Dáil Éireann debate -
Thursday, 26 Jul 1973

Vol. 267 No. 12

Finance Bill, 1973: Committee Stage (Resumed).

SECTION 34.

Mr. R. Ryan

I move amendment No. 3:

In page 19, line 7, to delete paragraph (a) and to substitute the following paragraph:

"(a) section 15 of the Stamp Act, 1891, and subsections (2) and (3) of section 68 of this Act,".

Subsections (2) and (3) of section 68 of the Bill charge interest on the stamp duty which is imposed by chapter II of Part IV of the Bill in relation to transactions of capital companies. The amendment of paragraph (a) of section 34 is necessary to ensure that this interest is treated for income tax purposes in the same way as interest is treated on stamp duty chargeable under the 1891 Act and on income tax and value-added tax.

Mr. Colley

Could the Minister outline the difference in the way these items are treated at present?

Mr. R. Ryan

This is the amendment.

Mr. Colley

Is the amendment not designed to ensure the uniformity of treatment?

Mr. R. Ryan

Yes.

Mr. Colley

What is the difference at present?

Mr. R. Ryan

In respect of income tax and corporation profits tax there is a prohibition on deducting interest in calculating income tax liability. There is no such prohibition in relation to these items and the purpose of the exercise is to bring them all into line so that payment of interest which arises due to default in payment cannot be set off against income tax by liability.

Mr. Colley

Would I be correct in saying that this is due to an oversight in previous legislation, rather than being deliberate?

Mr. R. Ryan

I would say it is due to an oversight. At that time there was not thought given to it, if I might put it that way. Obviously, all these matters should be brought into line because in the present situation one can reduce one's income tax liability because one is in arrears in paying other tax liability.

Amendment agreed to.

Question proposed: "That section 34, as amended, stand part of the Bill."

Mr. Colley

Can the Minister say if the Revenue Commissioners have had any cases, or many cases, of people claiming as a relief against liability for tax the amount of interest payable?

Mr. R. Ryan

It is very difficult to count these because statistics have not been kept but there is a growing practice of claiming for interest.

Mr. Colley

But there are some cases?

Mr. R. Ryan

Yes, and of course now that there are so many individual payments under the VAT code, there are several cases in which people are claiming this interest as a set-off. A number of people also have made claims to the effect that parking fines should be regarded as part of the ordinary expenses of business on the grounds that the fines concerned commercial vehicles parked on the public street. Revenue has never been able to accept that a penalty imposed can be set off against profits.

Mr. Colley

Presumably, under a section passed earlier, they might, with ingenuity, bring it in under business entertainment.

Question put and agreed to.

Section 34, as amended, agreed to.

SECTION 35.

Question proposed: "That section 35 stand part of the Bill."

Mr. R. Ryan

The purpose of section 35 is to extend for a further period of one year the temporary exemption from corporation profits tax hitherto accorded to certain public utility companies, building societies and the Agricutural Credit Corporation. The latest period of exemption expired on December 31st, 1972. It has been the practice to extend this from year to year.

Mr. Colley

My recollection is that there have been these extensions for a few years past. My recollection is that the reason it was done this way was that it was a temporary arrangement pending the settling of what would be the proper extension of trustee status. I may have this wrong but there was something of this nature involved. Perhaps the Minister could enlighten us as to what is pending while we extend this and how soon we may expect finality in the matter.

Mr. R. Ryan

As the Deputy and the House know, the whole question of building societies and public utility companies is under examination at present and this examination is being conducted by the National Prices Commission and it would not be proper or, indeed, sensible for me to anticipate what time they will require to complete their inquiries nor, indeed, can we anticipate their recommendations. In the meantime, we consider the appropriate thing to do is to maintain the status quo and that is what we are doing.

Mr. Colley

I wonder if the Minister is correct in referring to the National Prices Commission. This is a fairly recent development, whereas a section of this kind has appeared for a number of years in Finance Acts.

Mr. R. Ryan

Yes. The question has been under review for some time past but the review at present is being conducted by the National Prices Commission to whom the matter has been referred. I think it was being examined departmentally for some time.

Mr. Colley

Not, I thought, from the same point of view.

Mr. R. Ryan

I do not think the National Prices Commission is excluding anything at the moment.

Mr. R. P. Burke

This is giving protection to building societies. Could this not be nullified by the fact that a certain proportion of building society money has been channelled for purposes other than those for which they were originally designed and for which their charter provides, namely, the construction of private houses? In a recent reply to a question addressed to the Minister for Local Government we were informed that a portion, be it 5 per cent or 10 per cent per annum, was being channelled to other purposes. Would that break the charter and, consequently, affect exemption from income tax and corporation profits tax?

Mr. R. Ryan

One of the matters being investigated at the moment is the manner in which building societies are applying their funds. I do not think the application of funds to purposes other than house building for private occupation reaches the proportions the Deputy has mentioned but it is proper that people should realise that building societies have to keep a certain proportion of their funds in reserve to meet demands which may be made upon them for cash and often this finds itself channelled into other forms of investment which can be more readily realised than houses. It is obvious that where a building society has lent money on a mortgage on a house for private occupation that asset is well-nigh incapable of being liquidated except by causing considerable hardship to the mortgagor but in any case if the mortgagor is maintaining payments and complying with the terms of the mortgage there is nothing that the society can do about it. A proportion has to be kept in assets other than actual houses as such. One of the conditions imposed by the Government before they gave this recent subvention to building societies was that they would keep to an absolute minimum the investment of money in anything other than private house building. We are satisfied that there has been an improvement in this matter.

Mr. R. P. Burke

It was the Minister for Defence who answered for the Minister for Local Government and who informed us that the subvention would be given only if the total funds of the building societies— not a minimum amount — were channelled to the sources that most of us understand was in accordance with the spirit of the legislation if not the letter of the legislation, that is, the lending of money for the purpose of private houses. This seems to conflict with what the Minister is saying, that the subvention is being given even if some building society money is being channelled into purposes other than private houses.

Mr. R. Ryan

No, I should not like anyone to get the wrong impression from what I have said.

Mr. R. P. Burke

That is why I am asking for clarification.

Mr. R. Ryan

The Government have made it clear that all available resources of building societies must be allocated towards the financing of houses for occupation by the purchasers. I am saying now, with my financial cap on, that building societies must reserve a certain proportion of their assets in liquid form. A certain misunderstanding has arisen in the public mind. Where a building society's accounts have shown that a certain proportion of assets is not, in fact, invested in private residences, the Government are insisting that this be kept at the minimum necessary to ensure liquidity. That is entirely necessary because we must get the confidence of investors in building societies. If they want their funds back they must be able to get them on demand and it is only if a certain proportion is kept in assets other than private dwellings that that would be possible. This is being kept to the bare minimum. What we have discouraged is the use of their resources for investment in industrial and commercial properties. That is what we need to stop while at the same time we will, as we must, allow building societies to keep a certain amount back for liquid requirements.

Question put and agreed to.

SECTION 36.

Question proposed: "That section 36 stand part of the Bill."

Mr. R. Ryan

Section 30 provided for charging to income tax the British tax credit recoverable under the new agreement with the United Kingdom.

This section provides that companies which are entitled to payment of the tax credit shall be charged to corporation profits tax on that tax credit in addition to the British dividend which they receive and to which the tax credit relates.

A company is charged to corporation profits tax on its profits by section 52 of the Finance Act, 1920. Where these profits include a dividend from a British company, the amount which has been included in respect of the dividend has hitherto been the gross amount before deduction of tax. The company would have received the net dividend after deduction of British income tax and under the residence agreement would have been entitled to claim repayment of the British income tax so deducted. Under the new arrangements in the United Kingdom income tax will not be deducted from dividends but residents in Ireland will be entitled to get payment of the tax credit appropriate to the dividends. To maintain the same position as existed before 6th April, 1973, the section provides that a company which is entitled to payment of the tax credit from the British revenue is to be charged on the total of the dividend and the tax credit. This corresponds with the former charge of the net dividend plus the refund of tax deducted under the residence agreement.

The section will affect only those companies which have less than a 10 per cent stake in the British company paying the dividend. Companies holding 10 per cent or more of the voting power of the paying company are not entitled to the tax credit under the new agreement, and they will be charged to corporation profits tax only on the dividend received.

The section deals only with a dividend within the meaning of Article 1 of the agreement set forth in the Schedule to the Act. In that article "dividend" is defined as including any item which under the law of the United Kingdom is treated as a distribution of a company. The term "distribution" has a very wide meaning under the United Kingdom Taxes Acts. It can include items which would not normally be regarded as dividends and may also include payments which, or part of which, would not be chargeable to Irish corporation profits tax. The new provision does not bring into charge to tax any payments or other items which under the general law would not already be chargeable.

The section is limited in its application to dividends paid in the two years from 6th April, 1973, to 5th April, 1975, to correspond to the period to which the new agreement relates. As I mentioned earlier it is proposed that a new agreement will be negotiated to cover the period from April 1975 onwards.

Mr. Colley

This is the same kind of provision as the one we have already dealt with.

Mr. Carter

Is there some delay in issuing form K.1 which deals with refunds, subsequent to 5th April last? I am aware that people who want to make claims and who need the money involved are suffering some hardship as a result of this delay.

Mr. R. Ryan

In relation to any past tax recovery there should be no delay in the issue of a K.1. If the Deputy has any cases in mind, I should be only too glad to look into them. In relation to the tax year 6th April, 1973 onwards forms are not being issued in anticipation of the passage of legislation here and in Britain to cover the new situation.

Question put and agreed to.

SECTION 37.

Question proposed: "That section 37 stand part of the Bill."

Mr. R. Ryan

This section is related to the protocol signed on 2nd May, 1973, which is set out in the Fourth Schedule and which contains an agreement between the Irish and British Governments for amendment of the agreement signed on 18th May, 1949 which is contained in the Fifth Schedule to the Finance Act, 1949. The new arrangements are in the form of a protocol which was adopted at the request of the British revenue authorities in order to enable them to give legal effect to the amendment by order rather than by specific legislation. The safeguard contained in the phrase "subject to confirmation by the United Kingdom Parliament" which is used in the section is necessary because the agreement contained in the protocol could not come into effect until it was also passed in the British Parliament.

Question put and agreed to.

SECTION 38.

Question proposed: "That section 38 stand part of the Bill."

Mr. R. Ryan

Section 38 and the Fifth Schedule contain provisions to counter tax avoidance by means of a device known as loss-buying. The device operates as follows: a company making substantial profits acquires the shares of a run-down company which has been carrying on a similar trade and which has accumulated large losses or unused capital allowances. Under existing law, trading losses, and unused capital allowances, may be carried forward and set against future profits of the same trade. The profit-making company purports to have revived the trade of the loss company — which is similar to its own — and claims the set-off of the accumulated losses against the profits of the revived trade. What has happened, however, is that the profit-making company has transferred part of its profit-making activities to the loss company so as to reap the benefit of the accumulated losses. The result of the scheme is that the profit-making company obtains tax relief on its own profits by means of this loss-buying transaction. There is a growing tendency to adopt this device as may be gathered from the advertisements seeking companies with losses in particular trades, and also advertisements offering for sale companies which have nothing to offer except accumulated losses.

