to the circuit court. Between going from the inspector to the Commissioner he has paid the agreed figure to save himself interest. He is a genuine taxpayer. There is still some tax outstanding that he wants to fight to the highest court available to him, which is the circuit court. I think he should be allowed go to the circuit court without having to pay that tax after being with the Commissioner when prior to being with the Commissioner he has paid an agreed figure with the inspector. He is being inhibited. The speculator will have been caught by the necessity of the inspector having to agree with him at the early stage.
I misunderstood the Deputy. I thought he was visualising appeal to the circuit court by a taxpayer who, in fact, had not paid any tax.
No. That person will not exist any longer, unless he wants to pay 9 per cent interest.
I think the Deputy may be a little more optimistic about the effect of the section than I am. Although I am hopeful, I am not that optimistic. I will look at the point that the Deputy has raised. I want to be clear that I have the point correctly. The Deputy is visualising a situation in which the taxpayer is appealing to the circuit court having paid either an agreed payment on account or 80 per cent of what ultimately turns out to be his correct assessment?
Or possibly even paying 9 per cent interest. He may even be doing that if he has not agreed with the inspector or has not paid a sum which is afterwards found to be 80 per cent. If he is not doing either of these things he is paying interest.
I am more interested in his tax than in the interest on it.
There are very few taxpayers, I would suggest to the Minister, who would be prepared to pay 9 per cent over the time it would take possibly to leave the circuit court with the state of circuit court cases, even in income tax matters. I think he would be perfectly genuine.
I understand the point the Deputy is making and I will have a look at it.
I come in again just to ask the Minister if he would explain to the House why he is so anxious to insist that the tax is paid before the appeal machinery provided is fully utilised. If when the final decision is reached by the circuit court the man is liable for interest retrospectively at the rate of 9 per cent, the Minister and the Department are covered and, therefore, it will not cost the State anything to wait this small additional time.
I raise this again because I am concerned about the man who may have to sell his assets and may lose his total livelihood and the total livelihood of his family who might be involved in the type of business I have in mind. Is it not the essence of all civil law that a man is innocent until he is found guilty? Here we are trying to prove that a man is guilty until he proves himself innocent. That is revenue law.
I could not accept that at all. I have explained earlier—I am not sure if the Deputy was here—the basic thinking behind this but in the kind of case he is citing where a man's livelihood would be at stake, that would be the kind of hardship case that I referred to earlier where an arrangement could be made with the Revenue Commissioners.
Is there any provision in legislation for such arrangement?
Certainly, there is in practice. I must insist on the principle that a taxpayer who owes tax should not, by reason of the fact that he has already spent the money on which he should pay tax, be put in a privileged position as against other taxpayers who pay promptly.
He may not be aware that he owes tax.
That is precisely the point. He does not owe it until a final assessment has been made.
I agree.
The Revenue Commissioners may be of the opinion that he owes tax.
He would owe it but the exact amount may not be determined. A situation such as that has been covered and covered fairly.
Is it the position that the Minister is asking for money for which liability has not been provided? In effect, this is fulfilling the old approach of the Revenue law. In the eyes of the Revenue Commissioners a man is guilty as soon as they make an assessment and until such time as an agreement is reached. Is he to pay a sum of money that may be different entirely from the assessment being made? Why is it not sufficient to ask him to pay the interest after the final assessment has been made and proved? Why is he assumed to be guilty and to owe money merely on an assessment of revenue which sometimes may be speculative?
One must draw a distinction between the guilty on the one hand and owing tax on the other.
I am using the expression in its broad sense.
The approach whereby a taxpayer is required to pay his tax promptly is one that we must all support. We are making provision here that I consider to be fair and reasonable. Not only would a person have the option of making an agreed payment on account with the Revenue Commissioners but if he does not wish to agree with the Revenue Commissioners he can make a payment whereby, if it is only 80 per cent of what he is determined ultimately to owe, he will avoid interest. Also, he would then have a further two months in which to pay the balance on which no interest would be charged. If he should overpay he is refunded the appropriate amount plus interest at the same rate. That is doing justice as between the citizen and the Revenue Commissioners.
Will the Minister consider the section with regard to the point about a person appealing to the circuit court?
Yes.
Before leaving this section I want to ask what may appear to be a stupid question. I am puzzled in regard to the reference near the top of page 11 of the Bill to section 550 (2A) with the emphasis on "A".
