Dáil Éireann debate -
Tuesday, 9 Nov 1971

Vol. 256 No. 8

Finance (No. 2) Bill, 1971: Second Stage.

Minister for Finance (Mr. Colley)

I move: "That the Bill be now read a Second Time."

The purpose of this Bill is to implement, with effect from 1st March next, the proposals for a value added tax to replace the existing wholesale tax and turnover tax.

Before describing the main provisions of the Bill, I shall refer briefly to the development of sales taxation in this country and indicate the reasons for changing over to a value added tax.

The introduction of the sales taxes to this country—the turnover tax in 1963, followed by the wholesale tax in 1966—was one of the most significant measures in the tax field in recent years. The increased revenue generated by these taxes has helped to finance the acceleration of the economic and social development which has taken place during the last decade. In 1964-65, the first full year of its operation, the turnover tax yielded £13½ million, equal to about 6 per cent of total Government revenue. This year, the sales taxes combined are expected to produce about £80 million, or up to 14½ per cent of total Government revenue.

The present sales taxes are relatively simple to operate and economical to administer. They were introduced in order to provide a broader base for indirect taxation than had been afforded by the traditional sources— mainly tobacco, beer, spirits and hydrocarbon oils—which had, up to then, provided the bulk of indirect tax revenue. In 1962-63, the year before turnover tax was introduced, receipts from this narrow base accounted for over 40 per cent of total Government revenue and there was a growing danger that the Exchequer's finances could be seriously upset by a sudden fall in the yield from any of these commodities. The turnover tax, on the other hand, applies to almost the whole range of consumer goods and services at the retail level and, since 1st May, 1970, is charged at the rate of 5 per cent on the price inclusive of tax.

The selective wholesale tax was introduced in 1966 in order to give greater flexibility and a degree of progression to the system. It does not apply, for example, to the necessaries of life such as food, fuel, clothing and medicines or to services. The rate applicable as from 1st January, 1969, was 10 per cent on tax-inclusive wholesale prices. However, in May, 1969, a further degree of progression was introduced by increasing to 15 per cent the rate for a narrow range of less essential items such as motor cars, television sets and yachts. With effect from 1st November, 1970, this rate was raised to 20 per cent.

While compliance by traders in the operation of these taxes has generally been very good the fact that such a large amount of revenue is now involved has raised doubts about the adequacy of the relatively simple administrative machinery of these taxes, and the Government have been considering for some time what improvements in the collection machinery could be introduced.

One of the biggest disadvantages of sales taxes such as our wholesale and turnover taxes, is that the duty of paying tax to the Revenue falls on one section of the business economy only. The value added tax, on the other hand, has, as its principal feature, the spreading of the tax over the whole process of production and distribution. We were also aware that the European Economic Community has prescribed a common form of value added taxation for adoption by all member States and that, as members, we would be expected to introduce a similar type of tax in due course.

The form of value added tax designed by the EEC and incorporated in two directives on the subject issued in April, 1967, was aimed at eliminating those features of existing turnover taxes in the Community which were acting as a barrier to the full implementation of the Treaty of Rome. All the EEC countries have now adopted sales tax systems based on these directives with the exception of Italy which is due to make the changeover next year. Among the three countries, apart from Ireland, that have applied for membership of EEC, Norway and Denmark already have a value added tax on the general lines of the EEC model and the United Kingdom has announced that it intends to adopt a value added tax as from April, 1973, in replacement of the existing purchase tax and selective employment tax.

Apart from the EEC aspect the Government are satisfied that the value added tax is the form of sales taxation most suited to our needs and I shall now refer to its main advantages for us. First, with a minimum of disturbance to the existing incidence of taxation and to prices, payment of the tax can be spread over a wider sector of the business community than at present. The tax proposals represent little more than a change in the method of collection and their incidence and impact on prices should be broadly similar to the incidence and impact of the present sales taxes.

Secondly, value added tax makes evasion less rewarding than does a single stage system, as the tax, as I have already stated, will be applied at all stages of production and distribution and the fractional amount which has to be paid at each stage is small thus reducing the incentive to evade liability. Evasion will also be more difficult as the system provides a cross-check by means of the invoices which will be required for all sales between accountable persons. As the amounts shown on these invoices will enter into the calculation of the tax liability of both the seller and the buyer it will be in the interests of both parties to ensure that correct amounts are shown. Anything that makes for better compliance is in the interest of the general body of taxpayers.

Thirdly, the changeover will remove almost completely what little double taxation exists in the present system.

For instance, while wholesale tax is at present borne by a firm on such requirements as office furniture and certain building materials, under the value added tax double taxation of this nature, which, in total, is estimated at £3.5 million a year, will be eliminated. Value added tax on these items, in common with virtually all other such tax charged to a firm by means of invoices, will be deductible against the firm's own liability to value added tax on its sales.

The Bill follows, with certain modifications which I will refer to later, the general scheme of proposals set out in the White Paper published last March. It provides for a general sales tax to be charged at all stages of production and distribution at rates which correspond as closely as possible to the effective rates of sales tax at present in force. The present sales taxes are chargeable on the price of an article including the addition made from tax. The rates of value added tax are, by contrast, to be applied to the price before tax, so that, if the same amount of tax is to be collected as before, the nominal rates of the new tax must be somewhat higher than the existing rates.

This is the reason why the rates proposed in the Bill are 5.26 per cent, 16.37 per cent, 30.26 per cent and a special rate of 11.11 per cent for dances compared with the present rates of 5 per cent plus 10 per cent and 5 per cent plus 20 per cent respectively, and in the case of dances 10 per cent. Exports will be completely free from the tax. This will be achieved by applying what is described as a zero rate to exports and by refunding any tax charged at an earlier stage prior to export.

As I have already mentioned, firms whether manufacturers, wholesalers or retailers will pay tax on their sales, but in doing so can deduct the prior stage tax which they have been charged on their purchases. Thus, although tax is charged a number of times before the goods reach the final consumer it is borne only once and so no duplication occurs. A corresponding tax will be levied on imports to put them in the same position as home-produced goods.

The Bill provides special arrangements for the agricultural sector whereby farmers and fishermen will not be obliged to register unless engaged in specialist activities such as market gardening, the commercial production of poultry or eggs or fish farming. Those who remain outside the system will not have to pay tax on their sales or to keep detailed records. Such farmers will not, of course, be entitled to a refund of tax on their farm inputs, such as seeds and fertilisers, but they will be compensated for the tax element involved by increasing appropriately the selling price of their produce. This special addition to the price can be claimed as a tax credit by a registered purchaser against his liability on his own sales. This tax credit will be at the flat rate of 3.85 per cent of the tax-inclusive price in the case of pigs and 2.68 per cent of the tax-inclusive price in the case of other agricultural and fishery produce.