The present section and related schedule propose to counter the tax avoidance device by refusing to allow the carry-forward of trading losses, or unused capital allowances, of a company where, in association with a change in ownership, there is a major change in the activities of its trade or, at the time of the change in ownership, the company's trade is near dormant.

The "major change" in the activities of the trade includes, of course, the transfer of part of the profit-making trade to the run-down company against which the old losses would be offset. Legislation of a similar nature was included in the British Finance Act, 1969.

Mr. Colley

The Minister will recollect that on Second Stage I expressed some views on this section. In so far as the device known as loss-buying can be counteracted, it should be counteracted where it consists solely of avoiding liability for tax. I pointed out to the Minister that there were dangers in what was being done and that the section should be looked at more closely to try to ensure that it did not operate to prevent what would be very worthwhile activities especially in the present condition of our economy where we are emerging into free trade and where we have companies struggling in this free trade era, companies which, with an injection of capital and know-how, could be successful. I suggested it might be advisable to provide that this kind of operation would not be prohibited on certain conditions, one of which might well be the maintenance of employment in the run-down or running-down company. Certain other conditions strike one as being possible of application.

I understand this section and the Fifth Schedule copy the English legislation, whether word for word or very closely, I do not know, but there is a very close resemblance between them. I also understand that in Britain as a result of this legislation some genuine cases of reconstruction were caught. This is the very fear I expressed in regard to this section. It seems that some safeguards are required which do not appear to exist in the section at present. Presumably the section is designed solely at the moment from the point of view of the Revenue Commissioners which is, perhaps, legitimate in a Finance Bill, but there are other considerations entering into these transactions. It seems as if there is a case, as I have indicated, for exemption from the provisions of the section of such transactions where certain conditions such as maintenance of employment are fulfilled. Alternatively, there is a case for some authority — offhand I suggest some State body such as Fóir Teoranta or the ICC — being given the duty and the authority to examine cases of this kind and recommend exemption from the provisions of this section where it seems clear to them that the proposed takeover — to use that word — of the rundown company is a genuine reconstruction effort with reasonable prospects of success and in particular with reasonable prospects of maintenance of employment.

There are factors other than revenue ones involved in this and while I have no desire to assist in any way the avoidance of taxation by the device of loss-buying, I believe we must be very careful, perhaps even more careful than the situation would require in Britain. Our circumstances are more difficult and we are more likely to have companies genuinely in difficulties and genuinely potentially viable. I have the greatest fear that the operation of this section, and the Fifth Schedule, may well prevent the saving of companies of this kind, and the saving of the employment which they give. This is a very serious matter and, for that reason, I will be glad to hear that the Minister examined this closely and had some proposals which would ensure that this section, and the Fifth Schedule, would not operate in the way that I fear.

Mr. Carter

I have similar thoughts on this section to those expressed by Deputy Colley. One could take the case of a company which, for example, is running at a profit at one end while the other is running at a loss. Such a happening could occur in a wholesale or retail business, for example, grocery and hardware. If the grocery was failing to make a reasonable profit and the company was in need of money it could be decided to seek money and expertise. This might mean the co-option, in certain circumstances, of a director, or two, to the board of the company.

The company would be doing this, firstly, to make a profit and, secondly, to preserve employment and to keep the business going. Would the terms as outlined in this section not cross lines with circumstances so described? Deputy Colley was right to point out that there are certain dangers in this section even though the Minister has the best intentions. We all know of the loss buying and of the shell trading and of the major concern moving in and taking over a company which is in difficulty. This major concern advertises the fact that the company is in difficulty through the community especially if it is a public company. I have more in mind a private company.

At any rate, we know the tactics employed in this regard. We know that in order to get the public interested the Stock Exchange has to be worked up and the share values raised. No one would find fault with the section in regard to what it does in this direction but there is the danger that it could impinge in the direction which I have described. I would be grateful for the Minister's observations on this matter.

Mr. R. Ryan

I am very much alive to the matters which concern the Deputies opposite, but I think we have to consider this. As far as I know there is not, for instance, in Britain, any company comparable with our Fóir Teoranta. This company is available to come to the rescue of companies in difficulties. A great deal of the help given by Fóir Teoranta is not merely on a financial basis but is also an injection of management which helps to get tottering companies on their feet.

They often do it by arranging amalgamation. We consider it better that if money is needed in such a situation that it be given outright by the State with Fóir Teoranta doing that kind of operation. We believe that this is preferable to continuing in the kind of situation which has come to light. I do not like giving particular instances because they might be capable of identification, but some cases which I can give to the House illustrate the kind of thing that is happening at the moment without any benefit to the employees in the companies that have the trading losses, without any increase in economic activity, but at considerable cost to the Exchequer.

One company which had losses of nearly £½ million was purchased by another company which had immense profits for a price of about £50,000. This gave the company that had the immense profits a tax saving of over £¼ million. There was no maintaining of employment because the losing company had virtually no employees left; they were located in an area far away from the company which purchased them and there was no transfer of the few employees left but the tax gain to the successful company was immense and there was no additional employment generated good, bad or indifferent. To the ordinary taxpayer, as a result of that particular device which was a legitimate one and would remain a legitimate one as long as we leave the law in its present ineffective state, there was a loss of over £¼ million.

It does not seem to me that that is the correct thing to do. Another company, with losses of £271,000, was acquired in a not dissimilar situation; it did not maintain employment or generate new employment. The Deputies can calculate for themselves what the probable loss in tax was, something over £100,000. Another company which was acquired had accumulated losses of nearly £1 million before it was acquired by another company which put those losses against its profits to avoid the tax that it ought to have paid to the public generally.

That clearly is not something that can be justified and I do not think that the Members opposite are justifying it. Maybe I should read out some of the samples of advertisements which have been issued. Members may have seen them.

Mr. Colley

We may waste time if we go on but the Minister may take it as common ground between us that in the kind of cases which he described we want to ensure that this kind of thing does not go on. Our concern is in the other area. What we would like to know is, has the Minister any ideas as to how we can ensure that this section will not operate to bring about the kind of results we envisage?

Mr. R. Ryan

I think Fóir Teoranta is the system to provide the life saving services. Fóir Teoranta, as the House knows, is concerned with employment. In other words, if Fóir Teoranta considers that an industry, or an activity, is not going to be viable, either by itself or in association with somebody else, they say: "Sorry, there is no point in helping you." As long as we leave the present system there these losses will be used by companies which will not maintain or increase employment. I do not think that is right.

Mr. Crowley

I think the Minister is repeating what we have been saying in relation to where continuity of employment can be guaranteed. I think this would overcome any misgivings we have about the whole thing. We agree with the whole concept of what the Minister is trying to do but, at the same time, it would be ironic if we had a company prepared to come in and invest and lend its technical know-how and expertise to make it a survival company and then we may have to come along later and inject money from other State sources by way of grant and loan to keep the company going. We could easily get over this difficulty if we could put in some clause which would guarantee continuity of employment for a certain number of years and have some sort of retrospection whereby they would not gain the value of the tax loss until such time as they had proved they were bona fide.

Mr. R. P. Burke

Members on this side of the House have expressed complete agreement with the principle the Minister has in mind, namely, the protection of the State in this kind of situation. I would like to ask the Minister are Fóir Teoranta, as presently structured, geared to do what the Minister has in mind? Would they have the manpower and the capacity to adjudicate on what will happen in these kinds of mergers and in the kind of situation to which the Minister referred? We are trying to protect employment in industry, which has been going down, with the possibility of a takeover. With an injection of capital and expertise there is the possibility of protecting employment and even generating more jobs. Would Fóir Teoranta have the manpower to do the job properly?

Mr. R. Ryan

I could give the Deputy a very honest answer, but I do not want to give a short one. They would have far more ability to do this than would the Revenue Commissioners.

Mr. Colley

I agree. It is not a job for the Revenue Commissioners at all.

Mr. R. Ryan

The Revenue Commissioners have not got the dynamic expertise and experience in this industrial field and, from that point of view, Fóir Teoranta are really the people to do it. As I pointed out recently, they are increasing their work force in order to provide additional management skills so that they will be able to put in really goahead managers into situations where obviously what is needed is simply a decent bit of modern management. We are satisfied Fóir Teoranta and the IDA are in a much better position to control these situations. We discussed the matter with them before we brought in this section. They are the people to manage these situations. Naturally enough, everybody likes to push as much as possible on to the Revenue Commissioners and that would be fair enough if, in the end result, the community benefits. I think Deputy Crowley thought that it might sometimes be cheaper to use the tax device rather than give a direct subsidy. Because of the quantity of known tax losses which have arisen the State has been deprived of money and the time has come to say that these devices will no longer be available. If, as a result of this, we can stop the losses that have arisen by the use of this system we will have ample money available to bolster up those companies that can maintain employment. It is important to realise that, as far as the Revenue Commissioners know and as far as those of us in our own professions and private experience know, in most companies that have sold their tax losses there has been no maintenance of employment. That is one of the tragedies and, so long as we leave this loophole there, we are facilitating the running down of companies and the acquisition of them by people who have no obligation to keep on the employees.

Deputy Burke asked could we not write in a provision to the effect that the tax concession would be available only if employees were kept on. We could do that but how would you enforce it? If, after a year, two years or five years, the management of the concern are able to establish that it is necessary to bring about redundancy in order to go on surviving, who could say at that stage: "You have broken your undertaking to keep people in employment and you are now, therefore, going to suffer the tax losses"? That would be the ideal, but in practice it would be extremely difficult. We are aware of all the dangers to which Members have alerted us tonight and I can assure the House we will keep a very careful watch on the situation and I will be the very first to want to change it if I consider it is working to the disadvantage of employment and of industries which would remain viable if this tax arrangement had been maintained.

Mr. Carter

The Minister has answered the question by suggesting more or less semi-State enterprise. I do not believe Fóir Teoranta are capable of either restructuring a company or of management of a company. When one wants expertise and money one has to look to the private sector. That is my point and this is where the lines cross. The Minister has evidently great faith in Fóir Teoranta; I would not have as much faith in it or in any other semi-State company. Neither Fóir Teoranta nor the IDA have the expertise or the manpower to undertake such work. I have had evidence of that in my dealings with them as an ordinary Deputy. One has to go deeper. One has to go where the money is. If the owner of a company is prevented from doing that in a genuine effort to survive — I am not now speaking of that which the Minister condemns, because we all agree with him there — Fóir Teoranta are not the answer. You may have a company, one end of which is making a loss and the other end of which is making a profit; the company may want to restructure by coopting one or two people on to management; if the answer is to send these people to Fóir Teoranta, I would not approve of that.

