Dáil Éireann debate -
Wednesday, 31 May 1972

Vol. 261 No. 5

Finance (No. 2) Bill, 1971: Committee Stage (Resumed).

Debate resumed on the following amendment:

In page 4, subsection (1), to delete lines 42 and 43, and to substitute the following:—-

"‘taxable period' means a period of two months beginning on the first day of January, March, May, July, September or November;".

—(Minister for Finance).

Dr. FitzGerald

There are two problems here. One is that we are not agreed on the question of the three months and the Minister has not, I think, come back on one aspect of it. We made the point that the British Government feel it necessary, with their much stronger industrial base, to allow three months for manufacturing industry and the Minister here thinks that two is sufficient. We do not agree on that. I would like to hear the Minister on that point which he has not dealt with.

I did raise in my discussion last night the point that comes up in my amendment No. 10 of the desirability of the Minister having power to determine when these periods start, to stagger them for different firms so as to maintain an even flow of work. I thought he would come back on that and tell me whether he thought that was a good idea or why it was not a good idea. Perhaps if the Minister could say a word or two on these points we might make further progress.

Minister for Finance (Mr. Colley)

I think I have, in fact, dealt with both of these points. I tried to indicate that as far as the British are concerned their situation is quite different from ours and I do not think we ought to regard them as anything in the nature of a precedent in relation to value-added tax because they have to move much further in order to achieve value-added tax than we have. If we want to make any comparisons I think they should be with countries which are operating value-added tax at the moment. Quite different considerations apply in the case of Britain.

Dr. FitzGerald

Can the Minister make such comparisons? It would be very constructive. What is the position in the other countries?

Mr. Colley

No, I am saying that if the Deputy wants to make comparisons he should make them with those. I tried to indicate early on that I do not regard a comparison with Britain as valid at all but I am satisfied that, having regard to our circumstances and having regard to the consequential effect on the Exchequer, the amendment I am proposing, which is to extend the taxable period from one month to two, is as far as we can go and also meets most of the difficulties of most of the manufacturers, while at the same time conferring fairly substantial benefits on many wholesalers and retailers.

In regard to the question of staggering the period of payment, certainly if we were having a three-monthly period this would be a matter that I think we would operate. In fact, I have given considerable thought to this matter. However, in relation to a two-monthly period, as I indicated last night, having weighed the pros and cons, and there are pros and cons in it, I came to the conclusion that the balance of advantage lay with a two-monthly taxable period with a non-staggering of the payments. I believe that the two months is as far as we can go, that it meets most of the difficulties and that, on balance, with a two-monthly taxable period it is not advisable to stagger the payments as between different classes of taxpayers.

Mr. Tully

I was hoping that the Minister would clear up this morning all the misconceptions which all of us, including himself, myself, Deputy FitzGerald and Deputy O'Donovan, did seem to get tangled up in last night.

Mr. Colley

The Deputy should speak for himself.

Dr. FitzGerald

He can speak for me too and he could speak for the Minister if he would admit it.

Mr. Tully

Let us be honest about it. If we start trying to make political points on this Bill we will be here not until the 1st of November but much later. Let us try to get it clarified. What was at issue last night should be cleared out of the way before we do anything else, that is whether or not there is a recurring loss as a result of whether it be two or three months or whether it is simply a once for all loss. Would the Minister make a clear statement on that? I think we can offer our co-operation in trying to get it reasonably dealt with if the Minister can do that. We are not trying to be awkward, we are just trying to be parliamentarians. I think that is our job.

Mr. Colley

I appreciate that the Deputy is not trying to be awkward and I appreciate that this is not a matter that is clear to any ordinary person who is not involved in this, on first glance. I did undertake to produce in writing or in graphic form an illustration of how this operates. I have been informed that it will not be available for about a half-hour which leaves me in something of a difficulty.

Dr. FitzGerald

Keep talking.

Dr. O'Donovan

What is a half-hour between friends?

Mr. P. Belton

Of course it is a recurring loss.

Mr. Colley

I agree with the Deputy but I do not want to go back over it. We spent a lot of time on this last night. I think the Deputy is quite right. It is of some significance that Deputy Belton and Deputy Fitzpatrick, who was speaking here last night, both of whom are practical men of business immediately say: "Of course it is a recurring loss."

Mr. Tully

They are dealing with their own trade.

Mr. Colley

Yes, but they understand the principles of it. I do not want to pursue this again.

Dr. O'Donovan

That is not so.

Mr. Colley

Let us not go back over that ground again. May I put it to the House this way? The Revenue Commissioners, who have gone into this in some detail and who, I think it will be conceded, have a considerable amount of experience of this kind of thing, have assured me that the position is as I have told the House. It will be some time before the illustrations are available but as soon as possible I will pass them across the House. In the meantime, I would ask the House to take it on trust that the Revenue Commissioners know what they are talking about. If Deputies have doubts about the matter perhaps by agreement and with the permission of the Chair at that point we could be allowed to discuss that aspect rather than hold up the debate until then.

Mr. Tully

That is a reasonable suggestion but the mere fact that the document is not available proves we are not at present in a position to discuss it.

Mr. Colley

Deputy FitzGerald asked about comparisons with other countries. I have been informed that most of the European countries, France, Germany and the Netherlands in particular, have a monthly taxable period. I think that is of some significance.

Mr. P. Belton

From our experience in the past regarding turnover and wholesale tax we found that foodstuffs and drink were more expensive here than in England and hoteliers in this country found themselves in an uncompetitive position. It is obvious that we must follow the practice adopted by England. For many years to come there will be a greater flow of English people coming here than continentals. Further, we should introduce VAT on the date it is introduced in England and give the same period before the tax is payable. At the moment the Government receive turnover tax when the articles are sold but now the retailers and wholesalers will have to finance the tax payment. I know that the period of two months will help in some cases but for businesses such as chemist shops where goods do not move quickly these people will be at a considerable disadvantage in that they will have to pay the tax well in advance of the sale of the goods.

We should not forget that England has a population of 57 million and that we are a small country and we should not try to get ahead of them. I am not a person who advocates that we should automatically follow England on everything but I think we should in this case, both with regard to the date of introduction of the tax and the amount of credit given to retailers. It is slightly like the corporation profits tax where companies were paying more in this country than they were paying in England with the result that they were not in a competitive position here. If the cash flow is curtailed in any way our traders will not be able to compete with English firms. I realise it is not easy for an Irish person to say we should follow England but in this instance I think it is essential.

Dr. FitzGerald

What bothers me is that on three occasions the Minister has been most careful not to reply to the point I made. That always makes me think that perhaps I may have made a very good point. I said that Irish industry is not in as strong a position as British industry and that to impose a heavy burden on it in terms of liquidity would be undesirable. The Minister has referred vaguely to the circumstances in which we find ourselves and the desirability of avoiding a loss of revenue to the Exchequer. Neither of these relates to the point I have made— if the first point does relate it is expressed in such vague terms as scarcely to answer what I said.

I consider I have a point here and unless the Minister can tell me why he thinks it is desirable to place a greater burden on Irish industry I cannot go along with him. The temporary and small impact on the Exchequer does not seem to me to be a sufficient reason for putting Irish industry at a disadvantage vis-à-vis British and Northern Ireland industry. Unless the Minister can give me some answer on this point, other than a vague reference to the circumstances in which we find ourselves, I cannot go along with him on this amendment.

Mr. Colley

I am in some difficulty in that I do not wish to comment in detail on what is being done in Britain or on what is likely to be done when VAT is introduced there. I will go this far and say I do not believe that the system being introduced in Britain will for very long stay in the form in which it is brought in. I have tried to explain to the House that the difficulties in bringing in VAT for the British Government are much greater than the difficulties we will encounter because their present system is so much further removed from VAT.

Dr. FitzGerald

We know that, but that is not the point.

Mr. Colley

I think the Deputy is rushing in and not thinking about this. If he would think about it he would realise that, because it is so much further removed, the British have considerably greater difficulties to face and, therefore, they must introduce the system in as painless a way as possible. It should be obvious that when they have the system in operation that will not be the end of the story so far as they are concerned. They will have to move further at a later stage.

It is my view that since we are so near to the VAT system already we should aim at trying to get our system operating so that there will be the least possible number of changes afterwards. In my view the fewer changes and the less disruption caused the better. Therefore, I do not think we should have regard to what they are doing in Britain.

To suggest that this will make our industries uncompetitive is a fallacy. First, what we are proposing to do regarding the two-month period goes a long way in meeting most of the difficulties of Irish industry. Secondly, we have been operating a different system from Britain up to now and it has not made Irish industry uncompetitive. It is of some significance that while there is talk of making Irish industry uncompetitive vis-à-vis Britain and the North, if this is so there was not any comment on the fact that what we appear to be doing is making Irish manufacturers more competitive as compared with France, Germany and the Netherlands. There is some significance in the fact that they do not operate anything like a three-monthly period in these countries, countries which have been operating VAT for a considerable period.

I should like to comment on some statements made by Deputy Belton because I think he is under a misapprehension. I do not wish to go back on the ground covered last night but I should like to tell him that what we are doing will have the effect of conferring a considerable bonus in the way of liquidity on wholesalers and retailers because of the two-monthly period and the fact that retailers will get credit for the tax they have paid when they receive the invoice for the goods. This is quite independent of the time they sell the goods.

Under VAT they will get credit for tax on their purchases, unlike the situation with wholesale tax. Further, they will be entitled under VAT to claim as a credit against the tax they owe the tax they have paid on fixed items such as renovation to premises, weighing scales and so on, and on the tax element in their supplies. For instance, in Deputy Belton's business he will be able to claim credit on the tax element on bottles, corks and so on. This is an element they were not able to claim before but under VAT they will be able to set it off against their tax liability. The position of the retailers and wholesalers, particularly with a two-monthly accounting period, will be considerably better than under the present system. I think the argument made by Deputy FitzGerald relates not so much to that aspect about which he has slight doubts but rather to the difficulties for manufacturers. I tried to deal with that matter in what I have said previously.

Mr. P. Belton

The Minister has referred to my business. I should like to tell him that to pay an accountant to get the money back will cost me anything that I have gained. If a businessman can avail of two or three months credit he can lodge the money involved in the bank so that he has the advantage of the interest on it but if the Government are to collect the tax earlier, the cash flow to any business will be curtailed and the gain will be to the advantage of the Government. At present turnover tax is paid within approximately six weeks. We must remember that if a businessman is curtailed in the use of any money or if bank interest rates increase the person who would suffer would be the one buying goods from the retailer. That means that prices of commodities here will increase and that they will be dearer than they are in England.

Dr. FitzGerald

On the points the Minister made—first, the relevant fact is that the UK is giving three months but the reasons for giving this time are another matter. They may have reasons for so doing that we do not have but given the fact that they are allowing three months, the Minister is putting Irish industry at a competitive disadvantage when it needs, if anything, to be put at an advantage. The fact that industry allegedly will be at an advantage vis-à-vis the continental countries is not very persuasive because in any case the greatest volume of our trade is carried on with Britain, and, also, one would need to know what is the kind of credit period on the Continent. I suspect it is a good deal shorter than here and this could well account for the taxable period being one month. The crucial point here is the liquidity of industry. Each time the Minister has spoken he has dodged this issue. He has never adverted to the point that the liquidity of Irish industry will be affected adversely. He must face that. He is not being honest if he does not say so. Should he stand up and say that the liquidity of industry will be affected adversely but that he thinks industry can carry this burden, while we may not agree with him we are talking about the same matter at least. If I am wrong in this regard the Minister would have said so long ago and the fact that he has not said so makes it clear that I am right. Finally I am not persuaded by his point that the British legislation is a kind of confidence trick and that as soon as is possible for them, they will switch to two months.

The British White Paper says that the standard accounting period will be three months with a month's grace for paying a quarter's net tax. It may be that the Minister would be willing to say that in a White Paper if he intends cutting the period to two months. I doubt if, in Britain, the Chancellor of the Exchequer would make such a statement in a White Paper if he had the intention of curtailing the period to two months at some time in the foreseeable future. I do not think the Minister here would do so either. Therefore, I am sceptical of the suggestion implied in the Minister's reply that the British intend, having got the legislation through, to squeeze industry by cutting the period back to two months and that we should go ahead on the basis that the period in Britain will be two months. For those reasons it is still my opinion the Minister has not answered the point made regarding the two months and three months position relating to the liquidity of industry.

Mr. Colley

I have replied on numerous occasions to the point Deputy FitzGerald has been making but he does not seem to have been listening to me.

Dr. FitzGerald

I have not heard the Minister refer even once to the question of liquidity of industry.

Mr. Colley

Would the Deputy listen again and recall that he has heard this a number of times? I have said that what we are doing in regard to the two-monthly taxable period goes a long way to meeting most of the difficulties of most of the manufacturers. Does the Deputy not remember me saying that on a number of occasions?

Dr. FitzGerald

Yes. In other words, it does not meet the difficulties.

Mr. Colley

Why, then, does the Deputy say that I have not dealt with this problem when that is what I said at least four times?

Dr. FitzGerald

The Minister has not referred to the point I make regarding the liquidity position of industry.

Mr. Colley

Of course I have referred to it and I have commented on the fact that there was not reference to the relative liquidity position of Irish manufacturers and continental manufacturers. The Deputy referred to it after I had made the point.

Dr. FitzGerald

But the Minister has not referred to British manufacturers in this context.

Mr. Colley

I do not think the Deputy is listening.

Dr. FitzGerald

Did anybody else hear the Minister say this?

Mr. Colley

Did the Deputy hear me use the words I have quoted?

Mr. Tully

The one thing we should not do here today is to reiterate what we said yesterday. We could continue on those lines without making any progress.

Mr. Colley

That is my own opinion, too.

Mr. Tully

The Minister is as much to blame as is Deputy FitzGerald and, perhaps, myself in that we have been repeating arguments.

Dr. FitzGerald

The Minister has not answered my point about the relative liquidity of Irish industry.

Mr. Colley

My difficulty is that I deal with a point raised but that Deputy FitzGerald continues to say that I have not dealt with it and, so, I must continue to quote myself.

Dr. FitzGerald

The Minister has not dealt with the relative liquidity of Irish and British industry.

Mr. Colley

On that basis I think we can agree to differ.

Dr. FitzGerald

The Minister is not prepared to answer the point?

Mr. P. Belton

The Minister mentions two months but Deputy FitzGerald tells us that in England the period is to be three months with one month to pay. Will we have two months with one month to pay?

Mr. Colley

No.

Mr. P. Belton

In other words, the period here will be half what it is in England which makes the position even much worse than I thought.

Mr. Colley

Here the accounting period would be two months with payment being made on the 19th day of the month following the end of the two-monthly period.

Dr. FitzGerald

It is 80 days as against 120.

Mr. P. Belton

In England the position is to be a month in which to pay after the three months. In a big company where the amount involved might be as much as £130,000 there would be a willingness to pay 15 or 20 per cent on the last £10,000 so as to have that amount as a liquid asset. Under the terms of what the Minister is proposing to do now such a company would have to find this money and pay interest on it. In the final analysis, the consumer is the person to pay for this so that costs here would be much higher than they would be in England. We should follow England in this regard. At this stage we should not be taking the Continent as an example because, in general, they work on a much shorter credit period than we do. Perhaps, eventually, we could take them as an example and, maybe, this is what the Minister means when he says they will look at the matter again there. I never heard of that. They may have to consider it again in relation to the terms of credit on the Continent but at the moment they are giving four months against our two.

Dr. FitzGerald

I wish to clarify a point which is relevant but has not actually been raised so far. Do I understand that in this country the manufacturer or trader will be entitled to recover the amount that he has paid in tax within one month but is only required to pay within two? Or is he in the position that the two-month period applies both to his recoveries and to his payments?

Mr. Colley

Is the Deputy refering to an actual refund from the Revenue Commissioners?

Dr. FitzGerald

Yes.

Mr. Colley

When we make it a two-month period, then it will be two months for both payment and refund.

Dr. FitzGerald

Will it indeed? I think the Minister unintentionally misled us yesterday because he was talking about getting the money back within one month.

Mr. Colley

Yes, because the way the bulk of people will get the money back is by credit against their liability when they get the invoice. They will not actually be getting money back from the Revenue. In some cases they will, but in most cases they will not.

Dr. FitzGerald

That credit is only of value to them in relation to the next liability which occurs two months hence. They have to wait two months to get the credit. The credit is simply offset against the amount they have to pay two months hence. Is that wrong?

Mr. Colley

That is not the case.

Dr. O'Donovan

No. It happens when they are paying it.

Dr. FitzGerald

Are they not due to pay for two months?

Mr. Colley

Pay their tax?

Dr. FitzGerald

Yes.

Mr. Colley

We must distinguish between payment to their suppliers——

Dr. FitzGerald

No, pay their tax. If they are not due to pay the tax for two months, and the amount they are to recover, which would normally be less, is a credit to the Revenue Commissioners, and that credit will be against the amount they are due to pay, then they do not get the benefit of that credit until they come to pay their tax.

Mr. P. Barry

Come to pay their bills.

Dr. O'Donovan

The charge and the credit are contemporaneous.

Dr. FitzGerald

Exactly, two months afterwards.

