I move "That the Bill be now read a Second Time".
This Government aim to make Ireland a new and better land. This Finance Bill, taken with other budget day proposals, is one of the prosaic but essential steps towards the attainment of that worthy objective.
To set the provisions of the Bill clearly in their economic and fiscal perspective, I propose to summarise the strategy underlying this year's budget. The 1973 budget has three main facets: first of all, its central fiscal action was designed to lift the growth rate appreciably, thereby taking up the slack and underused capacity in the economy and helping to reduce the level of unemployment, which is a serious social and economic problem; secondly, the budget provided really worthwhile improvements in the social welfare sphere and, finally, the first stage of the implementation of a comprehensive tax reform programme.
The budgetary action to stimulate the economy, strengthen the national infrastructure and thereby raise the level of employment is clearly evidenced by the rise of £130 million in current expenditure and of some £60 million in capital expenditure or a combined rise of over 20 per cent. This outlay will have a notable impact on the economy in the months ahead. Domestic consumer and investment demand will be expanded, with beneficial repercussions on industrial production, productivity and employment. Businessmen are now, and will be, able to plan ahead with confidence that growth is the Government's priority. All sectors will benefit from the increased activity which will be generated. The social welfare concessions in the budget have made possible a striking betterment in the quality of life of the many thousands of people in this country who are dependent on social welfare benefits to sustain their standard of living. An indication of the extent of these improvements can be had by considering the amount of additional outlay involved: in a full year, the increase over existing expenditure on the social services will be 44 per cent. No category of need was left untouched by the new concessions; no better earnest could be given of the commitment of this Government to social reform and of the priority it accords to the needy and afflicted in our community.
The Bill contains the provisions required to give effect to the taxation changes proposed in my budget statement as well as provisions on a number of matters, notice of which was not given in the budget statement or in the financial resolutions passed on budget day.
Part I of the Bill deals with measures relating to income tax, including sur-tax, and to corporation profits tax.
I indicated in the budget that I proposed to rationalise the income tax penalty provisions so as to enable defaulters to be dealt with more effectively. A number of measures are included in the Bill for this purpose. Section 1 imposes a minimum interest charge of £5 in respect of overdue tax collected under PAYE by employers and section 34 disallows interest on unpaid PAYE tax, value-added tax and stamp duty as a deduction for the purposes of income tax and corporation profits tax. It should be remembered that an employer's liability to remit PAYE tax deducted from employees' income, is no more than an obligation to pay over money received by an employer for the State. There can be no justification for delay in paying over tax already deducted from workers' pay packets. At present there is no penalty, apart from the interest charge, for failure to remit, to the Revenue, PAYE collected from employees. Section 43 rectifies this situation by imposing on the company a penalty of £20 plus £20 per day as long as the non-remittance continues and a new additional penalty of £20 on the secretary. Section 21 secures that where penalty proceedings are taken for PAYE tax estimated to be due, a certificate signed by an officer of the Revenue Commissioners that the tax so estimated is payable will constitute prima facie evidence to that effect. Where there is failure to produce records in connection with claims for exports tax relief, the penalty applicable is being raised in section 44 from £50 to £100 which applies for non-production of records for income tax purposes generally. Section 45 aligns the present income tax penalty of £500 where a company fraudulently makes an incorrect return or statement with the corresponding value-added tax penalty of £1,000.
As envisaged in the budget statement, tax relief in respect of expenditure incurred on business entertainment is being restricted, under section 23, to cases where such expenses are incurred, not only wholly and exclusively, but also necessarily for the purposes of the trade or profession. The section also secures that in the case of machinery or plant used for providing business entertainment, for example, a yacht or motorcar, such assets will qualify for capital allowances only to the extent that they are used for the purpose of business entertainment which meets the test of being wholly, exclusively and necessarily for the purposes of the trade or profession.
Under existing law there is no limit on the cost of a motor car used by a business or professional person which may be taken into account for the purposes of calculating the tax allowances in respect of the car. Sections 24 to 29 are aimed, subject to certain exceptions, at ending this position by confining the allowances in the case of expensive cars to what these allowances would have been if the car had cost £2,500.
Other anti-avoidance measures are included in the Bill under section 5 which deals with tax on income accumulated under a trust, section 22 and the first schedule to the Bill which restrict tax relief in respect of life insurance premiums to policies of at least ten years, section 38 and the fifth schedule to the Bill which are designed to counter "loss-buying" operations, section 39 which withdraws the right to certain allowances in respect of industrial buildings where contrived transactions between companies of a group can result in the cost of such buildings being written off for tax purposes at a greatly accelerated rate and section 40 which is intended to prevent tax avoidance through the medium of friendly societies.
