Before the debate was adjourned, I had been discussing various objections I have to this Bill in relation to this particular tax. There are quite a number of items in respect of which I would like to see granted exemptions from this value-added tax. I would specifically refer to hospitals, orphanages, schools and such institutions—all places where education is carried on, any type of school, convent, college or university which buys food, clothing, furniture, food utensils, and so on. There is a very wide selection of these institutions. I notice that the Minister mentions some of these exemptions in the Bill, but while they are mentioned in the Schedule, I am not completely satisfied that all the services I have in mind are covered.
Finance (No. 2) Bill, 1971: Second Stage (Resumed).
Question again proposed: "That the Bill be now read a Second Time."
These points would be relevant on Committee Stage rather than on the Second Stage, when the Deputy can go into more detail.
The point I want to make is that I would hope all the organisations I have mentioned would be granted a zero registration number so that they would be completely exempt from this tax. As the Ceann Comhairle has suggested, I will come back to this point at a later stage, but this is important because a zero tax number will make sure that these people are exempt from this value-added tax. The importance of this is that all these institutions are finding it a strain to keep going, and if they are not granted exemptions, it will mean for any of them who buy furniture, cutlery and such items that they will have vastly increased costs, so I would hope that all these will be completely exempt.
I have been endeavouring to read carefully through the exemptions listed in the document laid by the Minister before the Oireachtas in March 1971 and I have read section 6 of the Bill and the different Schedules. There is a particular item—amongst a number of others—which I do not see mentioned in the First Schedule and which I hope would be exempt. One of the items is motorcars.
These are matters for Committee Stage when the Deputy will have every opportunity of debating them at length. He may not discuss the details of the Bill on this Stage.
I do not propose to deal with them at length, but I was making the point, when the debate was adjourned for questions, that there are large-scale redundancies in different sections of industry and one of the industries which has been heavily hit by redundancies is the motorcar industry. This is one of the industries which I would hope to see exempted from this value-added tax. The Minister may have some proposals or may be able to give me some guidance in this regard in his reply to the debate. There is no motorcar assembly plant in the constituency I represent so that this is something which is not personal to me, but I do feel that the industry has been suffering pretty large-scale redundancies and I hope that it will be exempt from this tax, together with such machinery as tractors, combine harvesters, ploughs and other farm machines.
These are details for Committee Stage. The Deputy may not discuss them in detail on this Stage.
I hope the Minister will exempt all the items I have mentioned. They are important exemptions and they should be borne in mind by the Minister.
I note that, after very considerable pressure from members of the Fine Gael Party, from the provincial newspapers and from many different organisations, the Minister has seen fit to reduce the proposed rate of tax on newspapers and periodicals. He has reduced it from 16.37 per cent to 5.26 per cent. I believe. This is a considerable reduction but the amount of revenue the Minister will get from value-added tax on newspapers and periodicals will not be sufficient to offset the dangers and disadvantages that will accrue from the imposition of this tax on newspapers and periodicals.
Throughout Ireland there are quite good local provincial papers. I cannot speak for the national newspapers. I do not know their financial situation but I presume they will be able to carry on in the future. With the exception of the Western People, the Kerryman and a few other provincial papers, the circulation of most provincial papers is somewhere in the region of 30,000 to 40,000. Their margin of profit is negligible in some cases. Many of them manage to keep going with advertisements and so on. They are vastly different from the local provincial newspapers in England and in the Common Market countries. Ours have a much smaller circulation. Because of that they will be heavily hit if added-value tax of 5.26 per cent is imposed upon them.
The provincial papers are doing a very good job. Since the advent of television many people do not purchase a daily paper. They rely for much of their information on the provincial newspapers. It would be disastrous if many of them went out of existence. They help to keep the people in the country up-to-date with the events in their local areas and most of them deal with the national issues on a fairly general basis. They are finding it very difficult to keep going.
They also have a very big employment content. I come from the town of Birr and the local paper employs a staff of 20 to 25 people. This is very important to their wives and families. It is an important industry in the town. Birr is only one example. There are 40 or 50 of these local papers throughout the country. They are important industries and it would be a pity if they were adversely affected. They pay high wages and high charges for electricity and postal services.
Many of these papers have been losing some revenue which formerly accrued to them. They printed the register of electors, and so on. In Offaly this work has now been taken over by the Offaly Council. I understand that a similar position obtains in Donegal and obtained for a period in Wexford. This type of work was an important source of revenue to the local papers and it has been lost to them in Offaly and in Donegal. It is important that the public should be informed and the local papers help to discharge that duty loyally and well to their readers. I am not certain about what revenue the Minister will receive if he imposes value-added tax on provincial newspapers and periodicals. It would be wiser for him to exempt them from it.