Mr. Colley

I do not quite follow the point.

Dr. FitzGerald

The manufacturer buys materials. He pays tax on them. He is entitled to recover that tax. What I want to know is can he send in the invoice straight away and get money back or credit, as the case may be, at that point, or is there a single transaction two months later when he comes to pay the tax that he is due to pay whereby he can offset against that tax the amount of the credit due? Is that the position?

Mr. Colley

The second position described by the Deputy is correct.

Dr. FitzGerald

In Britain, according to the White Paper, it is different because we are told:

When, however, a taxable person expects that his input tax will regularly exceed his output tax, for example, because he is an exporter and most of his outputs are zero-rated, he will be eligible for a shorter accounting period of one month so that he may obtain earlier repayment.

In this country a significant proportion of industry is composed of exporters, in fact, the proportion of Irish output which is exported is significantly higher than the proportion of British output. Therefore it would be very important for export firms to have the benefit of that. Will the export firm not be able to recover the tax they pay until two months later? In Britain they can opt for the one-month arrangement rather than the three months. Is this the case?

Dr. O'Donovan

Surely this is a quite exceptional case. It obviously relates only to people who will be paying less tax than they will be receiving.

Dr. FitzGerald

This will be true of the 100 per cent export firms and a significant proportion of the firms which are exporting a portion of their output.

Mr. Colley

No. What the Deputy is saying is highlighting one of the difficulties of trying to follow up this comparison with Britain. The Deputy will appreciate that in Britain there are quite a number of goods which are zero-rated. In those cases the situation the Deputy is describing is the one that is likely to occur, because they will be claiming against a zero-rate of tax. They will be claiming credit for the tax they have paid on their input. This is not a factor that will operate here to any great extent. Therefore the kind of situation he is describing in Britain is not one with which we are going to be faced. There are other quite different situations as well. For instance, there are different rates of tax proposed in Britain. In our case we propose 5.26 per cent on clothing; in Britain it is 10 per cent. If one wanted to make a comparison with the British situation one would really have to compare the overall picture, and I do not think any of us is in a position to do so. It is much more relevant for us to compare the situation with that which obtains in this country at the moment under the turnover tax and wholesale tax. That is a fair comparison but trying to follow up a comparison with what is likely to happen in Britain is simply theorising because we have not got all the facts available and we are not in a position to compare, in fact, how the two systems will work.

Dr. FitzGerald

I am becoming more confused on this. I understood that exports are zero-rated, that you do not pay tax on exports. Is this wrong?

Mr. Colley

You do not pay tax, that is true, but the Deputy would want to follow up the mechanics of how this operates.

Dr. FitzGerald

That may be so, but the Minister says we are different from Britain because some goods will be zero-rated; food will be zero-rated, and if the Minister does not accept our amendment it will not be zero-rated here. That will be a valid point if exports of food in this country are not zero-rated. Is it not the case that there is no tax payable on exports and therefore a man who is an exporter—and this is the case I am trying to make and I think it is the Minister who is confusing the issue on this occasion— has paid tax on his inputs and is paying no tax on his outputs? He will want to recover the tax as soon as possible and I want to know whether, as in Britain, he can recover it in one month or whether he is forced to wait two months here and be put at a further disadvantage. If that is the case I propose that at least as a modification of the two months he should be given the entitlement to opt for one month, as is the case in Britain to benefit exporters. I want to know if I am right in the point I am making or if I misunderstood the point.

Mr. Colley

The Deputy has not misunderstood the point as regards the exporter.

Dr. FitzGerald

What was the point of the Minister's reference to some things not being zero-rated here and being zero-rated in Britain. I could not follow what the relevance of that was.

Mr. Colley

All food and various other items are zero-rated in Britain.

Dr. FitzGerald

I have been talking about exports. There is no relevance in whether they are zero-rated for domestic use.

Mr. Colley

The Deputy is changing ground. He spent quite some time talking about the comparison of Irish manufacturers and British manufacturers. Now he is talking about exporters. Let us be clear that he has changed ground. He spent a great deal of time last night talking about wholesalers and retailers.

Dr. FitzGerald

I am not changing ground. I rose to say there was a further point of clarification I had not previously raised and that I wished to raise. That is not changing ground; it is a different point. I read out a reference which is exclusively to exporters and the Minister, unintentionally I am sure, tried to mislead me. What he said might have misled me into thinking that my point was invalid on the grounds that food will not be zero-rated here and will be zero-rated in Britain. That, of course, is irrelevant.

Mr. Colley

It is quite relevant to the point.

Dr. FitzGerald

Not about exports.

Mr. Colley

Not about exports, but it is quite relevant to the point the Deputy was making about the comparison of the situation of Irish manufacturers with that of British manufacturers.

Dr. FitzGerald

I read out a statement: "When, however, a taxable person expects that his input tax will regularly exceed his output tax for example, because he is an exporter..." I went on to raise the point about Irish exporters. They are now being put at a disadvantage vis-à-vis British exporters because the British exporter can opt for one month and get his money back quickly and the Irish exporter, contrary to the impression I clearly got from the Minister last night, cannot get his money back for two months. When I was putting to the Minister last night a notional case it was put on the basis that you could get tax back in one month, and the Minister did not contradict me on that misunderstanding of mine, and I was, in fact, misled on that point.

Mr. Colley

No. The Deputy, as I understood him last night, was talking about the present system of turnover and wholesale tax which involves a one-month arrangement.

Dr. FitzGerald

I put to the Minister two examples, and in the second case I put it to him that in the first month the goods are bought and then in the following month—I have the piece of paper here in front of me— he can get his tax back on what he paid. The Minister did not contradict me. In fact, he seemed to go along with me. Now we have the point clarified that he cannot get his tax back for two months nor can he, if he is not an exporter, get credit for it for two months. This seems to me to be quite an important point because we have here a double discrimination between Irish and British industry both as regards the two months versus the three months and, secondly, the inability of the exporter to get his money back and the inability of the non-exporter to get his credit within one month if he wishes to do so. I would ask the Minister at this point whether he would consider an amendment on Report Stage which would meet the point about exporters and enable, if he insists on the two months period, any firm to opt for one month rather than two months just as in Britain firms are entitled to opt for one month rather than three.

Mr. Colley

As regards the statement of Deputy FitzGerald that people could not get credit for their tax for two months I think he is mistaken. They get credit for the tax, in fact, when they get the invoice for the goods.

Dr. FitzGerald

That is two months later.

Mr. Colley

No. That is the phrase the Deputy used, that they cannot get credit for the tax. We want to distinguish between setting off the tax on the one hand and an actual refund of tax on the other.

Mr. P. Barry

A refund of tax is what Deputy FitzGerald is talking about, credit from the Revenue Commissioners. If he is selling to somebody else he will get his credit when he invoices the goods.

Mr. Colley

What does the Deputy mean by credit from the Revenue Commissioners? Does he mean a refund?

Mr. P. Barry

Yes.

Mr. Colley

I do not think Deputy FitzGerald means a refund. Let us be clear about this.

Dr. FitzGerald

It is a refund in the case of an original manufacturer if he happens to have bought some capital equipment in the month in question or something of that kind. I am talking about the normal case. At the moment I am not talking about the exporter. I have dealt with that but I want the Minister's answer to my suggestion there. I am talking about the normal case where a man is paying more tax than he gets credit for. He buys goods and he has to pay tax at that stage. He is out of that amount of money on which he has paid tax. The next thing is that two months and 19 days later he has to pay his tax. At that point, when he comes to pay his tax, he can set against that payment the credit for the tax which he paid on the final goods in the first instance. It is only at that point, in respect of a debt due two months and 19 days later, that he can have any benefit in respect of the tax he has paid. That is my point. He has to wait until then to get any net benefit from it. Have I misunderstood that?

Mr. Colley

On the mechanics of it, the Deputy is right but I do not think he is right on his interpretation of it. The relevance for the trader concerned is when does he get the invoice for the goods? On that invoice he will get the charge for the tax for which he is liable. Deputy FitzGerald has been contending that these people get three months credit. If he is right what is happening is the person is being invoiced for the tax. He is not actually having to pay it for three months and he is getting a credit in respect of what he did not pay from the Revenue Commissioners after two months.

Dr. FitzGerald

But he only gets it two months and 19 days later.

Mr. Colley

Does the Deputy get my point?

Dr. FitzGerald

Yes, I accept that.

Mr. Colley

On the exporters' position the fact is that the Revenue Commissioners at the moment allow interim claims in relation to income tax. They would, in cases where people were in credit as regards the value-added tax, accept claims for refund at intervals of less than two months.

Dr. FitzGerald

I understood the Minister yesterday, having been advised on this point, to say that they pay within three weeks.

Mr. Colley

Let us not be confused about this. What I was referring to there was where a person makes a claim for an actual refund of cash from the Revenue Commissioners and I said it was anticipated that such claims would be paid within three weeks of the claim being received.

Mr. P. Barry

The cheque would be issued then?

Mr. Colley

The cheque would be issued.

Dr. FitzGerald

I am concerned about the exporter who has, in fact, paid tax. He has bought goods and they have been invoiced to him. He is due to pay tax at some point. He has got the invoice. Can he send that invoice in straight away and get back the tax credit due to him by cheque within three weeks of sending in those invoices?

Mr. Tully

If he thinks he can do that he is a great man.

Dr. FitzGerald

Is he not entitled to get payment back?

Mr. Colley

Yes, subject to the qualification that if everybody concerned was sending in every invoice clearly the system would break down. He would have to come to an arrangement with the Revenue Commissioners that at agreed intervals he would send in his total claim at that time. In other words, I could not visualise a situation in which every invoice he got was passed on to the Revenue Commissioners. This would not work.

Mr. Tully

Surely the Revenue Commissioners would not visualise that this could possibly happen? There would have to be some set rule. Again I think they would be foolish if they did not have a set rule because if one person can do it then thousands of people can do it.

Dr. FitzGerald

Where is this in the Bill? What section is it in?

Mr. Colley

It is not in the Bill.

Dr. FitzGerald

How do we know it will happen?

Mr. Colley

I am talking about the general practice in relation to collection of taxes and this is the position.

Dr. FitzGerald

The Minister has a two-months period in the Bill. There is nothing whatever to suggest that the two-months periods should be shortened in relation to the collection of the tax. Surely there must be some provision. What is to be done?

Mr. Colley

I have told the Deputy what will be done.

Dr. FitzGerald

The Minister has not. He has said that obviously they could not accept them sent in batches every day as the invoices come in. That seems reasonable. I want to know when will they accept them. It is absolutely unacceptable to any Opposition that a Bill sets out a two-month period and makes no provision whatever in regard to the refunding of money. The Minister cannot tell us even what his intentions are in that respect as regards what intervals will be involved.

Mr. Tully

Would the Minister consider putting down an amendment? Obviously he considers that this should be done. Would he consider putting down an amendment to this on Report Stage?

Mr. Colley

The Deputies may have misunderstood the point of what I said, which was that, first of all, this is done in relation to income tax. I do not think, speaking offhand, that you will find a provision specifically relating to this.

Mr. Tully

As a concession rather than a right.

Mr. Colley

It is done under the care and management of the revenue clause.

Dr. FitzGerald

There is no analogy.

Mr. Colley

May I finish?

Dr. FitzGerald

Sorry. I did not mean to interrupt the Minister.

Mr. Colley

I am pointing out that there is not a statutory provision as far as I know other than the care and management one which enables this to be done, but in fact it is done. I also said that I believed the right thing to do was for, say, an exporter who is in this position to make an arrangement with the Revenue Commissioners about this. If we put in an amendment and say that it is to be done at this specific interval it may be that by doing this we will deprive some exporters of a benefit which they could otherwise have.

Mr. Tully

No. Say some maximum period. Surely the whole point is whether or not it should be written into the Bill.

Mr. Colley

Writing it into the Bill could, as I say, create a problem that would not otherwise arise for some exporters.

Mr. Tully

Would the Minister look at it for the next Stage?

Dr. FitzGerald

The Minister's analogy to the income tax is totally false because God knows there is nobody in the country who is not only entitled to income tax refunds but is entitled to them every day. The Revenue Commissioners are faced with not giving the person his refunds at more frequent intervals than once a month. Income tax is a thing you pay. Occasionally you may overpay and once a year a Revenue refund is due.

We are talking about hundreds of business people who export the great bulk of their output and who day by day will be entitled to refunds. The payment will be all the one way from the Revenue Commissioners to them but the time at which they get it will be of vital importance to them. However, the Minister is not able to tell us even what kind of intervals he has in mind. He says they will not get it daily.

Mr. Colley

Is the Deputy saying the same interval should obtain for all of them?

Dr. FitzGerald

The British provision is one month and I would accept an arrangement for a maximum of one month. What I want is to ensure that the Revenue Commissioners may not keep putting it off. It is not in the nature of the Revenue Commissioners to pay out money due by them as promptly as possible because their instinct is to get money in all the time. It is because of that that I suggest there should be legislative provision so that prompt payment will be made to people entitled to it and whose invoices are in. The fact that the Minister cannot give us an indication of what is planned in regard to the maximum period he intends to allow makes it clear we must have some legislative provision. At times we would be inclined to accept a Ministerial assurance but the Minister cannot give us even an assurance. Would he accept the desirablity of an amendment on Report Stage which would set a maximum frequency for repayment, but leaving it to the discretion of the Revenue Commissioners to pay more quickly?

Mr. Colley

The reason I have not indicated a specific arrangement is that I believe it would be far more advantageous to have arrangements with the Revenue Commissioners by the individuals concerned which would be suitable to their businesses. I take the point made by Deputy FitzGerald and will consider whether it would be advantageous or otherwise.

Dr. FitzGerald

I am talking about a maximum period.

Mr. Colley

Yes.

Amendment put and declared carried.

Amendment No. 10 not moved.

Mr. Colley

I move amendment No. 11:

In page 5, subsection (4), line 14, to delete "a".

This is to correct a typographical error.

Amendment agreed to.

Mr. Colley

I move amendment No. 12:

In page 5, subsection (4), line 20, to delete "enactment" and to substitute "provision".

This is also in the nature of a typographical error.

Dr. FitzGerald

Surely it is a drafting amendment rather than to cure a typographical error?

Mr. Colley

What would the Deputy call it?

Dr. FitzGerald

It is very queer spelling of the word "provision".

Amendment agreed to.

Section, as amended, agreed to.

SECTION 2.

Mr. Colley

I move amendment No. 13:

In page 5, subsection (1), line 21, to delete "1st day of March, 1972." and to substitute "specified day".

An Ceann Comhairle

This has been discussed with amendment No. 8.

Amendment agreed to.

Amendment No. 14 not moved.

Mr. Colley

I move amendment No. 15:

In page 5, subsection (2), line 38, to delete "1st day of March, 1972" and to substitute "specified day".

An Ceann Comhairle

This amendment was also discussed with amendment No. 8.

Amendment agreed to.

Mr. Tully

I move amendment No. 16:

To add to the section a new subsection as follows:—

"(3) It shall be an offence for any person to charge a higher rate of tax on the delivery of taxable goods, or the rendering of taxable services than that prescribed under this Act."

It appears from the Bill that, although it proposes to lay down certain charges, with which I do not agree, at no place in the Bill is there provision to deal with people who charge a higher rate of tax on the delivery of taxable goods. The amendment, therefore, sets out that it shall be an offence for any person to charge a higher rate of tax on the delivery of taxable goods or the rendering of taxable services. I should like to hear the Minister's comments on this before proceeding further.

Mr. Colley

Presumably the purpose of the amendment is to discourage traders from making unwarranted increases in prices under the guise of VAT.

Mr. Tully

Yes.

Mr. Colley

First of all, this could arise only at the retail stage, because of the nature of the system.

Mr. Tully

That is so.

Mr. Colley

Section 17, subsections (5) and (6), provides that where a person issues an invoice stating a greater amount of tax than that properly attributable he shall be liable to pay to the Revenue Commissioners the excess amount of tax stated in the invoice, et cetera. There are also penalties. There will not be any obligation to issue invoices or to show tax separately at the retail stage and the indications are that the great majority of retail traders will build the tax into the retail prices. If this is so the amendment would not have the desired effect.

Mr. Tully

It would if there is a known price for an article or service and if the person rendering the service or delivering the article included a higher rate of tax. If such a higher rate of tax is refunded to the State it does not mean any benefit to the person who was overcharged for it. I think my amendment makes a point and I should like the Minister to indicate that he is taking that point if it is not already covered in the Bill.

Mr. Colley

As far as it can happen, there is provision in the Bill to deal with it. I should also point out that in the Prices (Amendment) Bill at present before the House there is, I understand, provision in section 4 that the Minister for Industry and Commerce may, by order, fix the maximum amount which may be added to the prices of commodities or services and a person must be accountable to the Revenue Commissioners for that tax. Other provisions control the display of prices, tax exclusive or tax inclusive.

In other words, in so far as this may be covered it is covered in the Bill now before the House and in the Prices (Amendment) Bill. The point I am trying to make about the building of tax into prices is that where it is built into prices, and where the retail price is not controlled, I do not think Deputy Tully's amendment—or, indeed, the other provisions in the Bill— can be operated effectively because the basis involved is that there should be a known fixed retail price. Where there is not a known fixed retail price it would not be possible to effect the amendment.