This is a new subsection that is added in by section 15. There is already a 2 (a) and 2 (b) and it is to distinguish between the two "a's" that one is in the capital letter form. In other words, it is a subsection and it must go in between subsection (a) and (b).
I move amendment No. 8:
In page 11, to delete subsection (1).
If Deputy O'Higgins agrees we could, perhaps, discuss together amendments Nos. 8, 9, 37 and 38 since they seem to be related.
I would prefer not to discuss amendments Nos. 37 and 38 at this stage because there may be different considerations applying in respect of those. Nos. 8 and 9 could be taken together.
The purpose of these amendments is to remove from the section what I regard as a highly obnoxious provision whereby a taxpayer is to be punished in a penal way for neglect and neglect is put as being synonymous with fraud. This must be the first time that such a proposition has been put into legislation of this kind. By equating neglect with fraud there is the proposal to punish a taxpayer who may be guilty of neglect. This is done by the provision of an obligation to pay a penal rate of interest.
Therefore, the purpose of the amendments is, first, to remove subsection (1) which defines the term "neglect" and in the second subsection which, if the first amendment were carried, would become the section itself, to remove the word "neglect" and provide that the section should operate only in the case of fraud. There are a number of matters involved in relation to this section arising from the amendment that I propose. The section itself represents a complete departure from the present position. At present, interest cannot be charged from a date prior to the making of an assessment and disposal of any appeal. As it is proposed, the section provides that "neglect" shall have the meaning defined in section 186 of the 1967 Act, as amended. That definition is as follows:
.... "neglect" means negligence or a failure to give any notice, to make any return, statement or declaration, or to produce or furnish any list, document or other information required by or under the Income Tax Acts:
Provided that 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 Revenue Commissioners or officer concerned may have allowed; and where a person had a reasonable excuse for not doing anything required to be done, he should be deemed not to have failed to do it if he did it without unreasonable delay after the excuse had ceased.
The important element in that definition is that neglect means negligence or a failure to give any notice, to make any return, statement or declaration, or to produce or furnish any list or document or other information required under the Acts. This section proposes to make such neglect punishable in the sense that a penal rate of interest shall apply and where there is neglect interest is payable from the normal due date up to the date of actual payment. I am informed and believe that most cases of neglect arise from failure to lodge returns within the 21 days that are normally allowed from the due date. In practice this time limit has been established to be completely unrealistic for taxpayers whose affairs are in any way complicated. I understand that it is utterly impossible for a taxpayer whose affairs are not even largely complicated to lodge his return of income within 21 days. I invite the House to consider a return for the tax year, 1971-72, being lodged on, say, 15th January, 1972, no assessment having been made. In such circumstances if the inspector of taxes overlooks making an assessment on the returns for 12 months, then under the definition of "neglect", presumably, the taxpayer, since he has not observed the time limit in relation to giving his returns and so on, would be guilty of neglect. Although, in fact, by the 15th January he had rendered his return for income tax, a delay occurred on the inspector's part, an assessment was not, in fact, prepared for another 12 months and then on the assessment being prepared, is that taxpayer to be made liable to pay, from the due date, interest at the rate of 9 per cent on his tax liability? That seems to be the effect of this section if one includes the word "neglect".
There are other problems arising from it. For example, a solicitor or an accountant or a lawyer advised, say, a taxpayer on a particular line of authorities in relation to income tax liability and what he was entitled to do. If there is a change in the law either by statute or by court decision and the taxpayer, not being alert to the change, operates in a particular way in which he had been advised, is he to be held guilty of neglect because he has not changed what he had been doing or altered his mode of conduct, or does it mean that the solicitor or the accountant must chase back and re-advise in every case in which there is a change in the law?
This section as it stands is far too punitive, far too wide and it can only be tolerable if the word "neglect" is removed. Nobody on this side of the House will defend or condone a situation in which there has been an attempt —I use it from an income tax point of view—to engage in fraud. It is quite understandable that any such attempt should be dealt with under this kind of legislation but to equate neglect, the failure to take a step, which could happen to a bishop, with fraud and to apply the same penalties is utterly unreasonable. I commend this amendment to the house.
I agree completely with what Deputy O'Higgins has said. The idea of making fraud and neglect identical could only occur to the Revenue Commissioners. One of them said to me on one occasion: "I think every man is our enemy and we are every man's enemy." A strange statement from one of the commissioners.