I should also like him to confirm that fertilisers, seeds and manures will be exempt. This is important to the farming community. The farming industry is one of our most important industries. Different statements have been made in relation to the discussions that have taken place between the NFA, the Revenue Commissioners and the Department of Finance on how the value-added tax will affect the farming industry. I should like to get a clear and unequivocal statement from the Minister on exactly how the value-added tax will affect cattle marts, and so on. There has been quite an amount of discussion about this. I am not clear as to how the exemptions will apply. The economy hinges to a very large extent on exports of cattle, sheep and bacon. The Minister should state clearly how this tax will affect the cattle marts. This is important because if our exports of livestock were diminished, a very grave recession could ensue. These exports run into millions of pounds annually. The Minister should clarify this matter when he is replying to the debate.
The figures given in the Explanatory Memorandum and in the White Paper include two decimal points. Dances will be chargeable at a tax exclusive rate of 11.11 per cent. Other figures are, for example, 16.37 and 5.26, 30.26, 76.05, and so on. It should not be difficult to round off these figures. The Government have a sufficient majority to force the Bill through the House. Therefore, the Minister should introduce rates which will not include decimal points. In order to calculate the tax on the figures suggested in the Explanatory Memorandum, the shopkeeper would have to spend a considerable time on this work after he had closed his shop on a Saturday night. It would be an almost impossible task.
There would appear to be no sound reason for such percentage which will mean that shopkeepers and organisations who have to collect the tax will have to round off these figures for purposes of book-keeping and in doing that they will, in fact, be increasing prices. Therefore, the figures suggested will lead to a further increase in prices. The figures may also have the effect of making business people purchase calculating machines, involving extra cost, which they should not be asked to incur. It would be quite simple for the Minister to have the figures amended.
As I stated earlier, the value-added tax will very seriously affect small family grocers of whom there are many in the country and who are already finding difficulty. They will be forced out of business. That is something that I would not like to see happening. On their behalf I want to say that this tax will have repercussions so serious that in the next five years grocery shops will be closing on a very regular basis. Those grocers who are able to survive will find that they will need the services of an accountant on a full-time basis, again involving extra cost which I do not believe they can afford. It is important that these people should be considered when the Bill is going through the House. These shops have barely managed to adapt to the turnover tax and they are now faced with a further change. The turnover tax caused a substantial increase in the cost of living but that increase will be found to be very slight in comparison with the increase in the cost of living that the value-added tax will cause.
The Minister must surely be aware that the turnover tax led to an enormous increase in the cost of living.
This is not an increase in the level of taxation. The Deputy appreciates that.
I am sure the Minister will remember that at the time the turnover tax was imposed——
It was an additional tax. This is not an additional tax.
The Minister may honestly believe that this is not an additional tax.
It is a matter of mathematics. It is not a matter of what the Minister believes.
With all due respect to the Minister and his mathematics, when this value-added tax is applied the cost of living will be vastly increased and when, in the future, people come in here and inquire about the rise in the cost of living I am perfectly sure that they will have personal knowledge of the fact that the £ will have fallen in value; I believe we will be purchasing less with our £ when this tax is imposed.
Let us be honest about it. Those in business will have to adapt their accounting system. They will have to prepare a completely new set of books. They will have to prepare different sets of accounts. The cost of all this will have to be absorbed by the housewife when she comes to purchase her goods. I honestly believe this tax will lead to an increase in the cost of living. When the Minister is replying I should like him to deal specifically with the question of how this value-added tax will affect the farming community, the cattle marts and the livestock industry generally.
I shall be very brief. In bringing in this value-added tax we are doing no more than is presently being done in the European Economic Community of which we hope to become a member in the not too distant future. With regard to the effect of the tax on the cost of living, this is bound up in a whole series of other matters. Its immediate out-turn is problematical. The Minister has assured us that, as far as the Department can calculate, it will be a replacement of existing taxes which will be abolished.
One matter that is causing some concern is the cycle of payment. Will the tax be paid monthly or three monthly, or will the period be longer? Many businesses extend credit for long periods. Builders providers are one of these. From time to time, because of the peculiar nature of the building industry, they are unable to pay their accounts and the general average is 4½ to five months before they pay. Manufacturers by and large seem to do better. They pay within 28 days or, at the most, 60 days. I should like the Minister to deal with this because if the tax is demanded immediately, or every month, the manufacturer, the wholesaler, the distributor and the retailer will have to borrow to pay the money. I have a certain sympathy with Deputy Enright's remarks in this respect. The tax could possibly bring about increased costs if the money is demanded immediately.
I am very concerned about the effect of the tax on the information media. Provincial newspapers are going out of business or are being taken over by larger concerns. I am anxious to preserve the widest possible spread of information. The more papers there are the better the spread. I should not like to see provincial newspapers disappear. As well as conveying local news they also convey national news, sometimes news the national dailies do not carry to the same extent. They also provide regular, well-remunerated employment. When there was scarcely any industry in the country these were going concerns. I know that circumstances vary but there are some countries which have not imposed any heavy taxation on the newspaper media. I should like the Minister to bear this in mind. I am aware that, as a result of negotiations, the value-added tax on newspapers has been reduced to something like 5.26.