Mr. Tully

The Minister will appreciate that the other Bill he referred to had not even been introduced when this amendment was tabled. Therefore I could not be aware of the fact that this provision was being made. I do not think it is good law to have two sections attempting to deal with an offence under one Bill or Act. An attempt should be made to cover this by a section of another Act. That is a personal opinion.

Mr. Colley

The Deputy will agree that the other section deals not only with VAT but with any other form of tax.

Mr. Tully

This is what the Finance Bill should have covered. The main point is that it has been the practice of people to overcharge. The tendency to overcharge for tax purposes in this is going to be very great. We will discuss that later on, when we are discussing the rate of tax, where a charge can be made which is an excessive charge. This can happen quite easily in regard to services. If the Minister is satisfied that he has this adequately covered, I would be prepared to accept it, but I want a firm statement from the Minister that he is satisfied that there is no loophole which would allow the people I am speaking of to get away with something. I am trying to ensure that people cannot get away with overcharging in any way. Prices are high enough without people getting a little more on the side.

Mr. Colley

As I have indicated, there are provisions in this Bill and in the other Bill which are designed to deal with this situation. I have also pointed out that where the tax is built into the retail price, and where the retail price is not known or fixed by law, then it does not seem possible to determine the amount of tax that has been added on to the price. Subject to that qualification, I am satisfied that the provisions in this Bill and in the Prices Bill to which I have referred are adequate to deal with this problem.

Mr. Tully

It appears like a charter for those who want to overcharge on tax.

Mr. P. Belton

The Minister mentioned that the retail price of some goods is known. If a person wants three papers delivered, and he knows the price and that includes tax, is the supplier entitled to charge tax for delivery, or would he have to include that in the price? This could refer to any goods which might be delivered.

Mr. Tully

If he is making a charge on delivery, he is entitled to make a charge for tax.

Mr. Colley

If he makes a charge on delivery, that charge is subject to tax.

Mr. P. Belton

If that happens a person would know what he was paying for and he might decide not to have the papers delivered. If the tax is built into the price of the paper a person would not know whether he is paying tax on delivery or not.

Mr. Colley

In the case the Deputy is referring to, the price is known.

Mr. P. Belton

I took newspapers as being a simple example. This could refer to lorries.

Mr. Colley

There are a number of items which have not got a fixed price.

An Leas-Cheann Comhairle

Is amendment No. 16 withdrawn?

Mr. Tully

If the Minister is satisfied, yes.

Amendment, by leave, withdrawn.

Section, as amended, agreed to.

SECTION 3.

Dr. FitzGerald

I move amendment No. 17:

In pages 5 and 6, subsection (1), to delete paragraph (d).

This section defines "delivery" for the purpose of section 2, section 2 being the one which sets out how the liability for tax arises. It is designed to clarify the point as to what transactions involve delivery of goods, and therefore involve a liability to pay tax. The clarification is useful under some of these headings. The obvious one is (a) which relates to the transfer of ownership of the goods by agreement, and (b) and (c) are clear enough. I find myself in difficulty about (d). I am not at all clear as to what the purpose of this is. Subsection (d) refers to two kinds of transfers of ownership. First, it refers to where the goods are acquired otherwise than by agreement, by or on behalf of the State or a local authority. It refers to compulsory purchase by them. I must ask the Minister whether that covers all possible kinds of compulsory purchase or are there other bodies? Is a vocational education committee a local authority for the purpose of this section? Have they got the power to acquire property compulsorily? Are there other bodies, other than local authorities as defined here, which have this power? Subsection (d) (ii) is even more remarkable. I do not think there is much point in having a charge of tax on compulsory acquisition by a public authority. The second subsection here is even odder, where you are dealing with a seizure by any person acting under statutory authority. If a person's goods are seized by the sheriff because he owes money, how could this transaction be reasonably regarded as liable for VAT? It seems to me that what is done here is to define such a seizure, as well as compulsory purchase, as coming within the definition of "delivery" for the purpose of section 2 and, therefore, there is liability for tax by the person who delivers the goods. It is bad enough having your goods seized, but if you are asked to pay tax on them at the same time that is a bit much altogether. This would be so odd that I can only assume that I have misinterpreted the purpose of the subsection. Without wasting time on it, I will sit down and allow the Minister to explain to me that I must have got it all wrong.

Mr. Tully

It appears to me that in this Bill delivery in relation to goods shall include the transfer of ownership of the goods pursuant to their acquisition otherwise than by agreement or by or on behalf of the State or local authority or their seizure by any person——

Dr. FitzGerald

There is no "or". The Deputy inserted "or". There is no "or" before "by".

Mr. Tully

Does that "or" refer to exemptions in subsection (3) (d) (ii)? Is subsection (3) (d) (ii) exempt?

Mr. Colley

No.

Mr. Tully

Is it not extraordinary if the gripper, to use a country expression, is going to have to collect tax on goods which he has gripped? If that is so, to use Deputy P.J. Burke's expression, "strange things have happened in our time".

Mr. Colley

I understand, first of all, that the phrase "by or on behalf of the State or a local authority" should cover the various statutory bodies which have power of compulsory acquisition. On the substance of this matter, the object of these two subclauses is to ensure basically that there is not unfair competition. In the case of compulsory acquisition of land, the effect of this provision would be that the transaction would bear the tax. That would mean, of course, that that would have to be taken into account by the valuer in arriving at the value which would be paid for the land under the compulsory acquisition proceedings. If we did not provide for this, then the cost of the land would not be its market value. This is designed to ensure that the market value is the same for land, whether being acquired compulsorily or not. There is not this distorting factor of whether VAT is payable in one case and not in another. Substantially the same reasoning applies to subsection 3 (d) (ii) but I admit it seems very peculiar on the face of it. This could be of particular importance in relation to the goods that we referred to last night, described in the Fourth Schedule, such items as motor cars or television sets. These goods are liable to tax at the rate of 30.26 per cent. If we did not have such a provision as we have here, it would mean that a man who had a stock of these could pay his debts by allowing a judgment to be got against him and the sheriff to seize the goods, and pay them then without having to pay the 30.26 per cent tax on the goods which could be a very substantial sum when we are dealing with motor cars or television sets.

Mr. Tully

The Minister is drawing the long bow.

Mr. Colley

I am not. When talking about that kind of money, about big money in relation to motor cars, it would be well worth somebody's while to pay his debts that way.

Mr. Tully

And would he go to Australia or some such place afterwards?

Mr. Colley

He would not have to, but even if he were to go to Australia, should he have this loophole as against the ordinary person by which he would be able to save roughly one-third of the cost of his debts simply by our not having this provision in?

Dr. FitzGerald

The ordinary man going to Australia normally does not pay his tax before he goes.

Mr. Tully

Can the Minister say if this occurs in any other enactment? Where did this particular phraseology come from? Did somebody just think it up or is it culled from either Irish or British law?

Dr. FitzGerald

An imaginative exercise by the Revenue Commissioners.

Mr. Colley

I do not know that we have any Irish precedent for it but there may be a Dutch precedent for it.

Mr. Tully

That is a real Dutch auction, anyway.

Dr. FitzGerald

I do not want to reflect in any way on the characteristics of any other nationality but——

Mr. Colley

We may be going to learn a lot in the Common Market.

Mr. P. Belton

And perhaps we can teach them something.

Dr. FitzGerald

I am not happy with this because it does not say that when the sheriff seizes goods, he must credit them with having the additional value of the tax, or when property is compulsorily acquired, it must be credited with having this value. It does not say this. I quite understand that it is desirable that this should be done. If a local authority is going to acquire land compulsorily and if as a result of the land being acquired compulsorily, the person concerned has to pay tax which apparently is what is intended here, the price therefore must be upped by an amount to enable him so to do, but there is nothing here to say that the State or a local authority has to pay a higher price to take account of the tax element. If that is what the Minister is trying to do, he does not do it. All he says is that whether or not the local authority or the State does allow for this element, the poor man must pay tax.

In the case of the seizure of property, it does not say that account must be taken of the fact in seizing motor cars that in fact they are taxable at the rate of 30.26 per cent and their value is accordingly enhanced and that if a debt is due of £500, the car must be valued inclusive of tax and the man must get the money to be able to pay the tax. It does not say anything about that at all. It simply says he has to pay the tax whatever valuation is put on it. Where is there anything which obliges the sheriff to take account of the tax in his valuation of the goods? It does not say that. It simply says that he shall pay the tax in his valuation of the goods.

The Minister is not at all protecting people; he is exposing them to rapacious State authorities, local authorities or sheriffs who may take no account of the tax element, and there is no legal obligation on them to do so, and to that extent the section is worded the wrong way round. This would be permissible as a section or subsection in the Bill were there some other section elsewhere which required the people concerned in these cases so to value goods. If that were required, it would of course be necessary to ensure that the goods having been so valued at the tax-inclusive rate, the man concerned would pay his tax. As it stands at the moment, the sheriff can come along and say that a motor car is worth £500, that that is its value inclusive of tax, and he says he is seizing it for that and then the man having had his car pinched has to find £150 tax as well. Where is there any guarantee that that will not happen? We cannot accept the inclusion of this subsection if we have not got another provision to guarantee the valuation of the property, movable or immovable, will in fact be tax-inclusive.

Mr. Colley

As regards the compulsory acquisition of land, this provision is to the effect that any such acquisition, that is, the transaction, becomes liable to value-added tax.

Mr. Tully

We would not quarrel with that.

Mr. Colley

The transaction becomes liable to it.

Dr. FitzGerald

The deliverer or seller has to pay it.

Mr. Colley

The position as far as the value put on a piece of land is concerned is that that is determined under other statutes, as to how the valuer is to assess. The basic principle is that it has to be assessed on the basis of its market value. Putting this provision in has the effect that the market value of the land being compulsorily acquired will have to include the value-added tax by virtue of this provision because it attaches value-added tax to the transaction, so that the valuer must take that into account because it is one of the elements in making up the market value.

Mr. P. Belton

Why?

Mr. Colley

Because if he does not, he is not doing his job and not complying with the law.

Mr. P. Belton

It is like selling in a grocery shop or a pub or anywhere else. The seller pays and if the local authority should happen to get it 50 per cent too cheap, that is the fault of the seller. He buys on market value or whatever he can get it at and the seller pays the 30 per cent. Is that not what it comes to? Why do they have to worry about the 30 per cent at all? They are buying at market value and let the seller worry about it. What has it to do with the fellow in between who is buying? He is not interested.

Mr. Colley

The question of who has to pay it is not quite as simple as that because this gets back to the question of whether he is developing the land or not. If he is doing it in the course of his business, he will have to pay the tax but will claim against the tax whatever tax he has borne on either purchase or on works he has done on the property. I do not think we should go off on that tack. The fact is that by this provision being there, we are treating compulsorily acquired land in the same way as other land and equating the two, and the valuer will be obliged, because this will be one of the expenses attaching to the transaction, to take that into account in assessing the market value, or putting it another way since if it were not being compulsorily acquired but were an ordinary private sale, account would be taken in the price of the fact that it was subject to this tax. Then, correspondingly, when the valuer is valuing for compulsory acquisition and getting a comparable price, he will be taking this into account because the two will be subject to the same tax and it will work out virtually automatically, provided he is getting it at the right market value. It will include this because under this provision it will apply to both private and compulsory acquisition transactions.

Mr. P. Belton

I still cannot understand the Minister's argument. I know it is going to be paid, but at the moment in Dublin County Council there is a surcharge of £1,500 per acre or £500 per house for sewerage. Everybody buying land knows he has to pay this and in his own mind he works out the value, knowing that he has to pay this. Surely the same applies here. The valuer comes along and values in his own mind the property and offers a price. Eventually when it is bought and the money is paid to the seller, the seller is liable.

Mr. Colley

If we did not have this provision the price which would be settled by the valuer for compulsory acquisition of property would not be the market value. It would be a special value relating to property compulsorily acquired because in that case compulsorily acquired property would not be subject to the tax whereas other property would. The two prices would not be the same. The objective is to have the same value applied to property whether compulsorily acquired or not. If we did not have this provision this would not be so.

Mr. P. Belton

Surely it would be simple to say that all land sold is liable to whatever tax is there no matter whether it is acquired or otherwise.

Mr. Colley

The technical question arises about the delivery of the land and it is under that heading that this provision is coming in.

Dr. FitzGerald

Are we clear that all sales of land or buildings are liable to tax? Is that the case?

Mr. Colley

No. That is going too far. It is subject to conditions. The private sale by Deputy FitzGerald of his own house, which would not be in the course of his business, because that is not his business, would not attract any tax.

Dr. FitzGerald

Why, if it is compulsorily acquired, does it attract the tax?

Mr. Colley

Where the conditions which attract the VAT operate in relation to compulsorily acquired land —we are trying to make them comparable——

Dr. FitzGerald

Now we are in a difficulty. The Minister is talking about tax on land compulsorily acquired. Land has a value in terms of what it is worth to the people buying it. Now we are introducing a new concept that some land, because it happens to be owned by a man who happens to be disposing of it in the course of his business, is liable to tax. That land is not more valuable to the receiver on that account. It has the same value to him if he is going to use it for some purpose. Now we will have different categories of land, some liable to tax and some not, not because of any inherent characteristic of the land, but because of the quality of the owner and the nature of the transaction in which he disposes of it.

The Minister is talking with the implied presumption that all land sold will be liable to tax and therefore all such land now goes up in value and therefore if it is compulsorily acquired account must be taken of that. It is only the land which happens to be owned by somebody who happens to be selling it in the course of his business which is liable to tax and land in general does not change its value. I fail to follow the logic of this. This is a tax which is not related to the property itself but to the quality of ownership.

Mr. Tully

Did the Deputy say that land in general does not change its value?

Dr. FitzGerald

Because of this. This Bill does not change the value of land and say that all land will now be worth more because there is a tax on it. It is only some land owned by some people disposing of it in a certain way at a certain time that will attract the tax and cost more. This seems to me inherently undesirable. I do not see how you could say that land compulsorily acquired is more valuable by virtue of this Bill simply because a particular person owns it. It is not more valuable to the person buying it. This will introduce a distortion into the whole business of property transactions because hitherto land has been taxed equitably in the sense that there is stamp duty on land sales or property sales. That stamp duty is the same for land of similar value. There is a scale involved. I will not go into the details but basically it is a tax which relates to the land and not to the owner of the land.

Now we are introducing a new and distorting concept. In a sense I am anticipating section 4. I am wondering is it wise at all to include land and buildings in this Bill. They are not taxed at the moment under the wholesale and turnover taxes. Is that not right? The Minister is now applying a new tax.

Mr. Colley

Could I interrupt the Deputy for a moment? Undeveloped land will not be liable to value-added tax. Subject to other conditions, basically what is involved here is where development—I think we use that word —has taken place the value-added tax applies. At the moment it is not true to say that turnover and wholesale taxes do not apply to building. In every house there is a content of tax paid in respect of some of the commodities.

Mr. P. Belton

It is £140 according to a reply I got from the Minister for Industry and Commerce.

Mr. Colley

Do not mind the fact that it is very small. There is this element of tax and unless we make provision here——

Dr. FitzGerald

In future? At the moment no tax is paid on most things in building.

Mr. Colley

I do not think the Deputy has looked at it. I am not going into the details of the conditions in which this becomes liable. One of them arises on "work done after the enactment of the legislation". That is one of the conditions. I am not going into it at the moment because I do not think it is relevant. What is relevant is that where the conditions apply in which value-added tax is attracted to land or building, what is happening is that tax has been paid on some inputs into, say, the building of a house. Tax has been attracted to some of the items in it. Unless we have a provision bringing it in under the value-added tax there is no way by which the person who suffered that tax can recover it and set it off as a credit on the next stage when he is selling.

We could, as Deputy FitzGerald says, omit these, but if we do we are creating a situation in which people are paying tax in the course of their business which they cannot recover. At the moment under the existing system they are paying tax and we are trying to disturb as little as possible the existing incidence of tax.

I want to say also that Deputy FitzGerald is mistaken in thinking there is some new concept here. I would remind him—offhand; there are probably other examples—that some years ago a special tax was introduced in relation to certain development of land, office blocks, and so on. There is already in law a distinction between some kinds of property and others.

The point I was trying to make earlier was that, assuming that the conditions are complied with by which the value-added tax applies to land or buildings, then we have to ensure that there is comparability between land which is sold privately and land which is acquired compulsorily. The only way we can do that is by ensuring that this provision is in the Bill so that the two which are otherwise comparable will be treated in the same way.

Deputy FitzGerald is quite right in saying that there are certain other kinds of land; let us leave land out of it and let us say houses where it is probably clearer. A house sold by a private individual in the ordinary way, and not in the course of his business, does not attract value-added tax. Therefore, this provision does not arise. Where you have property to which it does apply you will not have equal treatment and equal value as between the private transaction on the one hand and the compulsory acquisition on the other, in the absence of this provision.

