Amendments Nos. 1 and 2 are related and can be discussed together.
Value-added Tax Bill, 1971: Report Stage.
I move amendment No. 1:
In page 3, to delete lines 21 and 22 and to substitute the following: "‘body of persons' means any body politic, corporate, or collegiate, and any company, partnership, fraternity, fellowship and society of persons, whether corporate or not corporate;"
The House may recall that the definition here was amended in Committee. That amended definition was criticised during the debate on Committee Stage as being complicated and confusing. It was suggested that it would be better to set out the definition in full. I am endeavouring to do this here. The amended definition is that contained in section 1 of the Income Tax Act of 1967 with the addition of the word "partnership" after "company".
This amendment seems to clarify the position in this regard and, therefore, I withdraw my amendment.
Amendment agreed to.
Amendment No. 2 not moved.
I move amendment No. 3:
In page 3, line 33, after "extension" to insert "material".
In the discussion on Committee Stage I was proposing that there should be a modification of the word "alteration" because an alteration can be something relatively unimportant. It can involve very little work. Certainly it could be something that could not be described reasonably as being a development. At the time the Minister suggested that my amendment was not phrased happily and there was some suggestion that the phrase "material alteration" would improve the matter. The phrase "materially altered" is used in subsection (b) of this particular definition. Therefore, I propose that the definition should read
"development", in relation to any land, means—
(a) the construction, demolition, extension, material alteration or reconstruction of any building on the land or...
This is necessary because I do not think it is the intention that if somebody makes a minor alteration, possibly inside a house which involves, perhaps, putting in a different type of window or changing a door, that should represent a development. It is clear that some restriction is required on the word "alteration" to make it unnecessary for the Revenue Commissioners to insist that any change in the house is development and to enable them to tolerate as not being development modifications inside the house which are not of material importance. Perhaps the Minister will agree that this amendment will help in this respect.
The definition here reproduces exactly the definition of "development" in section 16 of the Finance (Miscellaneous Provisions) Act, 1968, in regard to income tax. A development which is not material would be ruled out by the general rule of law which provides that de minimis non curat lex.
Are the Revenue Commissioners sufficiently "lex” for that purpose?
They must observe the law like anybody else.
We have had the experience that they "curat” very small things.
In these circumstances the amendment would not assist in clarifying the definition. Indeed, if it were to be inserted at all, it would be more appropriate that it ought qualify "extension" also. It is true that the word "materially" is used in paragraph 3 but it may well be true that its use there is superfluous, at least it qualifies only the single phrase "altered-use". In general my attitude to this amendment is that while it is aimed at clarifying the position it does not do so. Therefore, since it does not help, I do not propose to accept it.
I wonder if the Minister is correct in that? It is all right to say that de minimis non curat lex is a sound legal principle but as I understand it, when the Revenue Commissioners are collecting tax they do not ignore a sum because it is less than, say, £5. They are required to collect any sum that is outstanding. The principle which may be applied by the courts is one that cannot be applied by the Revenue Commissioners. Therefore, I do not see how it is relevant here when we are talking of a law to be applied by the Revenue Commissioners. I suppose somebody could appeal to the courts and the courts might reverse the ruling of the Revenue Commissioners on a particular point but we are concerned here with devising the law in such a way as to facilitate its operation by the Revenue Commissioners. If it is necessary to talk of “materially altered use” it is logical that the alteration which gives rise to that should also have to be a material alteration. If I understood the Minister correctly, he seemed worried lest my use of the adjective “material” might be held to govern the word “reconstruction” as well as the word “alteration”. If that is his concern it seems to me to be a rather poor point.
He made the point that at least under (b) the word "materially" only doubles the one phrase "altered use". The implication seems to be that in the other case it might double the second as well as the first words. I cannot feel that it would do any harm if a reconstruction had to be material to be recognised as a development. If the Minister feels he has a point one could alter the order of words to say "reconstruction or material alteration of any building". It might be a more logical order of words in the circumstances. "Construction", "demolition" and "extension" are all fairly substantial activities, as is "reconstruction". It is "alteration" which gives rise to the difficulty. And it would be more logical to put it at the end and to be preceded by the word "material". I wonder if the Minister, on reflection, would consider that it would be a worthwhile change to accept, if necessary, changing the order of words to meet what may have been his point.
I take it I am not allowed to speak again?
That is correct.
Surely the Minister is allowed to indicate if he accepts the proposal? He could nod his head, I take it. He has not done that.
Is the amendment then being withdrawn?
If the Minister does not like it, I withdraw it.
Amendment, by leave, withdrawn.
If Deputies agree amendments Nos. 27 and 33 may be discussed with amendment No. 4 to which they seem to be related.
I move amendment No. 4:
In page 4, to delete lines 20 and 21. This was discussed on Committee Stage and out of the discussion there emerged from the Minister, I think, an indication that he might consider the definition of the word "manufacturer" for special purposes in this Bill by actually using the words "making or assembling" as they only arose at one or two points. I think he said they arose at only two points in the Bill. I can only find them at two points. I looked where he said and found them there, both relating to the Fourth Schedule. In view of the fact that the nett number of words in the Bill will not be materially altered by using "making or assembling" for "manufacturer" and as he conceded on Committee Stage there could be some merit in avoiding a definition of the word "manufacturer" here which is more narrow and restrictive than the normal meaning of the word, I had hoped he would come forward with an amendment. On the assumption that he has overlooked it, hopefully, and with a view to helping him I put it down myself as it seemed to be in tune with the general spirit of the debate on Committee Stage and in line with what he was then thinking he might do.
The word "manufacturer" appears three times in the Bill——
The Minister misled me.
——in sections 12, 15 and 27. I appreciate Deputy FitzGerald's concern to be of assistance but it may be somewhat misdirected. Because of its appearance in three sections it was considered desirable to have the definition which is included in section 1. It is given a restrictive meaning so as to ensure that only those persons who make or assemble goods of a kind specified in the Fourth Schedule, such as motor cars, radios, television sets, et cetera, would be accountable for tax at the 30.26 rate. I do not think it would be appropriate if a person who carried out some subsidiary process, such as painting or polishing work, were to be regarded as a manufacturer and be liable at the 30.26 per cent rate. For these reasons I do not propose to accept the amendment.
I may not have paid sufficient attention but I did not understand the Minister to give reasons for not accepting the amendment. He seemed to give reasons for defining "manufacturer" in this way in the Bill, for having to limit the concept of "manufacturer" in the Bill in this way, but I do not think he gave reasons, if I heard him correctly, for doing it by definition rather than by using the words of the definition in what we now understand to be the three places in which it arises. Surely the Minister will agree that in the absence of any reason for proceeding by this method in the definition section the other procedure of saying what we mean at the particular points instead of importing a definition of "manufacturer" into the Bill which does not correspond with the normal usage of the word or with usage in other legislation, would be a better procedure. I would urge the Minister in the absence of any reason for doing otherwise to accept my amendment.
Amendment, by leave, withdrawn.
We are not getting very far.
I think we are going ahead well.
I shall give the Minister another chance.
As amendment No. 7 is related to amendment No. 5 they may be discussed together.
I move amendment No. 5:
In page 4, after line 43, to add "provided that this day shall not be earlier than 1st March, 1973".
This raises the whole question of the date of introduction of this new tax. Even since our debate on Committee Stage I have had further representations on this point. It is evident that 1st November is a singularly unfortunate date to choose as there seems to be almost universal opposition to it. From the point of view of the people concerned in industry any date after Christmas becomes acceptable from the point of view of the level of stocks although it does seem desirable to leave more time for people to become accustomed to the new concept in the Bill and educate them into it. The Minister said in the Special Committee that if 1st November were not to be the date it would have to be 1st March. I do not recall the reason he gave, if he gave one.
Let me say at this point that we are in considerable difficulty because, although I asked at the very outset of the Special Committee that steps be taken that the reports of that committee would be available promptly they have not become available promptly. I received this morning the report of session No. 5 which occurred a fortnight ago. I have not yet received reports of certain sessions of the Special Committee. It is very difficult, in fact, impossible, properly to amend this Bill on Report Stage if one has no record of what was said and agreed in the Special Committee. It puts a very great onus on Deputies if in a Special Committee they must not merely argue their points but must also make a record simultaneously for their own purposes of what the Minister said in reply so that they can act appropriately in putting down amendments for the Report Stage. If we are to have Special Committees or any committees of the House operating successfully we must overcome this problem. The Minister is the Minister responsible. I urge him to consider this matter further. In this House we operate under an extraordinary constraint, which I personally regard as intolerable, in that the House has no power to order its own affairs but that the provision of staff or equipment of any kind must be authorised by the Minister for Finance. That a parliament should be in the undignified position of being incapable of making provision for its own efficient operation and that a Government Minister has power to veto that seems to be contrary to the very principle of parliamentary democracy. So long as that system exists——
What are we discussing at the moment?
I am making the point that I am in difficulties in not having the report.
The Deputy has made the point that the reports of the last meeting are not before the House. That is a valid point but we cannot discuss the whole matter now.
We are now proceeding to discuss the principle of Ministerial responsibility in relation to Parliament.
I am prepared to move away from that point which is a very practical point, but that is the position. The Minister has a special duty to ensure that the system operates efficiently. We have been put in an impossible position by not knowing——
The fact is that the Minister has no special duty. This Parliament abrogated its right years ago. The Deputy should get it straight. This Parliament abrogated its right to the Minister for Finance. He has no special duty.
If the Parliament abrogated its right in favour of the Minister for Finance then, by definition, the Minister for Finance should have the duty——
We are discussing amendment No. 5.
What duty has he?
The duty to look after the needs of this House.
It does not arise on this amendment.
If at any stage our amendments seem to be inadequately phrased and if they do not arise properly or effectively out of the proceedings of the Special Committee I think the Chair will understand the reasons for that.
On this point of 1st March, while I am not clear on the precise reason the Minister gave for this he seemed to feel that if it were not done on 1st November it would have to be postponed to 1st March. The case for such a postponement is very strong. It is clear from the work which was done on this Bill that in this House itself we have difficulties in coming to grips fully with this new system of taxation though we have a special function in the matter, a special duty to be familiar with it and a special opportunity to be familiar with it. Yet we found it extremely difficult. The Minister himself frequently throughout this debate has had to consult with his officials to explain complex points. I do not fault him on that. I am sure that if I were in the same position I would have to engage in a similar process of consultation. The fact that there is so much in it which is difficult to understand, even for the Minister or the spokesmen—I speak for myself——
What has this got to do with the amendment?
This has nothing to do with the amendment.
It is completely out of order.
I am arguing for the need to give more time for people to be educated in the workings of this Bill.
The Deputy would have plenty of time to argue that case on other amendments. He cannot argue it on this one.
Are we on the same amendment?
We are on amendment No. 5.
What the Deputy has been arguing about has nothing to do with this amendment. Perhaps the Deputy would sit down and think for a moment.
Perhaps the Deputy would sit down and stay quiet.
I will not sit down and stay quiet. I want a ruling on this. Is the Deputy in order?
I would ask the Deputy to come back to amendment No. 5.
Quite right. I hope you will implement your ruling.
I am arguing, as cogently as is in my power, that we need an extension of the date because of the difficulties of understanding the workings of this Bill. If in this House we have difficulty it will be necessary for the retail and wholesale trade and manufacturers to have a longer period to consider it. I cannot imagine any argument more ad rem than that. Deputy O'Donovan should have the wit to see that.
There are three months and if three months is not long enough——
If Deputy O'Donovan is opposing Deputy Tully's amendment, he should say so.
If Deputy FitzGerald would make his case and sit down I would be allowed to make my case for the amendment. It does not look as if I will be allowed to do that for a long time.
And then we can hear Deputy O'Donovan opposing the amendment.
The Deputy can be as smart as he likes.
Deputy O'Donovan is arguing that three months is enough and that we do not need the 1st March. If that is not an argument against Deputy Tully's amendment I do not understand Deputy O'Donovan's language.
A Cheann Comhairle——
The Deputy has already spoken. We are on Report Stage.
I have made representations that this argument is not in order.
I submit that despite Deputy O'Donovan's contention that three months is enough, which he has made in his brief speech——
I made no speech on this amendment.
When the Deputy argues that three months is enough that can hardly be a point of order. It sounds to me more like a speech on the amendment. The Ceann Comhairle will rule eventually as to whether Deputy O'Donovan has or has not spoken.
I think if Deputy FitzGerald would stop trying to make debating points we would get further. This is the Parliament and——
The debating points started on my right.