Sections 41 and 42 deal with benefits in kind. The purpose of section 41 is to stop a tax avoidance device which enables some benefits in kind to escape tax because they are provided, not by the employing company, but by an associated company. Benefits in kind provided by non-trading bodies will, by virtue of section 42, be charged to tax in the hands of the directors or employees in the same way as similar benefits provided by trading bodies.
I now turn to the reliefs provided in Part I of the Bill.
Section 2 increases the maximum earned income relief in respect of a wife's earnings from £74 to £104. The income limit for the purposes of the dependent relative allowance is raised by section 4 to £347 which is the annual equivalent of the maximum non-contributory old age pension following the pension increases announced in the budget. Section 7 enables pension schemes approved for tax purposes under pre-1972 legislation to pay a tax-free death-in-service benefit in lump sum up to four times the deceased employee's final remuneration. Section 11 increases from £350 to £450 the limit for tax purposes on the maximum annuity payable by registered trade unions. The purpose of section 13 is to ensure that the benefit of the tax exemption in respect of non-bedded minerals must be passed on by a holding company when paying dividends out of exempted income. Payments of income to or in respect of Irish thalidomide children from the German foundation will be free of tax by virtue of section 18.
Section 14 is linked with section 19 which extends "charity exemption" to bodies of persons whose objects are the promotion of observance of the provisions of the Universal Declaration of Human Rights or the implementation of the European Convention for the Protection of Human Rights and Fundamental Freedoms. Section 14 secures that annual contributions made under covenant by any person to such bodies for a period exceeding three years will be recognised for income tax purposes. This amendment to the law is being made in recognition of the importance of ensuring widespread recognition for fundamental human rights.
Any payment made by a trader to an Irish university for the purpose of enabling the university to undertake research in, or engage in the teaching of, industrial relations, marketing and other approved subjects will benefit from the tax relief provided in section 20.
The following temporary capital allowances are being continued for a further two years up to 31st March, 1975:
(i) free depreciation for new plant and machinery provided for use outside the designated areas— section 16;
(ii) 100 per cent initial allowance for capital expenditure incurred on new plant and machinery—section 8;
(iii) 20 per cent investment allowance for capital expenditure incurred on new plant and machinery within the designated areas—section 15; and
(iv) 20 per cent initial allowance for capital expenditure incurred on industrial buildings—section 9.
Section 10 is complementary to section 8 which also ensures that a trader will not obtain allowances, apart from the 20 per cent investment allowance that I have referred to, of more than 100 per cent of the cost of machinery and plant.
With a view to encouraging Irish research and inventiveness, industrial development and improved competitiveness, section 33 exempts from tax income from patent royalties arising to individuals or companies resident in this country where the work in connection with the devising of the patented invention is carried out here. The exemption from corporation profits tax of certain public utility companies, building societies and the Agricultural Credit Corporation is extended under section 35 for a further year to 31st December, 1973.
The extension of the charge to tax of profits derived from activities on Ireland's section of the continental shelf and to income of employees working on the shelf is effected by section 32 and the third schedule to the Bill. Section 17 authorises the administrator of a statutory superannuation scheme to deduct from refunded contributions the tax due in respect of the refunds. The purpose of section 6 is to remove a legal assessments on the personal representative of a deceased member of a partnership in respect of his share of the partnership profits arising prior to his death, while section 3 provides for the reductions in the income tax child allowances referred to in the budget.
The remaining sections in Part I of the Bill, namely, sections 12, 30, 31, 36 and 37, are consequent on and give effect to the terms of the agreement and protocol, dated 2nd May, 1973, between the Government and the British Government in regard to new arrangements for the avoidance of double taxation of dividends flowing between the two countries. The texts of the agreement and protocol will be found in the second and fourth Schedules, respectively, to the Bill.