Dr. FitzGerald

I am trying to follow the Minister. Is it not a fact that this Bill will impose value-added tax on property which is owned and disposed of by people in the course of their business, property which at present does not carry such a tax? At present people building have to pay wholesale and turnover tax on certain ingredients and Deputy Belton says that that amounts to £140. The suggestion that this is so inequitable that you must tax them even more is a rather curious argument.

Mr. Colley

It will not, in fact, cost them anything.

Dr. FitzGerald

How do you tax people and it does not cost them anything?

Mr. Colley

Because they will be able to recover against their tax liability the content of the taxes that went into the work or into the house.

Dr. FitzGerald

The whole point is that if people are building, or buying and selling buildings, they will be taxed on the value added in that transaction—that is, on the margin between what they pay and what they sell it for —and therefore a tax will be paid in respect of that transaction by virtue of its being handled in the course of a particular person's business, a tax which would not be paid if the person disposed of it privately and had been using it for his own personal benefit. This is a new tax on property.

Mr. Colley

No.

Dr. FitzGerald

I must have gone wrong, but I understood the Minister to say that if someone, in the course of his business, buys and sells property he must pay tax in the process. If he buys a house with a view to reselling it as a property deal of some kind he will get a credit for the tax on the house he bought and will then have to pay tax on what he sells again and there will be a net tax claim on the difference between the two. Is that right?

Mr. Colley

That is wrong.

Dr. FitzGerald

Then what is right? Would the Minister start again and explain it in simpler language? What is this business about property? Why is it in here at all? I thought I had more or less repeated word for word what the Minister said.

Mr. Colley

It is complex, but if I tell the House—I think Deputy Belton would be particularly interested in this —that the effect of applying value-added tax to property is to give back approximately £2 million a year to the trade which it pays at the moment to the Revenue——

Dr. FitzGerald

What trade?

Mr. Colley

All trades really involved in the purchase, development or building of property in the sense that at the moment these taxes are paid and they work out at approximately 3 per cent of the selling price of a building.

Dr. FitzGerald

A new house?

Mr. Colley

Of a new house, yes.

Dr. FitzGerald

We are talking of new houses now.

Mr. Colley

Yes. That is why I did not want to get involved in these conditions which will come up later; we will deal with the actual conditions then which operate at the date and so on.

Dr. FitzGerald

At the moment the tax paid is on a new house. It is not relevant to existing houses. Is that right?

Mr. Colley

That is correct, but any house, the contents of which have not become liable to value-added tax, will become liable in the future.

Dr. FitzGerald

It is only on a new house?

Mr. Colley

No. It is not as simple as that because you could have an old house to which you did certain repairs, extensions and so on, after the enactment of the legislation and, in doing that, you will be putting in goods which have attracted value-added tax. In that case the extent of the tax you have suffered and for which you have claimed credit will then be involved. Supposing you sell. Note that when you claim a credit, you are doing this in the course of your business. It does not mean that you are a builder. You could be a shopkeeper. You can claim this as part of the expenses of your trading as a registered value-added taxpayer. You will be able to claim the tax you have paid on these various items against your liability for tax under ordinary trading arrangements but, if you have claimed this and got it, then when it comes to the sale of this property later, that amount of tax will be payable on the transaction.

Dr. FitzGerald

What amount?

Mr. Colley

The amount that you have, in fact, recovered.

Mr. P. Barry

Payable by whom?

Dr. FitzGerald

And no value-added tax; I thought you had to pay tax on the value added.

Mr. Colley

Yes, but you will get a credit for what you have, in fact, already paid.

Dr. FitzGerald

That is what I said.

Mr. Colley

It is taxed on the value added of the materials used—that is the difference between what the materials cost and what you sell the property for.

Dr. FitzGerald

I am right in what I have said originally then.

Mr. Colley

The tax will be payable on the difference between the cost of the materials and the price of the building as sold.

Dr. FitzGerald

That is precisely what I said and the Minister told me I was wrong.

Mr. Colley

It is rather difficult to discuss this particular subsection and the question of how the whole thing will operate without departing from what is actually in front of us. I wonder has Deputy FitzGerald noted the provisions of section 10 (8) (b).

Dr. FitzGerald

I am not sure I am that far ahead with my homework.

Mr. Colley

This is a special provision, if I may read it:

On the delivery of immovable goods, other than deliveries to which section 4 (6) relates, and on the rendering of services consisting of the development of immovable goods, including the installation of fixtures or the maintenance and repair of those goods...

Dr. FitzGerald

What section are we on?

Mr. Colley

Section 10 (8) (b). I am skipping now to (b):

... if the value of movable goods supplied in pursuance of the agreement for making the delivery aforesaid or rendering any of the services aforesaid does not exceed two-thirds of the total consideration referred to in subsection (1), the amount on which tax is chargeable shall be 60 per cent of such total consideration.

That may not mean anything to the Deputy at the moment.

Dr. FitzGerald

Nothing whatever.

Mr. Colley

It does relate to what we are discussing, however, and this is the difficulty we are in.

Dr. FitzGerald

The Minister is in a difficulty. I am in a bog.

Mr. Colley

This is a special provision designed to ensure that the actual amount of the value-added tax related to building comes out at 3 per cent which is the amount of tax payable at the moment. Do not ask me to explain this yet. We are not on the particular section yet, but I am trying to point out to the Deputy that he has not got the entire concept of how property, immovable goods, are dealt with. It is rather difficult to discuss one aspect if one has not got the picture of how the whole thing is being dealt with.

Dr. FitzGerald

I accept that.

Mr. Colley

This special arrangement in relation to immovable goods is designed to ensure that the amount of tax at present payable by way of wholesale and turnover tax, which is approximately 3 per cent of the selling price, is recoverable by a builder or, in the case of a trader, by the trader as part of his ordinary trading expenses. At present he cannot recover it. The cost of the Exchequer is about £2 million a year.

Dr. FitzGerald

But you are going to collect tax from them on the value added? How many millions is that? The materials cost of the house is surely only a minority of the total value including the value of the site, development work, the labour content of the house and the builder's profit. For the Minister to say he will give him back tax on the minority element, the materials, and not mention the fact that he is going to tax the much larger amount of value added and that he gets back twice as much as he gives probably is not being entirely honest with the House.

Mr. Colley

Could I refer the Deputy to subsection (8) and he will find that the treatment in relation to value-added tax in regard to immovable goods is different from its treatment in relation to other goods?

Dr. FitzGerald

Section 8 never mentions immovable goods.

Mr. Colley

I am sorry; it is section 10, subsection (8), the subsection to which I referred earlier. It begins: "On the delivery of immovable goods..."

Dr. FitzGerald

Yes, I see that.

Mr. Colley

Paragraphs (a), (b) and (c) set out the special treatment in relation to immovable goods which is different from that applied to other goods. I am in the difficulty that in trying to——

Mr. T.J. Fitzpatrick

(Cavan): How does the Minister deliver immovable goods?

Mr. Colley

Please, Deputy——

Mr. P. Belton

If a person extends his business and goods are delivered with their value-added tax and he is not reselling the premises, can he claim that VAT back?

Mr. Colley

Yes.

Mr. P. Belton

He can do that as he can do now with various things used in the running of a business and if he does not sell he does not have to pay turnover tax? It is something of that kind?

Mr. Colley

Yes.

Mr. P. Belton

If the premises is sold, does he have to pay VAT on the sale of the premises?

Mr. Colley

Yes, he pays tax on the selling price.

Dr. FitzGerald

And he gets tax back on something?

Mr. Colley

This is where we are getting into section 10 (8). He pays tax on 60 per cent of the selling price of his premises and he gets a full deduction of whatever tax he had paid already. Remember, he will normally be selling to a registered customer who will claim the tax that he has paid on that transaction himself against his liability.

Mr. P. Belton

What is the rate of tax?

Mr. Colley

It is 5.26 on 60 per cent, approximately 3.1 per cent.

Mr. P. Belton

Going back to the time turnover tax was introduced, you get an allowance straight away on goods on which you paid TOT. You do not have to pay it. You now sell a premises for £100,000. Somebody pays 5 per cent to an auctioneer, 3 per cent in stamp duty and you will now pay 5.2 per cent also on 60 per cent of it. First, you are depreciating by approximately £4,000 the sale value of the premises and no matter who buys anything or no matter what is paid for anything the customer pays in the long run. I want to get this clear. Take a person who at present owns £100,000 worth of property. When this Bill goes through he is poorer by approximately £4,000 because he cannot claim back as the premises was built ten years ago before turnover tax came in.

Mr. Colley

I do not follow that.

Mr. P. Belton

You get a return from any business and you pay so much for it. If there is more tax to be paid on the purchase or sale of it, that premises drops in value. Is not that correct?

Mr. Colley

Yes, but you will not, in fact, pay more; you will pay less.

Mr. Tully

The Minister is in the business of giving money to everybody.

Mr. Colley

Yes, £2 million. May I interrupt the Deputy for a moment and explain? First, this applies only to people who are in business and therefore will be registered. It does not apply to the ordinary private house. A is in business and he sells his property as the Deputy described. The value-added tax payable will amount to about 3.1 per cent, additional VAT. So far as he is concerned he can set off against that any tax he has already suffered and has not recovered.

Dr. FitzGerald

Tax on this property?

Mr. Colley

Yes, Let us get the outline clear first. It is a business premises. Almost certainly, therefore, he is selling to somebody who is registered, B. B is paying the price of the property plus this VAT of 3.1 per cent in this special case. He claims that VAT that he has paid against his liability for VAT and in fact it is not costing A or B money although this additional money passes. It is not costing them money because each one is claiming it as a credit against his liability for tax. The problem arises only if it is a sale to an unregistered person which is an unlikely event, the sale of a business premises to an unregistered person.

Mr. P. Belton

If a person is going into business for the first time he would not be registered. Could he become registered before buying?

Mr. Colley

Yes.

Mr. P. Belton

With this legislation coming in, you will have to include your VAT in the price; so, if an auctioneer is selling he is selling inclusive of the VAT. There is legislation going through the Dáil providing that you cannot have a price and value-added tax; it must be included. Therefore, if an auctioneer is selling, the price must include this VAT —is that not correct? An auctioneer cannot say that the price is £100,000 and the value-added tax is 3.1 per cent after that.

Mr. Colley

No, he cannot do that.

Mr. P. Belton

Therefore, it is inclusive of the value-added tax?

Mr. Colley

He does not say at the moment that the price is £100,000 plus stamp duty.

Mr. P. Belton

I agree. That premises is bought by B and there is 3.1 per cent that he can claim. What he would pay would be £103.1 per cent. When can B get back his value-added tax? Is it on the resale of the premises?

Mr. Colley

Immediately.

Mr. P. Belton

On his business in the present tax year?

Mr. Colley

Yes, exactly.

Mr. P. Belton

That is what I wanted to know.

Mr. T.J. Fitzpatrick

(Dublin Central): I can see Deputy Belton's point that where a person is selling his property the buyer will take into consideration that the value-added tax will be refunded and, as the Minister has stated, will be refunded in a short time. I could see a situation arising in the case of the unregistered trader. There will be an allowance of about £250 a week in the case of an unregistered trader. How much would that make in the public market? Assuming it made £10,000 to £15,000 at public auction, the unregistered trader will not be in a position to claim a refund of the value-added tax. There will be a considerable number of these small properties coming on the market all the time. Special provision must be made for the unregistered trader to claim a refund of the value-added tax on the property he bought.

Mr. Colley

I wonder is the Deputy right about that? If the man opts not to be liable for value-added tax, he cannot have it both ways. If liable, you can claim what you have paid but, if you have not become liable, you have not paid any value-added tax. Why should he be able to claim anything back?

Mr. Tully

He would have paid it.

Mr. Colley

No.

Mr. T.J. Fitzpatrick

(Dublin Central): He had to pay it at some stage.

Mr. Colley

No.

Mr. T.J. Fitzpatrick

(Dublin Central): He opts not to be liable by virtue of the small turnover that he has.

Dr. FitzGerald

He is buying his goods and they are tax inclusive.

Mr. P. Barry

The consumer is paying the same price to an unregistered trader as to a registered trader.

Mr. Colley

Substantially, yes.

Mr. T.J. Fitzpatrick

(Dublin Central): He will not be in a position to claim tax back on his property.

Mr. FitzGerald

When he comes to sell the property. That is very unfair.

Mr. P. Belton

Basically, he has to pay the same tax.

Mr. Colley

He has made his option for reasons that suited him.

Mr. T.J. Fitzpatrick

(Dublin Central): He has made his option because his financial position dictates that this is the only type of property he can buy. If he had sufficient finance he would buy a larger property. It is not a matter of choice.

Mr. Colley

He could opt in or out in the course of his business. Assuming he is below the level, he has an option as to whether he will be in or out.

Mr. T.J. Fitzpatrick

(Dublin Central): He has, I agree, but it is not practicable in the case of a small business to opt in. He has to keep the accounts. In the case of a business taking £150 a week it is not practicable for him to become a registered trader.

Mr. P. Barry

The business is so small that he cannot keep up the bookkeeping.

Dr. FitzGerald

Then you hit him when he comes to sell.

Mr. Colley

If he is unregistered he is not liable when he sells.

Mr. P. Barry

He is liable when he buys.

Mr. Colley

Let me intervene to say that what we are talking about here is, as I said, a special arrangement in regard to immovable goods in the course of sale by registered taxpayers. In the case that Deputy Fitzpatrick is talking about the trader is unregistered.

Mr. T.J. Fitzpatrick

(Dublin Central): I am talking about the person buying a business who will not be registered by virtue of the size of the business.

Mr. Colley

If he is not registered the sale of his property will not attract value-added tax.

Mr. T.J. Fitzpatrick

(Dublin Central): Will it not?

Mr. Colley

No, not if he is not registered.

Mr. T.J. Fitzpatrick

(Dublin Central): He is not in business at the moment. He is buying a business which in his opinion will not be a registered business. Will that not be liable to value-added tax?

Dr. FitzGerald

He is buying from a registered trader.

Mr. P. Belton

He has to pay it but gets it off over a period.

Mr. P. Barry

An unregistered trader buys property from a registered trader. There is an element of tax on added value in that. If he sells the property, because he is unregistered, he has no means of reclaiming the taxes already paid to the registered trader.

Mr. Colley

That is correct. Because he is unregistered he does not pay any tax on his sale. He is buying from a registered person but because he is unregistered he does not pay any tax on sales.

Dr. FitzGerald

He does.

Mr. Colley

No.

Dr. FitzGerald

On the delivery of the goods by the registered trader, surely the registered trader has to pay tax and therefore the price is upped by that amount?

Mr. Colley

Yes.

Mr. P. Barry

Nobody would sell property to an unregistered trader if that were the case because they would get a lower price.

Mr. Colley

If he buys, originally he bore tax.

Mr. P. Barry

If he buys from a registered trader?

Mr. Colley

Yes, Then he carries on as an unregistered trader and he sells then as an unregistered trader. The first transaction will attract tax. The second one will not. He will have borne it on the first transaction and he cannot recover it, that is true.

Dr. FitzGerald

That is the problem.

Mr. Colley

The sale of his premises will not attract tax.

Mr. T.J. Fitzpatrick

(Dublin Central): He will not be selling his premises. A man who goes into business, in all probability, will not be selling it for ten years. He will not be able to recover the tax.

Dr. FitzGerald

That seems quite unacceptable because it will militate against a small trader buying a business or property. It puts him at a disadvantage. He must pay the tax but he cannot get it back unless he is prepared to operate the business on a registered basis which the scale of business does not warrant. Obviously, some amendment is required to sort that one out. Deputy Fitzpatrick is quite right about that. There is a real anomaly there.

Mr. T.J. Fitzpatrick

(Dublin Central): There is a point that I would like the Minister to clarify. If I place a contract with a builder for the carrying out of certain repairs to my property and the material which he uses attracts value-added tax, the contractor will submit an estimate to me. Who claims the value-added tax on these materials? Assume they carry 10 per cent. Is it the contractor or the person for whom he carries out the work that gets the refund of the value-added tax on the material used?

Mr. Colley

I would assume that he, in paying his suppliers, would be paying them value-added tax and then in presenting his bill to you he would be charging you the value-added tax that he had paid. The value-added tax on his bill is charged to you. You in turn would be claiming the element of value-added tax in his bill against your liability, if you are registered.

Mr. T.J. Fitzpatrick

(Dublin Central): When making out contracts, will they give an estimate and then the amount of value-added tax so as to let the client know what is the estimate for the work?

Mr. Colley

Yes, I would expect so.

Dr. Fitzgerald

Referring to section 10 (8) (b), is the purpose of this to ensure that, where somebody builds a new dwelling or property, the tax he will pay under this scheme will be about the same as he is now paying because the estimated tax content of wholesale and turnover tax of a building is about 3 per cent and in future, by virtue of recovering that, but paying tax on 60 per cent of the value of the building at 5 per cent, he will be paying again about 3 per cent of the value and the purpose is to leave, under the new tax system, the transaction carrying the same amount of tax. Is that the purpose?

Mr. Colley

Yes.

Dr. FitzGerald

There is talk of giving £2 million back, equated by charging £2 million extra. Is the purpose to leave things as they are?

Mr. Colley

No. At the moment you do not get back the 3 per cent even if you are registered.