These rates of credit are calculated to be sufficient to recoup the average farmer for the value added tax which he will have borne on his purchases. There have been numerous representations from farming interests to have farmers' raw materials exempted entirely from tax. I have examined this matter very carefully but I regret that it has been found impracticable to proceed on that basis. The arrangements I have now outlined are the best that can be devised to protect the farmers' interests, and I may add that I am seeking power in the Bill to vary the flat rates by order from time to time so as to keep them realistic.

The Bill also contains special provisions for the building sector and for small businesses which I will describe when dealing with the principal provisions of the Bill later.

Since the publication last March of the White Paper, which invited the views of interested parties, representations have been received from over 200 bodies representing all aspects of agriculture, trade and commerce. Following consideration of these representations certain changes have been made in the original proposals and these have been incorporated in the Bill now before the House. The change of most general application is the deferring of the proposed date of commencement of the tax from 1st January to 1st March next so as to allow traders time to prepare their accounting systems for the tax.

Other important changes are the reduction of the proposed rate of tax on newspapers and periodicals from 16.37 per cent to 5.26 per cent and the extension of the exemption for public transport to cover all passenger transport, including short-term car hire.

The concession to the newspaper industry was made in recognition of the special difficulties being faced by that industry at present and in order to safeguard employment. I am very conscious of the important place which the newspapers, and especially the provincial papers, have to play in the social, cultural and economic life of local communities. The relief now granted will be of substantial benefit to them in overcoming their difficulties. The exemption of all passenger transport, including car hire, will continue the position which applies under the present sales taxes whereby passenger transport is not subject to tax. It was inferred from the White Paper that transport other than public transport of passengers would attract tax but I want to make it clear that this is not the intention.

A further modification of the White Paper proposals is the provision in the Bill of a method whereby cattle marts and cattle dealers will be relieved of accountability on their sales of livestock where they opt for arrangements analogous to the simplified scheme applicable to farmers to which I have already referred. The mart or dealer will be entitled to pass on the appropriate flat rate credit to a registered purchaser.

Another change from the White Paper to which I would like to draw attention relates to auctioneers. The White Paper envisaged that goods sold by auction would be regarded as delivered to and subsequently by the auctioneer who would be accountable for tax. It is now proposed that the auctioneer should be regarded merely as the seller's agent and, further, his commission will be exempt from tax because it will, in any event, be included in the sale price and, therefore, taxable where appropriate.

This arrangement will not, however, apply to vegetables, fruit, flowers, poultry, eggs and fish sold by auction because of special conditions in these markets where the auctioneer is often also a dealer. In these cases the auctioneer will be regarded as a purchaser of the goods for resale.

Dances are at present subject to a special turnover tax rate of 10 per cent on tax-inclusive receipts, equivalent to 11.11 per cent on a tax-exclusive base. In order not to disturb this position a special rate of value added tax of 11.11 per cent applicable to dances only, has been introduced. As this special rate will not affect the great majority of traders the value added tax remains, in essence, a three rate tax. Indeed, it is expected that, in practice, no trader will be concerned with more than two rates at the same time.

The Bill has been drafted to conform, as far as possible, to the directives of the EEC. These directives do not lay down standard rates for the tax and, in other matters also, permit of a degree of flexibility in the systems to be adopted nationally. It may be found that some minor modifications to our system will be required to bring it fully into line with the EEC directives. The Community have agreed to our request for a transitional period of one year from the date of accession in order to effect any necessary changes.

It has been stated in the Press and elsewhere that the value added tax has resulted in severe inflation in the Continental countries which have adopted it and that similar results may be expected here. I should like to emphasise again that what we are doing is limited almost entirely to a change in the method of collecting tax. All of the countries which had unhappy experiences on the change-over were attempting to do much more. In some cases, the incidence of the tax being replaced was being substantially altered. For example, the rate of tax on food, which in some cases was very low or non-existent, was generally raised to 5 per cent or over. In other cases, the value added tax was being used to increase substantially the revenue from indirect taxation as part of a general tax reform. In our case the change-over will not significantly affect the revenue and, as I have already indicated, the incidence of tax will broadly remain unchanged. There will, therefore, be no ground for an increase in prices generally, though there may be some minor changes, which will balance out in the aggregate, because of the fact that it is not possible to ensure precise alignment at all points between the old and the new systems. The relief from the double taxation existing in the present system, to which I have referred already, will accrue to manufacturers and distributors and should help to counteract any tendency for prices to rise at the retail level.

The explanatory memorandum circulated with the Bill contains a detailed description of the various provisions. It will suffice, therefore, if I limit my remarks to the more important sections.

Section 2 imposes the charge to value added tax. With effect from 1st March, 1972, in general, deliveries of goods and rendering of services within the State will be liable. Tax will also be charged on imports of goods into the State so as to equate the treatment of home and foreign goods. Under section 15 (2), however, persons who are registered for the tax will not, subject to certain limited exceptions, have to pay tax on imports for the purpose of their business because such persons would, in any case, be entitled to a credit or refund of tax at the end of the month.

Section 3 defines deliveries of goods to include the transfer of ownership of goods in pursuance of an agreement or contract, whether or not accompanied by a transfer of possession. In the interest of securing the revenue, it is also provided that certain other transactions will constitute taxable deliveries. The most important of these is the handing over of possession of goods under a hire purchase contract. It is also necessary to tax, for example, goods appropriated from his business stock by a registered person for the personal use of himself or another.

Section 4 contains special provisions applicable to immovable goods such as land and buildings. Building is at present exempt from the sales taxes but, as I have mentioned already, certain building materials bear turnover and wholesale tax. These are estimated to amount to about 3 per cent of the cost of a building. Under the value added tax certain buildings will be brought into charge. Briefly, it is provided that value added tax will not affect land, or buildings which are already in existence, no matter to whom or by whom they are sold, unless and until major building, re-building or demolition work, constituting a development, is carried out after 1st March next. When this happens, for example, if a house or factory is built and sold after that date, tax will be chargeable at the 5.26 per cent rate. However, by virtue of section 10, only 60 per cent of the price will be charged so that the effective tax on buildings will remain at what it is at present—about 3 per cent. Sales of secondhand buildings will not be taxed, except where the seller is a registered person who obtained a tax credit when he acquired the building.

A sale of immovable goods will be deemed to take place when an interest in them is transferred for a period of ten years or more. Transfers of less than ten years duration will not normally be taxable as sales. Where building work is carried out on behalf of a registered person such as a manufacturer or shopkeeper the new system will result in significant relief because, whereas no allowance is given at present for the wholesale and turnover taxes payable on materials used in the construction of factories and business premises, under value added tax full credit will be allowed for the tax charged to a registered person.