Well, let us not pursue them.
The need for a period of education is evident.
The Deputy requires education.
Any of us who have been dealing with the retail and wholesale trades people and manufacturers recognise the work they have done on the Bill. The people who are expert on it and are concerned with it in these organisations have a grasp of the problems involved. For that grasp to percolate to all the people in these sectors will take time. I had not appreciated when we began to consider this matter just how complex the Bill was. Until I studied it myself I had the rather naïve view that this did not involve any very radical change in the system of taxation and that, therefore, it was something that should not be too difficult to implement. It is only in coming to grips with it that I have realised how difficult it will be for people in the different sectors of trade and in every walk of life to grasp the method of operation and to adjust their working to it.
One feature of this legislation is the way it shifts the liquidity position between different stages of the trade. There is a significant shift occurring between the retail trade and wholesalers and manufacturers. From the manufacturers viewpoint the period of liquidity is affected adversely by some weeks, whereas on the retailer's side there is a beneficial effect. It seems that the wholesalers, retailers and manufacturers will have to put considerable work into an adjustment in their credit arrangements to ensure that the shift in the liquidity position of these different sectors does not operate detrimentally. There will be a strong case for manufacturers to make for shortening the period of credit to retailers so that they are not put in a disadvantageous position and that retailers do not have a net gain in their credit period which they do not really need and which would be unfair to manufacturers. The negotiations involved in arranging even that would be quite prolonged and that is only one point in the Bill. When you come to the technical operation of the Bill, the question of invoicing, the question of what is and what is not covered, the technical points dealing with things like immovable property, it will take a lot of teasing out. It will not be practicable for all this work to be done in time for a 1st November implementation. Decimalisation is child's play compared with this Bill and yet a very prolonged campaign was undertaken before it was introduced.
I put down this amendment and Deputy Tully has a very similar one. The only difference is that mine makes it possible for the Minister to determine an even later date than 1st March. Deputy Tully's amendment suggests 1st March as a fixed date. I would accept Deputy Tully's amendment instead of mine. I notice, by the way, that it is seconded by Deputy O'Donovan so I look forward to hearing him on this.
It is about time the Deputy noticed that.
It was not clear from Deputy O'Donovan's intervention.
If the Deputy would just stop talking it would be all right.
Deputy O'Donovan's desire to silence the Opposition in this House was noticed on previous occasions but he has not yet succeeded and he will not succeed today either.
The Minister should give consideration to one or other of these amendments or, alternatively, assure the House that he is not proposing to proceed with 1st November date which is quite unrealistic from the educational point of view and from the point of view of the stock position of firms it would impose an unfair burden on them. He has had representations on this and he should have regard to them.
We in the Labour Party are opposed to the Value-Added Tax Bill, as it stands, in its entirety. The Minister is aware of this. If we cannot have the Bill thrown out, we would like to have reasonable amendments put in.
I, like Deputy FitzGerald, regret that the report of the special committee is not available. I regret it for the same reasons as he does and for one or two others. One is that at the beginning I got the impression that we should have had the Press present. The Press might not thank me for that but I was under the impression that we should have them present because we would then have reporting of what happened. The second reason is that since the press were not present reports did appear in the papers which were entirely contrary to what actually happened at the committee.
I do not see how this arises.
It does. Will the Ceann Comhairle bear with me for a moment and I will explain it? The impression was given that there were two people on the committee—the Minister and Deputy FitzGerald. Deputy FitzGerald's higher intelligence naturally put him on a plane far above everybody else. This was unfair not alone to those of our party and the Fianna Fáil Party who made constructive comments but also to his colleagues of Fine Gael, one of whom in particular made a comment which I thought was the best suggestion made at the committee meetings. For that reason it is terribly unfortunate that we should have been put in this position. Even when supplied statements were given about this and other matters, the statements referred to the fact that I confined my comments to taxes on school books.
The Deputy may not discuss this matter. Would the Deputy look at his amendment?
I am not in the habit of straying from amendments but I want to make this point. We debated at length the question of the date and Deputy O'Donovan and Deputy Collins and I put forward arguments very much in favour of a later date than the one suggested by the Minister. At one stage I thought the Minister was prepared to accept that he had made a mistake but he said: "We cannot have it on 1st January because of the two monthly period." Apart from other amendments it is impossible to introduce VAT on 1st November because it is within the Christmas period. It will be almost impossible for traders to regulate their trade in such a way that they can deal with their Christmas purchases and prices and introduce a new system at the same time. This will add considerably to the confusion and to the prices.
We will not be in the EEC until after 1st January. If Britain considers that it is time enough to introduce it several months later, why must our Minister rush it through? What is the compelling reason? I do not want to have a Committee Stage discussion on the Bill because that would mean it was a complete waste of time sending it to the special committee but because of what happened at that committee it is possible that we will have to elaborate on the amendments. We are not trying to be awkward but we think a later date would be in the interests of the people who will be selling the goods and those who will be buying them. I am quite sure the Minister has researched this matter and that he will repeat a number of the arguments which he used on Committee Stage. In spite of that, I appeal to him to change the date.
There is another reason. From 1st November to the end of the year people spend money rather foolishly. Coming into the Christmas period people buy things without counting the cost but when the Christmas period is over they count the cost. In the Christmas period there is a danger that people who want to raise prices, on the excuse that the VAT has increased prices, will use that argument and people will be robbed by some of those smart alecks. The prices will then have been established and on that basis next year's prices will be fixed. I appeal to the Minister to reconsider this matter because I believe he has made a mistake. I think 1st March is the earliest date he can hope to introduce VAT.
The people who are supposed to assist in familiarising the traders with VAT will find it absolutely impossible to do that, taking holidays into consideration and everything else, between the passing of this Bill and 1st November. The amendment we have put down is reasonable.
I am strongly in favour of this amendment. We will not be in the EEC until 1st January. One of the main arguments advanced at the special committee was that this was required by the EEC regulations, but we are not obliged to introduce this tax on 1st November. Some manufacturing firms, particularly some manufacturing pharmaceutical firms, have only now got their accounting systems into order for the turnover tax. It will be another three or four years before they put their accounting systems into order for this tax. As Deputy Tully said, we are dead against the change in the system. I believe that the EEC would raise no objection to our continuing with the present system which would comply with their taxation requirements.
In view of the Minister's attitude at the special committee I am inclined to think he will not accept this amendment. It has been argued that the Bill is so complex that people will not be able to understand it. The Bill was first introduced 18 months or two years ago.
There have been White Papers on a few occasions apart from the Bill itself.
There were two White Papers, not that they were not logically at odds with each other. However, I will let that go. The Minister would not lose any revenue worth talking about if he changed the date. I suspect that the real reason why he will not agree to 1st March is that he feels there will be a period when taxation receipts will not be coming in because people will not know how to handle the system. In any event, nobody pays tax until he has to. The Revenue Commissioners will be at their wits end to get the taxation in on a smooth basis. There will be a period of difficulty but, no matter when VAT is introduced, that period of difficulty will arise. It is inherent in the nature of its administration as anybody who has had anything to do with administration knows. This has nothing to do with the complexity of the Bill.
Perhaps the Minister and the Revenue Commissioners hope that if it is introduced on 1st November the necessary pressures will be on to get in their money in the last month of the financial year so that they can maintain their financial position. There will be grave administrative difficulties which will have nothing to do with whether the Bill comes into operation on 1st November or 1st March. There is no use in suggesting to any sensible person that you can change the system of taxation completely and get a new system to work smoothly in a week or two. Therefore. I believe the amendment is reasonable and that the Minister should accept it.
I support these two amendments. November 1st is not a suitable date. Wholesalers and retailers of consumable goods will be in the middle of stocking up for the Christmas period and, therefore, it will be very difficult for them to change from one taxation system to another in that period. A date after Christmas would be more suitable. I would prefer if the introduction of this tax could be put off until the beginning of the next financial year, that is, April 1st. It has been said that it must be introduced in an odd month but that would not arise if it were changed to a three monthly period. I do not see any unsurmountable objection to that.
I am satisfied that traders, retailers and wholesalers, especially, are not au fait with the proposals in this Bill; they are not familiar with the documentation they will require to have under this tax system; they are not familiar with the returns they will have to make or the records they will have to keep in order to satisfy the Revenue Commissioners. Therefore, the Revenue Commissioners must start immediately a campaign directed at the retailers, wholesalers and manufacturers in order to explain to them what must be done. That has not been done. There may have been White Papers but White Papers are not always read. The Revenue Commissioners must immediately set about providing information to the retailers, wholesalers and manufacturers. This is of vital importance if the value-added tax system is to succeed.
I do not know why the Minister insists on 1st November. It is a wrong date. A date after Christmas would be much more helpful to retailers, wholesalers and manufacturers and, indeed, to the consumers.
Deputy Tully has referred, quite rightly, to a possible price increase due to the value-added tax system. I agree with him. There will be a price increase when this system comes into operation. This was our experience when the turnover tax was introduced and when decimalisation was introduced.
The turnover tax was an increase in tax—a new tax imposed.
There was an increase in prices in excess of what was justified.
I am afraid Deputy FitzGerald does not agree with Deputy Collins.
Deputy Collins is quite right and everybody knows he is right.
What I say is reasonable. I am not arguing with Deputy FitzGerald. I am giving my own point of view, as I am entitled to.
Hear, hear.
There was an unnecessary price increase on conversion to decimalisation. I do not think anybody will dispute that. There was a "con" job done at retail level.
On both occasions.
It affected poor persons especially. I remember saying in this House that poor persons would not understand the new penny. They did not understand it and they still do not. They equate the old penny with the new penny. The consumer price level has increased to an amazing extent in the last year or so. There will be a tremendous, unnecessary and unjustifiable price increase when the value-added tax comes into effect. This statement will be justified when the day comes.
The National Prices Committee must be very careful in this period to ensure that this price increase is kept to a minimum. I reassert that the date suggested by the Minister is a wrong date; the date should be a post-Christmas date.
I do not propose to follow Deputy FitzGerald into the realm of facilities for reporting in this House because, clearly, that would be out of order. However, since he did try to develop at some length a point in that regard, it is only fair that I should point out that, in fact, this question of the date was discussed in this House and a report of the discussion is available. I want Deputy FitzGerald to hear this.
Sorry.
The discussion on this point was in this House and is available in the reports of this House. It is really not good enough to have the kind of case made that we heard from Deputy FitzGerald—whether it was relevant or irrelevant, it is not based on the facts—that the reports on this matter were not available. In fact, the reports are available and have been available since shortly after the discussion in this House. I shall not pursue that because it would appear not to be relevant but I do think I am entitled to make that reply to Deputy FitzGerald.
The Deputy was thinking of the Minister's new thinking on it.
Was he thinking? I want to make it clear, first, that in my view there appears to be a misunderstanding about this in so far as there is comparison between the educational programme involved in relation to decimalisation, for instance. The educational programme that is involved in regard to value-added tax has to be directed at retailers, wholesalers and manufacturers but not at the public. As far as the public are concerned the changeover to value-added tax does not make any difference to how they go about their shopping. There is a completely different situation involved here. The main reason—we will be coming to this point later—I have insisted on adhering to these apparently odd rates of tax has been precisely to ensure as far as is humanly possible that the incidence of taxation is precisely the same before and after value-added tax; so that the public are not involved as far as the changeover is concerned. They are not involved in such a way that they have to be educated on how the tax works. The rates of tax will be the same. What are involved are traders, retailers, wholesalers, manufacturers.
As far as they are concerned, there have been two White Papers on this matter. As Deputy O'Donovan has pointed out, the Bill has been around for quite a long time and, of course, there have been communications from the Revenue Commissioners; there have been meetings with the Revenue Commissioners, not just the normal meetings but regional meetings of retailers where representatives of the Revenue Commissioners attended and answered questions, produced specimen forms, and so on.
Furthermore, the proposed date of introduction of this tax has already been postponed on, I think, two occasions. So, nobody can say that the traders are being taken unawares in regard to the value-added tax. As Deputy O'Donovan said, there can be no disputing the fact that on the introduction of a system of taxation such as this there are bound to be teething troubles at the beginning. It does not matter when it is introduced, this will happen. The Deputy is perfectly right when he says that.
On the basis proposed now in the Bill, the introduction of the tax as from 1st November would mean that, with the extended accounting period being provided for, the first accounting date will be 19th January, 1973. This period, together with the minimum preparatory three-months period which I have promised from the passing of the Bill to the operation of the tax, together with the operation of the advisory committee, representative of the various groups of traders, should go as far as anybody can go to smooth out the teething troubles which we know will arise. Therefore, by putting it back one is not avoiding those points at all. All one can do is to try to ensure that the machinery provided is as adequate as we can make it to get over those teething troubles which, as I say will occur whenever the tax is introduced.