A long time ago, I am sure.
It is not a long time ago. It did not happen yesterday but it is not 20 years ago. In essence, as Deputy O'Higgins pointed out, this neglect is a neglect to complete forms, a neglect to comply with the ordinary rules. There are many circumstances in which people might not complete forms. Indeed, there have been occasions when the forms have been lost in the office of the Revenue Commissioners, particularly down in O'Connell Street, in that well-known Augean stable which at one stage got into complete disorder. This kind of thing makes an ordinary person like myself extremely suspicious. Like Deputy O'Higgins I certainly hold no brief for fraud. I have to pay every penny I owe the Revenue Commissioners which is all the more reason why I should object to fraud. Quite apart from that we just do not approve of fraud. Neglect is a different thing. A man might be ill. He might have difficulties with his business. I agree with the suggestion of the Fine Gael Deputies that "neglect" should be taken out of this. I do not think the Revenue will suffer anything worth talking about. Usually when there is neglect it is discovered and I do not see why people should be charged 9 per cent. If it is not genuine neglect it is obviously fraud. Therefore I cannot see what objection the Minister can have to accepting this amendment.
This is not the first time that this concept was brought forward in legislation. Section 4 of the Finance (Miscellaneous Provisions) Act, 1968, by amendment of section 186 of the Income Tax Act, 1967 secured that in cases of fraud or neglect there would be no time limit on the making of assessments to recover income tax or surtax which would otherwise be lost to the Exchequer.
That is fair enough. That is not imposing a penal provision.
But it is dealing with this concept which the Deputy put as equating fraud with neglect. I confess that when I first had this proposal put before me I reacted in precisely the same way as Deputy O'Higgins and Deputy O'Donovan and said: "I will go all the way as far as fraud is concerned but neglect is a different matter." I was thinking in terms of failure to fill in or send in forms and that kind of neglect but then I had a look at the definition of neglect as provided for in the section.
The Minister did not find it under section 186 (2) of the 1967 Act and that is what is described here
That was put in by the 1968 Act.
It is not in the copy I have.
It was put in by the 1968 Act.
I have here in front of me the Income Tax Act, 1967.
The Minister will not find it in that.
I think I shall find it in this, section 186. Anyway, the point at issue is the definition of "neglect" and it is not what the normal layman would think of in terms of neglect.
But it is as I read it out?
Yes. Deputy O'Higgins read it out but may I suggest that he gave a great deal more prominence to the first part than to the proviso which is what really counts. The proviso added on to the definition is to the effect that a person is to be deemed not to have failed to do anything required to be done within the specified time, in other words not to have been guilty of neglect, if he does it within such further time as may be allowed.
If any.
Let me develop this argument. Where a person had a reasonable excuse for not doing anything required to be done he is deemed not to have failed to do it if he did it without unreasonable delay after the excuse had ceased. Let us consider a case where the Revenue Commissioners say that there was neglect within the meaning of this section and interest will have to be paid. Almost certainly in such a case the taxpayer will appeal against that assessment on the grounds that there has not been any neglect and thereupon the onus of proof will be on the inspector of taxes to prove that there was neglect within the meaning of the definition.
To whom will he prove this?
To whomever the appeal is made, either the appeal commissioners or the Circuit court. In that event, if it is a case of an incorrect return the inspector will have to show that this was not the result of an innocent mistake but that the taxpayer was guilty of negligence in making the return. It may be taken that the appeal commissioners or the circuit court to whom the taxpayer has recourse will not be lightly satisfied on a point like this. If the case is one of failure to give a notice, to make a return or furnish a list, a document or some other information, the inspector will have to show that the requirement was not complied with within the allowed time. In either of such cases the advice available to the the Revenue Commissioners is that the proviso to the definition of neglect would operate so that if the taxpayer had any reasonable excuse for making the incorrect return or for his failure to give the required notice or return, it would not be possible to show that he was negligent. The cases of neglect which will attract interest under this section are only those in which it can be established to the satisfaction of the appeal commissioners or the court that there was neglect which resulted in an undercharge to tax and neglect arising, as I have indicated, in a way that is more than the layman's understanding of neglect when one has regard to the proviso in the definition.