Mr. Colley

As far as we are concerned, we want to see this section enacted to deal with the cases in regard to which the Minister has given us some details. We have explained what our reservations are and we have suggested two possible lines of approach which might meet the situation. The assumption is that we enact the section with the proviso suggested by Deputy Crowley, that a company which sought to gain the advantage of loss buying would, as I understood his proposal, get the tax benefit on a delayed basis; in other words, they would not get any tax benefit until after a specified period had elapsed and they had established over that period that they had maintained or increased employment, depending on the condition laid down. That is one approach. The other one is the Fóir Teoranta one which I will come to in a moment.

One thing that is quite clear, and the Minister adverted to it in something he said, though not in quite the same sense, is that it is the job of the Revenue Commissioners to protect the revenue and to administer such enactments as this. It is not the job of the Revenue Commissioners and neither are they equipped to assess the commercial viability of companies or the genuineness in the commercial sense of a proposition to benefit from a tax loss as against a purely tax avoidance device. The Revenue Commissioners are not competent to do this.

Unless one can write a specific condition into the Bill which would apply to any case where this section would not operate, the alternative method we suggested might be considered, the giving to a competent authority the power to recommend to the Revenue Commissioners that, in any individual case referred to them, exemption from this provision should be granted, because the proposition was a genuine, commercial one which was designed primarily to maintain and, if possible, generate new employment. It seems as though Fóir Teoranta might well be the competent authority in this regard.

The Minister will recall that when we dealt with some other legislation recently, I referred to the fact that I had some discussions with the board of Fóir Teoranta when I was Minister for Finance on the question of the recruitment of managers employed by Fóir Teoranta to be put, on a secondment basis, into industries which were ailing. I will not go back over the ground as to why it was necessary to do it that way. The Minister was kind enough to write to me since to tell me that Fóir Teoranta are recruiting staff for this purpose, something I was very pleased to hear. I believe that Fóir Teoranta could be the competent authority in this area. By implication from something the Minister said I think that the experience in Britain under similar legislation was unsatisfactory, but we have Fóir Teoranta which they have not got in Britain and, therefore, our experience need not be unsatisfactory.

Competent as Fóir Teoranta may be in this matter, I do not think they are the complete answer to the problem. I can visualise a situation in which Fóir Teoranta are involved and in which, by virtue of the circumstances obtaining, a tax loss benefit would be a far more attractive proposition than any assistance Fóir Teoranta might give in the normal way. I understand that the normal way for them to give assistance is by investment or loan capital. In such a case the complete abolition of the possibility of loss buying would mean that a weapon which would be available to Fóir Teoranta to induce a competent company to take over a failing one would be missing from their armoury. There is another situation in which Fóir Teoranta play no part, that is, where there is a failing company who have made contact with a company which would be competent to take them over, and competent to maintain or expand their activities and employment and Fóir Teoranta are not involved in any way. The inducement which exists for the failing company to bring this about is the existence of the loss-buying device.

I want to make this clear to the Minister. We say with the Minister that this device should be abolished, subject to its being usable under control exercised either by the Revenue Commissioners on the recommendation of Fóir Teoranta or, alternatively, to its being available for use on the basis of a condition which would be written into the section along the lines suggested by Deputy Crowley. These are alternative lines of approach. While I accept unreservedly the Minister's concern in this regard, and his desire to keep an eye on developments in this situation, I am afraid that once we enact this section and the Schedule, and abolish the loss buying weapon, whatever may happen in the future, that will never become available, even under the control of the Government, exercised in whatever way is envisaged.

In certain circumstances it is a very potent weapon which should not be lightly thrown away. It is a weapon which in some circumstances could be more valuable than any other form of assistance which the State could make available and, as Deputy Crowley suggested, a weapon which could well be cheaper in many cases than any other weapon available to the State. Although I do not rely entirely on that argument, it is a true argument. There are circumstances I can visualise in which it would be a more attractive one to achieve what is involved, even if it were not a cheaper one for the State.

I urge the Minister to accept that this device should be controlled rather than abolished, controlled by the Minister in one of the ways we have suggested, because it provides a weapon which could be very useful in the circumstances in which we find ourselves, and which I described earlier. We would be foolish to throw that weapon away rather than hold on to it to be used under the control of the Government in circumstances where it would be appropriate.

Mr. R. Ryan

From our information it appears at a rough calculation that the State is probably losing ten times more by the continuance of the present system than it would cost to give genuine direct State subventions to companies which were in genuine difficulties and would maintain employment. We have looked at several devices such as those mentioned here. It is not unlikely that if we give the authority to anybody else, Fóir Teoranta, the IDA, the Department of Industry and Commerce or any other group, they will end up by saying: "Let the Revenue Commissioners carry the can." We doubt very much that we would get the care in studying the situation which perhaps ought to be given to it.

We hope that, as a result of this, we will collect far more revenue which is being lost to people who do not require it and that the State, getting that money, can afford to be more generous to Fóir Teoranta. I have not as little faith as Deputy Carter in Fóir Teoranta. They are a fairly new organisation. They are only developing. They are increasing their management and their experience. Deputy Carter seemed to visualise that possibly new management on the board of a company might imperil the company's situation which, of course, it would not. This section of the amendment we are making applies only if a company is taken over and it is a question of a change of ownership.

Some of Fóir Teoranta's greatest successes have been in the arrangement of marriages between successful companies and companies which were in difficulties, plus making available for the short-term management skills and appointing directors on the boards of companies which, because they had become stale and inward-looking, had lost the capacity which they had to make a profit. I would not wish Deputy Colley to think I was saying that in Britain the stopping of this device meant that there were such losses. I do not say that. I am saying that, even if that were a danger, the situation in Ireland is not the same as in England because we have this built-in service to ensure that such losses will not arise.

Mr. Crowley

We all accept that what the Minister says is true. I still think, as Deputy Colley said, that this is a very handy device to have available to us in the event of an ailing company. Like Deputy Carter, I am afraid I have not got a great deal of faith in Fóir Teoranta. I have had experience of Fóir Teoranta in one place only, and I must say that they did not satisfy my examination of their operations. I must concede that perhaps I am not a qualified person to examine how effective or ineffective they are.

As regards the future composition of Fóir Teoranta and the recruitment of managers to it, maybe I am old fashioned, but I believe a semi-State employee is not as effective in an industry as a private enterprise man who is depending on this business for his livelihood. A manager who is taken into Fóir Teoranta has a certain guarantee of employment either as a civil servant or as a semi-civil servant, whereas the entrepreneur has got to make a go of that business; otherwise, he is out of business. We have a very valuable device to use, maybe on rare occasions. The Minister would do well to consider some way of shutting out the type of people we all want to shut out in the section, but at the same time leaving an opening there, maybe with the sanction of somebody in the Department of Industry and Commerce, so that, if a suitable firm came along to give a guarantee of employment over a certain period, first of all, we would have the people kept in their jobs and secondly, we would, perhaps, have it made into a profitable business. I would not measure it either. I know the Minister for Finance must measure it in monetary terms, and certainly the Revenue Commissioners are, naturally, only interested in money. I do not accept the Minister's calculation that if we get rid of this section we shall have ten times more revenue than we would otherwise have coming into the Exchequer.

Mr. Colley

It is possible we might get almost the same amount coming in under the proposals we are suggesting.

Mr. Crowley

Yes, I think that is the case as well, but much more valuable than that, we could attract the type of thing we are really short of, that is, the management expertise and technical know-how which is still relatively rare in this country. That is something you cannot evaluate in money terms. Anyway, I do not think the Minister has his mind made up. He is being very reasonable about it, and I think he would do well to give it further thought.

Mr. R. Ryan

My mind is made up to this extent, that ever since assuming office and, indeed, beforehand, I have considered the need to close the door against the abuses we all agree exist. I have not closed my mind to the possibility of providing some arrangement to protect the situation the Deputies consider to be desirable. However, we have to get this Finance Bill through. I shall give the Deputies this undertaking, that I shall keep a very careful watch on the situation, and I shall be the very first to come into this House and say: "This is having a damaging effect and we think now this is the way we ought to try to prevent it happening. We are concerned with keeping employment and we consider that the present device is doing more harm than good."

Mr. Colley

We do not want to keep this section going too long. We do appreciate the undertaking the Minister has given. I just want to say two things to him in relation to it: First, would he ensure, not alone as far as he is concerned but as far as the Revenue Commissioners are concerned, that the fact that we pass this legislation does not mean we have finally abolished the loss-buying device, that we are considering the possibility of re-introducing it, much as this may seem heresy to the Revenue Commissioners, under a controlled situation. The door should not be closed on that possibility.

The other matter I want to bring to the Minister's attention is something that impressed me very considerably in this context and I imagine it might impress the Minister, too. A few years ago the late Con Smith, who was then the President of the FII and, as the Minister knows, died tragically in the air crash in London, urged me very strongly, indeed, as Minister for Finance to consider closing this loophole but applying control of some kind to bring about the kind of situation we have been trying to describe. He felt it was something that could be very valuable to Irish industry. He knew the problems of Irish Industry and was very dedicated to solving them. I am not saying that this was the Gospel, but I do know the Minister will accept that when a man of that calibre was urging this there must be some value in the idea and it is well worth pursuing.

Mr. R. Ryan

Of course, the Revenue Commissioners cannot be asked to give any such undertaking; we are the legislators. I am giving the undertaking that as far as I am concerned, and I am Minister, I shall certainly keep an open mind, and I shall be quite ready to introduce this under a system of adequate safeguards.

Mr. Colley

I want to place it on the record for the benefit of people who might be considering this——

Mr. Carter

I would point out to the Minister for Finance and to the ex-Minister for Finance, who seem to have great faith in State effort—no doubt it is very useful—that there is a very important principle involved here. I do not want to delay the Bill —I want to give it to the Minister— but when one encroaches too far on business enterprise one may well wind up worse than one began, in the sense that Fóir Teoranta is a young organisation recruiting personnel. When will the personnel be trained? When will the personnel have the experience of going through the mill like those who have to earn a living in business?

No doubt the Revenue Commissioners are interested in extracting tax from the company if it is successful. That is the extent of the interest of the Revenue Commissioners. That is their job and they are doing a good job. However, I cautioned at the outset that lines should not be crossed too much. It is an area in which one could work in compartments and I am asserting now that there is no substitute for well informed private enterprise when it comes to running a business. That is as we know it up to now, apart from the semi-State companies which we have here. I am not finding any fault with that effort, but when it comes to this area, the Minister should be selective in applying the provisions of this section other than to loss-buying, which is blatant and well known. If that takes place, he is fully entitled to press home all the provisions in the section. But in doing so in another direction he could trample on the toes of those who would make better progress if left to the workings of private enterprise.

Mr. Colley

I suppose there is nothing we can do by way of suggesting an amendment to the Minister which he could consider at this stage.

Mr. R. Ryan

I have already considered at very great length all the suggestions that have been made, and I feel unable to find any way of giving them force.