It is true, of course, that there are people who, if they had their way, would never introduce the value-added tax and one must allow for this attitude. However, on the basis that we are going to have it, then the question of whether we should have it on the 1st of November or the 1st of March seems to me to boil down to questions, on the one hand, of whether it is unduly inconvenient for traders and, on the other, the effect as regards the Exchequer. I believe as far as traders are concerned, as I have indicated, with the long notice that has been given and the various steps that have been taken, which I have outlined, they will be no better off on next March than they will be next November as far as preparations are concerned.
What about stocks?
I also believe that the date of the 1st November is reasonable in relation to stocking up and problems that shopkeepers may have. If we were to go beyond that, there are two reasons why we would have to go to the 1st of March. The first is that we would be getting so close to the Christmas shopping season that it would be impossible for traders to operate this new system of taxation during that period. Secondly, with the two-monthly accounting period there is a fairly substantial loss of revenue unless we operate on the basis of odd months. The earliest date, taking these factors into account, one could have as an alternative to the 1st of November is the 1st of March.
There are some other things which should be borne in mind. Perhaps it may be that certain aspects of this have been lost sight of. I said in the past on a few occasions, and I am now saying it again, that if we were not going into the EEC we should still introduce the VAT because we require it urgently as a reform of the existing sales taxes. The structure of the present taxes was designed for a much lower set of rates than now obtains and the possibilities of evasion are much greater than they are under a VAT system of tax.
The Minister intends to get a lot more money.
No. That is not what I said. I am talking about the question of evasion. I dealt with this matter before in the House but a further postponement at this time would certainly lead to confusion among a lot of trade interests. I do not think Deputies have paid much attention to the fact that quite a number of traders—I am including here retailers, wholesalers and manufacturers —have been making preparations for this within their own businesses. They have been in consultation with their accountants. They have evolved the system by which they will operate it. Indeed, I had complaints, when I announced the last postponement, on the grounds that these people had been making these arrangements and that a further postponement was making life particularly difficult for them. There is that side of the coin as against those who have made no preparations. We know there are some people who have made no preparation.
There is the further point that the provisions of this Bill contain a number of reliefs. Firstly, there are reliefs for newspapers involved. Secondly, there are reliefs in respect of the sale of caravans and mobile homes. There are benefits for registered persons who under the VAT will be able to recover elements of tax which under the present system they cannot recover and are involved, therefore, in a form of double taxation. There is also substantial relief for most, if not all retailers in the way of additional liquidity.
It is being proposed in these amendments that all of these benefits be put back further and further. I think there is no doubt that, weighing up all the factors involved and recognising the fact that there are some people who, if they could, would ensure that the tax never came in, there is no worthwhile reason for going back from the 1st of November to the 1st of March other than that expressed by the person who would say: "Well, if I had my way I would never have it at all". I cannot accept that view and, that being so, it seems to me that the factors that arise as between the 1st of November and the 1st of March certainly do not add up to anything like a compelling case for a further postponement, whereas there are quite a number of cogent reasons why we should not postpone it from the 1st of November. For these reasons I do not propose to accept these amendments.
Would the Minister develop a little further his suggestion that a number of people were, in fact, not paid and that there will be a tightening up? If there is going to be a tightening up, would the Minister say if, in fact, he means by that that because there is a tightening up a lot more people will be brought into it, that a lot more revenue must accrue? Is that what the Minister is saying?
No, I have already dealt with this on a few occasions.
The Minister has but it does not coincide with what he is saying now.
If the Deputy will bear with me I will put it very briefly again. I am saying that the opportunities for evasion under VAT are far less than they are under the present system. I have also said that the Revenue Commissioners have advised me that despite this they do not believe that there will be substantial additional revenue as a result because there is the difficulty that where there is evasion it is very difficult to put a figure on it. If they are evading, by definition you do not know how much is being got away with.
I have also said that although that is the advice available to me I personally have a hunch that the effect of tightening up may be more substantial than the Revenue Commissioners estimate but nobody can be sure. I will say that, whether it is a relatively small amount or a relatively large amount, we have an obligation in this House to ensure that as far as we can we do not allow these people to get away with this kind of evasion. It is unfair to the vast majority of honest traders who are doing their duty under the existing sales taxes. One of the methods by which the sharp operators can be caught much more easily is by introducing the VAT system. That is an obligation not only to the honest traders but to all the taxpayers whose burden to that extent would be reduced if the loopholes are closed and people who are at present evading their liability for tax are caught under the VAT.
If many people who are evading are brought into the net, would it not follow that very substantial extra revenue in addition to the £3.7 million will accrue even though a figure cannot be put on it?
I am talking about the advice available to me and my own personal opinion. I think the Deputy may think it a most unusual approach for a Minister. I am being as honest as I can.
I accept it because I will agree with it.
To pursue that particular point I can accept that a reason for having the tax as soon as possible is to get hold of the evasion as soon as possible. One has to weigh the advantages and the disadvantages here and I can accept that there are people who will benefit through repayments. I think that the balance of advantage lies with the later date but I can see that the Minister has arguments on the other side and I can see it is a question of balancing advantages. When you weigh up the possible disadvantages of letting people get away with some evasion for an extra four months, the possible advantages for certain people of getting money back rather than paying money, against the disadvantages of a rushed job of introduction, of introducing it at a bad time of the year which poses problems for a vast number of people, manufacturers, wholesalers and retailers, the net advantage lies with a postponement. The Minister seems, in a speech today, to have hardened his attitude on this. As time goes on he seems to be more determined to bring it in on 1st November. Earlier on he seemed not to be quite so sure——
I think the Deputy is mistaken. Indeed, Deputy O'Donovan had a different impression, and I think Deputy O'Donovan's impression would be far more accurate.
That is entirely possible. I have the impression the Minister did not totally exclude the later date originally. Certainly to that extent his attitude seems to have hardened, but whether it is harder than it was, it is a hard attitude in the sense that there is no indication from what he said of any willingness to give in on this point. That is something we have to take into account in considering how to treat this amendment. Had the Minister indicated he still had the matter under review, that he was prepared to consider further representations, then the question of pressing this amendment might not have arisen, but in the light of the attitude he has taken we have no alternative but to press it.
On the question of evasion the Minister seemed to be saying to Deputy Tully in the end that the amount of money involved was quite small. Is it? I have been told the contrary. I was told very recently by a professional man, who would have more reason to know than I would, that he estimated the total additional revenue that would come in as a result of evasion being stopped would be about £6 million a year on about £90 million at the moment. I must say I thought the figure high and it may well be he was exaggerating somewhat, but certainly his experience in these matters is such as to convince me that there is a significant amount of evasion.
The Minister says we have an obligation to ensure that we do not allow people to get away with, I think he said, the non-payment of tax—I missed the last couple of words—that it is unfair to honest traders. If that is the Minister's attitude, could we have an assurance that that is the way taxation is being operated at present? I was approached some months ago by a trader who felt he was at a disadvantage because he was trading in goods which another large firm were selling at prices which seemed impossible if that firm were paying their tax. I found it hard to believe that a firm of the magnitude of the firm of whom he spoke could be evading taxation on that scale. Perhaps I should have pursued the matter further but pressure of other affairs led me not to pursue it because it just did not seem possible that the thing could have happened. I have since been informed that the firm in question have, in fact, been found to be evading tax. The sum involved is £300,000 and a State financial agency under the jurisdiction of the Minister made it a condition of helping this firm to survive that the Revenue Commissioners would not proceed against them. If there is that kind of conniving at an evasion of the law, how can we take seriously the Minister's statement about an obligation to ensure that we do not allow people to get away with non-payment of tax and about being unfair to honest traders? Perhaps the Minister would take some opportunity to ensure me that the information I was given was incorrect and I shall certainly accept his assurance. I think it is as well to air this allegation and have it disposed of once and for all.
It is a pity the Deputy did not air that at the beginning when I could have replied to it.
I am sorry. I did not advert to the question of evasion until later in the debate. Perhaps the Minister will be able to refer to it on the Fifth Stage of the Bill. I had no intention of preventing the Minister replying to it. It only occurred to me when Deputy Tully raised the point about evasion. I think the case we have made has not been rebutted by the Minister. He has not adverted to the problems that firms have. I have a letter here from a firm on the following basis:
We deliver goods for the Christmas trade in September, October and November. It is necessary to get these goods out early to avoid a desperate rush and it also helps to be "first in". Under the present system, of turnover and wholesale taxes, many of our customers are liable, and so they will not be anxious to buy goods on a large scale before November 1st, because if they do, they will have to count these goods in on stocktaking, work out the tax element on them and reclaim it on the transition to value-added tax.
We cannot overcome this reluctance to buy early by agreeing to charge for the goods in November because, (1) we are supposed to invoice within ten days of delivery, and (2) it would leave the retailer in a position where he could reclaim tax because he has the goods in stock on November 1st and later could take credit for the tax charged to him on a November invoice. It would be physically impossible for us to deliver all Christmas goods after November 1st and in time for Christmas displays.
I do not claim to have the knowledge to know whether there is some way round that firm's problem that they have not discovered, but they clearly have a problem. Another large chain in the retail trade, in the course of a submission on this subject—I think it has probably gone to the Minister also, but it is not clear on the face of it—says:
... the marking of individual products into their different tax categories will increase handling costs in the Cash and Carry warehouse. In addition, the check-out operator in the Cash and Carry will have to charge up separate sub-totals for goods into each tax category. The time involved in doing this will result in increased queuing time at the check-out point and thus less efficient use of labour. Our investigations show that the only efficient way of handling this situation is through the purchase of electronic equipment at the check-out point. A number of manufacturers are currently developing equipment to handle this problem (equipment which will not be available till 1973)...
Has the Minister gone into this? Is he satisfied that firms will be able to get the equipment in time for November 1st? If not, surely there is a case for postponing the tax. Surely he does not propose to introduce it when it is physically impossible for firms to get the equipment necessary to handle the tax. I am not satisfied the Minister has considered all these implications, or that he has considered adequately the representations made to him in this House and by the interests concerned. I still hope, despite what he has said here, that when he does consider the matter further he will take a different position.
I want finally to refer to the points made by Deputy Tully. There is some confusion here. Deputy Tully referred to statements made to the press and suggested they were in some way disadvantageous to the Labour Party, and, indeed, even to my colleagues in the Fine Gael Party. He could by definition be referring only to two statements because only two statements were made. I have examined both of these since he spoke. One of them was the statement which appeared in the Sunday papers and in The Irish Times on Monday which did not deal with anything but the Fine Gael proposals.
Because the Fine Gael proposal as such was originally a Labour Party proposal and the discussion took place in that, and the Fine Gael proposal was similar——
I have not made myself clear. When I say the Fine Gael proposals I mean the document which we produced and published in the newspapers last week. It is entirely a Fine Gael document setting out in detail exactly how we thought the tax might be raised, what the cost would be, with tabular statements at the end. I am saying the statement in last Sunday's paper to which I have referred related only to replying to the Minister's attack——
The poor innocent Deputy.
——on our proposals. I do not think that could be the document. The other document is this proposal which we issued, and it contains the following statement which I think must be what Deputy Tully is referring to. I want to assure him that far from intending in any way to reflect on the Labour Party, the drafting of it involved particular care. What it said was:
In the Value-Added Tax Committee of the Dáil which completed the Committee Stage of the Value-Added Tax Bill last week, Deputies Garret FitzGerald, Fine Fael spokesman on Finance, and Deputy James Tully, Labour spokesman on Finance, put forward amendments to eliminate tax on food, non-alcoholic drink, newspapers and books.
In fairness to Deputy Tully, however —this is not the quotation; I am interpolating.
Of course the Deputy is.
As Deputy Tully's amendment related only to school books and I did not wish to father on him a wider amendment which he had not put down, in brackets was put "Deputy Tully's amendment related to school books only". Had I not put that in I could have been accused of misrepresenting his position. The account goes on to refer to the case made by Fine Gael and Labour for the desirability of eliminating tax on these items, and at the end, far from not referring to my colleague——
Would Deputy FitzGerald come to the amendment?
It says "Deputy Tom O'Higgins, Deputy Collins——"
The Deputy may not quote extensively like that.
I thought Deputy Tully was referring to the previous leak by Deputy FitzGerald.