It seems that, again, on the general principle to which I referred earlier there should not be a privileged position for taxpayers who avoid or delay in paying their taxes as against those who do not or cannot. On the basis of that principle and the proviso to the definition of neglect which is laid down here and the fact that almost invariably any such case will be decided by the appeal commissioners or by the courts having regard to all of this, I do not think this is a dangerous provision. I think it is a worthwhile provision for dealing with cases which, while not amounting to fraud in the legal sense which, as Deputies will know is quite a serious matter and a difficult one to prove, will amount certainly to much more than is understood by the layman as neglect, forgetting to send in a form or omitting to put something on it by pure error. It does not seem possible——
That is what the definition says.
Not when you read the proviso, I think.
How can you equate negligence with fraud?
I do not understand. In what sense?
The same penalty applies here for fraud or neglect but surely there is a sharp distinction to either a layman or a lawyer between negligence and fraud.
I agree that there is. What I am saying is that neglect in the sense defined here is much more than neglect in the sense the layman understands it.
If he fails to give any notice, to make any return, statement or declaration, or to produce or furnish any list, document or other information required by or under the Acts—that is what neglect is.
But one must read it in conjunction with the proviso.
And:
Provided that 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 Revenue Commissioners... may have allowed.
That puts the taxpayer in the position that he does not know until the Revenue Commissioners decide whether he was guilty of neglect or not.
If the inspector says: "You have one month to do this" I would submit as a matter of law that it is irrelevant whether one month is reasonable or not because the person hearing the appeal can only look at the section as it is and the section is quite clear in that it creates an absolute liability if he failed within a limited time or "within such further time," and if the inspector says: "This is the time" it is not a matter for the appeals commissioners afterwards to say that that time was unreasonable. That is as the proviso is presently drafted. A further point is that in the second half of the proviso it says "and where a person had a reasonable excuse..." I would have some sympathy with the Minister's argument if "or" was there instead of "and".
Would that really help in the case the Deputy is making about somebody who did not make a return, say, within a particular time and was allowed a month, whether that was reasonable or not? Even if the word "or" were there, would that help in the case the Deputy visualises?
It would, in so far as he could say to the person hearing the appeal: "I had a reasonable excuse" because the section would say: "...or had a reasonable excuse". I think they have to be read, because of the presence of the semicolon, as two separate and distinct provisos.
I am certainly prepared to look at the definition to see if we can achieve what I wish to achieve. What I wish to achieve is a situation in which somebody who is not guilty of fraud in the strict legal sense but is guilty of more than neglect in the sense the layman means, will become liable to interest. That is what I wish to achieve.
I think in saying that, the Minister has summarised our objections to the section in the sense that he concedes that there are lesser degrees of culpability in the case of the imaginary taxpayer with whom we are dealing in that one is guilty of fraud and the other of neglect. He concedes that there is this difference in culpability but nevertheless the punishment provided is the same and to that extent there is equation.
I do not think that is quite right in that there are other punishments for fraud. We are dealing here merely with liability to payment of interest on tax due. There are, of course, other punishments for fraud.
The Minister is understandably concerned with what the definition of neglect appears prima facie to cover and he has already said, I think, that he is willing to have a look at that definition again. I do not want to reject any such offer from the Minister but I should like to make it clear that it does not satisfy me. No matter how one defines “neglect”, or how wilful one makes it to be, or how much there is a sin of actual commission, it is wrong to equate it with fraud. It is the conjunction of fraud and neglect, however defined, to which I have objection.
Would the Deputy agree that in the context here, where we are dealing only with interest and not with the only penalties available for fraud, it is not right to say that we are equating fraud with neglect? We are only doing it for the purpose of assessing liability to interest on the tax due. It does not mean that a taxpayer who is guilty of fraud is dealt with in precisely the same way as a taxpayer who is only guilty of neglect. A taxpayer guilty of fraud may be prosecuted.
If the Revenue Commissioners decide to deal with it by the imposition of interest, the taxpayer is penalised at the same rate as for neglect.
This would be true if that is the decision but the Deputy will appreciate that, while such a decision might be made in some cases, it will not be made in all cases. As long as the potential for punishment is there in regard to prosecution for fraud, I do not think it can be said that fraud and neglect are being treated in the same way.
They are being treated in the same way in this instance.
Yes, for the purpose of liability for interest.
From the way the Minister has been speaking on behalf of the Revenue Commissioners one would think that the income the State gets from income tax was about £10 million. The State this year will receive £140 million. It is 10 per cent of the GNP, which some people are so fond of quoting. It is about one-fifth of the national income, properly calculated. There cannot be much neglect in the collection of income tax when one considers the amount the State receives. The quantum of neglect relative to the total amount of tax must be infinitesimal.