Rents will continue to be exempt from tax unless the landlord elects to become registered and be accountable for tax on his rents. He might wish to make this election if, for example, he rented office buildings to registered persons.

Section 5 defines the rendering of services in very wide terms to cover all business activities other than the delivery of goods. Provision is also made for taxing services rendered by a person for the purposes of his own exempt business, where the service would be taxed if rendered to him by another person.

Section 6 and the First Schedule provide a list of activities which will be exempt from the tax. Persons engaged in such activities will bear tax on their purchases but will not have to pay tax on their sales. Of the services which are exempted from turnover tax at present, those affecting the ordinary consumer, such as banking, insurance, governmental, medical and educational services, will remain exempt from the value added tax. I will have power, as at present, to extend by order the list of exempted activities.

Section 10 defines the amount on which tax is chargeable as, normally, the amount of the full consideration which becomes receivable excluding value added tax while, under section 19, tax becomes due usually on the issue of the invoice in the normal course. There are various exceptions to these rules. The most important is that registered persons who deal mostly with unregistered customers will be allowed, under section 14, to account for tax on the basis of cash receipts. Where the transactions are services, the cash basis may apply even if the customers are registered.

As part of the general arrangements for the livestock trade, section 10 also provides that where livestock is sold by registered farmers or registered dealers the tax will be charged only on a specified fraction of the sale price. As a result of this arrangement livestock will have the same element of tax built into the sale price irrespective of whether the seller is registered or not.

The provisions for agriculture are contained in sections 8 and 13. As I have already explained, farmers and fishermen, with certain exceptions, need not come into the system unless they so wish and similar facilities are being provided for cattle marts and cattle dealers. Section 13 enables farmers who remain outside the tax system to recover the tax borne on their inputs by issuing sales invoices which will rank for credit at the next stage. The invoices must be made out by the purchaser and the farmer's only obligation will be to sign them on request.

Section 8, which defines the persons accountable for tax, provides also that small traders will not have to pay tax on their sales or keep records unless they elect to be accountable. The figures of turnover at which persons are obliged to register under the present sales tax system have been maintained as far as possible, but, because the 16.37 per cent rate will apply down to the retail level, it has been necessary to reduce the limit for traders, where more than 50 per cent of their goods are liable to that rate, from £1,000 turnover per month to £500 per month. Conversely, the existing limit of £150 turnover per month for traders who purchase their supplies directly from unregistered producers, such as farmers and fishermen, is being raised to £500. Under value added tax all inputs of such producers will have borne tax already, whereas at present they are largely exempt. The present £150 turnover limit for persons providing services, such as hairdressers, will continue.

Section 11 prescribes the rates of value added tax. The 5.26 per cent rate applies to the goods and services listed in the Third Schedule. These are, mainly, food, drink clothing, fuel, medicine, books newspapers, building materials, agricultural goods, buildings and services. Most of them are already charged at the equivalent rate under the present system. The 30.26 per cent rate applies to the limited range of goods specified in the Fourth Schedule —mainly motor cars, television sets, caravans and yachts, which are at present liable to turnover tax and the higher—20 per cent—rate of wholesale tax. Because of the problems attached to applying such a high rate at the retail stage the 30.26 per cent rate will be collected at the manufacturing and import stages only. Subsequent sales of these goods at the wholesale or retail level will be charged at 5.26 per cent. The difference between these two rates, that is 25 per cent, will be trapped in the price of the goods by reason of the fact that deduction of prior stage tax on them by wholesalers and retailers will be limited to 5.26 per cent. As this proposal follows closely the present arrangements there will be no increase in the burden of tax on these goods.

I have already mentioned the special rate of 11.11 per cent for dances. This rate will also apply, as at present, to the charge for food and drink included in the admission price. The rate of 16.37 per cent applies to the sale of all goods not specifically charged at one of the rates already mentioned.

In the case of the hiring of goods the rate of tax applicable will, with minor exceptions, be the rate that would apply if the same goods were sold outright.

A rate of zero per cent applies to exports of goods and to certain related services set out in the Second Schedule. The effect of a zero rate is to exempt the transaction from liability to tax and to enable all prior stage tax to be refunded. Exporters will, therefore, get back all tax which is charged to them on their purchases.

The Bill contains administrative and enforcement machinery for assessing, accounting for, and passing on the tax by means of invoices and enables the Revenue Commissioners to make regulations for the purpose of implementing the Act. In particular, I should like to draw attention to the provision in section 32 under which the Revenue Commissioners are being empowered to accept estimates of the amount of tax payable. This should prove helpful to the many traders selling goods some of which will be taxable at 5.26 per cent and some at 16.37 per cent, who may not find it practicable to keep precise separate records of their sales under the two different rates.

Section 34 authorises a tax credit or refund to traders in respect of the element of turnover and wholesale tax included in stock-in-trade held at the commencement of the value-added tax. Since value added tax will be chargeable when these stocks are sold, the credit is essential to prevent double taxation. For this reason it will be necessary for such firms to take stock at the changeover date and submit a claim for credit or refund. The amount of tax involved is estimated to be in the region of £1 million.

My description of the Bill has had, of necessity, to be confined to the main features. It is a complex and highly technical measure and there are a number of smaller matters which I have had to omit from my description. I will be glad, however, to deal with any points on which Deputies may require further information or clarification.

In commending the Bill to the House for a Second Reading, I would like to state that, since the circulation of the Bill, a number of minor changes, principally of a drafting nature, have been found to be necessary for which I propose to introduce amendments on the Committee Stage. Furthermore, the inclusion of section 40 relating to the excise duty on betting will, I understand, require a lengthening of the long title of the Bill. As betting is not being brought within the scope of the value added tax the excise duty rate is being increased from 10 per cent to 15 per cent to compensate. This will leave the incidence of tax on betting unchanged.

Mr. Donegan

The fact that my party may decide not to vote against the Second Reading of this Bill is to be taken as an indication that we realise it is necessary to conform with legislation in the EEC as we approach accession. That does not, however, mean we approve of the Bill as presented to the House. The Fine Gael Party will be considering in great detail what amendments they will put down either to exclude or include portions to the Bill or to change portions of the Bill giving different effects. It may well be that when the discussion on the Second Reading is completed Fine Gael will be voting against many provisions in the Bill. It is therefore with a degree of responsibility in relation to our present position vis-à-vis the Common Market that this party is not voting against the Second Reading.