Of course that is what counts, and he is not going to be let off for his politically immoral behaviour.
(Interruptions.)
Deputy FitzGerald is concluding on his amendment.
I want to assure the House that in those statements I have insistently included Deputy Tully's amendment as well as my own and have not referred to the Fine Gael amendment without referring to the Labour Party amendment.
This has nothing to do with it. We all know what bad behaviour is.
I withdraw amendment No. 5 in favour of amendment No. 7.
Amendment, by leave, withdrawn.
I should like to point out that one of the problems in taking two amendments together is that there is the right of only one reply. We should take note of that and in future ask the Ceann Comhairle, if there are amendments from different parties, to take them separately.
That is important. I move amendment No. 6:
In page 4, lines 47 and 48, to delete all words after "period of" in line 47 and to insert "three months, beginning on the specified day, and at three monthly intervals thereafter, provided that a firm engaged wholly or partly in the export of goods and services may opt for a monthly taxable period".
This is required because, as I pointed out in Committee, the impact of the two-month period on manufacturers is to cut their liquidity period significantly. I have made some inquiries since and have been informed of a study carried out by the Federation of Irish Industry. The comparable period of credit extended by manufacturers, if I recall it correctly, is 11 weeks. On average, I think it is ten weeks but, of course, there would be longer and shorter periods in individual cases.
The period which the Bill provides is significantly shorter. If we take a two-month period, there remain 19 days to settle and if we take a midpoint of the two-month period we get an average of 50 days, that is 30 or 31 days in the second month plus the 19 days before settlement. In other words, the tax Bill has to be settled within a period which can range from about two months and 19 days, which is 80 days, down to a period of 19 or 20 days. The average of those two is about 50 days. Therefore, the average period required for settlement is 50 days, or seven weeks. But the average period of credit extended by manufacturers is ten weeks and in many instances and for particular trades it is 11 or 12 weeks and for individual firms in the building trade it is as long as 16 weeks. These are authoritative figures. Of course, individual trades are above and below ten weeks. That is how an average is arrived at.
Given that situation, the effect of the Bill will be to involve on average a three-week disadvantage for manufacturers in regard to liquidity, and for the Minister to say that this is offset by improved liquidity for retailers is not sufficient because, as I said earlier, though one would expect manufacturers to seek to negotiate some adjustment of credit periods, and they will need a good deal of time to do this, but it can be done easily, it may not be easy for manufacturers to persuade retailers to accept the significance of the change in their credit periods. Even to make a retailer understand that he will benefit in terms of liquidity because of VAT will itself be a difficult enough task, and judging by the time we spent on it in this House in the earlier parts of Committee Stage, and the utter confusion which all of us fell into in trying to understand what are the credit periods, one can hardly expect that every retailer in the country will be able easily to understand what this House and even the Minister have had such difficulty in comprehending.
The effect of this amendment would be first to substitute a general taxable period of three months except in the case of the people who are engaged wholly or partly in the export trade and who could opt for a taxable period of one month.
I forgot to mention that.
If a three-month taxable period were adopted, it would be necessary to commence on 1st March, 1st June, 1st September or 1st December because if this were not done there would be a once for all loss of £15 million in the first year. But even if the tax were to commence on one of those dates, there would be an additional once for all loss of £2 million as compared with the two-monthly taxable period, and a continuing annual interest loss of £750,000. The two-monthly taxable period which has been introduced by me by way of amendment is an effort to strike a reasonable balance between all the parties concerned.
Deputy FitzGerald has acknowledged that there is a question of balance involved and what we are trying to do is to strike the balance not only in regard to achieving equity for traders but also for the taxpayers, because the impact of this on the Exchequer is not an impact on the Minister for Finance but on every taxpayer in the country. It has an impact, perhaps, on people who because of their weak economic position are very much more dependent on the Exchequer than others.
All those factors have to be taken into account. It is my view, for reasons I have given in more detail in the past, that the taxable period of two months, having regard to all these factors, is a reasonable balance and I do not propose to extend it by accepting this amendment. The indications we have had are that the two-month period is acceptable to trade as a whole. Inevitably, as Deputy FitzGerald said when he was quoting the figures concerned, there will be people above and below the average. Therefore, whatever figure we strike will be unacceptable to some groups, but taking trade as a whole the indications to us are that the two-month period is acceptable. The great majority of exporters will have sufficient home sales to absorb the whole of their input tax so that regular repayment claims are not likely to arise, but in so far as the title to repayment is concerned, it could arise from causes other than exports. For instance, if there was heavy capital expenditure in a particular period you could have a claim for a refund or repayment arising from it.
I believe it would be virtually impossible to frame a provision which would prescribe a special accounting period for all the various circumstances in which the title to repayment would arise. I should, however, add that the Revenue Commissioners in exercising their functions under the care and management provisions will be prepared to accept the repayment claims at monthly intervals from taxpayers who can show that they will be entitled to repayment at the end of the taxable period. There is already a similar arrangement in operation for income tax in regard to claims for losses and that system is working satisfactorily. There does not seem to be any reason why the same system should not operate satisfactorily in regard to value-added tax so that, as far as that portion of the amendment is concerned, that will in fact be covered in the way I have indicated.
Could the Minister say what he claims the difference would be in the once-for-all two-monthly and three-monthly period and what would be the annual loss?
If I understand the Deputy aright—the figures I am about to give are annual figures—as between a two-monthly and a three-monthly taxable period, if the commencement date were any date other than 1st March, 1st June, 1st September or 1st December, there would be a once-for-all loss of £15 million in that year.
If it were one of those dates proposed by us what would the loss be?
It would be a once-for-all loss of £2 million and a continuing annual interest loss of £¾ million.
No matter what the dates were, £15 million and £2 million and £¾ million. Is that what the Minister means?
I am sorry. I do not have the exact figure, but the continuing loss in the event of the £15 million once-for-all would be bigger than the £¾ million that I mentioned.
So that, if the Minister finally decides on 1st March, it would be £2 million and £¾ million.
No. I may have confused the Deputy.
I am afraid the Minister has.
The £2 million once-for-all and the £¾ million annual loss is the loss which would arise if we worked on a three-monthly interval as against a two-monthly period, the three-monthly period commencing on one of the dates I have mentioned.
Could the Minister say what the loss is under the present system as distinct from the new system? What we are concerned with surely is whether this leaves the revenue in a better position than now. Quite clearly, this is the real question.
It does not seem to me that this is relevant at all.
It is the only relevant question.
Surely the amendment is in the context of a value-added tax system.
Yes, but it is still an interesting question.
It may be interesting, but it is surely not relevant.
The concept of loss is absurd because what the Minister is saying is he is going to take money off the manufacturers——
Deputies may not deal with this matter by way of question and answer. This is Report Stage.
When the Minister talks about a loss as between two months against three months, what he is saying is that the two months system is so unfairly devised as to penalise manufacturers for the benefit of the revenue to the tune of a significant sum; and, if you take three months system and do not penalise them, then the revenue are back where they started. To describe this as a loss is a use of words which seems to me somewhat specious
That is not true. I must put that on the record.
I did ask the Minister to say what the true position is.
Is the Deputy suggesting that under the proposal involved here £15 million will be taken——
No. I am talking of the Minister's reference to the fixing of the date on 1st March. On the basis of his £2 million and a continuing interest loss of £750,000, it seems to me that the order of magnitude of those figures is something that could easily correspond to £750,000, for example, and the result of shortening its liquidity by three weeks and by transferring that liquidity to the Exchequer means the Exchequer gets the benefit. That is taking money away from industry and giving the Exchequer the credit. To say then that, if you do not do that and you go to three months, there is a loss, it is a loss of something you never had.
Deputy FitzGerald knows as well as I do, and practically has said when he was proposing the amendment, that the liquidity which is lost by one group is, in fact, going to another group.
Some of it.
And he said that it is not good enough as an answer to the person who is losing it.
Yes.
He is now making a different case altogether.
I never suggested the retailer got all the benefit and, if that was the impression I gave, then I was not clear in what I said. I said there were gains alleged to the retailer and losses to the manufacturer and wholesaler but, in fact, presumably if the Exchequer gets the money sooner under the new system than it does at present, there is a gain to the Exchequer, and what the Minister is saying is that he does not want to give up the gain to the Exchequer. To describe that as a loss to the Exchequer is a use of words which might confuse some people. It is worth clarifying that point. The Minister has not really answered the point. He has not contested the figures I have given as to the credit period of manufacturers; he has not dealt with the impact on manufacturing at this particular moment of time of a disimprovement in liquidity, when profit margins are under great pressure and our whole industrial structure is, in varying degrees throughout the country, threatened by the prolonged economic stagnation of the last three years and by other factors, including the freeing of trade under the Anglo-Irish Free Trade Area Agreement. To impose a further burden by reducing the liquidity on manufacturing at this stage to the benefit of the Exchequer does not seem to me to be a good thing and I do not see any particular value in doing it either for the benefit of the retailers. It would be much better if we did not attempt that and if we had the three month period as is the case in Britain. The idea the Minister is putting forward, implicity in his remarks, that our industry is in such a strong position that it can stand the loss of liquidity which industry in Britain in the view of the British Government cannot withstand does not hold water. Industry here is not in that strong position and for the Minister to suggest that by implication and to be willing to tax Irish industry additionally at this stage by foreshortening the period is, to say the least of it, irresponsible. It is irresponsible in the same way as was the original increase in company taxation to 58 per cent and, just as that had to be reversed very quickly when the effect of the Minister's mistake was understood, so I hope this also will be reversed very quickly when the effects of this mistake are understood.
Amendment put and declared lost.
I move amendment No. 7:
In page 5, line 24, to delete "the specified day" and substitute "the 1st March, 1973".
Question put: "That the words proposed to be deleted stand".
The Dáil divided: Tá, 63; Níl, 53.
Tá
- Aiken, Frank.
- Allen, Lorcan.
- Barrett, Sylvester.
- Boylan, Terence.
- Brady, Philip A.
- Brennan, Joseph.
- Briscoe, Ben.
- Brosnan, Seán.
- Browne, Seán.
- Burke, Patrick J.
- Carter, Frank.
- Carty, Michael.
- Childers, Erskine.
- Colley, George.
- Collins, Gerard.
- Connolly, Gerard C.
- Cowen, Bernard.
- Cronin, Jerry.
- Crowley, Flor.
- Cunningham, Liam.
- Davern, Noel.
- de Valera, Vivion.
- Dowling, Joe.
- Fahey, Jackie.
- Faulkner, Pádraig.
- Fitzpatrick, Tom (Dublin Central).
- Flanagan, Seán.
- French, Seán.
- Gallagher, James.
- Geoghegan, John.
- Gibbons, Hugh.
- Gibbons, James.
- Gogan, Richard P.
- Healy, Augustine A.
- Herbert, Michael.
- Hillery, Patrick J.
- Hilliard, Michael.
- Hussey, Thomas.
- Kenneally, William.
- Kitt, Michael F.
- Lalor, Patrick J.
- Lemass, Noel T.
- Lenihan, Brian.
- Lynch, Celia.
- Lynch, John.
- McEllistrim, Thomas.
- MacSharry, Ray.
- Meaney, Thomas.
- Molloy, Robert.
- Moore, Seán.
- Moran, Michael.
- Nolan, Thomas.
- Noonan, Michael.
- O'Connor, Timothy.
- O'Kennedy, Michael.
- O'Leary, John.
- O'Malley, Des.
- Power, Patrick.
- Smith, Michael.
- Smith, Patrick.
- Timmons, Eugene.
- Tunney, Jim.
- Wyse, Pearse.
Níl
- Barry, Peter.
- Barry, Richard.
- Begley, Michael.
- Belton, Luke.
- Belton, Paddy.
- Bruton, John.
- Burke, Joan.
- Burke, Liam.
- Burke, Richard.
- Bruton, Philip.
- Byrne, Hugh.
- Clinton, Mark A.
- Cluskey, Frank.
- Collins, Edward.
- Conlan, John F.
- Coogan, Fintan.
- Cooney, Patrick M.
- Corish, Brendan.
- Cosgrave, Liam.
- Cott, Gerard.
- Creed, Donal.
- Crotty, Kieran.
- Cruise-O'Brien, Conor.
- Desmond, Barry.
- Dockrell, Henry P.
- Donegan, Patrick S.
- Donnellan, John.
- Dunne, Thomas.
- Finn, Martin.
- FitzGerald, Garret.
- Flanagan, Oliver J.
- Fox, Billy.
- Governey, Desmond.
- Harte, Patrick D.