The Revenue Commissioners must be doing their work thoroughly.
They certainly must, considering that each shilling in the £ income tax brings in £20 million. It seems only yesterday when one shilling in the £1 brought in £1 million, although the Revenue Commissioners may not share this view.
Even if the amount involved were small—I do not think it will be that small—I do not think we can accept the principle that because it is small we should not bother. I do not say that we can follow every hare but, in so far as we can tighten up the administration of tax collection to ensure that all taxpayers are treated in the same way, we have an obligation to do this.
I think the Revenue Commissioners are too fond of following too many hares.
Failure to follow hares that are obvious is a grave injustice to taxpayers who are paying their fair share.
They never get the benefit.
They may not see it, but they do get the benefit.
If they overpay they find it extremely difficult to get a refund.
Subsection (1) states that "neglect" has the same meaning as in section 186 (2) (d) of the Income Tax Act, 1967. I have the Income Tax Act, 1967, here but there is no paragraph (d) in it.
This copy was secured from the office two days ago.
Obviously the reference is inserted in the Minister's copy.
I am afraid the Deputy's copy is not up-to-date.
This copy was secured two days ago. Is there one copy for the Minister and another for the Deputies?
The explanation is that the Deputy's copy is not up-to-date. As was pointed out by Deputy O'Donovan, this was put in by a subsequent Act——
Why was that Act not quoted?
The correct citation is section 186 (2) (d) of the Income Tax Act, 1967. It was inserted into that section.
Why was it not referred to here for the benefit of laymen who do not make their living in the practice of law?
The Deputies are quite right. This is what comes from legislation by reference——
We are getting away from the amendment.
I wonder if it is a case of "neglect" that it has not been done?
That might be a reasonable excuse.
Should this not be drafted so that lay people might be able to understand it?
Ideally, all Bills should be so drafted.
Is this Bill not well drafted, then?
Not ideally drafted.
Tá
- Andrews, David.
- Boylan, Terence.
- Brady, Philip A.
- Brennan, Joseph.
- Brennan, Paudge.
- Briscoe, Ben.
- Brosnan, Seán.
- Browne, Patrick.
- Browne, Seán.
- Burke, Patrick J.
- Carter, Frank.
- Carty, Michael.
- Childers, Erskine.
- Colley, George.
- Collins, Gerard.
- Connolly, Gerard C.
- Cowen, Bernard.
- Cronin, Jerry.
- Cunningham, Liam.
- Delap, Patrick.
- de Valera, Vivion.
- Molloy, Robert.
- Moore, Seán.
- Moran, Michael.
- Noonan, Michael.
- O'Connor, Timothy.
- O'Kennedy, Michael.
- Fahey, Jackie.
- Faulkner, Pádraig.
- Fitzpatrick, Tom (Dublin Central).
- Forde, Paddy.
- French, Seán.
- Gallagher, James.
- Geoghegan, John.
- Gibbons, James.
- Gogan, Richard P.
- Healy, Augustine A.
- Herbert, Michael.
- Hillery, Patrick J.
- Hilliard, Michael.
- Kenneally, William.
- Kitt, Michael F.
- Lalor, Patrick J.
- Lemass, Noel T.
- Lenihan, Brian.
- Lynch, Celia.
- Lynch, John.
- McEllistrim, Thomas.
- O'Malley, Des.
- Power, Patrick.
- Sherwin, Seán.
- Smith, Patrick.
- Timmons, Eugene.
Níl
- Barry, Richard.
- Begley, Michael.
- Belton, Luke.
- Belton, Paddy.
- Bruton, John.
- Burke, Joan.
- Burke, Liam.
- Burton, Philip.
- Byrne, Hugh.
- Clinton, Mark A.
- Conlan, John F.
- Coogan, Fintan.
- Cooney, Patrick M.
- Cosgrave, Liam.
- Cott, Gerard.
- Creed, Donal.
- Crotty, Kieran.
- Dockrell, Henry P.
- Dockrell, Maurice E.
- Donegan, Patrick S.
- Enright, Thomas W.
- Finn, Martin.
- Fox, Billy.
- Governey, Desmond.
- Harte, Patrick D.