Mr. Crowley

What if we accepted the total provisions here "except where the ICI deem otherwise" or something like that?

Mr. Colley

Recommend otherwise.

Mr. Crowley

Yes.

Mr. R. Ryan

You can never have a marriage unless you have the consent of the other party. The other parties have not wanted to act as referees so far.

Mr. R.P. Burke

I think this proposal is too tight, too rigid, that the whole principle of free enterprise, of the entrepreneur, of the business of amalgamation for the benefit of employees and for the common good, can be damaged seriously by this legislation. I can appreciate that the Revenue Commissioners see those vast sums that the Minister talks about but they are exceptions to the general rule.

Mr. R. Ryan

Unfortunately they are not. They are becoming the general rule.

Mr. R.P. Burke

How many companies of that size are there in the country?

Mr. Esmonde

It is an everyday thing. It applies to all sizes of business.

Mr. R.P. Burke

Some escape clause should be written in here. I know the Minister agrees with the principle of putting in an escape clause but that the working of it is the problem. He should have another look at this before it is passed. If we once close the door and try to reopen it later with some sort of remedial legislation the faith of the businessman will be shattered. The Minister should look at this again.

Mr. Colley

I appreciate that the Minister cannot do what Deputy Burke is asking him to do in the time available. For that reason, as far as I am concerned, on the basis of the undertaking the Minister gave earlier, I am prepared to agree to the section.

Mr. R. Ryan

I will take a look at it and if we can devise useful machinery between this and next year we will do something about it.

Question put and agreed to.

SECTION 39.

Question proposed: "That Section 39 stand part of the Bill."

Mr. R. Ryan

This is to deal with a tax avoidance device whereby certain contrived transactions enable the cost of an industrial building to be written off for tax purposes at a greatly accelerated rate. I would not normally describe how tax avoidance can be engaged in but when we are about to stop it I suppose there is no harm. Avoidance can be achieved by the claiming of a balancing allowance under section 265 of the Income Tax Act, 1967, on a sale of the relevant interest in the building where the value of the interest has been artifically reduced. For example, a company who have incurred expenditure on an industrial building may grant a long lease, say for 999 years, of the premises to an associated company and merely retain the reversion. The reversion is of little value and the company may then sell the reversion at its very low market value to another associated company and by so doing they can claim a large balancing allowance by reference to the original cost of the building, less the proceeds of sale and the tax allowance already granted. Some cases of this kind have come to notice. They are probably an imitation of what has happened in Britain on an even larger scale and it is of interest that in the U.K. Parliament they cured the loophole in their Finance Act of 1972, and if we do not do it soon this will become a prevalent tax avoidance practice.

Mr. Colley

We have no objection to this section. The only comment I want to make is that it seems to me that some of the drafting of it is rather loose and unlike the kind of wording one usually gets in a Finance Bill. It may be because of the nature of the problem being dealt with that it is necessary to do that.

The only specific point I wish to bring to the Minister's attention is on page 23, line 12 which begins:

it appears with respect to the sale or the grant of the inferior interest, ...that the sole or main benefit...

To whom is this supposed to appear? Is it to the Revenue Commissioners or to whom? If it is the Revenue Commissioners where is this made clear in the section?

Mr. R. Ryan

In the first case it is the Revenue Commissioners who deal with these matters and if a person is aggrieved then the appeal commissioners.

Mr. Colley

I appreciate that it may be because of the nature of the problem but the wording, on the face of it, seems rather peculiar. It does not seem to me from the section that it says: "Where it appears to the Revenue Commissioners", It just says: "where it appears". It may be implied that it is the Revenue Commissioners.

Mr. R. Ryan

What this really means is that where the facts appear to be of a certain kind, both the taxpayer and the Revenue Commissioners may discuss as to what is apparent and then they go to the appeals commissioner to have the matter determined.

Mr. Colley

It is a somewhat unusual form of phraseology in a Bill of this nature. I am not objecting to it.

Mr. R. Ryan

It is probably to the advantage of the victim to have the law uncertain.

Mr. Crowley

In this case this side of the House would not have too much sympathy for the victim.

Question put and agreed to.

SECTION 40.

Question: "That section 40 be deleted" put and agreed to.

SECTION 41.

Question proposed: "That section 41 stand part of the Bill."

Mr. R. Ryan

This section is intended to put an end to a tax avoidance device which enables certain benefits in kind to escape tax liability by virtue of their being provided not by the employing company but by an associated company. Section 117 of the Income Tax Act, 1967, provides broadly that where a body corporate incurs expenses in providing for its directors or employees certain benefits in kind, living or other accommodation, entertainment, domestic and other services, any part of the expense which the director or employee does not pay for is treated as an endowment of his office or employment. A number of companies have got around this by not providing the benefit themselves but by having the benefit provided by an associated company and in that way have been able to escape the impact of tax. This proposes to cure that situation.

Question put and agreed to.

SECTION 42.

Question proposed: "That section 42 stand part of the Bill."

Mr. R. Ryan

Chapter III of Part V of the Income Tax Act, 1967, now contains the provisions, originally enacted in 1958, under which the value of certain benefits in kind provided by a body corporate for the benefit of directors or employees are included as income for tax purposes. In the case of employees, the provisions apply only where the emoluments exceed £1,500.

Section 121 of the Income Tax Act, 1967, provided that the provisions were not to apply in the case of any body corporate unless it carried on a trade or its functions consisted wholly or mainly in the holding of investments or other property. It has come to light that some of these non-trading bodies are providing employees with benefits in kind, for example, motor cars, and there is no reason why these employees should not also be subject to a tax charge in respect of such benefits, in the same way as employees of trading bodies.

The purpose of the present section is to secure that section 121 of the Finance Act, 1967, will cease to have effect as from 1973-74. The result will be that benefits in kind provided by non-trading bodies such as semi-State bodies, charities, trade unions, professional associations and any other concern not carrying on a trade will be charged to tax in the hands of the employees in the same way as benefits in kind provided by trading companies.

Bodies which will now come within the scope of the legislation include semi-State bodies such as Bord Fáilte, Bord na gCapall, Bord na gCon and Córas Tráchtála, and certain other non-trading bodies such as professional associations. The repeal of section 121 has effect from the year 1973-74, inclusive. In other words, what we are doing is once again putting everyone on an equal basis. If other people are charged with these items, we see no reason why people in any particular situation should be exempt.

Mr. Cunningham

Will it apply to the backbenchers' allowances?

Mr. R. Ryan

The Deputy is under a misapprehension. There is no reference to backbenchers' allowances here.

Mr. Colley

We will deal with that when it is on the Order Paper. I have no objection to the principle involved in this section but perhaps the Minister would tell us why were non-trading bodies excluded originally?

Mr. R. Ryan

I think it was thought that they were——

Mr. Colley

Above this kind of thing?

Mr. R. Ryan

Exactly. The Deputy has used the phrase I could not find.

Mr. Briscoe

If a charitable organisation such as Gorta, for example, have an employee whom they furnish with a car, under this provision would they pay tax?

Mr. Colley

That is, the employee.

Mr. R. Ryan

The employee would be liable if the car had been given to him as a benefit in kind.

Mr. Briscoe

That is, if it belongs to the employee and not to the organisation?

Mr. R. Ryan

If it forms part of the organisation, it would not carry tax liability but it would if the employee had the car for his own benefit.

Mr. Colley

As part of his emoluments?

Mr. R. Ryan

Yes.

Question put and agreed to.

SECTION 43.

Question proposed: "That Section 43 stand part of the Bill."

Mr. R. Ryan

The purpose of this section is to make the penalties for non-compliance with the PAYE regulations more effective by (i) extending the scope of section 128 of the Income Tax Act, 1967, to cover failure to remit PAYE deductions to the Collector-General and (ii) by imposing a separate penalty of £20 on the secretary where the person failing to comply with the regulations is a body of persons.

Section 128 of the Income Tax Act, 1967, imposes penalties for non-compliance with requirements, under PAYE regulations, to send returns, statements, et cetera, or to make PAYE deductions. The penalty prescribed is £20 plus £20 per day where the non-compliance continues. These penalties will now apply also to failure to remit to the Collector-General the tax so deducted as will also the new additional penalty of £20 on the secretary where the defaulter is a body of persons.

The effect of this is to ensure that deductions which are made from the employee's pay-packet, and having been made, do not belong to the employer, that they be remitted to the Exchequer.

Mr. Colley

There is only one point I wish to raise on this section. So far as I know, on Second Stage, Deputy Haughey raised a question in regard to the provisions of paragraph (b), that is, the making liable of the secretary for a penalty and he pointed out, rightly, that in many cases the secretary of a company is a clerk or a typist in a solicitor's or accountant's office. If that is so it seems unwise, to say the least, to provide for what appears to be a mandatory penalty on the secretary. I can understand that some individual should be liable but surely it is not right to say that this person shall be the secretary.

Mr. T.J. Fitzpatrick

(Dublin Central): I endorse what Deputy Colley has said. A secretary would have no right, for instance, to sign cheques on behalf of her employer without having his authorisation. She would not be in a position of her own accord to make the PAYE returns for the company.

Mr. R. Ryan

Might I emphasise— though, God knows, I would not wish to follow my predecessor's example— that he had a similar provision in relation to VAT in last year's Act?

Mr. Colley

That was by way of the importation of something from a previous piece of legislation.

Mr. R. Ryan

I must emphasise that the penalty is not capable of being imposed by the Revenue Commissioners. This will arise only in the case of a person being prosecuted for failure to pay in respect of which the court might impose a penalty. In practice, the Revenue Commissioners do not institute proceedings against people for delay in paying tax unless they are in continuing default. Therefore, this penalty is not one that would become applicable to the overwhelming majority of tax payers who, for various reasons, might be in delay. The penalty would apply only where there is culpable and obvious default in payment.

Mr. Colley

In a case where a prosecution takes place, would it appear to the Minister that the court must be satisfied of mens rea before the secretary can be convicted?

Mr. R. Ryan

I would not wish to be the Deputy's legal adviser although I know that any good solicitor like Deputy Colley would not advise himself.

Mr. Colley

I expect that the Minister is inclined to agree with the view I have expressed.

Mr. R. Ryan

Once the failure is established the penalty can be applied but the Revenue Commissioners would not prosecute unless they were of a reasonable opinion that there was mens rea and culpable default.

Mr. Colley

It would appear from this that where the body of persons is in default—let us assume that they are in such serious default that the Revenue Commissioners would prosecute—on the face of it, it would appear that the Revenue Commissioners do not have any choice as to what they do. They must prosecute, apparently, both the body of persons and the secretary because where the body of persons is in default, the secretary shall be liable to a separate penalty. That is how I read the section.

Mr. R. Ryan

The Revenue Commissioners have a discretion as to whether they should prosecute. They could decide whether to prosecute one or both. It is not unusual in company matters to make the secretary liable because the secretary has certain legal liabilities and it is not extraordinary that in relation to these matters a secretary should be held responsible to ensure that a company discharges its legal obligations.