- Jones, Denis F.
- Kavanagh, Liam.
- Kenny, Henry.
- L'Estrange, Gerald.
- Lynch, Gerard.
- McLaughlin, Joseph.
- McMahon, Lawrence.
- Malone, Patrick.
- Murphy, Michael P.
- O'Donnell, Tom.
- O'Donovan, John.
- O'Hara, Thomas.
- O'Reilly, Paddy.
- O'Sullivan, John L.
- Ryan, Richie.
- Taylor, Francis.
- Timmins, Godfrey.
- Treacy, Seán.
- Tully, James.
Tellers: Tá, Deputies Meaney and S. Browne; Níl, Cluskey and Timmins.
Question declared carried.
Amendment declared lost.
I move amendment No. 8:
In page 5, line 59, after "authority" to insert "provided that any such acquisition shall be at a market value equal to that which the property would have enjoyed if it had been sold to a registered trader".
This point arose on Committee Stage when we were querying the phraseology of this paragraph of subsection (1) of section 3. The point is that if you are going to apply VAT to compulsory acquisition the problem arises because, as between registered and non-registered purchasers of property, the local authority being a non-registered purchaser will not be able to get tax refunded if my assumption is right and a registered purchaser would. Consequently, you are now creating two separate markets in property and the whole compulsory acquisition principle of getting a price which is the market price would be endangered. With a view to clarifying the point and meeting the difficulties that arose on Committee Stage while not fundamentally altering the approach to compulsory purchase outlined here and for which the Minister gave reasons in the debate, I have proposed this amendment.
The Minister in speaking on Committee Stage seemed to think this, in fact, was how it would operate but he did not succeed in convincing me that he was certain of this or that he had good legal grounds for it. When there is any uncertainty on a point like this and when it is important to ensure fair treatment is meted out and that somebody whose property is compulsorily purchased will not in future be at a disadvantage as against having his land purchased by a registered trader, the amendment seems necessary to clarify the point on which the Minister did not seem to be able to give a complete and absolute reassurance backed by suitable legal opinion. If, at this stage, the Minister can reassure the House that the amendment is unnecessary very well, but I think there is sufficient doubt to justify the amendment being included to cover the point.
This amendment deals with the compulsory acquisition of property by the State or a local authority. In any such circumstances the amount on which tax is chargeable is, in accordance with the provisions of section 10 (1) the actual compensation receivable. Deputy FitzGerald's proposal in this amendment seems to be that the tax would be imposed in such circumstances by reference to the market value of the property if sold to a registered trader. This seems to me to be unnecessary because the figure of actual compensation would be available and on the face of it this is the right amount to tax.
There was in the previous debate a good deal of discussion and I think some confusion as to whether the price charged to a registered trader would differ from the price charged to another person. I had hoped that when further thought had been given to this it would be seen that there is no reason to believe that the price in these circumstances would be different. To me this seems quite clear and, if so, I cannot see any necessity for this proposal. This, of course, is an anti-avoidance provision and seems to me to be reasonably suitable for its purpose and does not seem to present any problems. Therefore, I do not propose to accept the amendment.
I did not quite follow the Minister's reply. The amendment is designed to clarify something and make sure that what the Minister says should happen does happen. From some of his remarks it seems as if he thought in some way that this amendment weakened the effect of his provision or somehow prevented the tax operating as he intended. That is certainly not the intention of the amendment. It seems to me that in future when any property comes on the market, in the ordinary way, leaving aside compulsory purchase for the moment, if a man is a registered trader he may be in a position to get a refund of tax which a non-trader cannot get. If that is so then by definition there will be two prices for all property in future.
I do not accept that.
Obviously, if property is worth more to one man than another. Because he gets money with it he can pay more for it.
We had all this before. We had it both on Committee Stage and at the special committee.
The purpose of Report Stage is to debate only matters we have had before. Deputy O'Donovan's intervention reassures me that we are in order but I am not sure that it otherwise affects the position. If you have a man who, if he buys a certain property, will be able to get a tax refund and a man who, if he buys it, does not get a tax refund, the former will be able to pay more for that property because it will be worth more to him and possibly will to him have a higher price. We are now creating two markets in property as a result. I would have thought that proposition was reasonably self-evident. I am not sure why the Minister feels it necessary to reject it when among the non-registered traders can be local authorities buying on a compulsory purchase basis.
The compulsory purchase price would quite logically, unless this amendment were accepted, be equated to the price payable by another non-registered trader which would be lower than the price that could be secured from a registered trader and in any case where the property is one which might have been purchased by a registered trader surely account must be taken of that in fixing the price? As it stands, this will not happen. The Minister must face the fact that one consequence of VAT and the system of registered and non-registered traders is to create a dual system of property values. Failure to face that will give rise to more difficulties than this amendment is attempting to deal with. I am rather bothered he does not see fit to accept that this is a consequence of this legislation and that a logical corollary of that is that it creates problems in regard to compulsory purchase.
The amendment is fully justified. The Minister has not given any reason for not accepting it. He has not said with any firmness that this is not necessary, that inevitably by some legal process the man will be required to pay not the price which another non-registered trader would pay but the price a registered trader would pay. That proposition is far from self-evident. The more probable assumption to work on would be that the arbitrator concerned with the compulsory purchase would say: "Here is a non-registered trader buying property compulsorily. What would a non-registered trader not buying it compulsorily pay?" I think without this amendment he would be likely to say that and to calculate the value accordingly. In order to prevent that happening and to prevent a man losing out where he could have got a better price from a registered trader, this amendment seems to be necessary. The Minister has offered less reassurance to the contrary than on Committee Stage and the amendment is needed.
Amendment put and declared lost.
I move amendment No. 9:
In page 6, after line 2, to add "provided that the goods in question are goods included in the Fourth Schedule".
This amendment seeks to confine the operation of this provision to the particular areas the Minister said it was needed for. On the face of it, the idea that somebody should have to pay VAT on goods seized from him by the sheriff seems very inequitable, but the Minister explained that there was a special problem where a dealer in motor cars might acquire new cars purportedly with a view to selling them and then go out of business and have the cars seized and in this way avoid paying tax. I am not sure I understood the mechanism of evasion which the Minister so ingeniously contrived but in so far as there is a problem of this kind it is clear that it is confined to goods covered by the Fourth Schedule. Therefore, this provision should surely be confined to that area where it is necessary for the reasons given by the Minister and should not be extended more widely. My amendment would confine it to the areas the Minister referred to. I do not think any reason he gave for the need for this provision was related to anything not covered by the Fourth Schedule. Therefore, he should be in a position to accept the amendment.
We do not propose to take part in debate on matters which we feel have already been well debated except in exceptional circumstances. This is one of them. Deputy FitzGerald is correct. It is ludicrous to suggest that what we used to call the "grippers sale", where somebody goes in and takes goods for non-payment of debt, a court order or something, should be subject to VAT. If these things come to be sold subsequently in most cases they would be sold for a lesser price. It is ludicrous to suggest that the sheriff should say to a man: "I am going to seize your goods but unless you pay VAT on them I will not take them."
(Dublin Central): He will not be responsible.
Why put it in the Bill at all? If somebody is not to be stuck for VAT for goods seized there is no point in including such goods in this Bill. The Minister's case was not the same as Deputy Fitzpatrick's. He said he envisaged where new motor cars might be seized and in that case we agreed that there should be VAT. Perhaps the Minister will have a reply which will show that I do not understand this as he does but if it simply means putting tax on something which is seized or sold as a result of a sheriff's seizure I think it is ludicrous.
(Dublin Central): I can see a certain reason why it should be there but the person responsible is something I would question. I believe it is the person from whom the goods are seized who will be responsible to the Revenue Commissioners for VAT, not the sheriff.
I did not suggest it was the sheriff.
(Dublin Central): I misunderstood the Deputy. I would have sympathy for the Revenue Commissioners trying to get money from a man whose property has been seized. My opinion is that these people have very little collateral. Some may, but the majority have not.
The Deputy knows the expression "no goods".
(Dublin Central): There is probably a reason for its being there but I think the sheriff should be made the responsible person.
Deputies opposite seem to be under the impression that what I was conveying the last time we discussed this matter was that it was designed to cover the case they outlined in relation to motor cars.
The Minister gave it as an instance.
That is a point I want to make. I agree that on the face of it it seems a very peculiar provision. It was only an instance I gave and, in fact, the same kind of situation can arise in relation to goods other than those in the Fourth Schedule.
The Minister said: "We are talking about people having cars seized who have 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."
If the Deputy looks at the whole discussion he will find that I certainly did not say it was confined to motor cars. The fact is that it can apply to other matters and, for that reason. I cannot accept this amendment. I want to refer to the point made by Deputy Fitzpatrick. As I see it, the position would be that the person whose goods are seized would be responsible for payment of the tax.
In the case visualised by Deputy Fitzpatrick where goods are seized for payment of debt and the person has no assets and no money, the tax would be levied on the money received. The person whose goods are seized is liable to account for the tax. The kind of situation visualised here is different from that visualised by Deputy Fitzpatrick. We are getting at the use, or the possible use, of the seizure of goods as a method of avoiding liability for tax. In those circumstances it is most unlikely that the person trying to avoid tax would be a person who had no money, which is the normal case one thinks of in the event of a seizure of goods. For the reason I have indicated I am afraid I cannot accept this amendment.
Amendment, by leave, withdrawn.
I move amendment No. 10:
In page 7, after line 15, to insert a new paragraph as follows:
"(c) Notwithstanding the above, nothing in this section shall apply to the purchase of immovable goods by a person who is not a registered person".
We might take amendments Nos. 10 and 11 together as they cover the same area. These amendments are designed to meet a difficulty which arose on Committee Stage and at which the Minister said he would look. The point which concerned us is that the general effect of section 4 is that a man who builds for letting is forced to opt to pay tax on the letting in order to avoid paying tax on the capital value of the building which he has built for letting. As this is not really understood to be the intention it seems necessary to make some amendment. It is clear that that is the effect of it as it stands.
Whether the amendments we have proposed are the best way to meet this difficulty I am far from sure. The complexity of this section leaves me in considerable doubt as to how best to tackle the problem. I am prepared to be told that the amendments are not the best way to deal with it. I had hoped that the Minister would have come up with some solution to it. He did not contest that a problem exists. Perhaps on further study he has found that the operation of this section will not be as I suggested on the last day. If he can offer me reassurance on this point I will withdraw the amendment. Alternatively, if he feels that my amendments are not the best way to tackle the problem, and if he has any alternative solution, I would be more than prepared to accept it. I will leave it to the Minister to explain whether I am right in thinking there is such a problem. If I am not right I hope he will tell me why or, if my method of coping with the problem is defective, I hope he will suggest how best the problem may be dealt with.
Since we are discussing both amendments together I hope that what I have to say will explain the point raised by Deputy FitzGerald. First, with regard to amendment No. 10, if it were accepted it would exclude entirely the operation of section 4 in regard to the purchase of immovable goods by an unregistered person. It is not entirely clear to me what the implications of this are——
That makes two of us.
——but it would seem that there could be one of two possible results: (a) that no tax would in any circumstances be chargeable on the delivery of immovable goods to an unregistered person; or (b) that the ordinary rules applicable to the delivery of immovable goods to an unregistered person would apply. If the first interpretation is correct the delivery would presumably be an exempted activity and the builder or other seller would not be entitled to any credit for the input tax.
Having regard to the arrangements contained in section 10 (4) whereby the charge of tax on the delivery of immovable goods is confined to 60 per cent of the consideration, the amendment could have the effect of increasing the tax if that interpretation is correct. If, on the other hand, the second interpretation is correct, I am afraid the situation would be impossible because the ordinary rules for delivery of movable goods are simply inappropriate and not applicable to the delivery of immovable goods.
The purpose of this provision is to achieve neutrality in the incidence of VAT between different persons who may let property. The necessity for this arises because rents are exempt from tax unless a landlord specifically elects to be taxable. A landlord who has not elected to be taxable on his rents will not be a registered person and will not be entitled to any tax credit for the tax element included in the price of any property purchased by him or the charge made by a builder for any property constructed for him. Thus, all property which he acquires, and which was constructed after VAT commenced, will have a VAT element of 3.16 per cent, that is the 60 per cent of a cost charged at the 5.26 per cent rate, included in the cost. This arrangement continues almost exactly the present system under which the element of turnover tax and wholesale tax represents approximately 3 per cent of the cost price of a house.