Broadly, the new provisions ensure as far as possible that the position of our Exchequer and of residents in this State with shares in companies located in Britain or Northern Ireland will not be adversely affected during the currency of the new arrangements. Under the arrangements the tax credit relating to dividends allowable under the new British system will be paid to all shareholders resident in the State other than direct investors; indirect investors, which means companies with a stake of 10 per cent or more in the company paying the dividend, will be allowed a credit against Irish income tax in respect of so much of the British corporation tax on the profits out of which dividends are paid as cannot be allowed against our corporation profits tax. Persons resident in Britain, on the other hand, will continue to be entitled to exemption from Irish income tax except that, in order to protect the Exchequer, up to 5 per cent of that tax will be retained on dividends paid by Irish companies to direct investors in Britain. Britain will however give relief against corporation tax for Irish income tax so retained, as well as for the Irish corporation profits tax underlying dividends paid to direct investors. The new arrangements will be effective for a period of two years commencing on 6th April, 1973. It will be necessary to negotiate a further agreement to take effect at the end of that period.
Before completing my review of Part I of the Bill, there is one final matter that I want to deal with. In the budget speech I indicated that it was proposed to restrict to the Post Office and trustee savings banks the tax exemption applicable to interest up to £70 on deposits with certain financial institutions. Since the announcement three new factors have entered the area of money supply. In my budget statement I said that my Department and the Department of Local Government were urgently examining the possibility of assisting the flow of funds to building societies. Since then the Government have given assistance to building societies which has enabled them to offer an effective rate of 7 per cent to investors while retaining a lending rate of 10 per cent to their borrowers, the position to be reviewed within six months. Consideration is also being given to conferring trustee status on building societies. On the 26th June last the associated banks reduced the bank interest rate by ½ per cent. Obviously the money flow situation may be fluid for some time to come.
It has been represented to me that I should not proceed with the proposal to withdraw the bank deposit tax exemption on the grounds that it would result in an outflow of funds from the commercial banks involved and possibly from the country. I do not fully accept the claims made that the proposal would cause such an outflow of funds, especially as it was never intended to disturb the present arrangements for the disclosure of interest paid or credited without deduction of tax. However, in view of the comparative changes in building society and bank rates since the budget, the heavy demands by the Exchequer on the banks concerned and the importance of ensuring that they will have adequate resources to meet these needs in addition to those of the private sector, the Government have considered the matter afresh. They have decided in all the circumstances to leave the existing position in relation to the tax exemption unchanged.
Part II of the Bill deals with customs and excise duties. Sections 46 to 49 confirm the budget increases in customs and excise duties on beer, spirits and tobacco. Section 50 permits the use, under certain conditions, of materials other than tobacco in the manufacture of cigarettes for export. Section 51 provides for the confirmation of a number of Imposition of Duties Orders made by the Government.
Part III of the Bill relates to death duties and is mainly concerned with the enactment of the very substantial reliefs announced in the budget. Sections 52 and 53 provide for the raising of the exemption limits in the case of estate duty and legacy and succession duties, respectively, from £7,500 to £10,000. Section 54 increases the rates of legacy and succession duties. Section 55 doubles the estate duty abatements in favour of widows and dependent children. Section 56 raises the limit for the application of artificial valuation of agricultural land from £2,000 to £3,000.
In section 57, which provides for the exclusion from an estate for estate duty purposes of the first £7,500 of superannuation death benefits—at present exempt only where the total amount payable does not exceed £7,500—there is a further improvement not mentioned in the budget. The present concession applies only where the benefits are payable to or for the widow or dependent children of the deceased. The improved concession will now extend to superannuation death benefits to whomsoever payable. This alleviation will, for example, secure that the first £7,500 of a superannuation scheme death gratuity payable on the death of a bachelor or single woman will be excluded from the estate for estate duty purposes. The new relief for insurance policy benefits provided in section 58 —which is similar to the superannuation death benefit relief—will also apply irrespective of who the beneficiaries of the policies are.
There are two further death duties matters not previously announced. Section 59 provides that units of a unit trust scheme whose underlying securities enjoy exemption from estate duty where the owner was neither domiciled nor ordinarily resident in the State will enjoy the same exemption as the underlying securities. This provision will facilitate the establishment of unit trusts specialising in government stocks. Section 60 is designed to extend to all deposit-accepting institutions the restrictions which already apply to banks concerning the maximum amount, £1,000, that may be paid out of a joint deposit account following the death of one of the joint depositors.
Part IV of the Bill, which deals with stamp duties, consists of two chapters. The first of these converts into permanent legislation the stamp duties changes announced in the budget, which were given temporary effect from 1st June last by an order under the Imposition of Duties Act, 1957. Section 61, which is a commencement provision, and section 65, which revokes the order, will have the effect of substituting the provisions of sections 62 to 64, inclusive, for the provisions of the order. Section 63 is the section which exempts mortgages up to £10,000 from stamp duty and reduces the stamp duty on sales of houses and lands up to £10,000 in value. Section 62 contains a minor consequential amendment relating to mortgage deeds where the amount to be advanced is not stated. Section 64 increases the stamp duty on office building contracts from 10 per cent to 15 per cent.