I understand also that advertising will be subjected to value-added tax. Advertising is essential to our economic life. If the cost increases advertising may cease or less space may be taken. This will reduce the earning power of the newspaper. I am speaking more now for the provincial papers than for the national dailies; the latter are in a better position where advertising is concerned. The provincial and county papers depend largely on local advertising. If the cost increases advertising may be discontinued. I would ask the Minister—I do not know what the cost would be to the Exchequer—to relieve these papers entirely from taxation of any description. He could tax the kind of information that we would all be better off without. There are some publications which do not add anything to the character of mankind; there are others who think otherwise, but I am not one of them. There is information in all kinds of papers, periodicals and books which is essential. So long as we remain—I hope it will be for many centuries—a democratic society that we will give the maximum liberty to our news media and that nothing will be placed in their way, either to push them out of business or to influence them, whatever their political leanings may be or whatever the content of their editorials may be. Our lives are enriched by their opinions and the more such opinions we receive the better we are informed. If we find they fail, and I know many will fail, then that amount of opinion is being withdrawn from us and we may ultimately find ourselves in the hands of a few newspaper owners who can colour public opinion to a large extent without the value of that wider mix which we get from provincial papers.
In principle I support value-added tax. I think it is essential and is an equitable form of tax. From what I have read about it in countries where it operates—and I know it operates at differential rates subject to the requirements of each country—there has been no great outcry against it. We shall have what I might perhaps improperly describe as equalisation of all things as far as possible in the Common Market and I hope taxation will come into this category although I am aware of our peripheral geographical position. I conclude by appealing to the Minister that provincial papers in particular be relieved from taxation of this kind.
The reaction of most members of the public to the VAT proposal is one of fear that it will involve increases in the cost of living. To some extent I know that these fears are unfounded and I also know that to some extent cost of living increases that would have happened in any case will be attributed to VAT. But there is certainly a danger that the new tax will be used as an opportunity in certain areas to increase prices to the consumer. In other countries where value-added tax operates it is fair to say they have somewhat more elaborate systems of price surveillance than we have and they are, therefore, in a better position to ensure that VAT or any other tax of that nature does not result in increased consumer prices other than normal increases due to the actual tax itself. Therefore, I urge the Minister to take particular account of public fears in this matter and to examine the price surveillance machinery available to him to see if it is adequate, and, if it is not, to consider expanding it to ensure that fears expressed regarding its effect on the cost of living may be set at rest.
I would not attempt to criticise VAT as a tax system because I have no great knowledge of the system but my initial reaction is that while its yield may be somewhat better in terms of revenue than a system of wholesale and turnover tax, it is possibly much more labour intensive for both the revenue people and those bearing the tax and they will have to engage in much more elaborate accountancy. We should bear this in mind. It is simply not enough to look at the yield in the Government coffers. We must set against that the effort that must be put into raising this yield by civil servants and also by the public who must comply with the various regulations governing the operation of the tax.
I ask the Minister to keep a very careful eye in the long-term on this tax and see if, in an EEC context, it might not be better if the general European purchase tax were not some system other than VAT and, if he might as representative of the Government, promote the adoption of some other system if it can be shown that another system would be more efficient. Although we are a small member of EEC we should not feel precluded from taking the initiative to improve the EEC in any way and this should extend to the tax system suggested. VAT may well be the best system but this is a consideration that should always be kept in mind.
I should like to echo what many other speakers have said in regard to the application of VAT to newspapers. I understand the Minister has made concessions in response to fairly strong representations to him by various provincial papers. He will probably be aware that in some, if not in most countries in Europe, newspapers do not bear any value-added tax. I ask him to investigate the practice in other European countries more closely and see if such a concession could not be made here. Just because in the past it was customary to tax newspapers under other systems of taxation does not mean we should feel precluded from excluding newspapers from VAT. This should be considered.
I am also concerned that the period within which payment of the tax must be made is, perhaps, unduly short. Apparently, the tax must be paid in general within one month of the date of the transaction on which it is due. I think this will result in serious injustice to many concerns because they would have to pay tax long before being paid by their customers. They will have to hand over to the Revenue Commissioners tax on money they have not yet received themselves. I think it is true that the majority of commercial transactions are on a 90 day payment basis. It appears this tax will be on a monthly payment basis. In this context I think the Minister should follow the example which apparently is being set in Britain where it is proposed that firms be given 90 days to pay the tax instead of the 30 days proposed here.
I am also concerned with the very great difficulties this will impose on retailers. Recently a retailer expressed to me the fear that he would have to use two if not three cash registers in his shop in order to operate the different rates of tax which will apply under VAT. At present grocers can charge the turnover tax at the checkout point on the total of any sale to a purchaser. Under the new system they must include the tax in the marked price of each item and they will, therefore, have to collect the tax separately on each item. Obviously, this will cause considerable difficulty and this will lead to increase in prices in smaller items, because where one has to apply this to something which is worth a penny it will be very difficult to find a price equivalent to 5.26 of a penny in order to add that on so obviously what will be done will be to make the price 1½ pence which will be considerably higher than the rate which is intended. There is a definite danger of its affecting small items of purchase.