The main question mark before this Bill was circulated was whether or not the opportunity would be taken to carry out a major change in the tax structure. This was adverted to by the Minister's predecessor, who is now out of favour, in a speech in Sligo some time ago. On that occasion he did not make it clear which side he was on but he adverted to that at some length and received considerable publicity for so doing. The question facing us now that we have a selective method of indirect taxation as opposed to the blunt instrument of what was called selective wholesale and turnover taxes, is whether it would be better to collect a larger portion of our revenue by indirect taxation thereby making it possible to give the small income taxpayer an increase in his primary allowance. This would stop the anomaly of a working man having to pay direct tax at something around seven guineas. This has not been done and it is something that will have to be considered by my party between now and the Committee Stage.

It is now quite clear the Minister's approach was that it was right not to make any serious change. He produces, as an argument in favour of this Bill, the fact that there was no change in taxation at all and the effect of this Bill would be to avoid double taxation in certain cases—which if it does will be a good thing because it will remove an unfairness—but that in his opinion there would be no change in the effect of this Bill on taxation. In other words, direct taxation will be just as it has been until the next budget and indirect taxation will be as it was under the special selective wholesale and turnover taxes or very similar to what it was before the introduction of this Bill and the replacement of these two taxes by the measures contained in this Bill.

The truth is that there is a major change. For the first time there is a direct tax on the raw materials of the agricultural industry. I am aware the Minister points to a global replacement of this tax by a pay out but I do not believe this pay out will ever equal the various taxes that will be placed upon the input of farm goods such as fertilisers and seeds. I do not believe the high production farmer will be in the position of not paying turnover tax or any type of indirect taxation on the input of his farming activities.

It is true that the farmer who is using very little fertiliser and seeds may get as much back as he put in, but the high production farmer will not get back this money. I am not certain that the amount that has been mentioned will reach the farmers' pockets. I know the Government will be requested to pay this amount to those who are entitled to it, but I realise also the Government will be in a position of having to pay out to the manufacturers and purchasers the amount to which the farmers are entitled.

I would direct the attention of the House to the complexities of the advisory committee in relation to flour and bread which sat for some months recently. There would be tremendous difficulty in extracting a figure of 3.8 per cent, for example, and then telling them to pay the farmers that much extra when there were about 77 other figures also involved. The people who made the recommendations did their best, but it is obvious to me that the amount which might have been meant for the farmers could be lost in the jumble of figures.

In relation to the comments that there would not be a tax on cattle sales, it is obvious from reading the Minister's speech that there is such a tax. The registered dealers will be paying sums that will not go to the farmers. Although the farmer does not pay income tax, he pays rates on his house, and if he lives at a certain level of income he will pay hundreds, or perhaps thousands, of pounds by way of rates on his land. If this is the farmer's way of paying a form of income tax, why can he not have the zero rate that was requested by the NFA and the IAOS, with which the Minister for Ariculture has close links?

The Minister has stated that all the requests made to him were impractical. I agree that in a complex Bill such as this many things may be impractical but if it is practical to give a zero rate with regard to goods for export—as set out in the Minister's speech—why is it not possible to adopt a similar course in relation to agricultural goods? I do not understand why the other system was used if it was not for the purpose that it is desired for the first time to have taxation on the input into agriculture.

The Minister referred to turnover and wholesale tax and mentioned a figure of £40 million. The Minister did not estimate how much he intends to get in the first year of operation of VAT. I estimate that the figure will be far higher than that mentioned by the Minister for the last available year with regard to selective wholesale tax and turnover tax. I suggest there is added taxation and in my opinion the statement made by the Minister that we will have the same tax is basically untrue.

On a new house there will be a tax of 5.6 per cent; 5 per cent on the cost of the house, leaving the 0.6 per cent for profit. The Minister has stated that the probable tax on a house under the previous system, where certain items were taxed and others were not taxed, was 3 per cent. I do not agree with this. The degree of taxation at the moment varies for instance, on such factors as whether doors are made on the site or elsewhere and so on. What the Minister has done after the infamous deed of his predecessor in putting a tax on housing—a tax that must stick in the gullet of every politician who has a social conscience—is that he has increased the tax on housing by applying the 5.6 per cent added value tax. It is not possible to go into detail on this matter at this stage but I have no doubt that the tax on houses will be far greater than was applied previously.

There are various items we all agree should be taxed. Many luxury items should bear their rate of taxation, and in many cases higher rates should be applied in order to redistribute wealth and to provide the services that the poorer section of our community need urgently.

To add 2½ per cent to the cost of a £4,000 house at the moment means an extra £100. It is a modest house I am talking about, not meant for an executive who has taken unto himself a wife or for a man who has worked hard for 20 years. I do not want to worry the House on this but I should like to say this measure, which could have been a selective approach to taxation, is being used as a blunt instrument for the convenience of the Revenue Commissioners and the Department of Finance. It does not mean that extra charges will be imposed in certain cases and reductions will be given in certain other cases.

The Minister said that in all the countries where this tax is imposed the trouble occurred when there were changes in the rate of taxation. I want to ask the House and the country—in the House we do not seem to be interested in this measure, except on this side—whether they are satisfied with the present level of taxation and with the manner in which it is imposed. Are they satisfied in relation to the selective wholesale tax which has become a blunt instrument of 20 per cent in every case? I am not satisfied with it.

If one were to accept that the same amount of revenue is required from this new source as was collected from the old, the right approach would be to change the level of taxation. This is not being done: the Minister said that no changes would be made. Our spokesman on finance will deal with that later. All I want to say is that my party will not vote on the Second Stage of this measure but we will go into it in a very detailed fashion on Committee Stage; we will submit amendments and we will divide the House if we think it is necessary.

Mr. Tully

There is one matter on which all members of all parties can agree. It is that this is a most complicated proposal which will be extremely difficult to explain not only to the country but to the Members of this House who must be interested in it whether they like it or not. The Minister has told us he will replace two taxes, which we know are considered to be terribly unfair and hard on the ordinary people, with one tax which, in our opinion, will be a lot worse. We have been told this is being done because of our imminent accession to the EEC with whose tax structures we must conform.

This is a lot of nonsense, for a number of reasons. First, if it is necessary to apply a value added tax in order to conform with the EEC, why has Italy not done so, and she has been a member for years? The Italians will not apply this form of taxation until next year. The second reason is that if the value added tax is so important why is there not a uniform system throughout the EEC? Therefore, the suggestion that value added tax is a prerequisite of our entry to the EEC is just window dressing. Personally I believe the question of our accession to the EEC is a lot further from us than members of the Government think. Whether that is correct or not it is ludicrous to suggest that in 1972 we must introduce this tax although Italy, already years in the EEC, has not yet introduced it and Britain does not propose to do so until January, 1973.