On the other hand, a registered person who buys property or who has premises constructed for him for the purpose of his business will be entitled to full credit for the VAT included in the price. When he has obtained this credit he will be in the same position as if he had acquired the property tax free, and this is fully within the intention of the Bill, so long as the property continues to be used for those business activities which are taxable. But, a difficulty arises if a person who has got a full tax credit in respect of property subsequently decides to let the property but does not elect to be taxable on the rent received. If no adjustment were made in these circumstances he would have the advantage over the unregistered person because the capital cost of property let by the unregistered landlord would include a tax of 3.16 per cent, whereas the capital cost of the property let by the registered landlord would not include any tax element and, in order to restore neutrality between them, it is necessary to withdraw the tax credit which the registered person obtained in respect of the property. Section 4 (3) does this by making a surrender of possession of the property in the circumstances indicated a taxable delivery for which the consideration chargeable is, in accordance with subsection (4) and subsection (8) of section 10, 60 per cent of the cost price excluding tax.
Any landlord may elect to be accountable for tax on rents receivable but there would be no advantage for him in making such an election unless, first, he had been charged for value-added tax for which he could claim credit and, second, his tenant was a registered person who could obtain credit for the tax element in the rent.
If a person who was obtaining credit for the tax element in property lets the property and elects to be taxable on the rent receivable it would be pointless to charge tax on the basis that he had made a taxable delivery because any tax so charged would have to be allowed in full against his liability on rents receivable. Accordingly, it is provided in subsection (3) (b) (i) that the special treatment prescribed by subsection (3) (a) will not apply to a surrender of possession in such circumstances. Tax is not charged on the transfer of the business, or part of a business, from one registered person to another. The reason for this is that any tax charged on a transfer or in respect of such a transaction, would qualify as a tax credit to the transferee and, in these circumstances, it is provided in subsection (3) (b) (ii) that the special treatment prescribed by subsection (3) (a) will not apply to such a transaction.
The option to elect for accountability on rent receivable as provided for in section 7 (1) is designed to preserve neutrality between selling and letting property. It enables a landlord who does not wish to make a taxable delivery to a registered tenant to pass on a tax credit to him in respect of the rents payable. This provision would be quite inappropriate in regard to residential lettings.
In all the circumstances that I have outlined it would seem—and I accept the advice given to me on this score— that this subsection is essential for the proper administration of the tax. I do not know if I have dealt with the point the Deputy wanted me to deal with. Have I?
The answer to that is, I am afraid, I do not quite know. If the Minister could sum up a very complex but very useful illustration which I and others would read with interest but which is very difficult to take in straight off, is it the case, summarised, that because a non-registered person will not get the benefit of the credit of 3 per cent, he will be required to charge higher rent on that account than he would otherwise do and to put the registered person on a par with him he too would be required to do so? So that the effect would be that there would be a tax on rents? That is what I got from the earlier part of what the Minister said. It may be that something he said after, which I have not followed thoroughly, modifies that. What seems to emerge is that there will have to be a tax on rents where the landlord is non-registered, because he cannot get a refund of 3 per cent and, therefore, the Minister's idea of achieving neutrality is not to remove that situation by giving him the benefit of the credit but to impose the same burden on the registered trader who is a landlord and who builds for letting. So that in both cases, in fact, the rent would be taxed. That is a way of achieving neutrality and if that is what the Minister has done it is a way which I would not approve of. Perhaps the Ceann Comhairle would allow the Minister to elucidate that point.
If I have understood Deputy FitzGerald correctly, he has misunderstood me.
I was afraid of that.
I will have another "go" at this, to clarify it. First, it is extremely unlikely that a landlord of residential property would waive his right to exemption since by doing so he would incur more tax and this tax would not rank for credit at a later stage. So, I think we may take it that it is most unlikely that he would do this.
It is easy enough to follow that.
Mr. FitzGerald
That is why I did not see why you had to put other people on a par with someone who is unlikely to exist. That is precisely my point.
No. I did try to explain the situation in which a person gets the benefit in the normal way as a registered person but then ceases to use it in the course of business.
No. We are talking about a man building a block of flats to rent. He is a registered trader in doing that because it is better for him to register than not to register. That is the position we are talking about. As I understand it, the effect of it is that this man will have to pay the tax or not get a refund to put him on a par with a mythical non-registered trader in the same position that the Minister says would not exist. That is what is bothering me. In order to avoid paying tax on rent a registered trader who builds for residential letting will have to pay tax on the capital value. If that is wrong, the Minister could simply say it is wrong and we could end the discussion. If it is right, there is a point to be debated.
Is the Deputy concluding on the amendment?
No. The Minister is concluding his reply. We are clarifying a point. It may have seemed different but that is the position, a Cheann Comhairle.
It is still Report Stage.
My problem is that I am not sure if I understood precisely what the problem of Deputy FitzGerald is. In the case of a man who purchases residential flats and lets them——
Builds them.
Builds or lets. At the moment he pays approximately 3 per cent of the price. Under the value-added tax system he will be in exactly the same position.
The purpose is to give him the 3 per cent back on buildings, I understood.
No. We want to keep him in the same position as he is in at the moment.
The Minister is paying £3½ million in giving money back in the case of buildings.
This is to trade, to industry, but not to what you might call—I was going to say the private —unregistered people. The object is to keep them in precisely the same position as they are in at the moment.
I am talking about a registered trader who builds flats and lets them. The purpose, as I understood, of the value-added tax arrangement is to pay back the tax to people who build as part of their trade and to give them back the 3 per cent at a cost of £3½ million. It seems now that the Minister is not going to do it if the person is letting for residential purposes and that means he is going to impose this tax on rents instead of removing the tax on rents.
The man visualised by Deputy FitzGerald has the option of being taxable or not taxable on the rents.
We are trying to ensure that the rents are not taxed in the public interest.
What we are trying to do is to ensure that the position is exactly as it is at present. Under the VAT system it will be the same.
Except you are giving £3½ million back to registered traders who build.
That is only partially true.
Oh!
The Deputy need not say "Oh!" like that. I have already explained at considerable length that that applies to more than people who build flats for residential purposes, which is the implication of what the Deputy is saying. However, the fact is that the person visualised by Deputy FitzGerald has an option. He can elect either to be taxable on the rents or not. We have to ensure that whichever option he exercises will leave him in no better and no worse position than he is now. That is what we are achieving in this.
I think we are at cross purposes. My understanding was that we wanted in this case as in the case of other people who were registered traders who build, to ensure that they got the tax back and in that way to exempt rents from taxation. The effect of this is that the man will be forced to pay tax on rents and to raise the rents in order to avoid having to pay tax on the capital value. That is why we put the amendment down. The Minister has so far, to me, justified the amendment. We are trying to avoid taxing rents but the Minister seems to want to tax them.
No, only in so far as it is not giving an advantage to one category of landlord as against another.
We do not want to have to tax rents and that is why we put the amendment down.
The Deputy does not achieve what he thinks he is achieving. The man who builds a block of residential flats and lets them at the present time is liable to approximately 3 per cent tax on the cost of building.
Like anybody else who builds.
Yes. If he is not doing this in the course of his ordinary trade at the moment he pays it and that is the end of it. Under the VAT if he is doing it in the course of his trade he will recover the tax he has paid but if he is not doing it in the course of his trade he will not.
What does the Minister mean by "in the course of his trade"?
If that is his business.
Which? Building or letting?
Very often it is both.
Supposing it is one or the other, which is the Minister referring to?
It does not really matter.
It matters an awful lot.
If it is in the course of his business whatever tax he would suffer he can claim as credit.
If the man is not in the business what happens? Say a man is in business but it is not either building or letting. If he builds can be recover the tax paid? He is taxable in the course of his business but not that business. He is registered in business but not in that business.
I think we should recommit this.
If it is not his business he cannot. For instance a shopkeeper who decides to build a block of flats as an investment, which has no connection with his business as a shopkeeper, is treated the same as any unregistered person in that circumstance as regards the tax.
I thought if he was registered he was registered in the course of his business and therefore he was liable to a refund.
No, the whole system operates in relation to his business. If he is doing something else, which is outside the course of his business, then he is treated the same way as any unregistered person.
So, it would apply to an existing hotelier who builds flats or people who are building flats. Somebody who is in the business as a new person would not be exempt.
If the hotel proprietor is building a block of flats that would be regarded as being in the course of his business.
I am still not clear on my point. Could we just recommit this briefly. In fact we are having that kind of discussion.
That is a matter for the Minister. If the Deputy wishes to recommit this amendment the Chair will allow him to make an explanatory statement and the Member opposing or the Minister opposing will reply.
I do not want to waste the time of the House. The Minister might find it useful if we discuss this matter further.
When Deputy FitzGerald asks to recommit does that not mean that it is recommitted on this amendment so that there can be question and answer in order to get the matter clear?
I want to legitimise the present discussion to enable us to proceed because it is necessary to elucidate the point.
If a motion to recommit is opposed the Ceann Comhairle will allow an explanatory statement from the Member who moves and another from the Member opposing.
If it is opposed I would not press it.
I would not wish on this particular issue to oppose it but I will confess that I have grave doubts about the creation of a precedent on this because if we start doing the same thing on other issues we may never finish this Bill.
I doubt if that will arise. I cannot think offhand of any other issue which has left me so confused as this one. I say this so that I may put my point now and enable the Minister to reply again to it to clarify the issue.
Is it agreed to recommit the amendment?
Subject to the reservation I have expressed which, if necessary, I will recall.
We entirely accept that we should not create any precedents.
Bill recommitted in respect of amendment No. 10.
The position as I understand it, although I may not have explained it clearly, is that at the moment anybody who builds a block of flats to let them has to pay turnover tax and wholesale tax on the materials and consequently the cost is higher by 3 per cent and the rents have to be higher by 3 per cent. This is true of anybody who builds anything else. Any registered trader building a factory, building a shop or building offices is in the same position. The Minister has at some length in other parts of the Bill made it clear that this benefit, which is so important that he wishes this Bill to go into effect on the 1st November and not the 1st March in order to help the people concerned, will enable tax refunds to be paid to people, in particular those who have been engaged in building activities of this kind so that they get back the 3 per cent tax which they have paid.
Part of the aim of this Bill is to achieve that. The Minister has set aside £3½ million for this purpose and has levied an extra £3½ million by raising the rate of wholesale tax to a level above that necessary to provide him with the money coming from wholesale tax now, a yield of an extra £3½ million to give back to people who build and who at the moment have to pay this tax which he now wants to remit. That is the background to this.
I do not quite accept the Deputy's version of that.
I am trying to give a fair account but the Minister can correct me if I am wrong in any detail.
I do not intend to follow those hares. I want to keep to this amendment.
Given that background we have a builder, who is one of the people the Minister seeks to benefit by giving back this tax element which he now has to pay and he is building flats for renting, a laudable objective and one which we wish more builders would engage in. The failure of builders to build for letting is one of the weaknesses of our whole housing effort. This particular form of building is one which is beyond all other kinds of building. It is a form of building we want to encourage. One would have thought in those circumstances that the Minister would be most anxious that in this case the full benefit of 3 per cent should go to any builder in this position. Yet, as I understand it, what he is saying here is that because there might be a man so foolish as to build for letting as an unregistered trader—an unlikely event, he says—and pay a higher rate of tax on his rents, the Minister finds it necessary to place the registered trader on a par with such an improbable unregistered trader.
What I am seeking to do and what I am willing to believe the amendments do not achieve is to modify the position so that in so far as it is necessary, in order to ensure neutrality between the registered and non-registered trader the registered trader will get the full remission of the tax if he is building flats for renting just as he would get if he was building anything else. What I am trying to achieve is that the non-registered trader is put on a par with him.
Did the Deputy not agree with me some time ago that the danger of rents of residential property being affected by the value-added tax was very remote, to say the least?
I do not remember that. On the contrary, what concerns me is that the Bill, as drafted, makes it inevitable that they will be.
What I heard him saying was that it would be very rare to find anybody who would be foolish enough not to register before this.
I am agreeing with the Minister that the man who will not register will pay tax. That is very unlikely to happen. However, I understand the Bill, as drafted, means that when that man does register he will fail to get the remission of tax on building materials and will, therefore, have to charge higher rents to cover what is in the Bill. What I am trying to do is to ensure that, just because a man tries to do something useful when he goes to build and builds flats instead of office blocks or factories or hotels, he will not be penalised and put in the position of not getting the remission of tax that any other builder would get and, therefore, be forced to pay tax on the rent. I am glad to have the opportunity of explaining more fully, as I have not obviously explained well at the beginning, what I fear. If that is not the position, well and good; there is no need to go any further. If I have got the position right, the Minister should consider some method of ensuring he does not penalise this kind of building but makes the necessary adjustment in respect of the tax position of this unlikely character, the unregistered builder of flats for renting, so that neutrality is achieved by putting him on a par with the registered trader who is exempted from this 3 per cent tax, rather than doing it the other way round which ensures that everybody has to pay the 3 per cent tax.