Mr. Colley

I would be happier if it read something like: "The secretary or such person as to the court shall seem to be responsible".

Mr. R. Ryan

The secretary is the secretary and the secretary's responsibilities are clearly established. You cannot throw the whole matter into the realm of doubt and argument as to whether or not the secretary, the director or the accountant or somebody else had responsibility for remitting the money. I have no doubt that any secretary whom it is found was not to blame would ensure that he would get compensation.

Mr. Carter

Possibly I should have made the point earlier but it is related to the return of PAYE. Does the Minister not consider that the time limit should be 14 days at least after the due date in order to give business firms and companies a reasonable chance of making returns? The Revenue Commissioners are not too responsive to requests for refunds. I would suggest that the Minister should give at least to the 20th of the month instead of the 6th, which would give roughly 14 days in order to prepare the returns.

Mr. R. Ryan

Nine days is the period given. I would remind the Deputy that this is not a tax that is as difficult to administer as VAT. VAT may require some calculation as to what the proper sum should be but the sum to be remitted in respect of PAYE has already been calculated and deducted from an employee's pay packet and is held in reserve by the employer until it is handed over.

Mr. Carter

Agreed.

Mr. R. Ryan

There is no question of having to make a calculation. The sum of, say, £50 has been deducted from a pay packet and should be sent on immediately.

Mr. Carter

This is not asking for very much. It would make for smoother working.

Mr. R. Ryan

One should never put off until tomorrow what one can do today.

Mr. Carter

It is not a matter of putting off. It is a matter of smoother working, taking the jackboot out of it.

Mr. R. Ryan

I do not think the jackboot is in it. It is a slipper.

Mr. Carter

The guillotine is there.

Mr. T.J. Fitzpatrick

(Dublin Central): This is the fourth section in this Bill where the Minister is imposing additional penalties on people who collect PAYE and return it without being paid for it. The Minister has stated several times that this is money that belongs to the State and that it should be returned as soon as possible. Admittedly, this should be done but it is not always possible for traders to do so. I am not sure that the best way to get the co-operation of traders in returning PAYE is to put additional penalties on them on every possible occasion. This is not the first Finance Bill that I have criticised in relation to the same matter. This is tackling the situation in the wrong way. In the next section the same thing happens. It is the wrong approach. The majority of traders are returning the money promptly and the number who are falling down on their commitment is very small.

Mr. R. Ryan

I am sorry. I could not resist the temptation to imitate Deputy Colley in relation to VAT.

Mr. Colley

The Minister may rest assured that as long as he does that he will not go wrong.

Mr. O'Malley

It is a pity the Minister did not imitate Deputy Colley more often.

Mr. R. Ryan

If I had imitated him in relation to the matters that were under discussion yesterday you would be getting nothing at all.

Question put and agreed to.

NEW SECTION.

Mr. R. Ryan

I move amendment No. 4:

In page 26, before section 44, to insert the following section:

Section 335 of the Income Tax Act, 1967, is hereby amended by the addition thereto of the following subsections:

(2) A registered friendly society shall not be entitled to exemption from tax under this section in relation to any year of assessment, being the year 1973-74 or any subsequent year, if the Revenue Commissioners determine, for the purposes of entitlement to exemption for that year, that the society does not satisfy the following conditions:

(a) that it was established solely for any or all of the purposes set out in section 8 (1) of the Friendly Societies Act, 1896, and not for the purpose of securing a tax advantage;

and

(b) that, since its establishment, it has engaged solely in activities directed to achieving the purposes for which it was so established and that it has not engaged in trading activities, other than by way of insurance in respect of members, with a view to the realisation of profits.

(3) In making a determination under this section in relation to a registered friendly society, the Revenue Commissioners shall consider any evidence in relation to the matter submitted to them by the society.

(4) In any case where a friendly society is aggrieved by a determination of the Revenue Commissioners under this section in relation to the society, the society shall be entitled to appeal to the Appeal Commissioners against the determination of the Revenue Commissioners and the Appeal Commissioners shall hear and determine the appeal as if it were an appeal against an assessment to income tax and the provisions of the Income Tax Act, 1967, relating to the rehearing of an appeal and the statement of a case for the opinion of the High Court on a point of law shall apply accordingly with any necessary modifications.

This amendment substitutes a new section to take the place of section 40 of the Bill. That section is an antiavoidance provision designed to prevent the tax exemption in favour of friendly societies from being used so as to provide tax-free profits for wealthy members of such societies resulting from trading transactions. The profits from these transactions are exempt from tax in the hands of the societies and the funds of the societies could be distributed among the members either during the life of the society or on a dissolution. The accumulated tax-free funds so divided would be a distribution of assets and would not be chargeable to tax in the hands of the members.

Section 40 proposed to counter these avoidance arrangements by treating any distribution of funds to members as a receipt by them of income chargeable to income tax.

It is understood, however, that it is proposed to escape this charging provision by ensuring that the surplus funds of the societies will not be distributed to members but will come into their hands by way of loans which will never be repaid.

In the circumstances, it is thought that a more satisfactory approach to the problem, which would be much simpler and more effective, would be to attach specific conditions to the exemption provided for under section 335 of the Income Tax Act, 1967. This is what the new provision to be substituted for section 40 proposes to do.

The amendment proposes to add two new subsections to section 335 of the Income Tax Act, 1967, which is the section providing the exemption in favour of friendly societies.

The new subsection (2) is intended to restrict the exemption to bona fide cases. It is to be noted, however, that the exemption will apply unless the Revenue Commissioners make a determination in relation to a society that it has not satisfied the conditions—

(a) that it was established solely for the purposes set out in section 8 (1) of the Friendly Societies Act, 1896, and not for the purpose of securing a tax advantage, that is, the exemption under the section.

The purposes set out in section 8 (1) of the Friendly Societies Act are listed here and I can indicate them, if Deputies wish.

(b) that, since its establishment, the society has engaged solely in activities directed to achieving the purposes for which it was established and has not engaged in trading activities, other than by way of insurance in respect of members, with a view to the realisation of profits.

In the avoidance cases, which have come to notice the objects of the societies are, as specified in their rules to provide by voluntary subscriptions of the members, with or without the aid of donations, for—

(i) insuring money to be paid on the death of a member, and

(ii) the endowment of members at the age of sixty (60) years.

The statutory limits for insurance, namely £50 a year by way of annuity and £1,000 by way of gross sum, are written into the rules.

These societies which apparently are to engage in the buying of property worth millions of pounds and the investing of similar amounts of money in associated companies by way of debentures could not validly claim that these activities were directed to achieving the objects specified in their rules, bearing in mind that there are only seven or eight members to be covered by the modest insurance provided

It is to be noted that the exemption is to apply unless the Revenue Commissioners determine, after consideration of any evidence submitted by a society, that the conditions specified have not been satisfied by the society, this procedure of determination is similar to that provided in respect of the "artists' exemption" under section 2 of the Finance Act, 1969. A determination can only be made for the current year 1973-74 or any subsequent year but there is no provision as to when it is to be made, since this ought to be done only when the Commissioners had received, from the society concerned, particulars of its activities. A society set up for tax avoidance purposes is, however, unlikely to be forthcoming about its activities and there could be considerable delay in obtaining the necessary information. In that event, the Commissioners could make a determination, on the basis of the available evidence, the number and identity of the members of the society, which may consist of a wealthy businessman and his wife and four or five assistants in the solicitor's or accountant's office that the society did not satisfy condition (a), namely, that it was established solely for the purposes of the Friendly Societies Act and not for the purpose of securing a tax advantage. The Commissioners are not, however, the final arbiters of a society's title to exemption since provision for appeal is contained in sub-section (3).

Subsection (3) provides that any society aggrieved by a determination of the Revenue Commissioners may appeal to the appeal commissioners who will then hear and determine the appeal in the same way as they would hear and determine an appeal against an assessment to income tax. The consequential appeal provisions, namely, a re-hearing by the Circuit Court judge and an appeal to the High Court on a point of law also apply.

Mr. Colley

I was under the impression that the general loopholes through which it had been found friendly societies were escaping the tax net had been closed a few years ago and yet what the Minister is saying does not appear to be a recent development. Could he possibly give an example of the kind of case that is arising at present and that will be caught and prevented when this section is enacted? Are these friendly societies—they seem to be from what the Minister said—engaged in the purchase on a fairly extensive scale of property——

Mr. R. Ryan

Yes.

Mr. Colley

——and the whole activity is purely a blind to cover, perhaps, an individual?

Mr. R. Ryan

I do not like to give details because the House has always very properly observed confidentiality but I can tell the House what is happening. A small group of people noted for their personal wealth can put £10 million into a friendly society—which is not the kind of money the traditional friendly society would acquire. The friendly society can then engage in trade, building, purchasing land and so on. All the property becomes the property of the society and at some future date the friendly society can dissolve and distribute its assets among the members which is a very simple device for making money without paying tax. Since I announced in the budget my intention to close this gap it has become apparent that the way they propose to avoid it is not to make a distribution but to make a loan to an associated company. The members of the associated company can then break up that company or collect the money because the money has been given out on indefinite loan which need never be repaid because it would be merely repaying oneself. The obvious way to present this dodge is to provide that the exemption will apply unless the Revenue Commissioners certify that it would appear on the basis of the evidence that it is not a society which was set up for genuine objectives for which friendly societies were first envisaged.

Mr. O'Malley

Is the section so wide that it will create difficulties for a genuine friendly society? One of the phrases that strikes me in the whole new section is that it has not "engaged in trading activity". The Minister did not read out the list of objects envisaged for a friendly society by the Friendly Societies Acts but surely trading activity in some form is included? I am frequently confused as to the difference between a friendly society and an industrial and provident society. Am I right in thinking that many co-operative creameries are friendly societies in some cases and industrial and provident societies in others? If that is so, will this provision not cause a great deal of difficulty for them?

Mr. R. Ryan

The Act of 1896 which governs friendly societies will, I think, show something of the difference between its objectives and the way friendly societies are being used or, perhaps, misused. It says that a friendly society is a society for the purpose of providing by the voluntary subscriptions of the members thereof with or without the aid of donations for

(a) relief or maintenance of the members, their husbands, wives, children, fathers, mothers, brothers, sisters, nephews or nieces or wards being orphans, during sickness or other infirmity, whether bodily or mental, in old age, which shall mean any age after 50, or in widowhood, or for the relief or maintenance of the orphan children of members during minority; or

(b) insuring money to be paid on the birth of a member's child or on the death of a member or for the funeral expenses of the husband, wife or child of a member or of a widow or a deceased member or, as respects persons of the Jewish persuasion, for the payment of a sum of money during the period of confined mourning, or

(c) for the relief or maintenance of the members then on travel in search of employment...

Mr. O'Malley

I now wonder are there any friendly societies in the country at all.