The Minister did not give any good reason or any documentation to suggest to us that this innovation is as important as he has tried to make out. Last year when he briefly mentioned value added tax I told him I did not think it was feasible to introduce it before January, 1972. Now he has changed the date to 1st March, 1972. This seems to me to be a sign of an early Budget. Otherwise I do not see why he should propose to change the entire taxation system during the operation of the present Budget which does not operate under such a system. He must have it in the back of his mind that if he is still there he will introduce a new Budget early after 1st March next.

When the turnover tax was introduced we were told by Fianna Fáil that it would not increase the cost of living, that prices would not suffer because of it. We were described as being alarmists for suggesting otherwise. We know what happened when the turnover tax was doubled and later when the wholesale tax was introduced. On the introduction of both taxes we were promised they would not affect the cost of living, but the cost of living has gone up and up because of the Government's introduction of these taxes. Nobody would be foolish enough to suggest a Government could run a country without taxation but the least we could expect is a Government who would see that the taxes imposed would be fairly distributed. Nobody can say that this has happened and the present example does not lend credence to the idea that the Government will change their minds in regard to this tax.

The Minister told us that approximately the same amount of taxation will be collected as was raised by turnover and wholesale taxes. I do not think the Minister believes that anybody in the country believes this. When the turnover tax was introduced the amount collected was relatively small but as time went on, mainly because the supervisors of the tax collectors— the shopkeepers are the tax collectors at the moment—became adept at the game, more and more taxes were collected from the people. Today again we have the suggestion that this new tax will not force up prices. We know that as time goes on more and more taxes will squeeze more and more money out of a people who are not able to pay. As Deputy Donegan pointed out, a single man pays tax after earning a little more than £7 per week. That is direct taxation and now indirect taxation is being added to that. I wonder if the Minister would care to guess how much a person who earned £20 a week would pay by way of taxation, both direct taxation and tax on the goods he purchased. This State is collecting more per head from the ordinary people by way of taxation than is any other State in western Europe and it is disgraceful that this should continue. Here the Minister had a chance to try to redress the situation and to give some help to those who are being overtaxed. Instead, he let the opportunity pass and took the opportunity of adding further to the burden by taking more out of already emptying pockets.

The Minister expects congratulations on introducing a Bill that will be fair to everybody. While the Minister must carry the responsibility for these measures, I wonder whether the people who advised him were serious when they suggested to people who were protesting about the way the tax was to be administered that there would not be much upset. Does the Minister not know it is only now that people have got to know the proper way to operate the wholesale tax system which has been in operation for some time and the turnover tax which has been in operation, I think, since 1963? Does he not understand that in February last when there was a change to decimal currency the cost of living was increased considerably? People had to convert from the system of paying for goods and being paid for goods which they had operated for years; they had to add turnover tax, then double that tax, then add wholesale tax and then they had to adjust all their methods for the purpose of changing to decimal currency. Can anyone blame them if they laugh cynically when they are told now that they must change their system again because a new form of tax is being introduced which they must learn to operate?

At a symposium the other evening, a person representing the Government said that there would be very little extra difficulty in the operation of the new tax system and that people should not be complaining since it is all in a good cause. Since then I have been endeavouring to find out what exactly that person was talking about. At the back of the explanatory memorandum issued with the Bill I found many appendices which refer to the various ways the tax is to be operated. The appendices begin with a ten-column document entitled "Particulars for Registration". This has many sub-columns which have peculiar references and which most people will find it very difficult to understand. Following that there is one entitled VAT 2 which has five columns. Then there is the gem in Appendix B. This tells us to: "See chapter 00 of the Guide to VAT for fuller instructions" and these columns begin with Purchases for Resale, then the date under which are the words

(For invoiced purchases, the date to be entered is the date of the invoice).

The next column is headed Invoice Number under which is the note:

(Traders should number the invoices received by them in consecutive order).

The next column is headed Name of Supplier. Then there are two sub-columns under a heading Goods liable at 5.26 per cent and these are Cost exclusive of value-added tax and Value-added tax. The next column— Goods liable at 16.37 per cent also has two sub-columns. One of these reads Cost exclusive of value-added tax and the other, Value-added tax. Then there is a bigger column which has four sub-columns. This one is headed, Purchases from unregistered farmers and fishermen at tax inclusive prices. The subheadings are Live Pigs, Gross Price and Tax Credit @ 3.85 per cent and, under the sub-heading Other agricultural and fishery goods, Gross prices and Tax Credit @ 2.68 per cent. The next column is headed, Imports and has the two sub-columns, one for Value exclusive of value-added tax and the other for Value-added tax. The last column on this appendix is headed Notes. Every trader in the country is expected to understand this simple document as he was expected to understand previous instructions that were issued by the Revenue Commissioners.

The next page of this appendix is entitled "Sales" and there is an instruction to "See chapter 00 of the Guide to VAT for fuller instructions". Note, in particular, paragraph 00 regarding "self deliveries". This page contains 12 columns. Again, the first one is headed "Date", the next one, Invoice Number and Purchaser. Under the main heading Sales and Services there are three columns. The first of these is headed Goods, et cetera, liable at 5.26 per cent; the second one is headed Goods, et cetera, liable at 16.37 per cent and the third reads, Other sales and services: exports at zero rate and exempt services. The columns under each of these sub-headings are: Consideration exclusive of value-added tax, Value-added tax, Insert “S” if a “self delivery”, Consideration exclusive of value-added tax, Value-added tax, Insert “S” if a “Self delivery”, Consideration, and State whether “zero rate” or “exempt services”. The last column is headed Notes. The chap who owns a shop will not have much left at the end of the week after he has paid an accountant to work that system out. Very often a shopkeeper is left in the position of wondering whether it is the Government or his accountant or himself who owns the shop because he seems to get less out of it than anybody else. Appendix C begins:

No special form of invoice is prescribed for use in relation to value-added tax but an invoice must contain the following details:—

date of invoice, name, address and registration number of supplier, description of goods or services, amounts of consideration, and rate and amount of tax payable on the total consideration for each tax category.

An invoice must be issued by every accountable person in respect of every taxable transaction with any other accountable person.

A copy of the invoice must be retained by the seller and the actual invoice must be retained by the purchaser for six years except where a lesser period is authorised by the inspector of taxes.

In spite of all this people are being told not to worry because a good guess will be accepted by the Revenue Commissioners. I should like to see the day when the Revenue Commissioners will be prepared to accept a good guess from anybody.

Appendix D must be the real gem of the lot. I shall not bore the House with all the details that are involved here but I suggest that anybody who has not seen this already, should have a look at it now and if anybody can understand it, perhaps he would explain it to me. Having studied it for some time, I have considerable difficulty in making anything of it. There are plenty of notes on the reverse side as if everybody in the country knew how to deal with such matters as import and export documents.