Dr. FitzGerald

For the ordinary person buying a house at the moment there is 3 per cent extra cost on the house through the turnover and wholesale tax.

Mr. Colley

That is correct.

Dr. FitzGerald

He is now going to buy a house. What will be the position now?

Mr. Colley

We are talking, in this case, not about the ordinary person but about the registered trader.

Dr. FitzGerald

The person selling the house would be a registered trader. He is building houses.

Mr. Colley

But value-added tax on this kind of transaction only applies as between registered traders. Let me try to explain this aspect of it. The Deputy wanted to know how does the question of £2 million coming back arise. At the moment registered traders pay this 3 per cent in, say, the building of——

Mr. P. Belton

An extension.

Mr. Colley

Something like that. They pay that and they cannot recover it although they are registered traders.

Dr. FitzGerald

We are talking about the builder now?

Mr. Colley

No. Say Deputy Belton in the course of his business——

Dr. FitzGerald

I am talking about people building houses.

Mr. Tully

I thought we were talking about the amendment.

Mr. Colley

Deputy Belton in the course of his ordinary business builds an extension and pays on that, at the moment, 3 per cent, approximately, in turnover and wholesale tax, of the value of the extension. He cannot, although he is a registered trader, recover that money at the moment. Under value-added tax he will be able to recover it and the estimated cost to the Revenue of this is about £2 million. That is how that arises.

Dr. FitzGerald

We are now talking of people who are not builders or developers but ordinary traders who are having work done for them of a building character and they, at the moment, have to pay a tax and they will no longer be paying it. There will be £2 million net improvement in their financial position. Is that right?

Mr. Colley

That is approximately right.

Dr. FitzGerald

To come back to what I was talking about—a builder who is building houses and selling them to, on the whole, non-registered traders, but may also be selling to a registered trader but for the registered trader's own personal use. I take it that if that is the case the person is treated as unregistered. If a registered trader buys a house that is not treated as part of his business. He is regarded as unregistered for the purpose of buying the house. Is that right?

Mr. Colley

Yes, if it is his private residence.

Dr. FitzGerald

There will be complications because many premises are residential and business together. At the moment the builder has to pay turnover and wholesale tax and this adds 3 per cent to the cost of the house. What happens under this scheme as regards the payments and recoveries and what is the net effect on the price of the house?

Mr. Colley

This is a new house built by a builder and sold to an unregistered person?

Dr. FitzGerald

Or to a registered person for his exclusive private use. What are the changes in the position, if any?

Mr. Tully

I am lost. I thought we were dealing with an amendment of Deputy FitzGerald's to section 3.

Dr. FitzGerald

We have to anticipate this section because we need to understand——

Mr. Tully

Then the sections of the Bill are wrong.

Dr. FitzGerald

They are in the wrong order, I agree. That cannot be helped. We are getting near clarification now.

Mr. Tully

For the past hour we have been getting near clarification and we seem to be getting further and further away from it. This is an extraordinary discussion.

An Ceann Comhairle

If we can get to the amendment——

Dr. FitzGerald

Rightly or wrongly, we have been clarifying the basis of property transactions to understand whether or not this amendment is justified. This will immeasurably speed up the discussion of sections 4 and 8, I hope.

Mr. Colley

One hopes so. At present under turnover and wholesale tax builders are not registered because building, as such, is exempt. What happens is that the builder purchases the ordinary materials; he sells the house and the price at which he sells it includes approximately 3 per cent that he has paid in the way of turnover and wholesale tax. Under the value-added system he would be registered and would charge the same price for the house because he would be paying the same amount of tax, but the difference would be that he would be able to claim a refund or a credit of this 3 per cent which he would have borne in his inputs, which he is not able to do at the moment.

Dr. FitzGerald

That is not very clear. If he is claiming credit how is the price of the house 3 per cent higher than it would be but for the tax? Is this section 10 (8) (b) again? The Minister has said he may claim a refund of the tax he has paid on the materials which he cannot now do. Yet the Minister says that the price of the house will be unchanged.

Mr. Colley

Of course, if builders are going to reduce their prices because their costs are less this is great. I have not claimed it but——

Dr. FitzGerald

Is it not the case that the builder must pay tax on his added value if he is a registered trader? He adds value to the material and that adding of value would attract tax?

Mr. Colley

Yes.

Dr. FitzGerald

He sells it to a non-registered trader who is not in a position to recover any of that tax?

Mr. Colley

The tax he pays will amount to the same tax as he is paying at the moment.

Dr. FitzGerald

The Minister asserts this and no doubt it is true. It is not, however, self-evident. Nothing in this Bill is self-evident so bear with me while I try to lease this out.

Mr. Colley

This is section 10 (8) (b).

Mr. Tully

That is not what we are supposed to be discussing. On a point of order——

An Ceann Comhairle

I agree with Deputy Tully.

Mr. Tully

I never saw anything like this happening in my time in this House. Deputy FitzGerald and the Minister have referred to a section which is much further on in the Bill. If it has a relation to this, as the Minister says, then it should have been before this section. It cannot be discussed in the way in which it is being discussed. Deputy FitzGerald and the Minister can cross-fire on this the whole evening and we will still get no further on the Bill. I think we should wait until we come to it.

Mr. Colley

Would Deputy Tully agree that when I did refer to it I said I did not want to go any further into it because it was getting away from what we were talking about?

Mr. Tully

That is so, but the Minister proceeded with it.

Mr. Colley

If I do not Deputy FitzGerald says I am refusing to answer his questions.

Mr. Tully

The Minister is entitled to refuse to answer questions on something that is not before the House.

Dr. FitzGerald

We have been engaged on a necessary clarification of the basis of property transactions without which one cannot validate the compulsory purchase provisions dealt with in my amendment. To interrupt that discussion now, when we have got nearly to the end of it, and to reopen the whole thing again later would be pretty lunatic and I suggest——

Mr. Tully

It is lunatic to have spent the last hour and a half on it.

Dr. FitzGerald

——we finish off the discussion now rather than waste the value we should have got out of the last hour or so. Let us clarify this and then we do not have to discuss it endlessly on sections 4 and 10.

Mr. Tully

You will still be discussing it at 2.30.

Dr. FitzGerald

We may very well be. I want to know with regard to this house transaction—supposing the materials of the house are 30 per cent of the value of the house and 70 per cent is added value, surely the builder has to pay tax on the final value of the house and he gets back tax on 30 per cent and he is going to end up having himself paid tax on 70 per cent, the added value, but the whole value of the house would have attracted value-added tax at the full rate and the person buying it cannot recover anything so there is a 5 per cent tax on the house now?

Mr. Colley

The whole value of the house is not taxed. Sixty per cent of it is taxed.

Dr. FitzGerald

This is 10 (8) (b)? I understood that did not apply to premises purchased by an unregistered trader.

Mr. Colley

Any taxable sale of immovable goods attracts value-added tax at 5.26 per cent on 60 per cent of the total consideration.

Dr. FitzGerald

I see. Whether it is a registered or unregistered trader? I am talking about the sale of a house by a builder to a private individual for his own use.

Mr. Colley

Where the seller is registered it would normally be a taxable transaction but where the seller is not registered it would not be taxable.

Dr. FitzGerald

I am talking about a situation where the seller is a builder and is registered. This builder sells to a private individual who is not registered. In these circumstances tax is payable at 5.26 per cent on 60 per cent of the value of the house. That is a 3 per cent tax which it is intended will be approximately the same as the 3 per cent now borne by an irrecoverable turnover and wholesale tax. Is this correct?

Mr. Colley

Yes.

Dr. FitzGerald

In that transaction the buyer is no worse off than before. The builder is in the same position because he will recover and pay on 3 per cent roughly. The builder will recover tax on materials which he did not do before but he will pay on about twice that amount, the value-added tax.

Mr. Colley

No. The position will be that he will recover approximately 3 per cent of the value in the form of tax on inputs which he did not recover before.

Dr. FitzGerald

In other words, he will pay 6 per cent and recover 3 per cent?

Mr. Colley

No. He pays 3 per cent and recovers 3 per cent. The Deputy had agreed that he pays 3 per cent already—5.26 per cent on 60 per cent.

Dr. FitzGerald

Therefore he recovers 3 per cent.

Mr. P. Barry

Not necessarily.

Dr. FitzGerald

In fact, he is paying less tax but the tax burden has shifted back to the suppliers of the materials.

Mr. Colley

No. The net effect, as I have told the Deputy, is that it does not affect the price to the consumer but it reduces the tax burden of builders and traders generally.

Dr. FitzGerald

Yes, because it is shifted back to the suppliers.

Mr. Colley

That is not so. We will be paying back money, as I have pointed out, where the immovable goods are purchased by a registered trader.

Mr. P. Belton

The builder is no better off in this case.

Dr. FitzGerald

If the builder is now paying tax that he will not pay in future, can the Minister state how the price of the house will be unchanged?

Mr. Colley

I did not claim that the builder is going to reduce his price. He may very well do so but I did not claim that he would.

Dr. FitzGerald

Surely the value added to the materials going into the house is taxable and tax will be paid on that by the people who produce the materials.

Mr. Colley

But the registered purchaser will get a credit against his tax liability.

Mr. P. Belton

Every house purchaser?

Mr. Colley

The house purchaser will not be paying the tax.

Mr. P. Barry

It will be included in the price of the house.

Mr. P. Belton

A speculative builder will pay tax of 5.26 per cent on 60 per cent, approximately 3 per cent. At the moment he is paying tax on approximately 3 per cent of the goods. In effect they cancel out each other. I cannot see how the price could come down.

Mr. Colley

At the moment the builder is paying approximately 3 per cent by way of turnover and wholesale tax which he recovers in the selling price. He does not get anything back from the Revenue Commissioners. Under VAT he will pay the same amount of tax; presumably he will include it in the price to the purchaser. The purchaser will not have to pay more because there is no additional cost to the builder. However, the builder will get back 3 per cent from the Revenue Commissioners.

Dr. O'Donovan

Can the Minister state if there will be an increase in the price of houses as a result?

Mr. Colley

No. As Deputy FitzGerald is pointing out, it should reduce the price, but I am not claiming that.

Dr. O'Donovan

There are horse traders, there are motor car salesmen and there are builders——

Mr. Colley

And there is such a thing as looking a gift horse in the mouth.

Dr. O'Donovan

People buy their cars from salesmen and their houses from builders. I am putting all these into one bag. I agree that the builder will pay tax and will collect it, but I am afraid that perhaps house builders may forget that they have been recouped by the Revenue Commissioners.

Mr. T.J. Fitzpatrick

(Dublin Central): I think it will reduce the price of houses. Can the Minister state if items such as timber and paints are subject to wholesale tax? Will these items be subject to the 5.26 per cent rate?

Mr. Colley

They will continue to be liable to the same amount of tax as before. However, up to now the builder could not recover any of this amount but now he will save in his costings 3 per cent of the value of the house.

Mr. T.J. Fitzpatrick

(Dublin Central): Under VAT the builder will be able to claim for timber and paints. Am I correct in assuming that he could not claim for these previously?

Mr. Colley

He could not claim for them up to now.

Mr. T.J. Fitzpatrick

(Dublin Central): I think there is an advantage here as regards the cost of houses.

Dr. O'Donovan

There should be.

Dr. FitzGerald

Does the builder not pay any tax whatever?

Mr. P. Barry

In the retail price the consumer pays 3.1 per cent or 5.26 of 60 per cent. Therefore, there is an element of tax in the sale of a house.

Mr. Colley

That is payable at the moment.

Mr. P. Barry

I appreciate that, but it is obvious that there is an element of tax in the retail price of a house—a tax of 3.1 per cent or 5.26 per cent of 60 per cent.

Mr. Colley

There is an element of tax at the moment and this will continue under VAT.

Mr. P. Barry

I agree, but somebody must give that tax to the Government.

Mr. Colley

At the moment it is paid ultimately by the purchaser. I am sure it is included in the builder's costings.

Mr. P. Barry

Who pays this tax under VAT?

Mr. Colley

Under VAT presumably it will be paid by the purchaser but the builder's costs will be that amount less because he will recover the amount from the Revenue Commissioners. This did not apply up to now.

Mr. P. Barry

He will not recover 3.1 per cent of the retail price. He will recover the amount of tax he has paid on the goods he has bought to build the house.

Mr. Colley

It will amount to 3.1 per cent. He will get a refund of whatever VAT he has paid in respect of the house. This will amount to roughly 3 per cent.

Mr. P. Barry

The £2 million is on the premise that the tax paid on the goods he has bought will only be 3.1 per cent of the retail price but if he trebles the price of these goods the amount of tax he will have paid could be much less than 3.1 per cent.

Mr. Colley

It is a net figure. Any trader will be able to claim now; he could not claim before.

Mr. P. Barry

At the moment he is only paying on goods.

Dr. O'Donovan

I think the Minister has explained it by saying 5.2 per cent on 60 per cent.

Dr. FitzGerald

At the moment the builder pays nothing on the added value of the house because there is no such requirement. Now he will have to pay. The Minister says that this would be offset by the fact that he will get back an equal amount. The position is no different from now. Why should the house be cheaper?

Mr. P. Barry

I think what the Minister is saying now is not that the builder will give a cheque to the Government for 3.1 per cent but that the tax paid on the material will amount to 3.1 per cent.

Mr. Colley

That is right.

Dr. FitzGerald

He will be paying tax on the value added.

Mr. P. Barry

That is the point I have been endeavouring to establish.

Mr. Colley

What the builder will be paying will be the equivalent of 3.1 per cent of the selling price and that is virtually the same as the tax he is paying now. The only difference will be that under VAT he will be able to recover that tax from the Revenue Commissioners which is something he cannot do now.

Mr. P. Barry

Will he be able to recover 3.1 per cent of the price of the house, or will he be able to recover only the tax paid on the materials that were used to build the house?

Mr. Colley

He will be able to recover the value-added tax that he has suffered and which will amount to 3.1 per cent of the purchase price.

Mr. P. Barry

He is getting this under current taxation. Does the Minister reckon that the position will be the same under the new system?

Mr. Colley

We have calculated that at the moment the tax element on the average house in terms of turnover and wholesale tax is approximately 3 per cent. We have made an arrangement here of 5.26 per cent on 60 per cent so as to arrive approximately at the same figure.

Mr. P. Barry

But there would not be a willingness to refund 3.1 per cent of the retail price of the house?

Mr. Colley

No. Only the amount suffered could be refunded.

Dr. FitzGerald

If that will have the effect of reducing the total cost of the house, in terms of tax, by 3 per cent, on what grounds is the Minister so unwilling to say that house prices will be reduced by that amount? Why does he think that builders will take this percentage as profit? Surely the first requirement of the Government, if they are to relieve builders of 3 per cent tax, is to take steps to ensure that the saving is passed on to the house purchaser.

Mr. T.J. Fitzpatrick

(Dublin Central): Are not timber, paint and glass exempt from wholesale tax? It will now be possible to reclaim tax paid on these materials.

Dr. FitzGerald

That is not an exemption. If this genuinely involves a reduction in the tax paid on the cost of houses by 3 per cent why is he so reluctant to say that that reduction will be passed on?

Mr. Colley

I did not say that.

Mr. P. Barry

The Minister inferred that when he said that the builders may not reduce their prices.

Dr. FitzGerald

They should reduce their prices by 3 per cent if they are going to be better off by 3 per cent.

Mr. Colley

I said they will now get a refund.

Dr. FitzGerald

But they will pay an equal amount of extra tax so that they are no better off. Is that the case? Either they are 3 per cent better off or they are not.

Mr. Colley

I am afraid that I have misled the House. The 3 per cent will still be saved but not in the way I indicated to the House. In the case we have been talking about the builder, at the moment, pays approximately 3 per cent in tax of the selling price of the house and passes of this percentage in the selling price. Under VAT he will pay the same amount of tax and he will continue to pass it on to the purchaser but, of course, in the same way as everybody else, he will be claiming credit for the tax he has paid. In fact the amount that he will be able to claim against will be the same as at present so that his position will not change. People who will benefit will be registered trade customers of the builder. Let us say one of those at the moment is having an extension built. The tax which he will bear will be 3 per cent, approximately, of the value of that extension. The builder will have to charge him that amount but he will not be able to recover it. Under VAT he will pay the builder as before but will be able to recover it from the Revenue Commissioners. I misled the House in the suggestion that it was the builder who would benefit. It is the trade customer of the builder who will benefit. There will be no effect either way on the private house price.

Mr. P. Belton

The position is that at the moment the builder pays tax in respect of a private house. He charges that tax to the purchaser but after the introduction of VAT that 3 per cent will be recoverable. Why, then, should he charge the purchaser this percentage?

Mr. P. Barry

It is not from a private purchaser that he will get it back but from a private trader.

Mr. P. Belton

The 3 per cent that a builder is now getting from a purchaser will be recoverable under VAT.

Dr. FitzGerald

He is paying 3 per cent on the value added also.

Mr. P. Belton

Why charge the customer 3 per cent if he has already been able to recover that amount?

Dr. FitzGerald

He pays money on the materials, gets back what he paid on the materials and then pays 3 per cent on the value added.

Dr. O'Donovan

What about the ordinary private person who buys a house from a builder? He is not a registered trader.