- Hogan O'Higgins, Brigid.
- Jones, Denis F.
- Kavanagh, Liam.
- Kenny, Henry.
- L'Estrange, Gerald.
- McLaughlin, Joseph.
- McMahon, Lawrence.
- Malone, Patrick.
- O'Donnell, Tom.
- O'Donovan, John.
- O'Higgins, Thomas F.
- O'Reilly, Paddy.
- O'Sullivan, John L.
- Pattison, Séamus.
- Ryan, Richie.
- Taylor, Francis.
- Timmins, Godfrey.
I move amendment No. 10:
In page 11, subsection (2), line 21, to delete ".75 per cent" and to substitute ".58 per cent".
By reason of the decision on the two earlier amendments the section now proposes to deal with an undercharge to income tax or sur-tax attributable to fraud or neglect and it provides that the amount of tax undercharged will carry interest at the rate of .75 per cent for each month which is 9 per cent for the year. This section, as I have already indicated, is an entirely new section. At the moment interest cannot be charged from a date prior to the making of the assessment and bringing in now a 9 per cent interest rate seems to me unduly punitive. I believe the rate of interest in Britain in respect of arrears of tax is 6 per cent. In view of the suggestion of fraud I am not going to suggest 6 per cent here, but I suggest in place of .75 per cent a rate of .58 per cent, which is near as makes no difference to 7 per cent. I urge the Minister to accept 7 per cent.
I have explained in relation to other sections why we propose to charge a rate of 9 per cent. It is open to people to place money on deposit at 8 per cent, or more, and consequently a rate lower than 9 per cent under this section could well be an inducement to people not to pay their tax promptly; they could then pay the interest rate provided at present and still make it worth their while not to pay tax promptly. Because of that and because of the introduction of a rate of 9 per cent in the earlier section, it seems to me to be desirable, to say the least of it, that the same rate of interest should apply in all cases of non-payment of tax and in all cases of overpayment of tax and refund by the Revenue Commissioners. The rate of interest should be uniform and should be related to the rate of interest available currently on deposits. For that reason I am afraid I cannot accept the amendment.
Does the Minister see any difficulty with regard to subsection (6) (b)?
We are on the amendment, Deputy.
In so far as it is relevant to the amendment, this subsection may persuade the Minister to accept the amendment because this subsection might create an anomalous situation. A person assessed can appeal on the ground that interest should not be charged. We know this assessment may go back a considerable period. If a person makes an agreed payment is he relieved of paying interest? Can he be charged twice with interest or could the interest refer back to tax paid? Does the Minister see any difficulty there?
I might refer the Deputy to subsection (5):
This section shall not have effect in relation to tax charged for any year of assessment prior to the year 1971-72.
Is that of any assistance?
It is not because this is something that could happen in the future. I will leave it for the time being and raise it in another place.
Amendments Nos. 11 and 39 are related amendments and can be discussed together.
I move amendment No. 11:
In page 11, subsection (6) (c), line 47, to delete "the Appeal Commissioners determine" and to substitute "it is determined".
Subsection (6) (c) of this section secures that, where it is established on appeal that there has been no fraud or neglect, the normal provisions relating to interest on unpaid income tax or sur-tax will apply instead of those contained in section 18. Subsection (6) (c) speaks only of the determination of the appeal by the Appeal Commissioners. It may be, however, that the appeal would be determined by the courts. The purpose of the amendment is to make it clear that the provision will operate on the determination of the appeal irrespective of whether it is the Appeal Commissioners or the courts who determine the appeal.
If the courts or the Appeal Commissioners decide that the interest which would arise from negligence or fraud does not apply—in other words, if it is found there was a bona fide mistake or a reasonable excuse why the particular property was not returned officially—the penal interest provided here will not apply; nevertheless, the assessment will be backdated to the time when the tax should have been paid. Will the ordinary rate of interest apply in that case? It is the same thing, of course; there will be no relief.
No. In such cases the penal interest would arise only from the date the assessment is actually made.
Under what authority?
Subsection (6) (c):
if, on the appeal, the Appeal Commissioners determine that the tax charged by the assessment should not carry interest under this section, subsections (1) and (2) of section 550 of the Income Tax Act, 1967, shall apply to that tax.
That is 4 per cent.
It will be amended to 9 per cent.
The person will be in the same position.