While I am certainly not prepared, at the moment anyway, to put forward any particular solution to this dilemma, which possibly is inherent in a value-added tax system, I would ask the Minister and his advisers to give the matter very close consideration to see if they can find some way out of the likely effect of value-added tax dis-proportionately increasing the prices of low-priced items.
I should now like to turn to the effect of this system on agriculture. In trying to deal with this subject one would have to understand the system which is possibly something I do not do. I do not fully understand the whole idea of this value-added tax system but as far as I can understand it the idea is that farmers at point of sale of their goods will be given a refund of approximately 3.5 per cent of the value of the item being sold. The intention of this refund is to compensate them for the value-added tax which they will have borne on the various inputs which they have bought in the course of producing that item.
It obviously is not intended to compensate them for inputs such as labour because labour is not covered by the system. Therefore, it is accepted that 3½ per cent is possibly an adequate figure if one is to accept an average. It would be obviously unfair to give a full refund of 5.26 per cent because there are certain of their inputs which are not taxable, for example labour. While this figure, globally, may be a reasonably fair one I think it will be unfair in its application as between different farmers. I think it will be rather unfair to the highly intensive producer in that he will be the producer who will possibly be using more taxable inputs per unit of agricultural produce sold. He will have used more fertilisers and more bought-in feeding-stuffs per beast sold than will the extensive producer who is not making an effort to increase his productivity. This should not be the case. The object of any State intervention in the agricultural field should be to increase productivity and to encourage intensive production rather than to give an incentive, however marginal, to extensive production. This is one reservation which I have.
A proposal was put forward by the NFA of which the Minister and probably all Members of the House are very well aware. This proposal should be given pretty careful consideration. The proposal is that the principal agricultural inputs, namely, feedstuffs, fertilisers and seeds, should be taxed at zero and that the tax incurred in grantaided farmbuildings, water supply schemes and land reclamation should be repaid to the farmer by means of an addition to the grant; that machinery used solely or mainly on agriculture, e.g. agricultural tractors, combine harvesters, ploughs, et cetera, should also be taxed at zero. This will leave a number of other inputs which are used in production, which are not so easily distinguishable as specifically agricultural inputs, and they will continue to be taxable in the normal way and the refund will be paid in respect of these inputs.
I think this would be somewhat fairer because the effect of this system would be that a farmer would be getting a smaller refund but that he would not be bearing tax on certain of the other inputs. It would be fairer because, at present, the level of farm incomes which are being covered will mean approximately a tax burden on the farming community of £8 million to £10 million. If this were reduced, while the refund which the farmer would be getting would also be reduced, it would mean that the input which would be taxable would be somewhere in the region of £3 million. If there is the injustice that it would be discriminatory as against intensive producers, to my mind it is better that this discrimination should be operating over a smaller area, namely the area of £3 million of taxable inputs, and consequent refunds, rather than over a wider area which would be the case if we were including the specifically agricultural inputs such as feedstuffs, fertilisers and seed, farmbuildings and machinery, which are, at present, proposed to be included. This is a proposal which merits consideration.
I would emphasise, in case there is any misunderstanding from the rather garbled explanation which I have been trying to give, that this proposal does not involve a lessening of the tax burden on the farming community. The proposal merely means that instead of paying the tax on the inputs and then getting the equivalent refund at the point of output, they will not pay it in the first place and therefore not get the refund. Overall, the same amount of money will go into the tax coffers from the farming community but the burden will be distributed more equitably. I think it has been argued that it is very difficult to distinguish, particularly in the field of machinery, what constitutes a specifically agricultural machine and that this would create difficulties in providing an exemption. To the best of my knowledge, this distinction between specifically agricultural machinery and non-agricultural machinery is already being made in that non-agricultural machinery is going to bear the tax at 16 per cent whereas specifically agricultural machinery is going to bear it at the 5 per cent level. This distinction is already being made, so the administrative difficulty of removing the tax completely from agricultural machinery does not appear to be very great at all. I urge these few considerations and apologise to the House for the fact that they have not been presented in a clear fashion as I have only just started to look into the subject.
Like the previous speaker I have not had an opportunity of studying the full implications of value-added tax. There seems to be an uneasiness, I suppose it is not unnatural, amongst different sections of the public as to how this particular tax will affect them individually. Small traders, who are probably one of the most vulnerable sections of the community with regard to extra taxation, are apprehensive about the ultimate implications of this tax. I have heard value-added tax described as one of the best systems of indirect taxation because unlike income tax and other such forms of taxation it is not calculated to stop increased production.
When turnover tax was introduced in 1963 we were told it would bring in £12 million a year in revenue. The argument put forward at that time was that turnover tax was necessary because it would be found in time that the four traditional methods of taxation, namely, tobacco, beer, spirits and petrol, would be inadequate. With the present agitation about the dangers of cigarette smoking I think we can expect a fall-off in the consumption of cigarette tobacco in the years ahead and this will mean a consequent fall in revenue while Government expenditure will be increasing. As I already said, in 1963 it was expected to collect £12 million from turnover tax but tax from that source is now running in the region of £80 million. Apart from wholesale and turnover tax industrial producers are heavily taxed. Most people believe that our lack of competitiveness is due to this tax on companies which is at a higher rate than that payable in Britain. The Minister must have realised this because the other day he decreased company tax.