Mr. Colley

He does not get it back.

Dr. O'Donovan

In other words, once again the Government are putting the ordinary purchaser in a different position.

Mr. Colley

The position will be no different from what it is at the moment. The only person whose position will be different will be the registered trader who will now be able to claim this expense against his ordinary liability for VAT.

Dr. O'Donovan

This is equivalent to creating a new form of broker. Would Deputy Fitzpatrick comment on that?

Mr. T.J. Fitzpatrick

(Dublin Central): If a registered trader buys certain types of fittings he can claim back the tax. To take a very simple case, if he bought 100 dozen glasses, which at the moment carry a 10 per cent wholesale tax, he will definitely be able to claim it back. I cannot say how this could be carried into the private sector, into the building of houses, so that a person buying a private house could claim it back.

Mr. Colley

No. He cannot.

Dr. O'Donovan

I want to stick to my point. This means that a registered trader will be able to buy a house from a builder at one price and the ordinary man who wants to buy it to occupy it will have to pay a different price.

Mr. Colley

No.

Dr. O'Donovan

I am talking about the position when the whole transaction is over.

Mr. Colley

Deputy Barry put his finger on it a little while ago when he said the reason why the private purchaser cannot do this is that he is the ultimate consumer and he is the one who is actually paying the tax, while all the other people along the chain are not paying the tax.

Dr. FitzGerald

They are collecting it.

Mr. Colley

They are passing it on. Because it is not a cascade tax it is the ultimate consumer who is paying. The registered trader can only get the benefit of this refund where the transaction is in the course of his business. As we said earlier, if he purchases a house just as a private residence he does not get the benefit of this. This is one of the defects in the existing turnover and wholesale tax system, that traders could not pass on fully the tax they were paying in the course of their business.

Dr. FitzGerald

We have clarified a number of points and it is clear that house prices are uneffected, but there is a problem where it is partly a business and partly a private set-up. Some apportionment would be required in a case like that, I presume?

Mr. Colley

Yes.

Dr. FitzGerald

Then we have the case where people are trading in dwellings which are not new buildings. What is the position when somebody resides in such a dwelling and sells it? This is relevant to the amendment in regard to compulsory purchase.

Mr. Colley

If nothing has been done with the premises since the enactment there is no liability to tax.

Dr. FitzGerald

No liability?

Dr. O'Donovan

Why should there be?

Mr. Colley

I did say about two hours ago that one of the difficulties we had was that we were discussing something in connection with which certain conditions must be met before value-added tax becomes payable in respect of the sale of immovable property. We have not yet got to discussing those conditions and we are going around in circles as a result. What Deputy FitzGerald is now talking about is one of those conditions. I would suggest that, at this stage, we have gone far enough ahead of ourselves and that we should now come back.

Dr. FitzGerald

I appreciate the Minister's point, but I want to understand this compulsory purchase matter now that we have got this much background to it. Am I not right in what I said originally and what led to this discussion, that now property is going to have different values depending on who is handling it? The Minister suggests that this provision must be here for compulsory purchase because otherwise the same property would have different values depending on who was handling it. In fact, properties do have different values depending on who is buying them, under this new tax system. Is it necessary to get involved in this complication about compulsory purchase, or, if it is necessary, is it not absolutely essential to acquire by some legal enactment that the price to be paid on compulsory purchase shall be one that takes account of the tax where the tax liability arises? I am not making it very clear.

Mr. Colley

I think I know what the Deputy means. I think he made these two points quite some time ago and I thought I dealt with them, but I shall try to deal with them again. The first one is: do we have to have this provision anyway? I think the answer is "Yes", because if we do not we are going to have a distortion in the value of comparable types of property. By "comparable" I mean comparable in terms of value-added tax.

The second point he raised was: if we do have to have it, do we not have to have provision in this Bill to compel a valuer to take it into account? I do not think that is necessary at all, because the legislation under which valuers work in compulsory proceedings quite clearly sets out the basis on which they have to work. What it amounts to is that they have to accept the market value. The market value of property of the kind we are talking about, once this provision is in, will be what would now be the market value plus the value-added tax, because it will be compared with comparable property which is not being compulsorily acquired. It will be subject to value-added tax, and therefore, the valuer has to take it into account.

Dr. FitzGerald

Surely it depends on who is selling to whom whether there is tax liability or not.

Mr. Colley

That is my point. I am saying that in comparable property which is not subject to compulsory acquisition the market price would be what we call its present market value plus value-added tax. If we did not have this provision the market price of compulsorily acquired comparable property would be its present market value with no value-added tax. By putting in this provision, where there is a distinction between, on the one hand, privately acquired and, on the other hand, compulsorily or publicly acquired property of comparable types in value-added terms, we are making them equal.

Dr. FitzGerald

The Minister is introducing a new concept of property of comparable type in value-added terms.

Mr. Colley

I am doing that because I do not want to get involved in all the other conditions that apply. By "comparable in value-added terms" I am talking about property where the conditions laid down in this Bill, bringing value-added tax into operation on the sale of immovable property, are met.

Dr. FitzGerald

That seems to be something that will vary according to who are the partners in the transaction.

Mr. Colley

It does not affect the principle of this.

Dr. FitzGerald

Perhaps it does or does not, but are the State or local authorities registered traders?

Mr. Colley

Normally they are not.

Dr. FitzGerald

Surely the Post Office is a registered trader?

Mr. Colley

No, not as a post office.

Dr. FitzGerald

The Department of Posts and Telegraphs?

Mr. Colley

No, they are not.

Dr. FitzGerald

There is no State or local authority carrying on trade which would bring it under the heading of a registered trader.

Mr. Colley

There are circumstances in which some local authorities might be registered, but as a general rule Departments and local authorities would not be registered.

Dr. FitzGerald

There are exceptions to this and, where something is being compulsorily acquired for a local authority, whether the tax is payable depends on whether the local authority is a registered trader or not. The Minister is introducing a new concept in property values for compulsory purchase purposes, in which it depends on the identity of the purchaser. You cannot have property values determined by the identity of the purchaser, and that is what the Minister is purporting to do here. Property values, in the case of compulsory purchase, must exist in their own right. The land is worth something because it is owned by a certain individual who is selling it.

Mr. Colley

It is the seller, not the purchaser, that determines this. We had this point earlier on.

Dr. FitzGerald

I understood in the case of a new house, if there is a shop and it is sold to a registered trader he can recover the tax. Therefore the tax does not arise.

Mr. Colley

It does arise. The Deputy is thinking in terms of what it costs somebody in the net—what it costs him out of his own pocket.

Dr. FitzGerald

The seller has to pay it either way.

Mr. Colley

That is not the point. For this purpose you can only take one transaction at a time. The question is: is the transaction at the time liable to value-added tax added?

Dr. FitzGerald

Does the seller have to pay value-added tax? Is that the issue?

Mr. Colley

Yes.

Dr. FitzGerald

That cannot depend on the identity of the purchaser?

Mr. Colley

Not the purchaser.

Dr. FitzGerald

The purchaser does, when he gets it, depending on whether he is liable or not. A purchaser who knows he can recover it will pay a different price to the purchaser who knows he cannot recover it, obviously.

Mr. P. Barry

No.

Dr. FitzGerald

Why not?

Mr. P. Barry

Because they both pay the same price. In that case the person who can recover is already a registered trader. Is that not correct?

Dr. FitzGerald

Yes.

Mr. P. Barry

The person who is using it for his business recovers it from the Government.

Dr. FitzGerald

And, knowing he can recover it, he is able to pay a better price because he knows he will get part of it back. Therefore, he can afford to pay a better price. The value of the property therefore depends on the identity of the purchaser as well as on the identity of the seller under this system. Am I wrong in that?

Mr. Colley

I would not think the Deputy is correct.

Dr. FitzGerald

It is a very polite way of saying I am wrong.

An Ceann Comhairle

Can we move on?

Dr. FitzGerald

We have now reached the point where we are discussing the amendment, the whole question of compulsory purchase. Whatever about what we were at before, we could not be more relevant than that. I have raised a point to which I have not had a satisfactory answer from the Minister. The Minister thinks I am wrong but he is not in a position to say why I am wrong. If the value of the property compulsorily required depends on who is compulsorily acquiring it as well as on who is selling it, then the Minister's thesis that it is necessary to put such property on a comparable basis by including this particular subsection is invalid.

Mr. Colley

The Deputy is getting himself involved in the most unnecessary complications. Surely the thing to accept here is that a valuer who is involved in the job of valuing property, as part of his profession, knows how to do his job. Let us assume that and not put ourselves into complicated difficulties.

Dr. FitzGerald

I assume that, but you are putting this in an impossible position if the property ceases to have an abstract value by virtue of its ownership and its location and acquires different values depending on who will buy it and depending on whether the local authority is buying it in its capacity as a registered trader or an unregistered trader.

Mr. Colley

That is a very doubtful proposition. It is abstruse, to say the least of it, and it is also doubtful. It is an area in which a professional valuer should be left to work out the problems, not us. We cannot do it.

Dr. FitzGerald

If he is in the position where, depending on who the purchaser is, the property has a different value for tax reasons you are——

Mr. Colley

I would doubt that very much.

Dr. FitzGerald

The Minister may doubt it but he has been most careful not to contradict it because he knows it can be true. That being the case, then we are introducing a new concept into property values in regard to compulsory purchase which is unworkable because the person who is valuing it for compulsory purchase purposes no longer has any staple criterion to go on but has to consider who is buying it. If it is being bought by one person or by a local authority in one capacity it has a different value to what it has in another. That is something which is clearly undesirable and unworkable and it is precisely why this whole provision has to be removed from the Bill. This is my thesis.

You cannot import this element of uncertainty or variability into property values, depending on the identity of the purchaser under compulsory purchase. The position must be that, whoever is buying it, the land has the same value. You cannot put the seller of the property at a disadvantage because a local authority comes along and says "I am buying land compulsorily from you in my capacity as unregistered trader. The land is, therefore, because I cannot recover tax on it, worth less to me and so I am paying you less." The valuer then, because of the fact that the local authority is acting in its capacity as an unregistered trader, must pay a man less for his land than he would have got if it was being purchased by a registered trader, whether it is a local authority or somebody else. That introduces an element of uncertainty into compulsory purchase.

Mr. Colley

The Deputy is unnecessarily complicating the thing. Valuers do not work this way. They have a professional job to do and we all would like them to do it. What they have to do is to take the value of the property in their opinion sold on the open market with no complications.

Dr. FitzGerald

To whom? Under this Bill its value will now depend on to whom it is sold.

Mr. Colley

To anybody. It is open market value.

Dr. FitzGerald

There is no such thing any longer. The Minister has prohibited open market value. There are two values for property depending on whom it is sold to.

Mr. Colley

The Deputy is unnecessarily complicating matters.

Dr. O'Donovan

I think I put this problem to the Minister in much simpler language over half an hour ago. I understood the Minister's answer, although I am not saying I necessarily agree with what he is doing. I think Deputy FitzGerald, by using too many words, is making the thing extremely complicated. I understood what the Minister told me and I still understand him in spite of all the verbiage that has been used since.

Mr. Colley

I wondered whether the Deputy was beginning to doubt whether he understood me.

Dr. O'Donovan

Deputy Tully asked me a while ago to say it in a few simple words and I told him I was not sure if I understood it any longer.

Dr. FitzGerald

The Deputy's contribution is no doubt relevant to the Bill but this claim to understand it is a bold one. I can say also that I think I understand what is involved on this occasion on this narrow issue. It is because I understand it that I am unhappy about the proposal in the Bill. Under compulsory purchase the situation will arise that the value of the property and the amount to be paid to the seller will depend on the identity and the taxable capacity, if you like to call it that, of the purchaser. That is something which should never arise under compulsory purchase.

Mr. Colley

It does not arise.

Dr. FitzGerald

Unless the Minister is prepared to say and to have it put down in legislation clearly that, where a local authority is purchasing property in its capacity as unregistered trader, which should be the normal case, as the Minister said, the law will require that the price to be paid must be a price as good as the price the owner of the property would have got had he been selling to a registered trader, who might have been his alternative purchaser. If that can be put down in black and white, I am happy; otherwise I cannot accept this.

Mr. T.J. Fitzpatrick

(Dublin Central): I think a way to simplify the Bill would be if all business was subject to value-added tax, irrespective of what price you paid for it, that would exempt private houses and everybody would be entitled to claim it back.

Dr. FitzGerald

And no unregistered traders?

Mr. T.J. Fitzpatrick

(Dublin Central): Unregistered traders once it is a business but exempting private houses.

Dr. FitzGerald

I am not with the Deputy.

Mr. T.J. Fitzpatrick

(Dublin Central): All types of business which come on the public market if you purchase them, let it be a factory or shop.

Dr. FitzGerald

On the sale of property?

Mr. T.J. Fitzpatrick

(Dublin Central): Yes. It should be subject to value-added tax except private houses.

Mr. Tully

It would mean that the small fellow would have to register for the purpose of getting back his money.

Dr. O'Donovan

May I deal in a simple way with the point Deputy FitzGerald made. At present one man can borrow money at 7 per cent and another man has to pay 10 per cent for it. There you have a difference of 3 per cent and it is obvious why I select this example. They both go to buy a house on the market. The market price of the house is not in fact determined by one of them or the other. It all depends on what the market is like at the particular time. If houses are a drug on the market, obviously only the man who is getting his money at 7 per cent will be prepared to buy it at a price suitable for the seller or the builder. I do not think Deputy FitzGerald's argument is correct, that what the Minister is attempting to do will upset prices in that fashion. There are too many factors which come into it. There are these differences. There is the difference in relation to the man who has dry cash——

Mr. P. Belton

He must be dead.

Dr. O'Donovan

I agree. There are few people who are dead in this sense but I think most of them are being resurrected by the fast pace. The example I have been trying to give is relevant. One man pays only 7 per cent for money and the other pays 10 per cent, and yet there is one price for the house.

Dr. FitzGerald

I do not accept this analogy at all if it does not mean that in a compulsory purchase action the person selling is put at a disadvantage. In this proposal before us, because the seller in a compulsory purchase— whether the purchaser be the State or a local authority—is unregistered, the price the purchaser will pay will be a lower price than if the person was a registered trader.

Dr. O'Donovan

That is utter non-sense.

Dr. FitzGerald

The Deputy is the first who had the courage to say that to me this morning.

Dr. O'Donovan

There will be a set way of fixing the value.

Dr. FitzGerald

Because all purchasers will be in the same position——

Mr. Tully

They will not be in the same position. Compulsory purchasers are in a different set of circumstances altogether.

Dr. FitzGerald

If there is not further legislative provisions, the State or local authority will not be bound to pay the price which the seller would be open to get if he sold to a registered trader and I know nothing in the Bill that would achieve a different result unless there is some legislative provision to achieve it. I think may point is fair and the Minister has not contradicted me on it.

Mr. Colley

There is not a point here. As far as the seller is concerned, he has to get a price and he has to pay VAT. It does not matter to whom he sells, he will not lower his price to somebody because, that person will have to pay tax. He must get the price——

Dr. FitzGerald

The Minister has it the wrong way around.

Mr. Colley

No, the Deputy has.

Dr. FitzGerald

That also is possible.

Mr. Colley

The seller will determine what he will sell for.

Dr. O'Donovan

May I help the Minister this much? There is a simple elementary piece of economics. On any market there can be only one price for any one commodity at any one time. May I commend that simple piece of economics to Deputy FitzGerald? Let us talk about the compulsory purchase market at the moment. I will tell the Deputy a piece of folklore now.

Dr. FitzGerald

It would not be the first time.

Dr. O'Donovan

If the Deputy thinks he knows better he can tell us. The ordinary way of fixing the price is the market price plus 15 per cent. That is in compulsory purchase. The arbitrator adds 15 per cent as the compensation to the person who has to sell. When Deputy FitzGerald speaks about compulsory purchase he is dragging into his argument something which does not exist.

Mr. Colley

That is what I think.

Dr. O'Donovan

It does not arise.

Mr. P. Belton

It is in the Bill.

Dr. FitzGerald

We are dealing with a section on compulsory purchase and, despite Deputy O'Donovan's folklore, I shall have to deal with it.

Dr. O'Donovan

The Deputy has not as much experience of these matters as I have.

Dr. FitzGerald

The Deputy could be right or wrong. What I am concerned about, and the Minister can tell me if I am wrong, is the position of somebody who is a registered trader. He is in a better position to pay than an unregistered trader. If that is correct, the problem arises as to whether, with the distortion introduced by this Bill, we do not need some provision to ensure that the price will be that which the seller would have got if he sold in a free and open market and not by compulsory purchase.

Mr. Colley

I do not think the Deputy's premise is correct. If he thinks it is, would he include it by way of amendment at the next Stage? Because I cannot follow his reasoning I cannot draft an amendment to achieve what he wants.

Dr. FitzGerald

That is fair. We have to come now to the situation of the sheriff seizing the goods. Could the Minister explain what is the justification for this? If goods are seized, how will it work out so that the person concerned will not lose doubly? How can we ensure that the sheriff will value the goods properly?