Mr. R. Ryan

Certainly the kind of people with £10 million to throw around are not the people who require relief and maintenance while "in search of employment, or when in distressed circumstances, or in the case of shipwreck, or loss or damage of a boat and so on." It goes on dealing with cases of quite considerable personal grief. These societies were devised at a time when there was no State welfare code to provide for matters of this kind. The number of friendly societies is diminishing.

Mr. O'Malley

Without going through the whole list would the Minister tell us that there are, in fact, no trading friendly societies, ones that would be bona fide?

Mr. R. Ryan

There are no bona fide friendly societies trading. I think that can be taken as definite.

Mr. O'Malley

If that is so, that is satisfactory.

Mr. Callanan

I was about to ask the question which Deputy O'Malley asked. I was very worried because I thought co-operatives were friendly societies. When co-operatives are formed it is essential that they should go into other business and they form another co-operative and take shares or loans in this society. I was worried as to whether these would be caught in the Minister's net. I agree that evasion of taxation should be prevented but these co-operatives are for the benefit of the country as a whole and they are widespread. I am not an expert on finance but I would like to have the point made clear. I understood co-operatives were friendly societies. I was worried that they might be caught in this provision to prevent tax evasion.

Mr. R. Ryan

No. If the Deputy looks at the amendment he will see that it is proposed that existing exemptions will apply to all societies except those in respect of which the Revenue Commissioners are satisfied that they were established and operated for tax avoidance purposes, but would not apply to genuine societies of the type the Deputy has in mind. The certificate that a society was a tax avoidance device would be given in the case of a society such as I have spoken about, where millions of pounds are handed over so that profit can be made without carrying tax liability.

Mr. Tunney

Could the Minister say whether at present there is a maximum amount beyond which a friendly society may not lend money? I thought that the maximum was something in the region of £200 to £300.

Mr. R. Ryan

No, that is why I am anxious. The loan would not be made to the members of the friendly societies, since what friendly societies can lend to a member is less than £1,000. However, there is nothing to stop friendly societies making the loan to somebody else other than a member. What is apparently now developing is the proposal to lend the money to an associated company. There is nothing to prevent the members of this associated company being the same people who are members of the friendly society. So they would simply take the money out of one pocket and put it into the other. That is the practice.

Amendment agreed to.

SECTION 44.

Question proposed: "That section 44 stand part of the Bill."

Mr. Colley

Do the subsequent numbers change automatically?

Mr. R. Ryan

They have changed already because we put in another section where we have been using the enumeration of the Bill as drafted.

Question put and agreed to.

Section 45 agreed to.

SECTION 46.

Question proposed: "That section 46 stand part of the Bill."

Mr. R. Ryan

The effect of this section is to increase, as Members are aware, from the 17th May, 1973, the customs and excise duties on been by the equivalent of 0.69 pence on the pint of average beverage.

Mr. Colley

I do not propose to engage in a re-hash of the budget debate, but I do not want to underline the fact that this section represents one, and only one, of the many new taxes imposed in the budget. These taxes amount to a very substantial sum but, most objectionable of all from our point of view, and from the point of view of the ordinary taxpayer, is the fact that a considerable amount of the new taxation being imposed, including the taxes being imposed under this section, is, in our view, being imposed unnecessarily.

One of the purposes for which taxation is being raised is the relief of rates on office blocks and other commercial properties. This is a proposition we do not agree with and never did agree with it. We object to the ordinary man-in-the-street being taxed to contribute to the relief of rates on office blocks and other commercial properties. For that reason we oppose this section.

Mr. R. Ryan

This money goes a short distance to enable us to pay children's allowance to the 170,000 people who were deprived. I have no doubt that, having brought the attention of the Opposition to that fact, they will pass this section.

Mr. T.J. Fitzpatrick

(Dublin Central): I agree with Deputy Colley. I do not think that these additional taxes were due, especially in respect of beer. There is no doubt that we do not consider beer a luxury any more and that the Customs and Excise are taking a considerable portion, over 50 per cent, in revenue today. As Deputy Colley has pointed out, the working man will have to contribute a part of this to defray the additional cost which it will take to reduce the rates on office blocks and various other kinds of commercial enterprises.

For this reason I believe that this was a bad decision. I do not think it will help tourism. We are going away out of line as regards other countries in relation to taxation, and the policy of the Government to try to encourage tourists to visit this country. I do not believe that with these additional taxes the Government are doing the right thing. The Government were wrong in imposing this additional taxation.

The reliefs given could have been given without these increases. As we approach a new national wage agreement I feel sure that workers will take this additional taxation into consideration. There is no good in the Minister saying that they will not, because these are factors in the daily lives of people. The Minister was wrong in introducing these additional taxes this year. I agree with Deputy Colley that this was a mistake.

Mr. O'Malley

I should like to refer to a survey which was carried out by the National Prices Commission and published in this morning's newspapers. Unfortunately, I cannot quote precisely the figures but the gist of these figures, in so far as alcohol and tobacco are concerned, was that this survey discovered that for the first time ever these two commodities cost more in Dublin now than they cost in Belfast.

This situation has been brought about by the enormous increases in this year's budget in the duty on spirits and in the duty on beer. The duty on spirits has been increased by seven old pence per glass and the increase on beer is 2.4 old pence per pint.

Mr. R. Ryan

It is not, actually.

Mr. O'Malley

If you include the bit for the Earl of Iveagh, it is 2.4 old pence, one new penny.

Mr. R. Ryan

It is not.

Mr. O'Malley

That was the increase if you include, and I will be very accurate, the Earl of Iveagh, VAT and duty.

Mr. R. Ryan

It is not. That is for the workers in Guinness's. The Earl of Iveagh got nothing.

Mr. O'Malley

This, unfortunately, was done at a time when, through circumstances which are beyond everybody's control in this country, the tourist industry here was going through a bad period. The tourist industry needed every encouragement this year to let it get back on its feet again. Earlier in the tourist season there seemed to be good prospects but those prospects, unfortunately, do not seem to be working out as well as everybody had hoped.

One major factor in the fact that they are not working out is that these increases were imposed by the Government. These increases were imposed deliberately by the Government to put up the cost of living, particularly, in a way that would do considerable harm to our tourist industry.

This section is one of the three sections which is imposing this additional burden on the tourist industry. It is one of the many sections in this Bill which deliberately puts up the cost of living. It is a deliberate act on the part of the Government in an inflationary situation. It seems to us to be an act of criminal lunacy to do it and, for that reason, we are opposed to this section.

Mr. R.P. Burke

At the time of the budget debate Members on this side of the House consistently warned the Minister that the action he was taking by imposing these savage increases on the price of beer and spirits would set an inflationary tone. The proof of this has been reflected in the report published in this morning's newspapers. We warned the Minister that the savage increases he was imposing would affect our tourist trade. Anybody in this Chamber or among the general public who has met tourists from Great Britain has listened to them express the complaint that the price of beer was very high compared with their own country.

We have warned the Minister about many aspects of this proposed increase but he has gone ahead, in my opinion in a very foolhardy fashion, and continued to press for these increases. The effect of this increase on the workers at a time when, as Deputy Fitzpatrick mentioned, we are coming up to a new national wage agreement is that there are bound to be justifiable calls for a substantial increase in wages. The Minister has made a great error and it will not surprise me if this causes a snowball effect which will have repercussions on everyone in the country.

Deputy Coogan and Deputy Cunningham rose.

An Leas-Cheann Comhairle

Deputy Cunningham.

Mr. Coogan

Is that in order?

An Leas-Cheann Comhairle

I am calling Deputy Cunningham. I will call Deputy Coogan next.

Mr. Coogan

All right. I will give way.

Mr. Cunningham

We are dealing now with one of a number of increases provided for in the budget and it is one which has set the pattern. In today's papers there is a whole string of increases. The cost of living has increased and, for good measure, so has the cost of dying; the price of coffins has gone up. The Minister set out deliberately on a price spiral. These duties are already in operation. Previous speakers spoke about the effect on the tourist industry. I come from a Border constituency and, God knows, we have plenty of troubles militating against the tourist industry and now the Minister and his Government create a situation in which one can walk into a supermarket in Belfast and buy beer and spirits cheaper than the publican can buy them from the wholesaler here. This is a situation which never existed before. It is a situation in which the Government are putting yet another nail in the coffin of the tourist industry. There is nothing we can do about it now the duties are in operation. We have the highest priced beer in these islands, higher than it is in Scotland, England, Wales and Northern Ireland. We are at the top of the league. This situation is due to the action taken by the Minister and that action is causing a chain reaction. Every day prices are increasing. Some are sanctioned officially by the Minister for Industry and Commerce. What about the unofficial increases about which the Minister for Industry and Commerce is doing nothing, except on paper?

An Leas-Cheann Comhairle

We are dealing with beer at the moment.

Mr. Cunningham

It is small beer compared with some other things.

Mr. Dowling

We are only here for the beer.

Mr. Coogan

Do the Opposition say that we have nothing to offer in this country except beer and the tourists are, as Deputy Dowling said, coming here only for the beer? It is time we got our priorities right. Compare the figures this year with last year.

Mr. Cunningham

Come to Donegal.

Mr. Coogan

I am not surprised they are staying away from Donegal, considering some of the Donegal representatives. I will say no more. If they only come here for the beer we are better off without them. We could offer them excellent stuff in the Gaeltacht.

Mr. Cunningham

No excise duty.

Mr. Coogan

It would drive jet planes.

An Leas-Cheann Comhairle

We are dealing with beer.

Mr. Cunningham

The other is an excellent substitute.

Mr. R. Ryan

I am glad to be able to tell the House what, I am sure, Deputy Fitzpatrick knows. Since the budget, beer shows great buoyancy from the point of view of sales. Sales are above what they were last year and beyond what was anticipated without any change in tax.

Mr. Blaney

Drinking in despair.

Mr. R. Ryan

I am not sure who is causing the despair; it is certainly not the Government of the day. That shows the additional money people have in their pockets and it shows, to use a phrase the present President was very fond of, that the increase in tax had a nugatory effect upon consumption. Consumption is, in fact, higher. That, I think, completely dispels the arguments advanced by the Opposition.

Some speakers referred to the price of beer in Dublin and Belfast. Some Deputies only know about things when they read them in the papers. What was said about the North shows how little they know about the North. They only knew today when they read their papers that beer is cheaper in the North than it is in the South. That has been the situation for a long time. It is not a new development. This is a fair indication of how little some people know about the North.

As Deputy Coogan pointed out, the tourist traffic is on the increase and I am quite sure the decline in the past cannot be attributed solely to the price of beer. I have no doubt inflation had a dampening effect. Unfortunately, the really dampening effect is a tragedy beyond our control. I would suggest that at this late hour, with so many sections still to do, we could, without injustice to anyone, get on with the job of dealing with this financial legislation which is so important.

Question put.

The Committee divided: Tá, 60; Níl, 55.