The only excuse offered for reducing a tax which was introduced only a few months ago was that the Government needed the money and they had to get it. That is not a very logical way of approaching a tax structure.
When the Minister is replying I would like him to tell the House whether value-added tax will affect people who have not been paying tax heretofore. Will it bring the farming community into the tax net to an increasing degree? Will it prove more oppressive on small traders?
Value-added tax is levelled at three or four stages and this will require a considerable degree of book-keeping. I suppose many traders have already been drilled in this form of record keeping but I feel that this new system will involve them to an even greater degree in record keeping. Small traders, even those who have done their own accounts up to now, will probably be forced to employ auditors and accountants.
All told I believe value-added tax will bring the Government increased revenue. I understand that the revenue people have stated that the actual amount of money collected will not be very different from what they collect from the wholesale and turnover taxes but the Minister has admitted there will be increased coverage. If the rate remains the same but the incidence of taxation increases there must be an increase in revenue. Increased taxation means that our position in a competitive world as a trader becomes weaker.
I appreciate that when we enter the EEC we will be expected to introduce a tax structure of this nature under the accepted idea in the Community of a harmonisation of taxation as well as a harmonisation of many other activities, but, as far as I understand it, Britain does not intend to introduce value-added tax until 1973. I wonder why the Government feel they must introduce value-added tax ten months ahead of Britain. In our negotiations with the EEC there has been almost complete agreement on everything; the concessions that have been negotiated are the same for the four applicant countries. In fact, so far as negotiations were concerned we could have remained at home because they could have done all negotiations for us.
I do not understand why we decided to introduce this tax next April when Britain will not have this tax until nine months later. I wonder if this will have any effect on our trading relations with Britain? Even if we enter the EEC our trade with Britain still will be very considerable and it will be a long time before there is a significant change in this pattern. Perhaps the Minister will tell us in his reply why he decided to adopt this system. I think originally we had decided to introduce the tax in January—a year in advance of Britain.
While the tax has been described as one of the best forms of taxation by continental standards, our position may be somewhat different. Twenty-eight per cent of our population are engaged in farming as compared with 3 per cent in Britain. The social and economic structure of our country is still extremely agricultural, much more than any of the member or applicant countries of the EEC. Although our farms are, on the average, larger than farms in the EEC countries, many of them are run-down and have a poor productive capacity.
The Minister stated there were three advantages in having this tax. One was that it would be spread over a wider section of the business community and that the tax was a little more than a change in the method of collection. The Minister added that the incidence and impact on prices would be broadly similar to the incidence and impact of the present sales taxes. One's reaction to such a statement is, "We have heard this before".
We were told that decimalisation would not make any difference in the cost of living and would not cause any difficulty. Without consulting any figures, we all know now that decimalisation quite definitely had an inflationary effect. If there is a question of a fraction it does not go to the customer but to the man behind the counter. Therefore, I am not so sanguine or optimistic as the Minister when he states that this change will not have any impact on prices and that they will remain as they are vis-á-vis taxation.
According to the Minister another advantage of this tax is that it should make evasion more difficult. In so far as the tax is collected at four levels each person pays the tax at the point it reaches him and makes deductions in respect of what has been paid already. Therefore, his contribution is only a fraction of what it would be under the present system where the entire tax is collected at the final stage. The Minister pointed out that evasion would be more difficult and this is true as each person will be able to ensure that he does not pay any more than his due. Not alone will the traders be tax-gatherers, they will be tax-policemen. I am not saying that there should be evasion but the taxpayer now has an added function with regard to the collection of this tax. The publican and trader are revenue officers and they may not like their new roles.
The Minister mentioned a sum of £3½ million per year in connection with relief from double taxation. I do not know if that is very significant as an argument in favour of the tax. The argument I should have liked the Minister to develop is whether it offers more incentive than the present turnover tax. I would be prepared to accept that view with regard to income tax and this is an argument economists would put forward. There are social aspects that might be mentioned on the other side but I should like the Minister to tell us of his views on this point.
On a technical point, the new tax will be collected on the basis of fractions. The old taxation figures of 5 per cent, 10 per cent and 15 per cent, increased some time ago to 20 per cent, will be replaced by 5.26 per cent, 16.37 per cent, 30.26 per cent and 11.11 per cent. Apparently this was necessary because our turnover tax was on a tax inclusive basis, whereas the new tax is on a tax exclusive basis.
I expect there are technical reasons for this but may be the only reason is that this is the way it is operated within the EEC. Perhaps when he is replying, the Minister will tell us why it was found necessary to introduce these complicated fractions. One would have thought that he would have introduced round figures. Could it be that on the arithmetic of the operation he aims to take in the same amount of money under the new system as under the old? If that is the reason it does not seem a very good one. Could this be a gimmick on the part of the Minister to give us the impression that he is so meticulous as not to take any more from us under the new system than he took from us under the old system?