These, then, are the types of documents that will have to be kept by traders. The person representing the Government at the symposium to which I referred earlier said that, perhaps only ½ per cent would be added to costs in keeping these records. I wonder where that gentleman gets his bargains from because I do not think the particular firm he represents would be able to carry an extra ½ per cent. These, then, are the sort of proposals contained in the Bill before the House.

Deputy Donegan said that, while his party were opposed to certain sections of it, he could not say whether or not they would vote against the Second Reading of the Bill. We are in the position that, so far, no clear advice has been given by the Minister or anybody else as to what is proposed to be done with the Bill. The Bill as proposed to us, the booklet which was issued several months ago and which is now being changed, and the documents issued only make the matter more complicated. I suggest to the Minister that if he wants this Bill to have an easy passage through the House—and as of now I do not propose to give it an easy passage unless we can be persuaded that it does not do the things which we think it does —he must when replying give us a better explanation of it than he gave us when introducing this Bill. Otherwise, there is a pile of trouble awaiting him. The Minister may be forced to defer the commencement of the operation of this Bill until 1st March, 1973, because it will not have passed through the House before that date.

It is ludicrous that we should have such a Bill introduced in this House with a bogus backing stating that it is for the purpose of qualifying us for entry to Europe. Europe does not seem to be in a hurry to have us, nor we to enter Europe, if one is to judge by the terms offered in relation to our fishing industry and other matters.

Even if we are put into the position where we have to go into Europe, will the Minister tell us whether this is a prerequisite? Is it not true that the taxes which we have now would be acceptable in Europe? Is it not true that no one is forcing us to change? The only reason why this Bill is being rushed through is because the Government feel that this is another way of picking up extra taxation. The Government feel that they can say that this extra taxation is being collected by accident.

A tax of 30.26 per cent is suggested for luxuries. Every time I hear of taxation on luxuries I remember the Minister for Transport and Power, Deputy B. Lenihan, mentioning the tax on fur coats, diamond rings and expensive motor cars in his by-election speeches some years ago before the introduction of turnover tax. Will the Minister for Finance suggest a tax on shoes and overcoats as if they were luxuries? That is what happened after the introduction of turnover tax. To twist Deputy P.J. Burke's statement a little, strange things have happened in our time under the present Government.

Dr. O'Connell

Human medicines are not considered as important as animal medicines.

Mr. Tully

That is a good point. Provision is made for pet foods which are not included for taxation purposes in this Bill. Human medicines are included under the Bill. Animal foods and medicines are excluded. The Minister should have another look at this Bill.

The Minister speaks about a three-tier system in the tax. There are more than three tiers. We can count "zero" as a fourth tier and we have another tier, which makes it a five-tier system. I do not know how the Minister proposes to have this system supervised or operated. I do not know how the system is worked out. It is suggested that the 30.2 per cent tax can be applied at retail level. The Minister must have some evidence which led him to this decision. Perhaps the Minister will let us know how the system should work. The bogus taxation system at present in operation where 11.11 per cent wholesale tax is in-built into the cheap soap-powders on sale all over the country, and which the unfortunate housewives do not know they are paying, is to be continued in order to make up the 16.37 per cent tax. There is then the extra 5.26 per cent.

One of the biggest crimes which is being committed under this Bill is to suggest that the 16.37 per cent should be added on at shelf level. Perhaps the Minister is not aware that this is the advice given to the retail grocers and traders. If someone buys an item costing less than ten new pence and the tax is added on at shelf level the smallest unit of currency at present being one half new penny, this addition on something costing less than ten new pence results in a heavy tax. If someone buys ten different items which cost less than ten new pence and pays one half new penny on each item he is paying excessive tax. Do not let us have the Minister appealing to traders not to charge tax on one item while charging it on some other item. The Minister's advisers have already told him that all items must be taxed. When decimal currency was being introduced traders were advised to have the extra half penny added on to one item and knocked off another item. We know the result of that advice. An item of which perhaps five were sold had the half penny taken off while the half penny was added on to the items which were sold at the rate of 1,000 per day. The Minister is making arrangements to have this tax added on to every item. The housewife will not be able to collect all her items and go to the checkpoint and have the tax added on. Tax must be paid on each item.

The Revenue Commissioners are on record as having told the RGDATA that that is the way they must do it. New taxes will be imposed and we are told there will be no increase in the cost of living. I do not know what gimmicks will be introduced for the purpose of levelling off. In this country we have been over-anxious to try out new ideas on the long-suffering public. There seems to be an idea that the taxpayer is fair game. Those who drew up this Bill are not in the habit of fraternising with people with a small amount of money to spend. I meet these people and I know how they feel when they go into a shop with that 50p piece to buy some items. Sometimes they have to return items to the shelves because they are unable to pay for them at the check-out. Any further inroads into that 50p piece will be resented and objected to very strongly by everybody concerned. It is ridiculous that this sort of thing should be encouraged by the Government of the day, no matter what that Government may be.

A suggestion has been made by some of the people concerned that perhaps it would be easier to deal with this tax if we had it as a three-tier or a two-tier tax. It has been suggested that leaving the 30.26 per cent tax on higher cost luxury items and replacing the other two with one which might be slightly more than 5.26 per cent might be a good idea. I do not know. I have not got the opportunity the Minister has of working out what that would cost. The people concerned estimate that it would not cost the person buying goods very much more. It would be a help because if taxation is being added on at shelf prices, and if those who are marking up the prices are not well acquainted with finance, as very often occurs, it could happen that items which should be marked up at the lower price of 5.26 per cent would finish up by being marked at 16.37 per cent. Therefore a very substantial amount could be added on accidentally.

Do not forget that the people sitting behind the adding machines in the retail stores and the people who go around with the stickers putting them on the packages have not all got degrees as doctors of economics. Therefore, they might not be able to work out the exact prices or the exact points. They might not even recognise the difference, for tax purposes, between one grade of goods and another. If this were not so serious it could be considered to be a joke—a bad joke, I grant you. It is serious, particularly as it is generally believed that, with the new arrangement which the Minister is making for the purpose of collecting tax on all items, and the arrangement which the Minister is making to ensure that nobody escapes the net, as some people do at present, a very much higher amount of tax will be collected than is being collected at present. Some people go so far as to say that the amount will be more than doubled.

It amuses me when I hear the Minister trying to explain that because of the fact that the first tax will be put on the person who is wholesaling the goods, there will not be so much tax to be collected from or paid by the person who is retailing the goods; that the amount will be small. The Minister said it would be a relatively small amount. Does he understand that it does not matter who pays the first tax? The retailer, the final seller of the goods, will add on all the tax to the price of the article and ultimately the customer will pay the whole damn lot, as he always has to pay it. Therefore he will not be gaining anything because of the fact that the first tax is added on at an earlier stage. To him it is no longer tax but part and parcel of the price.