Chapter II of Part IV of the Bill provides for the implementation in this country of an EEC Directive concerning stamp duty on the raising of capital by companies. The explanatory memorandum circulated with the Bill describes the main provisions of the sections 66 to 74 necessary to bring the directive into effect.
Part V of the Bill puts into legislative form the value-added tax budget proposals the net effect of which will reduce the consumer price index by 0.5 percentage points. It also includes some provisions to facilitate administration of the tax and to prevent avoidance. The opportunity has also been taken to incorporate in this Part some arrangements already in operation under Ministerial Order and to rationalise some of the penalty provisions in the original Act.
The removal of VAT from the principle foodstuffs and from oral medicines is effected in section 87 of the Bill. Section 79 provides for the revised rates on non-food items which were announced in the budget and which are designed to recover the revenue lost on foodstuffs as well as providing a modest contribution of some £2.6 million this year towards general budgetary needs. As Deputies are aware, the zero rate for food will not extend to certain luxury consumable items and these matters are dealt with in sections 77 and 87.
The exact delineation of the commodities liable to the zero rate was completed after detailed discussions with trading interests and the fruit of these discussions is contained in the Bill. I hope, therefore, that the changes involved will take place smoothly and with a minimum of disturbance to business routine. The detailed definitions were already the subject of a recent Press notice for the information of traders. I would like to remind Deputies that the date of implementation has been postponed from 1st September to 3rd September to allow traders a week-end for repricing. This change of date will operate as much to the advantage of consumers as of traders as it will enable purchasers to ensure that food prices will be reduced with effect from Monday, 3rd September.
As regards the effect of the changes on retail prices, my colleague, the Minister for Industry and Commerce, has already announced a series of price control measures. These will help to minimise any risk that the full tax reductions will not be passed on by traders.
Besides the adjustments I have mentioned, Part V of the Bill also contains certain provisions, mainly of a supplementary or consequential nature and I would like to mention the more important of these now. Under the value-added tax farmers and fishermen are not required to register or to pay tax on sales. Instead they are compensated for tax borne by them on their purchases of, for example, agricultural machinery and fuel, by a 1 per cent addition to their output prices which addition, however, ranks for credit or refund in the hands of a registered purchaser of agricultural produce. Under the revised rates of tax the 1 per cent addition would no longer be sufficient to balance farmers input tax and it was necessary, therefore, to consider measures to restore the balance.
Rather than revise the 1 per cent addition, to which farmers have become accustomed, I decided to extend the zero rate, which at present applies to manufactured fertilisers and feeding stuffs, so as to cover unprocessed feeding stuffs, such as green grains, and to animal oral medicines as well as seeds and plants for the production of food. These reliefs, which are dealt with in section 87, are calculated to be ample to bring down farmers' input tax to a level of 1 per cent of total farm output. The present 1 per cent addition can, therefore, remain undisturbed.
I should mention that this addition by farmers will not, in the normal case, affect food prices at the retail level, because most food wholesalers and retailers are registered and, consequently, they will be able to obtain a refund from the Revenue equal to 1 per cent of their food purchases from an unregistered farmer.
Up to the present, certain intensive types of agricultural production, such as market gardening, did not qualify for the special arrangement for farmers which I have described. In view of the zero rating of food, it is no longer necessary to make this distinction and, consequently, section 89 and the Tenth Schedule provide that persons engaged in these intensive food production activities will be able to de-register if they so wish.
Before leaving the subject of agriculture, I should mention that section 86 provides for the exemption from the tax of horses and greyhounds. It is a necessary part of the operation of the bloodstock and greyhound industries that animals are frequently exported and imported for varying periods, and it was found that the operation of VAT on importation was seriously affecting the smooth functioning of the industries. The exemption here proposed will solve the problem.
Section 86 also provides for the exemption of the natural or artificial insemination of cattle, sheep and pigs. This will remove an anomaly in the present operation of the arrangements for agriculture.