Like most people here I would be interested particularly in the position of the farming community under this proposed tax. The Minister tells us that special arrangements are being made for the agricultural sector. I understand that some activities, particularly mart sales, are being treated in a special way but I have not yet had an opportunity to study these arrangements. I would make a plea to the Minister to consider this question of abolishing the tax on input which applies to the farming community. In the Minister's brief there is reference to tax credit in relation to farmers' input of 3.85 per cent and 2.68 per cent. Deputy Bruton mentioned an average figure of 3.5 per cent. Representations on behalf of the farmers have been made to the Minister asking that this be treated as a zero tax but I do not know whether this would be allowable in EEC conditions. Tax of that nature would make it more difficult for our farming community to be competitive and if such a tax is in existence when we enter the Common Market it will then be more difficult to remove it. I wonder whether the Minister has considered the full implications of this tax.
The Minister states, too, that he has modified the White Paper proposals and is introducing a method whereby cattle marts and cattle dealers will be relieved of accountability of their sales of livestock where they opt for arrangements analogous to the simplified scheme applicable to farmers and to which he has referred already. I do not know how this will work in practice. It would appear that whatever modifications he has introduced were probably necessary and that the alternative would be that farmers would conduct much of their buying and selling actually on their farms or, perhaps, at fairs rather than at marts. Maybe this was an act of necessity rather than anything else on the part of the Minister. I should be glad if, when he is replying, he would explain in more detail how charges will be made on the ordinary farming activities. Sometimes there are several transactions involved in the sale of cattle or other stock. A man may keep cattle for a couple of months and then sell them to another who will sell them again a couple of months later and so on.
We are not speaking here in the simplified terms of an industry producing a commodity which then goes to a wholesaler and from him to a retailer and, lastly, to a consumer. In the case of livestock there can be multiple transactions. How is added value to be calculated in such cases? Are there to be a whole series of invoices accompanying every animal up and down the country? The mechanics of this aspect must have been worked out already by the Department and the Revenue Commissioners and perhaps the Minister would let us have details of these mechanics when he is replying.
I would also like to ask the Minister, when he speaks of this being a broader type of tax than the existing one, extending to a larger section of the community, what particular sections or sectors of the community he has in mind who will now be embraced by this tax who were not embraced before. He scarcely means merely the small percentage of the community who succeed in evading the tax, the present turnover or wholesale taxes. That percentage, I presume, is small, but when he says that this is to be a more widespread tax, what particular sections of the community has he in mind and what particular sections will be affected by that extension of the base of the tax?
All in all, despite the fact that this, as a taxation system, has, in general, been described by economic experts as one of the least objectionable forms of taxation, I have serious misgivings as to whether it will prove as suitable for our particular society as it may have appeared on the continent. For many years, they had various forms of spending tax on the continent, and they eventually evolved this particular type of tax and now have developed a fair degree of harmonisation. Perhaps the Minister could also tell us, apart from the basic structure of the tax, how the rates in the different continental countries compare with the rate we are proposing here and whether the coverage of the commodities on the continent is the same as we are providing here. In the time of the turnover tax, there were some peculiar features in that tax, and we can all recall discussions at that time about going into the local chemist's shop with a prescription, and if the prescription was for a human being, you paid tax and, if it were a prescription for a dog, you did not. Are those types of anomalies to be carried on in this new taxation? How does it compare in that respect with what we have had before?
Essentially this is a highly complicated Bill, and I suppose none of us has had an opportunity to give it the study we should have as yet. It is largely a measure that will best be dealt with on Committee Stage because it is complicated and highly technical. When we have had an opportunity of going through it in Committee, I expect we will all be a bit more informed about it than we are now. At present I can only deal in a general fashion with the points raised by the Minister in his brief, which, of course, was also a general type of brief. I have dealt with it on those lines and perhaps the Minister would be good enough to reply to the few points I have raised.
Notice taken that 20 Members were not present; House counted and 20 Members being present,
I do not propose to reply to the detailed points at this stage as I think they are much more appropriately dealt with on Committee Stage. In general, the impression I have got from this debate is that the House is not opposed to the principle of value-added taxation, although opposition has been expressed to various aspects of some specific proposals contained in the Bill. Questions have been raised about the validity of the reasons for making the change-over to value-added taxation and some other questions have been raised as to the timing of the change-over. There is a qualification to what I have said about the apparent general acceptance of the principle of value-added taxation. I noted with interest the approach of Deputy Collins, who said he was opposed to the whole principle and condemned it root and branch. I will be interested to know how Deputy Collins will vote on the question of the Common Market in the light of that statement. However, that is a matter we can look forward to with considerable interest.
The reasons for the change-over to value-added taxation I have set out in my speech introducing the Second Stage of the Bill, but in view of the suggestion by Deputy Tully and a number of other Deputies that our EEC commitment is the only or the principal reason, I should like once again to summarise the arguments which led the Government to introduce these proposals.