The Minister must agree that it is terribly unfair that a person who wholesales goods or retails goods, whether or not he is paid for them, must pay shortly after the end of the month for anything sold in the previous month. In Great Britain three months are allowed. As I see it, this will result in people paying tax on goods which they have sold but for which they have not been paid and, in fact, paying tax on goods for which they may never be paid.

As I said at the outset, this is a very complicated Bill. We will spend a lot of time on it on Committee Stage. I do not want to go any further into the details of the Bill. Whether we vote against all Stages of the Bill or some portions of the Bill depends on the answers which the Minister gives us when he is replying. He can be assured that many of the 44 sections in the Bill will require drastic amendment before we will be prepared to go into the lobby to support them.

Mr. O'Higgins

This Bill has been advertised for a long time. We were aware that its introduction was contemplated and prepared for by the Minister and the Government. I suppose any form of change in taxation, and certainly the introduction of a new tax, will be received in a very doubtful climate by those upon whom it is imposed. Obviously it would be the Minister's concern to introduce a value added tax at whatever was felt to be the best time for the economy. Therefore, it is a matter for surprise that it is brought in at this juncture. I am happy to be able to confess that I know very little about this tax but, from what I have read, I understand that in an inflationary situation a tax of this kind can be potentially dangerous. I do not know what view the Minister takes of the situation in the country at the moment. It appears to me that we are either still in the process of inflation or just staggering out of it. Last year we had a very intimidating increase in prices. The rapid increase in prices was contributed to, although I am sure there will be strong official denials of this, by the change-over to decimalisation in February.

Dr. O'Donovan

It certainly was. There is no doubt about that.

Mr. O'Higgins

I do not think there is the slightest doubt about that. Why was this? Amongst other things—no matter how often we may try to cod ourselves into thinking we have—we just have not got the kind of sophisticated price supervision and surveillance structure which is absolutely essential to deal with a change-over of that kind. Decimalisation resulted in an increase in prices. We are now facing another change-over, a change-over to a system of taxation which, I can see, is regarded as essential in Europe but which at the same time has been approached in European countries with the greatest care and the greatest reluctance.

This taxation is a tax on consumption. I note that the Minister referred to our experience here in 1963 and 1966 in relation to the turnover and wholesale taxes. He referred to the present sales taxes as being relatively simple to operate and economical to administer. He went on to say that they had succeeded in generating an immense volume of new revenue. That is perfectly true because these sales taxes made every shopkeeper, every businessman and everybody engaged in production in the economy a collector of taxes.

Dr. O'Donovan

An unpaid collector.

Mr. O'Higgins

An unpaid collector of taxes. It was not an easy role for people to take on and to accept but that has been the position. The result is that now, some years later, the Minister for Finance can say the present system is relatively simple to operate and economical to administer. Now it is proposed to replace these taxes by value added and value added, obviously, as anyone who attempts to read the White Paper and all the documentation involved in this legislation, apart altogether from the Bill, will appreciate straight away involves a tremendous system of accounting. People will be asked to accept a new system of taxation in the belief and in the hope that the net result at the end will be the same as the turnover tax and wholesale tax and in the belief also that there will not be an increase in prices. I wonder is that so? I should like to know from the Minister what steps will be taken to ensure that price increases will not take place under cover of the change in the taxation system. I would regard an assurance in that respect as being the most urgent matter now in relation to the general consuming public. What system, what machinery, will be introduced to prevent what has happened in the past recurring now over the entire economy?

In this proposal there are five different rates each of which involves two decimal places and this, prima facie, seems to involve an undue complication in relation to the system of taxation. The justification given for this is that the Government are undertaking to collect exactly the same amount under the new tax as is collected under the wholesale and turnover taxes but I doubt the necessity to have these five rates involving two decimal places in order to effect an exact conversion. I would have thought that it should have been possible to round off the percentages and to simplify the structure in such a way that if you had the proper machinery and supervision, no individual prices would be significantly affected and, rounding off percentages in that way, you would still get the same overall revenue to the State.

So, apart altogether from the lack of proper price supervision, the first criticism that I should like to offer is the unduly complicated nature of the rates of taxation and the five different headings.

The next most serious grievance— and here I would agree with, I think it was Deputy Tully or perhaps it was Deputy Donegan—is the way in which the tax will have to be paid. As I understand the Bill, it is provided that the tax will have to be paid within a month of the date of the transaction on which the particular tax is due. This seems to involve a very serious injustice to many people concerned in the payment of tax. They will be obliged to pay tax within the month from the transaction long before they have been paid by their own customers. This would seem to involve that they will have to hand over to the Revenue Commissioners tax which they themselves have not yet received. One knows that the majority —I am not saying all—of commercial transactions in this country are on a three-month or 90-day payment basis and, therefore, under the arrangement proposed, the majority of firms engaged in commercial transactions will, in effect, be lending the Revenue Commissioners, free of interest, for 60 days, money on which they themselves will probably have to be paying bank interest. That seems to me to be unjustified.

It is interesting to note that this same problem has been recognised elsewhere. In Britain, it is proposed to provide a 90-day period for payment. I would suggest that this aspect certainly needs to be considered and perhaps we can consider it at a later Stage of the Bill.

Another matter which was mentioned by Deputy Tully is the difficulty that will be involved for retailers in the differing rates of tax. The position at the moment is that in grocers' and provision shops the charge for turnover tax is made at the checkout point. Under the proposal in this Bill it will be necessary for all retailers to include the tax in the marked-up price of each item.

This will involve a great deal of accounting and a great deal of difficulty, particularly in the case of low-priced items. That is because the smallest amount by which it is possible to increase the price is one halfpenny. Here there will be very serious trouble. If the smallest price increase is one halfpenny more than the proper amount of tax in items under 10p, then there will be considerable difficulty. That is leaving aside what will be involved from a book-keeping point of view to small traders.

I think they will find now that to carry out a proper conversion under this complicated system of taxation their present system of book-keeping will prove utterly inadequate. That is all I want to say in relation to the general criticism of the Bill and it is subject to what I have said about a proper machinery for price supervision and price control.

I should like to refer to the special position of farmers. As Deputies are aware the National Farmers' Association have been critical of this entire proposal. They have had discussions with the Minister and put forward counter-proposals but unfortunately no agreement has apparently been reached. This is intended to be a tax on consumption. The farmers, through the NFA, feel that it may have an impact on production and it is for that reason that they have advocated, in place of the proposals here, a zero tax for agriculture. Under the proposals in the Bill, as I understand them, taxes would be collected from farmers at the point of purchase of their inputs—fertiliser, seed and whatever else may be involved and at a later stage a corresponding amount would be repaid to farmers by means of a percentage addition at the point of sale of their produce or, in the case of livestock, at the point of final domestic sale.