It is determined that the tax chargeable shall not carry interest under this section, which is 9 per cent, but shall carry interest under section 550 of the Income Tax Act, 1967, which is 4 per cent.
There will be no interest unless the tax is not paid within two months.
Liability arises only from the date of assessment. In the case mentioned by Deputy Cooney, where it is found there was not fraud or neglect, the liability arises from the date of assessment and then, as he says, the two months' period operates.
It is my concern— I do not know whether it is Deputy Cooney's concern—that section 550 (1) provides for tax at the rate of 6 per cent.
But we are amending that up to 9 per cent.
It is amended up to 9 per cent?
Yes, that is correct.
Subsection (6) (c) reads:
if, on the appeal, the Appeal Commissioners determine that the tax charged by the assessment should not carry interest under this section...
—which is 9 per cent—
... subsection (1) and (2) of section 550 of the Income Tax Act, 1967, shall apply to that tax.
As it stands at the moment that is 6 per cent.
There is no relief.
Then what is the meaning of subsection (c)?
It means it is treated as a normal assessment and comes under section 15.
It does not go back to the original assessment?
No.
The subsection carries interest at the rate of 6 per cent for each month or part of a month from the date when the tax becomes due and payable, if payment is made within three months.
Section 477 of the Income Tax Act, 1967 lays down the due date for payment of tax. I take it this is the point the Deputy is making or am I at cross-purposes with him?
I am confused about the rate of interest in relation to subsection 6 (c) which we are discussing now in its reference to section 550 of the Income Tax Act, 1967. As section 550 now stands does it provide a 6 per cent rate of interest or does it provide, as is provided in other sections here, a 9 per cent rate of interest?
Nine per cent.
Where do we find an amendment of (1) and (2) of section 550.
Section 15 (2) (a) (i) amends section 522.
So it is 9 per cent?
Yes. Section 477 (i) of the Income Tax Act, 1967 provides as follows:
Subject to the provisions of this section, income tax contained in an assessment for any year shall be payable on or before the 1st day of January in that year, except that tax included in an assessment for any year which is made on or after the 1st day of January, shall be deemed to be due and payable on the day next after the day on which the assessment is made.
A very draconian rule.
But it deals with the point Deputy Cooney has raised that the liability arises in cases where there is no fraud or neglect on the day after the date of the assessment.
Does the period of grace of two months provided by section 552 apply then?
Yes.
One could then have the situation where a person made a tax return, disagreed with the inspector, failed to make an agreed payment and became liable to tax on the disagreed amount. Subsequently, it was found out that he had omitted to make returns at all in respect of certain of his property. He was then assessed and was accused by the inspector of being neglectful within the section, so as to attract penal interests; he eventually satisfied the circuit court that there was no neglect on his part and he would not then be liable for interest on that property which was the subject of all the contention—the property which he had omitted to return—but the property which he had validly returned in the first instance and about which he had a genuine dispute with the inspector would attract interest.
It would attract interest only to the extent that he had not paid the amount properly found to be due.
But if he had a genuine case?
We have dealt with the question of whether or not he had a genuine case before; he is covered.
He could escape by the skin of his teeth from being found guilty of neglect or even fraud. Where there is a colour of culpability about it he escapes all interest, but in the earlier case where he may be in contention he has to pay interest.
Under this section he would only be disputing liability for interest not the amount of his tax. He would have paid the tax and be disputing liability for interest, whereas in the other case he would be disputing the amount of tax.
What the Minister is trying to avoid is a delay in paying the tax. The person in this case might have delayed paying the tax right through the courts arguing about negligence.
True. The Deputy is making a case for what I said earlier on the definition section of "fraud" and "neglect".
The Deputy who made that case is guilty of neglect.
Certain assessments are made on an actual basis. For instance, where assessments are made in relation to the commencing year of a business, will subsection (2) require interest to be paid as from 1st January in the year of assessment and if not, what will be the due date in this type of case?
I do not quite follow the Deputy's case. Would he mind repeating it?
There are assessments made on an actual basis. In the commencing year of a business an assessment is made and in such circumstances will interest be charged as from 1st January in that year?
I understand—and this is why I was confused about what the Deputy said—that it is not normal to make an assessment in such a case in the first year.
It is in respect of the commencement year.
Does the Deputy mean it is made the second year in respect of the commencement year?
Yes. What is the due date in such circumstances?