Perhaps I could put it in perspective first by saying what I have said on a number of previous occasions, that is, that, even if we were never going into the EEC we should introduce the value-added tax system. The main factor in our decision to introduce the value-added tax was that it was urgently necessary to strengthen the administrative and collection machinery of the present sales taxes which was designed to handle a very much smaller volume of revenue than we are now deriving from the turnover and wholesale taxes.
The biggest weakness of the present taxes is that the collection points for most of the taxes are limited to certain types of traders, the retailers and the wholesalers. The simplest way to rectify this was to introduce the value-added tax which would spread the collection over the whole range of production and distribution without causing any duplication of sales tax or any significant change in its incidence. The value-added tax is so designed that the inter-relationship between the different traders who are paying the tax helps to discourage evasion. To some extent the system is a self-checking one. By that I mean that, to the extent that an individual trader wishes to claim credit for tax paid from the Revenue Commissioners, he has a vested interest in ensuring that the correct figures are entered on his invoices and on the invoices he receives. In addition, since the individual traders will have to pay less tax to the Revenue than they do under the present system there will be less to be gained from evasion.
As I mentioned, the value-added tax will remove almost completely the double taxation which exists under our present system amounting to about £3½ million a year. The existence of this element of double taxation—arising from the fact that firms at present suffer tax on certain purchases such as office furniture and certain building materials —constitutes a small but undesirable hidden tax on the cost of goods which cannot be refunded or credited even on exports. Under the value-added tax system, exports will be completely free from tax. Any tax paid at the earlier stages prior to export will be refunded.
The fact that, as a member of the EEC, we would be obliged to convert to the value-added tax system in due course was definitely a consideration, but the decision to change-over to value-added tax was made by the Irish Government alone and was based on the clear advantages which the tax has for us in present circumstances. I repeat that, even if we were never going into the EEC, we should change to a value-added tax system.
Some suggestions were made in the course of the debate that we should have taken advantage of the introduction of value-added tax to alter the incidence of certain existing taxes and to relieve, for example, those who were referred to as the hard-pressed income taxpayers. At the same time as I was castigated for not taking advantage of this opportunity to recast our taxation system, some speakers, in the same speech, talked about the fact that the value-added tax system is likely to increase prices enormously, according to them. I should like to make it clear that the main principle we tried to observe in introducing the value-added tax was to ensure that the introduction of the tax would not be an excuse for an increase in prices.
This is the reason, for instance, why we have these strange-looking rates of taxes of 5.26 per cent, and so on. These are the mathematical equivalents of the existing wholesale and turnover tax rates. Therefore, the operation of the value-added tax should ensure that there is no increased taxation being applied. There will be no excuse for people to use the change-over to increase prices. Some Deputy referred to this as a possible explanation and described it as a gimmick. It is a vitally important matter and I should like everybody to understand this. The switch-over in the system does not mean that there is any increase in the rate of taxation.
Does the Minister mean that everybody in the country will know what 5.26 of ninepence is?
Wait for it. We will come to that. As far as anybody in the country is concerned it means that he knows that there cannot be an increase in the price of any commodity because of this tax, whatever other reasons there might be. In other words, if there is not another reason and he sees an increase he knows that it is not justified.
That is a good enough reason because a halfpenny on the lowest item you can buy is quite enough.
I will be dealing with that but, since Deputy Tully raised it, let me say he and a number of other Deputies seemed to be under the impression that value-added tax has to be dealt with on an item-by-item basis.
That is the advice given by the Revenue Commissioners to the RGDATA, in case the Minister does not know that.
That is the advice which is available to people but they do not have to take it. It depends on the kind of shop they have. The value-added tax at the retail level is a tax on turnover. The figures are worked out to be precisely the same as the existing turnover tax. The 5.26 per cent rate is the exact mathematical equivalent of the 5 per cent rate taking one on a tax inclusive and one on a tax exclusive basis.
What is 5.26 per cent of ninepence? Does the Minister know?
I do not.
How will the unfortunate person who is trying to put on a price in a shop know?
The person in the shop? If he wants to do it item by item he will have his ready reckoner provided by the Revenue Commissioners.
The Revenue Commissioners told him to put it on at shelf level.
If he wants to do it he can do it. What is happening here is that the price will be exactly the same figure as under the turnover tax, as the Deputy knows.
I do not.
That is exactly what it is.
On paper, yes.
It may be on paper but it is also out of people's pockets. Any divergence from that is something I think people understand even if they do not know what 5.26 per cent of ninepence is. They know that. They will know that, if there are changes in prices which are attributed to this, they are not justified and they do not have to accept that they are justified and they can make complaints and have them investigated. If an attempt is made to change prices on the grounds that the value-added tax constitutes an increase in the rate of taxation, people should understand that there is no increase.
As I was saying, the main reason for not thinking in terms of a different incidence of rates of taxation is to ensure that this is a change-over in the method of collection and that it does not provide an excuse for increasing prices. What might be done at any time in the future——
Why brother with it, then?