Mr. Tully

The sheriff will say, "You have to pay cash", and if the person cannot pay cash the sheriff will seize them. If he can pay cash he will not.

Dr. FitzGerald

You have a judgment against you and the sheriff comes along and seizes goods whose value would exceed the amount of the judgment. He sells the goods and you get back the amount in excess of the judgment. The Minister is suggesting that the person whose goods are seized—the value of the goods may be nothing—will have to pay tax on what the sheriff has seized. This is an absurd proposal. To be acceptable at all there would have to be an assurance that the person concerned would get credit from the sheriff for the tax he paid so that he would not lose doubly.

Dr. O'Donovan

If the sheriff seizes the goods the person is possibly already bankrupt.

Mr. P. Belton

Not necessarily.

Dr. FitzGerald

The sheriff must dispose of them. He will have to sell them in a market.

Mr. Colley

The sheriff will not be an accountable person for the purposes of VAT.

Mr. Tully

On the point Deputy FitzGerald made, if the value of the goods is so and so, there are other things that must be considered. The Minister spoke about motor cars. If the goods go for sale there is a tradition in country districts that if the person whose goods are seized is able to buy them back himself nobody will oppose him. If he is not, nobody will buy them, or his friends may chip in. Perhaps the Minister would explain the point.

Mr. Colley

This provision is there precisely because of what Deputy Tully had said about what happens frequently at sheriffs' sales. The goods could be bought up by the person's friends.

Mr. Tully

If the goods were valued at £5,000 and they were seized, they could be sold for £500. That would not get them out.

Mr. Colley

They would be paying £5,000. A man would be free of tax at 30.26 per cent as against somebody else who is going to pay the £5,000. He would have to pay that much tax on the goods in question, which would be substantial.

As regards the point raised by Deputy FitzGerald, I refer him to section 10 (4) on page 13 which reads:

The amount on which tax is chargeable in relation to deliveries referred to in paragraphs (d) (ii), (e) and (f) of section 3 (1) shall be the cost of the person making the delivery of acquiring or producing the goods excluding the tax which would be deductible under section 12 if the deliveries in question were made in the course of business.

In this case which we are talking about, the person whose goods are being seized, the cost to him, whatever he paid for them, is the cost for the purpose of determining the VAT to be assessed.

Dr. FitzGerald

He is going to be taxed at 30 per cent on what he paid for the goods, regardless of what they get at the sheriff's sale.

Mr. Tully

On their value now?

Mr. Colley

This is only in the case of goods which have not suffered the tax. This is to ensure that they do suffer the tax.

Dr. FitzGerald

If a man's car is seized to pay for his debts and if the car is worth £1,000 but it goes in the sale for £300, is the man then required to pay £300 tax on the car which has already borne tax when he bought it, even though the sheriff took it from him and sold it for a third of its value.

Mr. T.J. Fitzpatrick

(Dublin Central): It would be subject to 5 per cent tax.

Dr. FitzGerald

Where is the man to get the money? I can see no justification for that.

An Leas-Cheann Comhairle

I wonder, if at this stage the Deputies feel there is necessity to amend this, whether it would be more advisable to amend it on Report Stage?

Dr. FitzGerald

We are trying to tease out whether there is something to be amended. I am not clear on it myself.

Mr. Tully

A new Bill is the answer.

Dr. FitzGerald

This needs to be sorted out.

An Leas-Cheann Comhairle

The Chair was suggesting that, since there has been such a long discussion at this stage and if it is felt that this ought to be amended, it is open to the House to amend it on Report Stage.

Dr. FitzGerald

The discussion in connection with the sheriff has been rather short in contrast to other discussions.

An Leas-Cheann Comhairle

We are discussing an amendment all the time.

Mr. Tully

The first hour was devoted to a general discussion.

Mr. Colley

We are talking here about delivery of goods in the course of business. We are giving it an artificial meaning, but we are talking about it "in the course of business". The kind of situation which Deputy FitzGerald is thinking about, where a person had bought a car and paid 30.26 per cent tax on it and then has his car seized by the sheriff and has to pay the tax again, cannot arise. That cannot arise because we are talking about a delivery of goods by an accountable person in the course of business; so that where a private person has bought a car and paid the duty, he does not come under this section dealing with the sheriff at all. Where it is a trader who is delivering in the course of business he will have paid the duty, perhaps, but he will also have recovered it against his ordinary liability.

Mr. Tully

This only deals with a certain section? Surely this should be stated.

Mr. Colley

Let us look at section 2 (1). It reads:

With effect on and from the 1st day of March, 1972, a tax, to be called value-added tax, shall, subject to this Act and regulations, be charged, levied and paid—

(a) on the delivery of goods and the rendering of services delivered or rendered by an accountable person in the course of business, and

(b) on goods imported into the State.

The section which is dealing with delivery and defining it is dealing with that in the context of section 2.

Mr. Tully

That completely cuts out what we have been talking about for the last 1½ hours. They would not be in that category at all.

Mr. Colley

I am almost afraid to question that.

Mr. Tully

One does not acquire land from registered traders.

Dr. FitzGerald

One may or may not. It depends on the circumstances. We are discussing the position where a trader who has purchased a vehicle and paid tax and recovered that tax and then has the car seized from him by the sheriff. He is then required to pay 30 per cent of the value of the vehicle, written down presumably.

Mr. Colley

On the basis of cost as I refer to section 10 (4)—what it cost him.

Dr. FitzGerald

Regardless of what condition it is in?

Mr. Colley

Yes.

Dr. FitzGerald

The trader has purchased a vehicle. Six years later it is pretty battered and is worth very little, but it is seized by the sheriff and then the man has to pay for the tax on the original value of the vehicle. He has his vehicle seized and he pays tax on something three or four times its worth.

Mr. Colley

We must remember that we are talking about a trader and the tax which he has paid on the vehicle originally when he bought it has been recovered, and whatever tax he pays on this he can recover also. If he suffers VAT in the course of trade——

Mr. Tully

Is a seizure by a sheriff something in the course of trade?

Mr. Colley

I said earlier on that it is. I agreed that it is an artificial definition of "delivery in the course of trade". It is there for the reasons I mentioned.

Mr. T.J. Fitzpatrick

(Dublin Central): If the sheriff seizes £100 worth of property, can he be held responsible for the VAT on it? The sheriff may sell the goods. Is the man entitled to claim that amount? Will he get VAT back from the sheriff?

Mr. Colley

Not from the sheriff.

Dr. FitzGerald

Or from the Revenue Commissioners?

Mr. T.J. Fitzpatrick

(Dublin Central): The Sheriff has carried on a business.

Mr. Colley

The sheriff is not an accountable person.

Dr. FitzGerald

Make him an accountable person.

Mr. Colley

That would introduce further complications.

Mr. P. Belton

There would be nothing but civil servants and accountants in the country.

Dr. FitzGerald

And Sheriffs and the backrupts.

Mr. Tully

At the present time industrialists have been asked to produce documents to show certain things in preparation for VAT and it would take five accountants to deal with the papers for them.

Mr. P. Belton

Are secondhand cars liable to value-added tax?

Mr. Colley

Yes, 5.26 per cent.

Mr. Tully

Is that in the original Bill?

Mr. Colley

Yes. It is in the original draft.

Mr. Tully

What section?

Mr. Colley

Section 11 (2).

Dr. FitzGerald

It says: ...other than vehicles of a kind specified in the Fourth Schedule", so that secondhand cars are not taxable. If they are not taxed, what are we talking about?

Mr. Colley

What is the Deputy talking about now?

Dr. FitzGerald

Page 44, Third Schedule —"Secondhand movable goods other than goods of a kind specified in the Fourth Schedule." This includes motor cars and does not mention anything about secondhand cars.

Mr. Colley

Section 11 (2) in fact makes secondhand cars liable. It does not make it clear on the fact of it but it does if you examine it closely——

Dr. FitzGerald

Despite the Schedule saying the contrary?

Mr. Colley

It does not say anything to the contrary. "Where goods which are of a kind specified in the Fourth Schedule and which (a) were imported, or sold in the State, in such circumstances that wholesale tax was chargeable or would have been chargeable if that tax had been in force——

Dr. FitzGerald

Before 1st March, 1972.

Mr. Colley

——and "were imported or delivered on any previous occasion on or after that date in such circumstances that tax at the rate of 30.26 per cent was chargeable in relation to such importation or delivery...".

Dr. FitzGerald

How could you have a previous occasion on or after that date?

Mr. Colley

You could.

Dr. FitzGerald

A previous occasion after a date—it is a somewhat abstract metaphysical concept.

Mr. Colley

Previous to delivery but on or after the date of 1st March.

Mr. Tully

"And delivered within the State on or after the 1st day of March, 1972". You have them in the State already.

Mr. Colley

Let us not start arguing about the wording of this section. We are not discussing it at the moment. Deputy FitzGerald started questioning the wording and this is not the time to do it. I am pointing out that this section 11 (2) deals with the situation where goods were subject to wholesale tax at the high rate—in other words, including cars—and which are then delivered within the State on or after 1st March, 1972. In other words, there in a sale of a secondhand car and where that happens, it is charged at the rate of 5.25 per cent.

Mr. Tully

So that in fact it could be over 36 per cent tax?

Mr. Colley

It does not work that way.

Mr. Tully

As a matter of fact, it would be higher?

Mr. Colley

No, the highest rate is 30.26 per cent.

Dr. FitzGerald

In spite of the contradictory form of the Schedule and the incomprehensibility of the concept of something being previous to but after a date, what all that means is that secondhand cars are liable to tax at the rate of 5.26 per cent?

Mr. Colley

That is right.

Dr. FitzGerald

What has that to do with what the Minister was talking about earlier—the sheriff seizing a vehicle and——

Mr. Colley

I did not raise this point; it was the Deputy raised it.

Dr. FitzGerald

The Minister specifically brought in cars.

Mr. Colley

But the Deputy raised the point as to whether secondhand cars were liable or not.

Mr. P. Belton

I did.

Mr. Colley

Did the Deputy not raise the point as to whether secondhand cars were liable or not?

Dr. FitzGerald

Yes.

Mr. Colley

I was quoting this section to show that they were. Let us not get confused about what we are at.

Dr. FitzGerald

When I raised the question of the sheriff's sale the Minister said it was very necessary and that, especially because of the question of the seizure of cars liable to this very high rate of 30.26 per cent, it was important that this should not be evaded, or words to that effect. Now it transpires that the car being secondhand at the point where the sheriff is taking it, is taxed at 5.26 per cent. Am I right in that?

Mr. Colley

Why does the Deputy assume that all sales by the sheriff will be of secondhand cars?

Dr. FitzGerald

I do not assume that. The Minister raised the question of a registered trader being in default and the sheriff seizing his vehicle from him. It would be very improbable that the sheriff would turn up on the very day when he bought a new vehicle.

Mr. Colley

Can the Deputy visualise a dealer in motor cars?

Dr. FitzGerald

Yes, but that is a separate case. The Minister was not talking about that. He was talking about registered traders generally and he spoke about the sheriff in relation to registered traders——

Mr. Colley

I was not talking about the sheriff seizing battered old secondhand card. Surely it was obvious that I was talking about the evasion of tax at the high rate which implies that I was talking about new cars at the high rate.

Dr. FitzGerald

It may have implied that to the Minister but it did not imply it to the rest of us, because at that stage the Minister had not pointed out that there was this provision in regard to secondhand cars.

Mr. Colley

It is not just secondhand cars, as the Deputy appreciates.

Dr. FitzGerald

If this sheriff's sale provision, which is to hit everyone in the country, because anybody who has anything seized has to pay value-added tax on the seizure against him, is necessary because of the possibility that a car dealer selling new cars might decide to get out of his obligations in some way by deliberately having a seizure against him and evading his responsibility for 30.26 per cent tax, and that he would then buy back the car subsequently and that nobody else would bid against him at the sale——

Mr. Colley

The Deputy is losing sight of the fact that this applies only in the case of registered traders. Therefore we are talking about people having cars seized who have had a refund of duty and who, in fact, have not paid any value-added tax. We are not talking about the ordinary person who has paid.

Dr. FitzGerald

We are talking about registered traders.

Mr. Colley

We are talking about people who have not paid valueadded tax.

Dr. FitzGerald

They have paid and got a refund.

Mr. Colley

In effect they have not paid it because they have got a refund.

Dr. FitzGerald

The Minister is justifying the inclusion of a provision requiring anybody whose goods are seized at a sheriff's sale to pay tax as well as having the goods taken.

Mr. Colley

Not anybody whose goods are seized.

Dr. FitzGerald

Any registered trader.

Mr. Colley

Yes.

Dr. FitzGerald

Any registered trader no matter what he is dealing in, cars or anything else, if his goods are seized he has to pay tax on the seizure.

Mr. Tully

He could recover it.

Dr. FitzGerald

On the cost of the goods seized, not on the current value. The Minister is justifying this on the grounds that there could be a case where a trader in new motor vehicles deliberately seeks to evade his responsibilities by getting his goods seized so that he can buy them back on a basis of not paying the tax and being in a better position.

Mr. Colley

No. The Deputy is complicating the position unnecessarily. The fact is that by inserting this provision we are putting people whose goods are seized on exactly the same basis as somebody who is threatened by the sheriff and sells his goods and pays the sheriff out of proceeds of sale. I do not think we ought to give an advantage to the person who will not do that and waits for the sheriff to seize his goods. That is what we would do if we were to delete this provision.

Dr. FitzGerald

The Minister told us earlier that he can reclaim the tax when he pays it. It makes no odds to him. The Minister explained that the registered trader having paid this tax on the goods seized from him can reclaim it from the Revenue Commissioners and get the money back again. Therefore he is no worse off. If he will not be affected either way, what is the point of this complicated provision? If he would be put in a position where he would be better off by having his goods seized than by selling them there might be some case, although a rather remote one, but if he gets the tax back anyway there is no point in the whole thing.

Mr. Tully

Might I suggest again that the Minister might have another look at this. Perhaps we are taking the wrong line but I agree with Deputy FitzGerald that it appears a bit complicated. If the Minister considers that it can be improved on the next Stage he might do so and let it go at that. Otherwise we could continue arguing about it all day and still not agree.

Dr. FitzGerald

I agree with that. We have now spent about six hours on this Bill and a very high proportion of the time was spent, not in debating the measure or what needs to be done to it, but in trying to understand it. This is really impossible. It is wasting the time of the House. We can all be accused of wasting it because we are asking questions to try to understand it, and we can be told we should have done our homework, but it is not that easy. The Minister has found great difficulty himself. He has had to have frequent conferences lasting for many minutes to try to understand it despite the fact that he must have a big brief in front of him.

Mr. Colley

Not to understand it but to try to get a reasonable answer for Deputy FitzGerald's misunderstanding of some of the points. Let us put it straight. That is what it was.

Dr. FitzGerald

The Minister may describe it any way he likes but if he had an adequate explanation of it, never mind us, he would have it on the tip of his tongue.

Mr. Colley

Deputy FitzGerald underestimates himself.

Dr. FitzGerald

The Bill is very complex.

Mr. Tully

Let us not argue over whether it is something which either side cannot understand. It was bad enough to be arguing about a section which was not before us without arguing about who is right like a crowd of kids.

Dr. FitzGerald

This Bill will be a long time going through this House for reasons which are avoidable. We have a so-called explanatory memorandum. In a case like this it simply repeats the words:

The ordinary commercial meaning would be confined to the voluntary transfer of possession of goods from one person to another, but for the purposes of the tax this meaning is expanded to include—

(d) the seizure of goods by a sheriff or other person acting under legal authority;

There is no explanation whatsoever. It merely states what is in the Bill. I know from trying to draft explanatory memoranda for Private Members' Bills that I am not allowed to explain anything, and that it is against the rules to explain anything. One of the problems is that we have no explanation. The Minister has had some guidance but we have had none. We are wasting hours trying to tease out what the Bill means so that we can think about whether it needs to be changed. In the case of such a complex Bill could the Minister ask the Revenue Commissioners to provide us, informally, if you like, if it cannot be in the form of a printed explanatory memorandum, with a simple explanation in ordinary language of the reason for each provision so that we can get on with it. Otherwise the Bill will not leave the House before 1st November. I wonder would the Minister consider the possibility of doing this. I know it would be an unusual procedure but it is a very unusual Bill and we are all unusually muddled about it.

Mr. Tully

I do not want to hold up the House. God knows it has been held up long enough. What Deputy FitzGerald has said is quite correct. Surely a Bill which requires nearly 100 Ministerial amendments should not be brought into this House for Committee Stage. Surely the obvious thing to do is to rewrite the Bill and bring it in as a new Bill. Even at this stage I would suggest to the Minister that it would go through far more quickly if something like that were done. The Minister is proposing amendments to his own work and the draftsman's work, amendments which they had to prepare themselves after the Bill had been published and had its Second Reading. This gives the impression that somebody misunderstood the purpose of the Bill, or many sections of it—not only the Opposition but those who were drafting the Bill. I would not blame the Minister or his officials for this. It is a very complicated matter. I would seriously suggest that two things could be done. We have only half an hour left and we are getting nowhere in a hurry. The Minister could agree to take back the Bill and have another look at it and re-introduce it. He should get a committee of the House to put it through Committee Stage. Otherwise we could be here until God knows when. I am trying to be helpful. I am not being critical.