The idea that this percentage addition would compensate for the tax on input may be fair enough in theory but it is feared, and I think with justification, that any scheme of a flat rate addition must necessarily involve a compromise and that even if the total refund to agriculture is appropriate, that is appropriate to the tax involvement, there could be no guarantee that compensation for individual farmers or for individual enterprises would be adequate. There can be no machinery whereby one could ensure that the compensation would be exactly equated in the individual case.

It is in the light of considerations like these that the farming organisations feel that there should be a simpler method in relation to agriculture particularly at this juncture when it is so essential to have our agricultural industry producing at an accelerating rate. They have put forward the idea of a zero rate. I do not know whether a zero rate is looked on with favour from an EEC point of view but I think that it should be considered. The Minister rather brushed it away by saying that the proposals put forward on behalf of the NFA were not workable or something of that kind. It appears to me that the detailed proprosals which the NFA have put forward in their document should receive from the Minister more patient consideration than he appears to have given to them.

I mentioned that probably no time at which a new tax is introduced is ever regarded as suitable. I have the strong feeling that this particular time for the introduction of this kind of taxation can well be disastrous. Obviously it is because of fears in this respect that the Minister has already agreed to postpone the date of impact from January to March. I should like to see it postponed a great deal longer. I think we have a great distance to go before we can have our economy on any kind of a sound basis. We have gone through a very bad period indeed with instability and insecurity coming from rising prices and dropping money values and I think at this stage and in the foreseeable future the introduction of any new tax on consumption which is going to affect the entire range of activities and sales throughout the economy can be highly dangerous unless there is available a sophisticated system of price surveillance and supervision to effect the conversion and the change. As we all know we have not got that. We could not even do it with decimalisation and there is certainly no evidence of any kind of fresh thinking to provide it now.

While I can accept that in normal circumstances the principle of this form of taxation may be sound at this time I feel the introduction of this tax can be highly dangerous and I would urge that consideration be given to its postponement. In fact, if I am in order, I would propose that the Second Reading be refused until such time as an adequate system of price surveillance and control is introduced. I do not know whether it is possible to move such an amendment at this stage, possibly only with the Minister's consent. Is that the position, a Leas-Cheann Comhairle? Perhaps I shall raise it later.

An Leas-Cheann Comhairle

I think it might be better.

Dr. O'Connell

This attempt by the Minister for Finance to bulldoze through this House this value-added tax at this time is a fraud. It is unwarranted. There is certainly no demand for it. Even Italy, which has been a number of years in the EEC, has not changed over to the value added system yet. The Minister has not convinced me of the need to rush this through nor how this system has advantage over the system already in operation.

In 1963 when this iniquitous turnover tax was being introduced the claim was made that:

Turnover taxation has many advantages over a system which taxes individual sales or commodities. It requires little record-keeping, can be calculated in one simple operation at the end of the selected period, can be readily adapted to the many different ways in which business is carried on and can be administered easily and economically.

This is the introduction to the turnover tax outline of proposals published in May, 1963. I believe those very words justify the retention of the present turnover and wholesale tax systems and further support my statement that there is no need for the introduction of this measure at this time.

The economy has already suffered badly from the inflation which resulted from the change-over to decimalisation. I am not convinced by any platitudes from the Minister that prices are being kept under control. Everyone knows there has been a tremendous increase in prices since decimal day. People were confused, confounded and tricked by decimalisation. The half new penny is creating tremendous confusion. When one compares the half new penny with the cent in America and the franc in France one realises we are at a tremendous disadvantage in having the smallest unit of currency as one half penny. This is certainly responsible for the spiralling cost of living at the present time. The Minister has done his utmost to make life complicated for people. I was speaking to an accountant recently who said that Mr. Colley had certainly upset their lives and made it very complicated for them.

An Leas-Cheann Comhairle

The Minister for Finance.

Dr. O'Connell

The Minister for Finance, Mr. Colley, even though he did make a bid for leadership although I understand just today that he failed in his bid for leadership of the Party.

We found out today that the 5 per cent turnover tax is in fact a 5 odd per cent tax. When I brought this to the attention of the Minister's predecessor he said I was wrong and that I did not understand but it was obvious from the figures mentioned of 11.11 per cent and 5.56 per cent that turnover tax was not 5 per cent but almost 6 per cent and when people bought goods they were not charged 5 per cent turnover tax, they were charged more. This fact was nicely concealed for a long time.

It was estimated that the cost of operating the original turnover tax would not exceed 1 per cent of the yield of the tax. I should like the Minister to tell us what the administrative costs will be in the operation of value added tax because it extends over such a wide field that I am sure it will cost much more to operate than turnover tax does. The Minister did not explain this in his statement today. If it is not for the purpose of bringing us into the EEC and if the Minister is as satisfied as he has stated with the present system which operates so easily, effectively and simply, why is he satisfied now that the value added tax system is the form of sale taxation most suited to our needs, as he stated today? The Minister stated:

The tax proposals represent little more than a change in the method of collection and their incidence and impact on prices should be broadly similar to the incidence and impact of the present sales taxes.

These are vague, ambiguous words and they mean broadly that there will be no change but in actual fact the new tax system will mean a considerable increase in the cost of living. The Minister will not stand up and deny that fact. He does not say there will not be an increase, he says there will be a levelling up or a levelling down. We were fooled by that statement with regard to decimalisation and he is saying the same thing about the value added tax.

The Minister has been inundated with requests to postpone introduction of the value added tax system. If Britain is not going to adopt the value added tax system until 1973 I fail to see why we are in such a hurry. People have not had ample opportunity to understand it, learn about it and make observations about it. It would be a good idea if the Department were to explain to the public exactly how this system will work. If we could see all the difficulties and defects of the Bill —which we shall not be able to correct once it becomes law—beforehand we might be able to come up with some changes, alterations or suggestions as to how the system might be operated more satisfactorily and more in the interests of the public.

The system is being operated over the same range of goods as the turnover tax and the wholesale tax. Products such as baby powder, toothpaste and medicated shampoo which are subject to wholesale tax will be taxed under the new system as well when in fact it is known that they are medical products needed for medical conditions and should be exempt from tax.

It is obvious that small shopkeepers who are dependent on overdrafts will have to pay tax the following month whether or not they have sold their goods and this means their overdrafts will have to be extended. This imposes a crippling burden on small shopkeepers who at the present time are facing tremendous competition from the big combines. They will be further penalised by the requirement that they pay the tax within one month whether or not they have sold the goods.

Debate adjourned.