Section 78 substitutes a new and more exact provision enabling the Revenue Commissioners to provide by regulation for the taxing of services provided by a trader for his own business or in connection with it, even if no charge is made for the service. This is necessary to ensure that major differences in tax incidence do not arise as between certain services provided within a firm and similar services provided by a contractor. For example, in view of the removal of the tax from food, firms who provide their own catering for staff canteens would have a substantial advantage over commercial caterers providing similar facilities on contract, because the contract would suffer tax at the rate of 6.75 per cent whereas the firm providing its own catering would escape tax completely on both the food and serving costs. I should mention, however, that, under section 86, an exemption will apply to catering services provided for patients in hospitals and pupils in schools.
Section 79, as well as providing for the new rates to be charged as from 3rd September next, gives the Revenue Commissioners power to determine the rate of tax to be applied in any particular case or class of cases, either upon request by a taxpayer or where the Commissioners are satisfied that doubt as to the correct rate would otherwise exist. A determination of the Revenue Commissioners will be subject to appeal to the Appeal Commissioners and from them to the courts. The section also contains an anti-avoidance measure in relation to catering. It is provided that the person who renders the catering service will be accountable for tax on the value of food supplied by him whether or not he himself purchased the food.
Section 80 provides that newly registered persons who were formerly unregistered traders may obtain relief for the tax element in their stock-in-trade on the date of registration. Such persons will, instead, be liable on their sales. One effect of this provision is that small traders who wish to register on 3rd September next will be able to obtain relief for the tax element in food stocks which they hold on that day.
Section 81 is necessitated by the postponement of the date of the VAT changes from 1st September to 3rd September to which I referred earlier. In order to facilitate accounting for the tax, it is provided, in the Tenth Schedule, as a transitional arrangement, that the July-August tax able period this year will be extended to end on Sunday, 2nd September, and the September-October taxable period will commence on Monday, 3rd September. Section 81 ensures that not withstanding the slight extension, the normal period of 19 days' grace for payment of the tax will apply after 31st August.
Sections 81 and 82 increase the penalties for two offences under the Value-Added Tax Act so as to bring them into line with penalties for similar offences under, for example, the Income Tax Acts. Section 85 provides for the adjustment of prices in existing contracts necessitated by the changes in rates. Section 87, as well as providing for the extension of the zero rate to most food items, oral medicines and the other commodities I have already mentioned, also makes some consolidating changes in the Second Schedule of the VAT Act incorporating the effect of certain arrangements already provided by Ministerial Order. The first extends the zero rate to the life-saving services of the Royal National Lifeboat Institution. The second provides that the inclusion of a toy or other similar item of insignificant value in a packet of zero-rated food will not render the packet liable to tax.
Section 88 removes from the Schedule of goods liable to the 6.75 per cent rate those items which are being added to the Schedule of goods liable to the zero rate or which are being exempted. It also provides for the consolidation in the VAT Act of certain other Ministerial Orders.
Finally, section 89 provides for various amendments of the VAT Act, as set out in the Tenth Schedule. These are almost entirely of a supplementary or consequential nature, and I think it would suffice if I draw the attention of Deputies to only one of the amendments. It extends the definition of "manufacturer" to include a person who supplies materials to another person for the purposes of having motor cars, television sets or other goods liable to the 36.75 per cent rate manufactured or assembled on his behalf. Of the full 36.75 per cent, 30 percentage points will effectively apply at the manufacturer level only and the balance at the retail level. The amendment, which is intended to take effect immediately on the enactment of the Bill, is designed to defeat certain arrangements between linked companies which could have the effect of reducing the element of value of such goods to which the 30 percentage points will apply.
Part VI of the Bill deals with a number of miscellaneous matters. Section 90 contains the usual annual provisions relating to the capital services redemption account. Section 91 extends to securities issued in this country by the European Coal and Steel Community, the European Atomic Energy Community and the European Investment Bank the same tax privileges as apply to securities issued by certain semi-State bodies.
Sections 92 to 94 deal with the road tax and related measures announced in the budget and implemented temporarily by Financial Resolutions approved by the House on budget day. Section 92 relates to the motor vehicle duties and provides that the proceeds of the variations in the rates of these duties, as well as the new first licensing charge imposed in section 93 and the increase in driving licence duty imposed in section 94, and in the provisional licence duty will not be taken into account in determining the amount to be paid into the Road Fund in respect of motor vehicle duties and related charges.
Section 95 repeals certain stamp duty provisions set out in the Eleventh Schedule. Section 96 is the usual care and management clause and section 97 provides for the short title, construction and commencement of the Act.
I commend this Bill to the House.