Tá

• Barry, Peter.
• Barry, Richard.
• Begley, Michael.
• Belton, Luke.
• Belton, Paddy.
• Bermingham, Joseph.
• Bruton, John.
• Burke, Joan T.
• Burke, Liam.
• Byrne, Hugh.
• Clinton, Mark A.
• Cluskey, Frank.
• Collins, Edward.
• Conlan, John F.
• Coogan, Fintan.
• Cooney, Patrick M.
• Corish, Brendan.
• Cosgrave, Liam.
• Costello, Declan.
• Coughlan, Stephen.
• Creed, Donal.
• Cruise-O'Brien, Conor.
• Desmond, Barry.
• Desmond, Eileen.
• Dockrell, Henry P.
• Dockrell, Maurice.
• Donnellan, John.
• Dunne, Thomas.
• Esmonde, John G.
• Finn, Martin.
• FitzGerald, Garret.
• Flanagan, Oliver J.
• Gilhawley, Eugene.
• Governey, Desmond.
• Harte, Patrick D.
• Hogan O'Higgins, Brigid.
• Jones, Denis F.
• Kavanagh, Liam.
• Kelly, John.
• Kenny, Henry.
• Kyne, Thomas A.
• L'Estrange, Gerald.
• Lynch, Gerard.
• McDonald, Charles B.
• McLaughlin, Joseph.
• McMahon, Larry.
• Malone, Patrick.
• Murphy, Ciarán.
• O'Brien, Fergus.
• O'Donnell, Tom.
• O'Leary, Michael.
• O'Sullivan, John L.
• Pattison, Seamus.
• Reynolds, Patrick J.
• Ryan, John J.
• Ryan, Richie.
• Staunton, Myles.
• Taylor, Frank.
• Timmins, Godfrey.
• White, James.

Níl

• Ahern, Liam.
• Andrews, David.
• Barrett, Sylvester.
• Blaney, Neil T.
• Brady, Philip A.
• Brennan, Joseph.
• Breslin, Cormac.
• Briscoe, Ben.
• Browne, Seán.
• Brugha, Ruairí.
• Burke, Raphael P.
• Callanan, John.
• Carter, Frank.
• Colley, George.
• Collins, Gerard.
• Connolly, Gerard.
• Crinion, Brendan.
• Cronin, Jerry.
• Crowley, Flor.
• Cunningham, Liam.
• de Valera, Vivion.
• Dowling, Joe.
• Farrell, Joseph.
• Faulkner, Pádraig.
• Fitzgerald, Gene.
• Fitzpatrick, Tom (Dublin Central).
• French, Seán.
• Gallagher, Denis.
• Geoghegan, John.
• Gibbons, Hugh.
• Gibbons, James.
• Gogan, Richard P.
• Healy, Augustine A.
• Herbert, Michael.
• Hussey, Thomas.
• Lalor, Patrick J.
• Lemass, Noel T.
• Leonard, James.
• Loughnane, William.
• Lynch, Celia.
• Lynch, Jack.
• McEllistrim, Thomas.
• MacSharry, Ray.
• Molloy, Robert.
• Moore, Seán.
• Murphy, Ciarán.
• Nolan, Thomas.
• O'Leary, John.
• O'Malley, Desmond.
• Power, Patrick.
• Timmons, Eugene.
• Tunney, Jim.
• Walsh, Seán.
• Wilson, John P.
• Wyse, Pearse.

Tellers: Tá, Deputies Kelly and B. Desmond; Níl, Deputies Andrews and Browne.

Question declared carried.

SECTION 47

Question proposed: "That section 47 stand part of the Bill."

Mr. R. Ryan

This section provides that from 17th May, 1973, the main rates of customs and excise duties on spirits shall be increased by £2.605 per proof gallon. As a result, the increase in the budget duty element on a glass of spirits is 2.85p. As I said earlier in relation to beer, I am happy to report that the sales are quite buoyant and everybody is in the best of spirits.

Mr. Colley

This represents what can only be described as a savage increase, and despite the Minister's previous juggling with percentage figures, the fact is there never has been an increase of the same amount in spirits in the past. If we were not under the time pressure that we are to deal with the whole of the Finance Bill we would be voting against this section, too. In the circumstances, I merely wish to place on record that we have precisely the same objections to this section as we have to the previous one, but we do not intend to vote for the reason I have given.

Question put and agreed to.

SECTION 48.

Question proposed: "That section 48 stand part of the Bill."

Mr. Colley

Exactly the same remarks as I have made in relation to the section on spirits applies to the section on tobacco. Again, in different circumstances, we would have been voting against this section, but in the circumstances I have outlined we shall not do so. I want to ask the Minister in relation to this section whether there is provision in the Bill, because it is not very obvious to me, for the easement for hard or plug tobacco which has now become traditional?

Mr. R. Ryan

There is a standard relief already in existing law and that is not being interfered with. The advantage which the hard plug has had remains.

Mr. Colley

Does it remain to the same extent?

Mr. R. Ryan

It is the same relief.

Mr. Nolan

No, it does not. As far as I am aware, tobacco, be it cut plug or hard pressed plug has been increased by 4p per ounce. In previous budgets Ministers on this side of the House provided for a rebate for hard pressed tobacco, which is looked upon as the poor man's smoke. Like Deputy Colley, I cannot see in this Bill that this special rebate off that 4p has been given. In my opinion, cut tobacco has gone up 4p per ounce and so has hard pressed tobacco.

Mr. R. Ryan

Yes, but the base for each of the tobacco is different, there being a built-in advantage for the hard plug.

Mr. Cunningham

That was always there.

Mr. R. Ryan

I have left it as it was. The advantage is still there.

Mr. Cunningham

No.

Mr. Nolan

A Fianna Fáil Minister for Finance in the past gave a rebate on hard pressed tobacco. When the duty on tobacco was increased cigarettes went up, cut plug went up, but they gave a rebate on hard-pressed tobacco. In this budget we are still getting the rebate but in this section of the Bill the Minister is giving no rebate on the 4 pence per ounce by which he has increased the price of hard-pressed tobacco.

Mr. R. Ryan

The basic rate remains.

Mr. Nolan

Will the Minister please answer my question? He has given no rebate on hard pressed tobacco as against cut plug.

Mr. R. Ryan

I have left the basic rebate.

Mr. Nolan

The basic rebate was provided by Fianna Fáil.

Mr. R. Ryan

I have not denied who provided it; in fact, it was provided by the House.

Mr. Colley

Perhaps the Minister could tell us — on the last occasion, say, on which duty on tobacco was increased was there a special rebate introduced at that time in respect of hard-pressed tobacco or on the occasion before that on which the duty on tobacco was increased was there such a special provision introduced?

Mr. R. Ryan

I have been endeavouring to find the date of the origin of the rebate. It was many years ago. This distinction is becoming of less importance because the number of people consuming hard-pressed tobacco is reducing.

Mr. Colley

Irrespective of the merits or demerits we ought to get the facts clear in relation to it. Is the Minister saying that on previous occasions when duty on tobacco was increased the same increase applied to, say, flake tobacco as to hard-pressed tobacco?

Mr. R. Ryan

I understand that that has happened since the original rebate was given.

Mr. Colley

On each occasion?

Mr. R. Ryan

I cannot say, but certainly on some occasions there was no additional rebate on hard-pressed tobacco.

Mr. Cunningham

Take our word for it.

Mr. Nolan

Last year or the year before there may have been an increase of one or two old pence on the packet of cigarettes.

Mr. Colley

There was none last year.

Mr. Nolan

This year there has been the biggest increase ever in tobacco duty. A Government would have to get out of office if they had increased the packet of cigarettes by seven old pence which is the increase in the recent budget or if tobacco went up by almost two shillings a half quarter. The reason why there was not a rebate given for hard pressed tobacco in the last budget, when there was an increase in duty, was I understand, due to the fact that it was a very small increase. This time cigarettes have gone up by seven old pence and a half quarter of tobacco looked on as the old age pensioners' smoke, the poor man's smoke, the country man's smoke, has gone up by almost two shillings and the Minister gave no rebate on this hard pressed tobacco.

Mr. Blaney

Would the Minister explain the reasons that motivated him to apply across the board the increase on tobacco as distinct from what had become a practice over recent years, not applying it to the hard pressed, plug tobaccos?

Mr. R. Ryan

Some years ago there was a rebate given in favour of the hard pressed tobacco. It is a long time ago. Since then there have been increases in tobacco duties without giving a further rebate.

Mr. Blaney

The Minister has not answered my question.

Mr. R. Ryan

We may as well get the figures. The rebates granted to home manufacturers of hard pressed and other piped tobaccos continue to apply this year at the existing rates of £1.875 per pound and £0.225 per pound respectively. That is the value of the rebate in favour of the hard pressed tobacco, which is fairly sizeable. I am not sure whether the Deputy was asking me why it is applied. It is applied because we are now getting into a situation in which the consumption of hard pressed tobacco is becoming negligible, and, having regard to the quite sizeable rebate which already exists, I do not think there is any need to increase it. It is not, having regard to the considerable social welfare benefits, a matter of any significance in the budget of a hard pressed tobacco smoker particularly when he has the rebate which he has.

Mr. Cunningham

The Minister must have been very hard pressed when he took the last ounce.

Mr. R. Ryan

No, I plugged for an increase. Deputy Blaney asked me on the day of the budget whether I did it for revenue purposes or for health purposes and I answered: "both". It may be a matter of concern to the Minister for Health to know that since the budget the consumption of tobacco is increasing and the likelihood is that by the end of the year it may be above what we anticipated.

Mr. Cunningham

Will the Minister have a supplementary budget in the autumn to remedy the situation?

Mr. R. Ryan

I think we have got enough fire and smoke out of this situation and that, as we have a lengthy Bill to get through, perhaps we ought to move on.

Mr. Nolan

The Minister has plugged his point and twisted it a little bit. He stated that the amount of revenue coming from hard-pressed tobacco is falling because the consumption is decreasing. That is all the more reason to give this traditional rebate to the poor people who smoke hard-pressed tobacco.

Mr. R. Ryan

I have left the rebate which was given and I think we could leave it alone now.

Mr. Colley

Was this matter brought to the Minister's attention and did he make a decision one way or the other or did it just happen?

Mr. R. Ryan

Did what happen?

Mr. Colley

What has happened. Did the Minister make a conscious decision?

Mr. R. Ryan

I make no decisions other than conscious ones.

Mr. Blaney

The Minister said that he made these increases under two heads — from the revenue point of view and from the health point of view. May I suggest then that he be consistent in regard to the health side of this by wiping out, on all tobacco, the duty he has proposed other than that on cigarettes since pipe smoking is, according to the medical authorities, less damaging to health than cigarettes?

Mr. R. Ryan

There is a built-in disadvantage on cigarette smokers as against pipe smokers. I know that Deputy Blaney has no interest in this matter himself which he would like to declare or otherwise. We are very glad to see him in good health. He is a better advertisement than any fiscal device which I could produce to get people to change away from the weed.