The Deputy is late. I explained it earlier. Read all about it in the Official Report.
We heard all about it. We are going into the EEC—as good an excuse as any.
It is a pity the Deputy did not come in a little earlier.
It is to get more money out of the people, to screw them into the ground. The Minister is a good hand at it.
Deputy O'Donovan is here now.
Deputy Dowling is here. At least I came in without any bell dragging me in.
Order. The Minister.
Is the Deputy finished?
I am not finished at all because this is a real trick to get more money out of the people. That is what this is.
Acting Chairman
Order. The Deputy had ample time to make his case.
He had, and he did not make it, Sir.
It is all right for the Minister to make "smart alec" comments of that sort.
What does the Deputy expect?
Nothing else.
Some Deputies have claimed that the yield from the value-added tax will be enormously increased as against the yield from the combined turnover and wholesale taxes at present. Indeed, Deputy Collins, I think, said it would be increased by 50 per cent. Whatever the truth may be of that forecast, it seems to me that the logical explanation for what they are saying is that, apart from some minor changes in how the tax will operate, since the rate of tax will be precisely the same as the existing wholesale and turnover taxes, they must be saying that there is an enormous amount of evasion of wholesale and turnover tax, so much so that when it is caught by the value-added tax system it will increase the yield even, as Deputy Collins said, to the extent of 50 per cent. I must say, if that were true, I would look forward with some degree of pleasurable anticipation to that result as Minister for Finance.
The advice available to me is that while there is evasion and, indeed, some of us may be aware of some cases of this, and it is not in small figures as Deputy O'Connell was suggesting, nevertheless, in relation to the total yield it is relatively small, but then it is going to be caught almost entirely by the value-added tax system. However, to say that the yield will be enormously increased, unless it is going to come in that way, is something that requires some kind of explanation considering that the actual rate of tax is precisely the same.
As I was saying, the main reasons for not considering any change in the structure of our taxation at the moment is to ensure that value-added tax is introduced as smoothly as possible and does not provide an excuse for increasing prices. It could well be that at some time in the future when the system has been established and is working quite smoothly changes could be made both up and down in rates applying to different commodities and, as Deputies will be aware, there are some proposals in the EEC for a degree of harmonisation but they have not developed too far yet. But, apart from any such proposals, it is conceivable that at some time in the future a Minister for Finance here would consider making changes. My main objective at the moment is to have as smooth as possible a change-over and also not to provide excuses for increasing prices because of the change-over.
The Minister is a simple man.
Did not the Deputy know that a long time ago?
Yes, I did, indeed.
Deputy Haughey found that out too late.
Deputy O'Leary, I think, had some experience in that regard also but we will not follow that up. On the question of the timing of this change-over, some Deputies seemed to be under the impression that we were rushing headlong into the introduction of value-added tax. I find this rather difficult to understand. Although that phrase was actually used by one Deputy and similar terms were used by some others, the fact is a White Paper was issued on value-added tax in June, 1968, explaining the system in general terms and a second White Paper giving the detailed proposals for our application of value-added tax to our system was issued in March of this year.
Under a different title, by the way, with all respect to the Minister. Let us be precise about words. It was a different title.
It was a different White Paper too.
It was a different title.
It was not even white.
Neither of them was white, actually.
There were subsequent announcements which included an invitation to anybody who was interested or concerned to make his views known. This is going back over a number of years and yet Deputies come in here and talk about a headlong rush into the value-added taxation system.
They are right.
We are talking about a Bill before the Dáil now and this is coming into operation in March next. That is a headlong rush, if you get away with it.
We will do that.
I guarantee that you will not.
Is the Deputy issuing a challenge?
I am.
Fan go bhfeicidh tú.
That is a very foolish thing to do.
I am not foolish, as the Minister knows to his cost.
Very foolish, and unnecessary.
What is the cause of this nervousness and belligerence?
I did not hear the word the Deputy used.
The Minister is in a very belligerent mood. What is responsible?
Not at all. Deputy O'Leary has seen me much more belligerent than this. I am in a rather benign mood this evening, if the Deputy would like to know.
We had better clear the House when the Minister is belligerent if he is benign now.
He may have been dining well, or something.
No, but there are a few around who have been.
I think he has been dining on Raheny lamb.
We have to accept that in the views of some Deputies on the opposite benches the proposal first dealt with in a White Paper in June, 1968, and which is now before the House, the Bill having been circulated some time ago, represents rushing headlong in. There are different time scales. I know some people do not like change and may regard this as a very precipitate move. On this side of the House we are not quite so conservative. In regard to this question of timing, I do not think that the question of the intentions in Italy or in Britain are really relevant because the circumstances in those two countries are quite different from ours. As I pointed out in an interjection where the Deputy took Britain as an example, the existing sales taxes in Britain are far away from a value-added tax system as compared with our turnover and wholesale taxes which are very close to a value-added tax system. Therefore, the problem in Britain will be far greater than it is here. This is the most obvious reason why they do not propose to start until 1st April, 1973. I move the adjournment of the debate.
Debate adjourned.