Mr. Colley

I want to point out that when Deputy Tully talked about 100 ministerial amendments this conveys a certain impression, but he will agree that the vast bulk of them are consequential. The number of substantial ministerial amendments is quite small. For instance, the question of changing from 1st March to a specified day runs right through the Bill and accounts for a great many of the amendments. A few others are of the same kind. What I am saying is that the ministerial amendments do not complicate the issue unduly except in so far as there is a big number of them. The basic principle is straightforward enough. I agree that the Bill is extremely complex and difficult to follow. As far as I am concerned, it is certainly the most difficult I have ever come across.

Dr. FitzGerald

Hear, hear.

Mr. Colley

I have great sympathy with the Members of the House who are trying to deal with this difficult Bill in these circumstances.

Mr. Tully

Amendments containing three, or four or five subsections, taking up half a page of the sheet of amendments—surely the Minister will agree they are substantial. There is quite a number of these.

Mr. Colley

I said there are a few substantial amendments.

Mr. Tully

It is not just a few.

Mr. Colley

When Deputy Tully talks about 100 amendments, that is giving a very different impression. I regard the Bill as extremely difficult and complex and I will certainly consider what procedure might be open which would assist Deputies to follow the Bill more easily so that the debate could, perhaps, be speeded up somewhat. I do not wish to be critical, but I would remind Deputies and, in particular, Deputy FitzGerald that part of the problem—only part now, not all the problem—has been that we have had to refer forward to certain other sections, sections we have not reached, and, in regard to some of them, Deputy FitzGerald had tended to question the wording.

Mr. P. Belton

Only once.

Dr. FitzGerald

And I dropped it immediately when the point was made.

Mr. P. Belton

There is no proper explanatory memorandum; that is what is wrong.

Mr. Tully

And, for the Minister's information, there are 30 consequential amendments out of the 100, so it is still a very substantial number.

Dr. FitzGerald

Will the Minister look at the question of some procedure which will give us a better briefing and avoid wasting the time of the House?

Mr. Colley

Yes. Part of the problem has been—I do not want to be critical about this—to talk about some of the basic sections in the Bill which involves going to later parts of the Bill and getting a picture of how certain things will be handled. We have run into some difficulties because we are talking about things to which certain conditions in later sections apply while we have not, in fact, reached these sections. Indeed, I think some Deputies were not aware of these sections.

Mr. Tully

Possibly the numbering of the sections could have something to do with that.

Mr. Colley

No, I do not think so.

Mr. P. Belton

Deputy FitzGerald asked for a better explanatory memorandum. Three or four years ago the Minister for Finance promised that we would get better explanatory matter; because finance is so involved and technical one almost needs a barrister to read the Bill to find out what is in it. What has been thrown at us now is a repetition of what is in the Green Print. There is nothing explanatory.

Dr. FitzGerald

Would the Minister consider referring it to a committee, as was done with Bills like the Companies Bill, the Army Bill, the Income Tax Bill——

Mr. Tully

And, I think, the Fisheries Bill.

Dr. FitzGerald

There would be greater informality and the Bill would then take up less time in the House. It is worth considering as compared with inadequate briefing. That might help to speed things up. We want to get out of here before 1st November next.

Mr. Colley

I will give consideration to that. There are difficulties involved, but I shall certainly consider it.

Dr. FitzGerald

Very well.

Mr. Tully

Where does that leave us?

Amendment, by leave, withdrawn.

Dr. FitzGerald

I move amendment No. 18:

In page 6, subsection (1) (e), lines 5 to 7, to delete all words after "of section 34) of” and insert “of taxable goods delivered to him”.

This amendment is designed to make a bit clearer and simpler the provisions of subsection (1) (e). I am, of course, prepared to be told there are good reasons for the wording here and I put down the amendment partly to extract what the reasons are. I have, in fact, been told that there are some defects in the wording here, but I admit to not being entirely clear as of this moment as to what these defects are. It was suggested to me that my wording would be more comprehensive as well as being clearer.

The problem about this particular subsection is that it will be impossible to administer. If a man who is running a shop takes a pot of paint and paints part of the shop, will he have to account for this? Will every little transaction of that kind have to be accounted for? This seems to be what is suggested here and it does not seem feasible to administer something along those lines. There is room for confusion and the complexity of it and the trouble involved in dealing with quite small items goes beyond what is justified. It seems to me the words "of taxable goods delivered to him" are more comprehensive and clearer than the words used in the subsection. I should like to hear the Minister's reaction to that particular point before trying to develop my argument further. I find this also a rather difficult section to understand.

Mr. Colley

The purpose of subsection (1) (e) is to ensure that tax may be charged on goods which are converted to use in a business. This would be important where the business included exempted activities. In that case it would be necessary to deal not only with the goods which had been delivered to the taxpayer, but also, with the goods he had constructed, manufactured, produced or imported. Deputy FitzGerald's amendment would confine the adjustment to taxable goods which had been delivered to the taxpayer but would make no provision for the goods he had constructed, manufactured or produced himself. It would be too narrow.

On the question of the particular application or this—the tax becoming payable as a result of the application of the provision would be creditable, in full, against the tax on the traders' receipts where the business is not an exempt business. For example, a manufacturer of washing machines, who also engaged in hiring them, would not be taxed on those machines which he withdrew from his normal stock for hiring purposes since the tax payable would rank for full credit against the tax payable on his hiring receipts. I do not anticipate that there will be any real difficulty of a practical kind here but, if we do not make the kind of provision we have here, where a business is engaged to a substantial degree in both exempt and non-exempt activities, then in the absence of this kind of provision, there could not alone be confusion but considerable evasion.

An Leas-Cheann Comhairle

Is the Deputy withdrawing the amendment?

Dr. FitzGerald

I will withdraw it for the moment. I am still not clear that I understand the issues involved and I may come back with something similar on Report Stage.

Amendment, by leave, withdrawn.

Section agreed to.

Mr. Tully

May I say that the inordinate length of the sections is something else that makes it rather difficult to deal with such complex items.

SECTION 4.

Mr. Colley

I move amendment No. 19:

In page 7, subsection (1), line 8, before "development" to insert "delivery or".

This amendment is designed to ensure that a person who received a tax credit for tax invoiced to him on the purchase of premises—for example, a shop or a warehouse—will be accountable for tax on the sale of the premises even if he carried out no development himself.

An example of the operation of the amendment would be as follows: A is a builder. He builds a shop and sells it to B, a trader, for £10,000. On the assumption that the shop was built after the commencement of VAT, A will invoice B as follows: cost of shop, £10,000; VAT, £6,000 at 5.26 per cent—this is the 60 per cent to which we referred earlier—amounting to £315. That is a total of £10,315. B would be entitled to tax credit against his own VAT liability in respect of the £315 suffered on purchase of the shop. If he subsequently sells the shop, whether or not he carries out any development himself, he will be taxable on the selling price. The effect of the amendment is to ensure that in such circumstances the person who has received this tax credit will be accountable for the tax on the sale of the premises subsequently by him, even if he himself carried out no development.

Mr. P. Belton

If the builder invoices it to the purchaser, he can use that £315 in the business. When he sells the premises the second time— suppose the price is £10,000 again; it would be more, as a result of inflation —he sells it for £10,315. Surely that £315 will carry on to the next purchaser.

Mr. Colley

If we assume the price £10,000, as the Deputy says, £315 will be payable.

Mr. Tully

Provided the price was £10,000, but it could be more or less than that.

Mr. Colley

Yes, it could be.

Mr. P. Belton

If it were £20,000 he would have to pay £630 and that £630 would be carried on to C and he could use it again?

Mr. Colley

That is right.

Mr. P. Belton

In other words, there is a carry-over of the percentage through all sales?

Mr. Colley

Yes.

Mr. Tully

Until it is bought by somebody who is not registered.

Amendment put and agreed to.

Mr. Colley

I move amendment No. 20:

In page 7, subsection (2), line 15, after "Subject to" to insert "section 2 (2),".

This amendment is necessary to ensure that the special provisions of section 4 (2) in regard to immovable goods will not have the effect of preventing the ordinary rules from applying whereby tax will apply to cash received by builders who have elected to be taxable on the cash basis. Some doubt has been expressed as to whether the section as drafted would achieve this effect. The amendment is designed to clarify this position.

Mr. P. Belton

What exactly does that mean—that you will catch the person who is paid cash for a job?

Mr. Colley

No. The builder has the option of becoming liable to VAT on the basis of cash received or on the basis of invoiced sales. I am not sure of the wording in relation to the builder but the ordinary trader has the option of paying on the basis of cash received or on the basis of invoices sent out. If, in fact, he opts to go on the basis of the cash received there is some doubt as to whether the ordinary rules applying to VAT would operate in that case. This is designed to remove that doubt and make it clear that the ordinary rules as set out here will apply in the case of a builder who has opted for a cash receipts basis of accounting.

Mr. P. Belton

Cash receipts against invoices.

Mr. Colley

Yes.

Mr. P. Belton

I do not really follow. In other words, he can either pay on the cash he gets in or on the bills he sends out.

Mr. Colley

Yes.

Mr. P. Belton

Surely he would prefer to pay on the bills he sends out. He might not be paid on some of them at all.

Mr. Colley

It varies for different people.

Mr. P. Belton

He might not be paid. Some time in your life you will get a bad debt. Why not pay on cash received?

Mr. Colley

I think he would be able to claim in respect of the bad debts whichever system he was under.

Mr. Tully

Why should he pay in order to draw it back out again?

Amendment put and agreed to.

Dr. FitzGerald

I move amendment No. 21:

In page 7, to delete subsection (3), lines 21 to 38.

The problem here is that the effect of this section as drafted, and particularly with the inclusion of this subsection, appears to be to get around and invalidate the effect of the exemption of lettings—I hope exemption is the right word there—under the First Schedule. The onerous character of the obligation imposed, particularly by this subsection relating to the disposal of interests in property would be such that where interests are disposed of by somebody—I think it was an accountable person with over £1,800 per year coming in from these activities; I hope I am right in that—is such that he will be forced, in fact, in order to minimise his tax liability to opt to pay tax on the lettings. As I understand it, this in fact will reintroduce VAT on lettings on an extensive scale very much against the public interest and very much against the intentions of the Bill and its First Schedule. That is the advice I have had in the matter and I have been told it is very important to deal with this matter and ensure this does not happen. I am advised that this back-door method of forcing people to opt to pay VAT on rents would push up rents and that this should not be done. I am open to correction if I have misunderstood the position but that is the advice I have and I should like to hear the Minister on this before I try to develop the argument.

Mr. Colley

I do not quite follow. What is it that the Deputy has been advised would force people to do this?

Dr. FitzGerald

On the provisions here, if any person has an interest in land to which this section applies, and surrenders possession of the land— which he does by letting it or by allowing people into it on terms; it may involve a leasehold or a letting— and if the transaction is not caught by section 4 (2), then the person surrendering possession is deemed to have made appropriation of goods for a non-business use under section 3 (1) (f) and thereby to be liable for tax at such rate or level that he would be forced, in order to minimise his tax liability, to opt rather to pay tax on the rents. This introduces a tax on rents through a back-door. That has been put to me as the problem. I would not claim fully to understand it but that is what has been suggested to me as being the effect of the subsection and that is why I put down the amendment. The Minister may be able to clarify whether I am well advised on this point or not.

Mr. Colley

I do not think there is a basis for the suggestion that has been made to Deputy FitzGerald. Subsection (3) here deals with the situation in which a person who has developed property, after the commencement of the tax, or has received a tax credit in respect of the development on the purchase, subsequently surrenders possession of it—for example, by a short term letting—in such circumstances he is not regarded as making a taxable delivery to another person. In these circumstances he will be deemed to have made a self-delivery. However, paragraph (b) of the subsection provides that a self-delivery is not regarded as taking place if the owner parts with possession in circumstances in which full credit could be claimed for any tax chargeable. The reason for this subsection (3) is to ensure equal treatment or neutrality in the operation of the tax. A builder who constructs property for letting would be charged to tax when he surrenders possession of the property (say by letting) and he will thus be put in the same position as a property owner who has the property constructed for him for the purpose of letting. They will each be put in the same position.

Dr. FitzGerald

This means that he has to pay tax on the full value of the property because he lets it to somebody although he has not relinquished ownership of it. Anybody faced with having to pay tax on the full value of the property is not going to do that but will pass it on to the tenant by putting it on to the rents. This will push up rents. That is what is so undesirable. It is precisely what I am trying to avoid. Obviously, the problem arises from the surrender of possession. The fact that that is interpreted to mean the letting of the property is precisely what creates the problem. If a man sells property, then, of course, he should have to pay the tax but if he is merely letting it, as the First Schedule of the Bill exempts lettings, it is undesirable to reintroduce it here, through this back door, by forcing a man to opt to pay tax on the letting because the alternative is to pay tax on the entire value of the premises, which he cannot do.

Mr. Colley

That would be the 3 per cent tax that we talked about earlier. It amounts to about 3.1. It would be on 60 per cent at 5.26.

Dr. FitzGerald

Obviously he will not opt to pay that if instead he can put it on to the rent and recover from the tenant. This means that he will naturally opt for that alternative and you are pushing up rents, which is precisely what the First Schedule is designed to avoid. It seems to me a most undesirable provision for that reason, if I understand it correctly. It is only when the property is sold that this should arise, not when it is let. It is a mistake to try to reintroduce lettings here.

Mr. Colley

The object is to try to ensure equality of treatment for different people who are letting property because a person who is a registered trader and who builds property suffers a tax on the inputs and then claims credit for them against his normal trading tax liability. If he had this property and he let it, he would have had it tax free if subsection (3) were not to apply.

Dr. FitzGerald

Because he has not disposed of it, yes.

Mr. Tully

In fact, he pays no tax.

Dr. FitzGerald

What do you want him to pay tax for and to push up the rent?

Mr. Tully

But somebody else does. Let the Minister go on.

Mr. Colley

That is the point I am at. Somebody else has to.

Dr. FitzGerald

Who does?

Mr. Colley

An ordinary landlord.

Dr. FitzGerald

An ordinary landlord would be registered, presumably.

Mr. Colley

No, he would not.

Mr. P. Belton

Supposing somebody bought it from a builder he would pay 3 per cent on the sale, which he can claim back against his rent.

Mr. Colley

No, not against the rent. If he is a registered trader he can claim it against his normal liability for valueadded tax on foot of his trading operations, but rents are exempt from VAT, so that he would not be able to claim against that. A claim would not lie because there would not be tax on it.

Mr. Tully

But if he is not a normal trader, not registered, he is then liable for it.

Mr. Colley

If he is a normal landlord, as we understand the term.

Mr. Tully

The Minister said that what he was trying to do was to put all types that would be letting on the one basis. How does he put them on the one basis by agreeing that one set can in fact get a refund of the tax and the other set have no way of getting that relief?

Mr. Colley

That is what we are trying to do in the subsection. We are trying to avoid that difference between them.

Mr. P. Belton

But that is at the higher level, not at the lower level.

Mr. Colley

I do not follow that.

Mr. P. Belton

The builder who does it is paying 3 per cent extra to bring it up to the other person. Is that right?

Mr. Colley

I do not follow what Deputy Belton's point is.

Mr. P. Belton

A builder builds a premises. He puts on 3 per cent. He can claim 3 per cent back from the Revenue Commissioners for the 3 per cent he has paid on the building. Are we not upping the charge on him, the registered builder, rather than on the normal landlord? It is not at the same level as the normal landlord.

Mr. Colley

I am sorry. I cannot follow the Deputy's point.

Mr. P. Belton

I am getting rather involved in it myself.

Dr. FitzGerald

I am still unhappy about this because the effect is that the man who builds for letting—and we need that kind of economic activity here at the moment—is put in a position where he will be forced, in fact, in order to avoid paying a tax on the capital value, to opt to pay tax on the letting and to put it on to the rent. The purpose of the Bill is to exempt rent, not to push up the amount to be paid. I cannot see the value of this proposal in the circumstances. The talk of neutrality is all very well but neutrality which is hostile to people renting property and which pushes up rents is a kind of neutrality that we do not want. I am wondering whether in fact the answer is not to zero rate rents rather than to raise them. It may be that some difficulties are arising from the fact that rents are exempt and that you cannot recover the tax paid on the construction of the building. That is an area of complexity that I do not want to pursue at this moment. Would the Minister look at this again and see whether there is some validity in the point I am making and whether the provision can be so reconstructed as to avoid doing anything which will encourage people to opt to pay the tax on rents, thereby pushing up rents?

Mr. Colley

Yes, I will certainly undertake to do that. If that were in fact the effect of it, I would be equally as unhappy as the Deputy.

Mr. Tully

It does appear to me to be the effect. I agree with Deputy FitzGerald.

Amendment, by leave, withdrawn.

Mr. Colley

I move amendment No. 22.

In page 8, subsection (6), lines 11 and 12 to delete "1st day of March, 1972," and to substitute "specified day".

Amendment agreed to.

Question proposed: "That section 4, as amended, stand part of the Bill."

Progress reported; Committee to sit again.