It should be the due date of assessment on the basis of the section I quoted earlier in the 1967 Act. If it were made before 1st January it would be the following 1st January. If it were after the 1st January it would be the day following the date of assessment and the normal interest provisions that we have provided for here would apply.
Could I ask why subsection (1) (b) does not read, "This section is deemed to come into operation on the 6th day of April, 1971"? It is all right to indulge in this game of juggling around between one year and another but this is section 17 of the Finance Act, 1970, and the words here are "shall be deemed to have come into operation on the 6th day of April, 1971." This does not make commonsense to me. If it read, "This subsection is deemed to have come into operation," or some other words, it might be all right, but you are dealing with the Act of 1970 and you alter it and you say it shall be deemed to have come into operation on the 6th day of April, 1971. This to me is juggling around with words. I am sure there is a good reason for it. I have no doubt about that. I am talking about the peculiarity of the construction.
The reason is that section 17 of the 1970 Act, in fact, came into operation on the 6th April, 1971. There was an order made which brought it into operation on that date.
Good enough.
Amendment No. 12 in the names of Deputy O'Higgins and others. Amendment No. 13 is a related amendment. No. 12 and No. 13 might be discussed together.
I move amendment No. 12:
In page 13, subsection (2), line 4, to delete the words "and before the 1st day of April, 1973".
The purpose of these amendments appears clearly. The proposal is not to restrict the concession and benefit given by section 20 to the projected two year period envisaged in the section. It seems to me that if there is to be an investment allowance for machinery and plant in designated areas, particularly at this juncture in our affairs, if that is good policy, it should not contain a time limit because in the provision of a time limit this provision may have quite a bad effect. It certainly will encourage the purchase of new machinery. Used and secondhand is excluded. It will involve a rush to qualify in relation to the period covered by the investment allowance. This, in fact, may be unsound. It might be much more desirable not to have a time limit, to provide for the allowance and allow industries to plan in relation to their own resources the kind of investment that their plant, in fact, requires. With the time limit you make it, on the one hand, quite unsuitable investment and, secondly, in the genuine case, where there is investment in new plant and machinery according to a plan there is no reason why it should be restricted to the two year period.
I support Deputy O'Higgins in this. I think it should be restricted to the 1st day of April, 1973. I would ask the Minister if he would consider including within the scope of this section transport by vehicle of goods. I see no valid distinction between plant and machinery and lorries which a firm have to buy for the conveyance of goods, especially in designated areas where it may be far from a suitable harbour for export or far from the markets in Dublin or Cork. I would suggest that lorries for the conveyance of goods should be allowed this incentive as well as plant and machinery.
On the last point made by Deputy Collins, the exclusion of road vehicles is common to all of the similar provisions, initial allowance and so on. It has always been so. I have not examined quite why, although I imagine offhand it is because it is very easy to abuse it in the case of easily moveable vehicles of that kind. I am not sure that that is the reason but I would suspect it. The intention was to apply free depreciation and the investment allowance on the same basis of application as the existing initial allowances and wear and tear allowances apply.
On the question of the length of time for which these concessions should be in operation, there are two main reasons why we should restrict them to the two year period announced in the Budget. First, because of the question of cost to the Exchequer which, if one takes both together, that is, the free depreciation and the 20 per cent investment allowance in the designated areas, is estimated at £3 million in the first year of operation, which is next year, £3 million for the Exchequer, and £6 million the following year. That is one important consideration. The other is—and I tried to make this clear in the Budget Statement—having regard to the state of the economy, to the arguments which have been put forward in relation to the taxation of companies, it was argued that we were inhibiting investment, and having regard to the clear requirement of the economy that there should be investment and should be investment in the next couple of years, it seemed to me that this provision would both encourage this kind of investment and ensure more or less that the benefits of these allowances go to firms which are investing and that the companies which are paying the additional tax, who invest in this way, will get back a very great deal of the additional tax they are paying. Those who do not will not, of course. But, it should be quite clear to anybody who thinks about it, and it is clear from some analogous experience we have in relation to the IDA and designation of areas for a limited period that there is great psychological importance in having a time limit involved, that people will invest. I should like to make it clear that there is no intention whatever of extending this beyond the two year period. I would not like people to think there was. There are many advantages in doing so and I am afraid I cannot accept the amendment.
Could the Minister say if qualifying equipment or plant could include equipment in a doctor's surgery or a solicitor's office? The section refers to a "trade or profession"? I move to report progress.