(Dublin Central): I must have misunderstood the Bill. I understood that the 3 per cent was to apply to everybody. This applied heretofore and I did not think there was any change.
What about the £3½ million?
(Dublin Central): It is on the fittings which go into a house, sinks, carpets, and so on, and which carry wholesale tax that the refund will be given. The 3 per cent applies right through to local authority and private houses. This is not being refunded. The 3 per cent has applied in the past and will continue to apply. It is on the other items that they will get the benefit of the £3½ million.
They are taxed at the present time.
(Dublin Central): This is by virtue of being a registered trader.
These are the items which add up to the amount that requires a 3 per cent remission to cover them.
(Dublin Central): No, my reading of the Bill is that the benefits will accrue to the trader through those items which carry tax.
My understanding is that 60 per cent of the cost of a house consists of materials, that at the 5 per cent rate a man building a house is paying 3 per cent of the cost of the house through having to pay 5 per cent on the 60 per cent of materials; that the purpose of the provisions of the value-added tax is to remit the value-added tax on these materials so that there will be a 3 per cent reduction in the cost. Deputy Fitzpatrick may well be right, but that is my understanding of it and that that is where the £3½ million comes in.
The ultimate effect is precisely the same as in the present situation in that the tax on the elements that go into the building under value-added tax will be recovered as a claim against liability for tax, but tax will be levied on the contract price, 60 per cent at 5.26.
But the contract price will include the fittings.
Yes, but the point is that the tax which is levied at present on the elements that go into the house and which amount to approximately 3 per cent of the cost will now be levied but will also be paid back by the Revenue Commissioners or allowed as a credit by the builders providers, the builder himself and so on. Therefore, as far as the Revenue are concerned, they will collect no tax on the elements going into the house, but in lieu of that they will collect precisely the same amount of tax on the cost price of the house.
Where is the £3½ million the Minister is giving back?
I think the Deputy is obsessed with this in relation to building. I have tried to point out before that it covers many more things than building.
I appreciate other things are involved. I thought all capital goods were involved, including building. Perhaps I am on the wrong track altogether.
The £3½ million he is talking about does not apply to private housing.
Does it apply to building at all?
Industrial and commercial building, because that is in the course of trade.
Then I am right. What I am trying to do, obviously very ineffectively, is to extend to the building of flats for renting and, indeed, to any kind of housing the same remission of tax which applies to other kinds of building.
If this is it, we are on a completely different track now. I did not realise this was what the Deputy was at. At least now I understand what he is at.
It seems to me that there is a distinction being made which, I thought I said several times, is a very undesirable distinction between buildings for other purposes, for which he is going to give a refund of tax, and building of houses to live in, for which there will be no remission of tax. If the Minister is giving back £3½ million by way of remission, above all it should be given on the building of houses, apartments and flats.
What the Deputy is, in effect, proposing is that the existing tax should be reduced on flats built for residential purposes.
I understood that this was what the Minister was trying to do, that he was giving £3½ million back on buildings and other capital goods, including flats for residential letting but that owing to a defect in drafting——
No. We have obviously been at cross-purposes.
That is what I am trying to achieve, and I should like to hear finally from the Minister why he should exempt from this tax offices, shops and factories but not houses. That is a most extraordinary proposition. I had not thought the Minister was proposing this. I thought he was, like myself, trying to exempt residential property but was in some way failing to achieve this. That was the purpose of my amendment, which was apparently misconceived. Would the Minister tell me why he thinks he should tax residential property and not other property?
(Dublin Central): Does this 3 per cent not apply to the main parts of the building?
Yes, but in the course of business. This is where the double taxation element arises under our present system. Take a shopkeeper who builds an extension on to his shop. At the moment he will pay tax amounting to approximately 3 per cent on the cost of that extension. At the moment he will not recover that under the wholesale and turnover tax, but under the value-added tax system he can recover it because it is an expenditure in the course of his business. The whole basis of the value-added tax is that although it goes through the various stages, ultimately the tax is paid by the consumer at the rate laid down and it is the rate the consumer is paying at the moment. This is the element of double taxation that is in the present system and which will be taken out by the VAT system, and this is where the £3½ million comes into it. It will be going back to the people who are at present subject to double taxation.
When we get to the question of tax on houses or residential flats we are talking about the consumer, and the consumer at the moment is paying tax which is approximately 3 per cent of the purchase tax. This is what the tax is about because, of course, if you impose it at the earlier stage it is simply added on and the consumer is paying it ultimately. What we are doing is maintaining the present position whereby the consumer will continue to pay the same tax as he is paying at present, not more, but to say that we ought to take this tax off residential flats is saying that we would have to take it off houses as well, because there is no logical reason why you would not.
I thought we had.
We have not. I understand the figure involved is about £5 million, if we left out houses and flats.
Housing is a very small item in the overall picture.
I am surprised that, if Deputy FitzGerald thought we were taking it off houses, he thought the figure could be as small as that. It covers more than houses as well. However, we have been endeavouring to maintain the position. We do not decrease the tax but we are making the incidence as near as possible to wholesale and turnover taxes. On that basis we should not take the tax off houses and flats.
One of the elements involved, of course, is the cost; but if you are to do that, an equally good or perhaps a better case could be made for taking it off other commodities. The basic principle we have gone on is to try to maintain the position as it is and for that reason I would not propose to accede to this request. All I can say is that it may have been worth recommitting this because I did not understand what Deputy FitzGerald had in mind and I understand now why I did not understand.
I will not detain the House longer except to say that I think it is wrong to provide the £3½ million for exemption of other types of capital goods and construction activity but not houses. The Minister said he could not afford £8½ million but I would prefer if he would use the £3½ million for housing, to reduce the 3 per cent to 2 per cent, rather than to do it for other goods and not for houses. We should be most concerned about bringing the price of housing down. I do not therefore understand why the Minister has taken housing out when he is giving this benefit, tax remission at a cost of £3½ million to other kinds of construction.
Amendment, by leave, withdrawn.
Bill reported without amendment.
Amendment No. 11 not moved.
Amendments Nos. 12 and 13 may be discussed together.
I move amendment No. 12.
In page 8, lines 17 and 18, to delete all words after "performance" in line 17, and insert "of any act other than the delivery of goods or the discharge for consideration of an obligation not to practise in whole or in part a professional activity or assign a patent, trade mark or other right".
The difference in amendment No. 13 is that there is a parenthesis in that amendment subjecting it to subsection (5). I do not know if this was necessary because subsection (5) begins with the words "notwithstanding anything in subsection (1)". In case I should be faulted I put it in as an alternative to cover the point.
The purpose of this amendment is to deal with the point made by the Minister on another amendment when he said there is a requirement in the EEC VAT legislation on this point and that therefore he was bound to deal with it. This seemed to me to have some potential validity and I got the relevant document which is Annex B of Directive 67.228. I have read it carefully and it seems to me the problem it raises is a restricted one. As it is clearly undesirable as a general principle to exact people for not doing something for which they are not paid a consideration, in so far as we adopt this peculiar procedure of doing anything of the kind, it seems to me we should limit it to cases where it is absolutely essential. Annex B of the directive refers to services listed in Article 6. That states:
The provision of services means any transaction which does not cover the supply of goods within the meaning of Article 5.
Subsection (2) of the article states that rules laid down in that directive as regards taxation of the provision of services shall be compulsorily applicable only to services listed in Annex B. The point is, therefore, that services shall be charged to VAT. The list of services which shall be so charged are to be found in Annex B. I read through Annex B to discover what is involved and I found a variety of services, only one of which involves a right, and what we are concerned with here is the question of people agreeing not to perform an act. The Minister raised this question of the directive and of rights, and the very first item in the annex refers to assignments of patents, trade marks and other similar rights and the grant of licences of such rights. Where somebody waives such a right—this is the point the Minister is making— that can have value for taxation purposes, and the only rights that can be waived are the particular rights mentioned in the annex because other sections of the annex deal with other matters such as:
work on tangible movable property carried out for taxable purposes, the provision of services to prepare or to co-ordinate the carrying out of works of construction, commercial advertising services, transport and storage of goods and ancillary services, hiring of tangible movable goods for taxable purposes, the provision of staff for a taxable purpose, services provided by consultants, engineers, planning officers, and so on, the carrying out of an obligation to refrain from exercising in whole or in part a builder's activity or a right included in this list.
There is only one right included in this list and that is item No. 1. Therefore if it is a question of refraining from exercising a right, as the Minister mentioned, it seems to me that one could limit it to section 1 of Annex B. My amendment is designed to limit us to this. If the Minister does not feel this adequately covers the point in the directive, and he may make that case, it may be necessary to amend my amendment. I think the wording I have covers, in fact, all the cases in Annex B, although it may require some modification and the Minister may not be satisfied with it as it stands.
It is very important that we do not give the Revenue Commissioners general power to tax omissions of acts or toleration of situations and we tie it down to cases where there is a specific obligation to tolerate the situation or to omit the act. Where the act omitted is, in fact, something that can properly be described as a business or professional activity, on the one hand, or a right, on the other, and the only rights the EEC refers to are these patent and trade marks and rights of that kind.
We have, I think, made some progress in this regard, although Deputy FitzGerald did again on this occasion use the phrase he used repeatedly in the Special Committee; as I recall it, he talked about taxing people for not doing something for which they were not paid.
Yes.
On the face of it, that seems a ridiculous proposition.
Are we back to the film stars again?
We have, however, made progress in that Deputy FitzGerald now accepts that there are some circumstances in which this is justifiable. This, I think, is progress.
So long as they are not paid. This is why the word "consideration" is in there.
We have made progress.
The Minister is an optimist.
I do not want to go back on the long and tedious——
A very good word.
——discussion we had in the Special Committee on this matter. These are substantially the same amendments. Amendment No. 12, if it were accepted, would have the effect of excluding from the definition of rendering in relation to a service the toleration of an act. That would be excluded. The interpretation in relation then to the omission of an act would be restricted to certain specified restrictive arrangements entered into for consideration. The first thing I want to say about that is that it is necessary that the toleration of a service should be included.
Toleration of a situation.
I meant of a situation. The toleration of a situation should be included in order to ensure that tax may be charged on such activities as the granting of rights of patent or copyright, the hiring of goods, with or without a formal contract of hire, the letting of premises, such as an hotel permitting someone to display an advertisement or goods on its premises. Secondly, it is not possible specifically to provide for all the restrictive arrangements which it may be necessary to bring within the scope of the tax. Consequently, I consider it is better that the provision should be drafted in general terms. Thirdly, if something is done in the course of business—if it is not done in the course of business there is, of course, no liability to tax— then it is, by definition, done for consideration of some kind, though not necessarily a money consideration and the words "for consideration" in the amendment do not therefore appear to me to be necessary.
We are not talking about things being done. We are talking about things being omitted to be done. That is the distinction.
In the context of consideration surely this is irrelevant.
They do not overtly go out and do something because someone pays them, but they may omit to do all kinds of things without being paid.
If they omit to do something in the course of business, by definition they are omitting to do it for consideration.
Not at all. A jeweller may omit to sell meat.
How is he going to be taxed on that? Let us be reasonable.
Exactly. That is my point.
It is the meaning the Minister objects to—in the course of business—and it is perfectly clear what the Minister means by that.
I am not at all satisfied with the reply given by the Minister. The Minister may have a point about the use of the words "for consideration" and I am prepared to contemplate that possibility, but I do not fully understand in what circumstances there would be no consideration and yet something to tax. The Minister may have a technical legal point there. What I am clear on is that, in so far as this arises out of an EEC obligation I do not think we should go beyond what is necessary in this respect; when it comes to such a dubious area as taxing people for not doing things, with or without consideration, we seem to confine ourselves to the requirement of the EEC. The EEC says nothing about tolerating a situation. There is no requirement whatever in that respect. It is the carrying out of an obligation to refrain from exercising in whole or in part a business activity or right included in this list. Now, tolerating a situation is not specified there. It is included here and it should not be included. Secondly, I do not think the omission of an act is sufficient. There must be an obligation of some kind. If you leave out the words "for consideration", as the Minister wishes to do, all our lives we spend not doing the various things we could do——
We do not normally make money out of not doing the things we do not want to do.
The Minister wants to remove the words "for consideration".
If it is not done in the course of business how can it be taxable?
The Minister is objecting to the words "for consideration". He objected to them in the Special Committee. If he is objecting to them he, therefore, wants to eliminate the concept of an omission of an act for consideration because he feels there are occasions where acts may be omitted for some benefit which may not legally be described as consideration. Is that not the point?
No. But the Deputy is omitting the whole relevance of "in the course of business".
Either the words "for consideration" are acceptable to the Minister or they are not. If they are not he wishes to omit them. Clearly his only rational reason for omitting them is because their use would in some way limit.
The Deputy can convince himself. He is not convincing me.
Might I ask Deputy FitzGerald a question? I thought I understood the point but Deputy FitzGerald has now succeeded in confusing me. If somebody does not do something and he is not paid for it, whether it is in the course of business or not, where does the issue arise?
The Minister assured us in the Special Committee that there are other forms of reward than payment of a consideration and that we could not put in the words "for consideration" as, to do so, would be to limit this.
Deputy FitzGerald seemed to suggest earlier that a jeweller could be taxed because he did not sell meat. I cannot deal with an argument like that.
It was not my suggestion.
But that is what the Deputy said.
I was putting it to the Minister that the wording we had would legally enable such an absurd situation to arise. As I understand, a person can be taxed for the omission of any act or the toleration of the situation. There is nothing in it to say that the omission of the act must be something which has led to a benefit accruing to the person. There are no words such as "for consideration, for benefit or reward". Nothing of that kind is included. The Minister, in fact, has rejected a proposal to include any such words. He wants to have the right to tax any man for the omission of an act in the course of his business.
How could he tax someone for not doing something?
Let us come back to the butcher carrying on business; he is selling beef and mutton, but he is not selling pork. The Revenue Commissioners will come along and say: "We think your omission to sell pork is the result of an agreement with the pork butcher across the road——
That is a different thing altogether.
——and the pork butcher is slipping you pork chops which we cannot trace".
Deputy Tully asked a simple question. Why does Deputy FitzGerald not answer it?
I am answering it, but it is difficult with all the interruptions. The pork butcher across the road might be passing chops, or something, and the Revenue Commissioners believe there is a reward of some kind, which they cannot trace, and they say: "We believe the omission to sell pork here is not a mere accident but that, in the course of business, this man is receiving a benefit which we cannot track down because of his not carrying on his business fully. We believe that that benefit is such that he will be taxed on it." The amendment is designed to meet that kind of situation.
The Minister has made it clear that very often the consideration is not one that can be traced, not one that can be identified but that there may be such consideration. He insisted that the words "for consideration" be omitted in order to enable us to deal with this kind of situation. I am unhappy about the situation which leaves the Revenue Commissioners such wide discretion that the omission of any act in the course of business can lead to taxation although there is no evidence of consideration. They can say simply that they believe the omission of the act in the case concerned is so strange and inexplicable that it must be attributable to somebody having in some way persuaded him to do so because of some benefit such as a free holiday in the south of France. What is involved here is the power of the Revenue Commissioners to tax somebody for the omission of an act in respect of which there is no evidence that any consideration has passed, and I object to that. It is giving them too great a power. In so far as we wish to any degree to enable them to deal with these kinds of situations we should confine ourselves to a situation which the EEC have decided needed to be dealt with, that is, where somebody has an obligation, there must be evidence of the existence of an obligation. That is the crucial point. Would Deputy Tully not agree?
I cannot see how there would arise the type of situation that Deputy FitzGerald is putting before the House. It is ludicrous to suggest that somebody will have to pay tax for something he was not paid for in the first place.
How could a person be taxed on nothing?
If, say, a pork butcher is getting money on the side, the situation is very different but if there is no money involved there would be no liability to tax.
The point is that the Minister is insisting that the words "for consideration" be omitted. If I do not send in my tax return, the Revenue Commissioners can say that I am earning £20,000 a year and tax me accordingly. They are entitled to levy tax on what they think is my income and I must pay the tax unless I can disprove the assessment.
No matter what one would be billed for, he would not have to pay any tax if he had no income. Let us keep our feet on the ground.
I have a low opinion of the way in which the Revenue Commissioners behave but it must be said that if they send a bill in the circumstances suggested by Deputy FitzGerald, they will not bother any further about it if they realise afterwards that the person had no income.
There have been several occasions on which either I or the person who helps me with my tax did not send in returns on time with the result that I was assessed for up to 60 per cent more than my earnings. This is a good way of ensuring that one makes returns within the specified time.
The Deputy is not the only one who has had that experience.
Deputy Tully suggests that unless there is evidence of a consideration there is no question of their seeking to tax one——
The Deputy is changing feet and is suggesting something very different. He is speaking now of a person failing to return his tax form but we are speaking of persons who send in their tax forms in the normal way.
The Minister says he cannot accept the amendment involving the words "for consideration" because this would tie the hands of the Revenue Commissioners and would require them to produce evidence that consideration had passed, whereas he wants them to be in a position to tax somebody for omitting an act even if there is not any such evidence. Deputy Tully will have heard the Minister pressing this point.
The courts are there to deal with matters of that kind.
In rejecting my amendment the Minister said it was vital that the Revenue Commissioners should be in a position to act in these matters even if they could not prove that consideration had passed.
Is the Deputy suggesting that we specify every item which, say, a butcher or a draper might sell? It seems to me that this is an attempt to put in something which, having been suggested by Deputy FitzGerald, he now believes should go in. However, it is his right to make his case.
Deputy Tully must face the fact that the Minister has rejected the amendment with the words "for consideration".
In this case, he was right.
The Minister has made the case that the Revenue Commissioners should not have to prove a consideration, that in respect of the omission of an act they should be entitled to tax people on what they regard as the value of that omission even if they cannot show that any such value accrued to the person concerned. That is why amendment No. 1 on section 5 was rejected in Special Committee. Given that that is the Minister's position, I do not accept it as being desirable that the Revenue Commissioners should have such extensive power as to levy taxation, not merely for something done, where there is prima facie evidence that in the course of business a man will not undertake to do something unless he gets value for it but also where he omits an act. This is so vague and runs so far beyond the EEC directive as to give indefinite power to the Revenue Commissioners. This is objectionable. In the EEC directive the point was appreciated that, although the word “consideration” is not used, that this could arise only when the carrying out of an obligation to refrain from exercising some business activity or right, the obligation implies that there is an agreement with somebody else and there can only be an obligation on somebody by virtue of an agreement with somebody else. We are talking now about transactions between individuals.
Therefore, in the EEC directive there is a situation where there must be an obligation imposed on a person not to do something and that this must be imposed by some form of agreement and that that agreement can have imputed to it some value. Nobody will enter into an agreement not to do something in the course of business and to accept an obligation not to do something unless he receives some value for that. If the words "to carry out an obligation" are used it can be argued that the words "for consideration" are not necessary. If the Minister would be prepared to accept my amendment I would be prepared to drop the words "for consideration" because I have here the discharge of an obligation. If the Minister argued with me that it would be tautologous to introduce the words "for consideration" I would be prepared to hear him but he has not argued that. He has not been prepared to accept that the concept of an obligation should be imported into the Bill at all. He has sought very greatly to widen the whole effect of the EEC requirement so that instead of it being confined to cases where there is an obligation to be established, he wants the Revenue Commissioners to be in a position to tax someone for not doing something although there is no evidence that that is as a result of an obligation through a contract entered into and that no evidence of consideration has passed. That is not reasonable and this House should not consider adopting a provision in legislation that would give such power to the Revenue Commissioners.
I would ask the Minister whether he is prepared to introduce into this at least the concept of obligation. In the Bill it is stated that "rendering" means the performance or omission of any act or toleration of any situation but could not some wording be introduced such as "means the performance or, the carrying out of an obligation to omit an act or to tolerate a situation"? I would be prepared to abandon the rest of my amendment if the Minister would be prepared to consider that. It seems to me that on reflection the Minister will appreciate that this is too wide and that some limitation should be imposed on the power of the Revenue Commissioners to tax people for not doing something and that except where this arises from an obligation in some kind of contract for which, impliedly, some value must be given, there should not be such power of taxation. I ask the Minister to accept a variation of the amendment on the lines I have suggested.
I consider the Deputy's whole approach to this to be up in the clouds. I shall not be able to put this across to him clearly and neither can he put it across clearly to me or to the Deputies on the Labour benches. Therefore, I do not think we should waste our time on it any further. I am not prepared to accept the amendment.
Question: "That the words proposed to be deleted stand", put and declared carried.
Amendment declared lost.
Amendment No. 13 not moved.
I move amendment No. 14:
In page 13, line 7, after "transaction" to insert "and not including hire purchase charges".
This raises the question discussed in the committee on taxation of hire purchase obligations. The Minister argued that the reason for some complexity was that it was necessary to exempt banking services and insurance services from VAT. The point was made that logically the principle of neutrality which he has employed in many other places in the Bill should apply to ensure that hire purchase transactions are also exempt from VAT. The majority of less well off people must buy goods for which they have not ready cash on hire purchase rather than by getting a bank loan. The system under which the method of finance used by better-off people is to be exempted from VAT but hire purchase, the method employed by less well off people, is to be subject to VAT seems inherently objectionable and discriminatory on a class basis. Therefore, it seems important that hire purchase should be put on a basis of neutrality with banking transactions. The matter is self-evident and I thought that on this issue the Minister might reconsider his position and that the Labour Party might support me.
I think it is a bit much that we should have a situation where if somebody has money to buy an article he can do so and pay ordinary VAT. If they have credit in a bank they can borrow the money to pay for the article and again pay only ordinary VAT but if the person is poor or one of the ordinary working people depending on an ordinary wage or salary and cannot rise to the first or second proposition, he then buys something on hire purchase and if he does so he not only pays VAT on the article purchased but he will also pay VAT on the interest or the additional sums he has to pay on hire purchase. This is wrong and I ask the Minister to reconsider it. This is a useful amendment which should be very seriously considered.
I should like to support the case for this amendment.
It is a basic requirement of the neutral operation of the tax that the rate which applied to the delivery of goods of any kind will also apply to the hire of goods of the same kind. If the rate on hire were lower, there would be a bias in favour of hire with consequent disturbance of existing trading patterns. Similarly, if hire goods chargeable with the element of hire in a hire purchase agreement were not, there would be a bias in favour of hire purchase with consequential undesirable results.
Could the Minister develop that point? I do not understand it.
I developed this at considerable length in the special committee. It is true that if one were to obtain a personal loan in a bank with which the goods were purchased for cash one would avoid tax on the hire purchase charges.
On the interest charged?
On the interest charges on the loan, but one is avoiding VAT on the hire purchase charges in a comparable situation. In other words, if you do not get the loan and have to go on hire purchase you become liable to VAT on the hire purchase charges, the point of this amendment. This is true but approximately the same result would follow in regard to a purchase other than under hire purchase, for instance, if by virtue of getting a personal loan you were able to avail of favourable discount rates because of payment for cash or payment within a certain time. This is another advantage one could get in this context by virtue of getting a personal loan. The lesser lack of neutrality involved in this area is in no way confined to hire purchase. This should be clearly understood. It arises directly from the impracticability of bringing banking within the scope of VAT. I gave some indication of the reasons for this in the special committee and I shall not go over them again.
The point I want to make is that the difficulty arises not in relation to hire purchase only; it arises in other areas also because of the impracticability of bringing banking charges under VAT. Of the EEC countries operating VAT, Germany, France and Luxembourg charge the full hire purchase price at the rate applicable to the goods. The Netherlands and Belgium exempt the hire purchase charges.
We seem to have gone around Europe picking the tough ones in each case, not sticking to any one. We quoted the Netherlands for some items and Sweden for other items. Now we have taken three other countries because although they are different they are tougher.
I have already explained that if you do this you will give an advantage to hire purchase as against other forms of purchase and upset the existing trading pattern.
We are not thinking of machinery or expensive equipment. We are talking solely about household goods. Could the Minister not, by including something in the Schedule, cover them and still meet his own point?
How does the Minister suggest that by accepting this amendment it will interfere with the trade as against buying through hire purchase and hiring? This is the essence of the Minister's claim as I understand it. It may be that what is in mind is industrial hire purchase, but what we are interested in, particularly in the Labour Party, are ordinary household goods, the ordinary articles an ordinary person buys on hire purchase.
Debate adjourned.
Sitting suspended at 2 p.m. and resumed at 3 p.m.