Mr. T.J. Fitzpatrick

(Dublin Central): There is a difference in the amount of tobacco that is in a tipped cigarette and the amount that is in a non-tipped one. The content in respect of the tipped cigarette is much less than in the other case but in the budget there was an extra 3p imposed on a packet of either type. Therefore, there will be a considerable gain to the manufacturers if they are allowed impose the 3p on both types. Can the Minister say if any guideline has been given to manufacturers in this regard?

Mr. R. Ryan

It is very difficult to answer that question, as I indicated on the budget debate, because there is such a variation both in the tipped and non-tipped types of cigarettes in relation to size, concentration of leaf, length of the filter and so on. What is done is that the tax is imposed at what I might call the quantity level. The quantity of tobacco in cigarettes is a matter for each manufacturer who, of course, must go through the ordinary procedures in relation to prices. That is a matter for the Department of Industry and Commerce and for the National Prices Commission but it is not one for the Revenue Commissioners. They apply the tax on the tobacco.

Mr. Cunningham

And the Minister then washes his hands of it.

Mr. T.J. Fitzpatrick

(Dublin Central): I do not think they will have to go to the National Prices Commission in regard to revenue.

Ruairí Brugha

Since the Minister has indicated that the number of people who smoke hard pressed tobacco is becoming fewer, perhaps, instead of increasing the 2-ounce bar by 7p the Minister would make some allowances?

Mr. R. Ryan

I have pointed out already that the smokers of hard pressed tobacco are getting a concession at the moment. I do not think that a further concession would be justified.

Mr. Blaney

It is a lesser concession now.

Mr. Cunningham

The Minister might have charged 2p instead of 4p.

Mr. R. Ryan

The Financial Resoslutions have been passed already. We cannot change them now.

Question put and agreed to.

SECTION 49.

Mr. R. Ryan

I move amendment No. 5:

In page 29, subsection (1), line 14, to delete "subsection (2)", and to substitute "subsections (2) and (3)."

With your, permission, Sir, I will deal with amendments Nos. 5 and 6 together. Section 49 provides for an imposition of an excise duty at a rate of £0.627 a 1b. on all duty-paid stocks of manufactured and unmanufactured tobacco held by tobacco manufacturers at 5 p.m. on budget day, 16th May, 1973. This level of duty is the same as the increase in rate applied by section 48 to tobacco on which customs and excise duty has yet to be paid. The special duty led to representations from the smaller tobacco manufacturers who sought to have the duty payable on their stocks remitted. Their case rested largely on their contention that they would be unable to shift the increase to their customers in the immediate post-budget period. The present amendments are the outcome of these recommendations. I commend them to the House. The cost of these concessions is approximately £5,000.

It might be of interest to the hard-pressed brigade to know that the people who benefit mainly from this concession are the manufacturers of hard pressed tobacco.

Mr. Colley

I was aware of that. The manufacturers get the benefit and not the consumers.

Mr. R. Ryan

It means that they did not pass on the increase to the consumers for some time.

Amendment agreed to.

Mr. R. Ryan

I move amendment No. 6:

In page 29, before subsection (2), to insert the following subsection:

(2) The duty imposed by sub-section (1) of this section shall not be chargeable on stocks of tobacco in the ownership or possession of a licensed manufacturer of tobacco if it is shown to the satisfaction of the Revenue Commissioners that the total weight of such stocks in the ownership or possession of that manufacturer and upon which, apart from this subsection, the duty would be chargeable, did not exceed 5,500 pounds.

Amendment agreed to.

Section 49, as amended, agreed to.

SECTION 50.

Question proposed: "That section 50 stand part of the Bill".

Mr. Colley

I presume this section arises out of a certain application relating to the setting-up of a test operation in Dublin?

Mr. R. Ryan

Yes. This was an application in regard to the manufacture of cigarettes from materials other than natural tobacco leaf. Under the existing law such manufacture would not be permissible and, therefore, should be amended. The provision is being provided in respect of exports. I understand that there will be some natural tobacco leaf as well as synthetic materials in the composition of the cigarettes.

Question put and agreed to.

SECTION 51.

Question proposed: "That section 51 stand part of the Bill".

Mr. R. Ryan

Under the Imposition of Duties Act, 1957, as amended by section 22 of the Finance Act, 1962, the Government may, by order, make changes in customs and excise duties and stamp duties. Such orders must be confirmed by an Act of the Oireachtas by the end of the year following that in which they are made, if they are not to lapse.

The following orders require to be confirmed by the end of this year:

S.I. No. 162 of 1972 — Imposition of Duties (No. 199) (Excise Duties) (Firearms Certificates) Order, 1972 — this order increased the excise duty payable on certain firearm certificates; S.I. No. 220 of 1972 — Imposition of Duties (No. 200) (Customs and Excise Duties and Form of Tariff) Order, 1972—

the effects of the order were:

(i) to convert the Customs Tariff nomenclature to that of the EEC Common Customs Tariff;

(ii) to introduce the Nimexe system of statistical classification for imports and exports;

(iii) to convert the units of quantity at a number of tariff headings to metric terms;

(iv) to eliminate the customs duty on coal;

(v) to make certain other changes in the form of Customs Tariff. The order came into operation on 1st January, 1973.

The remaining Orders mentioned in the section would not have to be confirmed until the end of 1974, but are included here for convenience.

S.I. No. 4 of 1973 — Imposition of Duties (No. 201) (Customs Duties and Form of Customs Tariff) Order, 1973. This order restored the correct duty position of a number of items, namely, certain kinds of paper, building materials of asbestos cement, and hinges suitable for motor vehicles, on which the incidence of duty was inadvertently altered in the course of the transposition of our Customs Tariff nomenclature to that of the EEC Common Customs Tariff. A number of minor editorial changes were also made in the form of Customs Tariff. The order came into operation on 11th January, 1973.

S.I. No. 68 of 1973 — Imposition of Duties (No. 202) (Customs and Excise Duties and Form of Tariff) Order, 1973. This order extended the scheme of tariff preferences for developing countries to Western Samoa, Bhutan, Cuba, Fiji, Nauru, Oman Sikkim and Tonga.

S.I. No. 71 of 1973 — Imposition of Duties (No. 203) (Customs Duties and Form of Customs Tariff) Order, 1973. This order provides for the correction of certain anomalies in rates of Customs duty arising from Ireland's adoption of the EEC Common Customs Tariff Nomenclature, removes the duty on newsprint and on motorvehicle fanbelts of Northern Ireland origin and makes certain consequential changes in rates of duty for the general scheme of tariff preferences applied to developing countries. A number of minor editorial changes are also made in the form of Customs Tariff.

S.I. No. 72 of 1973 — Imposition of Duties (No. 204) (Customs Duties and Form of Customs Tariff) Order, 1973. This order provided for the rates of Customs duty to be applied to certain goods of United Kingdom and Northern Ireland origin.

S.I. No. 83 of 1973 — Imposition of Duties (No. 205) (Beer, Spirits, Tobacco, Hydrocarbon Oils and Wine) Order, 1973. This order removed certain minor protective elements in the customs duties on beer, spirits in recognised medical preparation, tobacco and hydrocarbon oils in the case of imports from other EEC member states and (for hydrocarbon oils and for spirits in recognised medical preparations) from the following EFTA non-applicant countries — Austria, Iceland, Portugal, Sweden and Switzerland.

There is no home production of wine of the kind which is classified at tariff heading 22.06 and the rates in the tariff were aligned to reflect this position. The order came into operation on 1st April, 1973.

Mr. O'Malley

Is this a usual provision in Finance Bills?

Mr. R. Ryan

Yes.

Mr. O'Malley

Could I just say to the Minister in relation to the first of those orders in that table — Imposition of Duties (No. 199) (Excise Duties) (Firearms Certificates) Order, 1972 — that that was made by the Government at my request in July, 1972, for security reasons and not for revenue-raising reasons. We brought about a fairly drastic increase in the duty payable on a firearms certificate for all types of firearms other than shotguns. We did it in that way rather than by a section in a Finance Bill because, hopefully, we envisaged its being not a permanent measure. Clearly, the security situation in the country at the moment would not warrant its repeal or even its amendment. I mention this simply to tell the Government that our intention at the time was not to raise revenue from it. Indeed, little or no extra revenue was raised from it because shortly after that order was made I called in all licensed guns above a certain calibre with the result that no certificates were taken out for them for the licensing year which began on 1st August, 1972.

Naturally, I am not suggesting that anything would be done at the moment to change what was done then. I am just putting it on record now for the benefit of the Minister that at such time as the security situation improves he might consider then reverting, if not right back to the original fees, which were rather small, to lesser fees than now exist. Representations were made to me by gun clubs and other groups of organised and genuine sportsmen that many of their members suffered considerable hardship as a result of these heavily increased fees. I accepted that they did. I have no doubt that a number of perfectly bona fide people suffered rather heavily as a result. I did say to them at the time that it was done simply for security purposes, not to raise revenue; that if it did bring in revenue that was purely incidental and that we would certainly give consideration to a fairly drastic decrease in the fees even though it might not go back to the original figure when that time came. It has not come yet. I mention it so that the Minister could bear it in mind.

Mr. R. Ryan

I would have no doubt that when the Minister for Justice considers it appropriate to relax the extra costs and disciplines imposed on people by this order he will seek to have the order amended. There are, of course, a large number of revenue collection items like this which are, in fact, more costly to the revenue than the yield in profit to the Revenue. I think I can speak for the Revenue Commissioners and, indeed, for all Ministers for Finance, when I say that they would be only too happy to be free of the responsibility of collecting and handling many of these licence fees but while they exist they have to be collected and, in accordance with the Constitution, they must go into the central pool.

Recently there was a question in relation to dog licences and the cost of administration. I made the point that they exist, not for the sake of collecting revenue. I accept what Deputy O'Malley says here, that this order was made, not for the purpose of collecting revenue but simply to provide control. Nothing controls human behaviour as much as money. That is, the principle underlying orders of this kind.

Question put and agreed to.

SECTION 52.

Question proposed: "That section 52 stand part of the Bill."

Mr. R. Ryan

This section imposes a new scale of rates of estate duty. The new rates apply to the estates of persons dying on or after 16th May, 1973. The existing scale is unchanged for estates over £10,000 in value. Estates under £10,000 in value will be exempt from duty since no rate of duty is prescribed for them. When an estate exceeds £10,000, the entire estate will be dutiable at the appropriate rate.

Raising the general exemption limit to £10,000 will have the effect of relieving approximately 530 cases from liability to estate duty each year. The cost of this relief is estimated to be £330,000 in a full year and £160,000 in the current year. The new exemption limit will not have statutory effect until the Act is passed. It is necessary, therefore, to provide that any duty assessed on an estate, valued between £7,500 and £10,000, of a person dying between 16th May, 1973, and the date of the passing of the Act will be repaid.

This is more in the nature of a notional provision than one which is really necessary because I doubt whether any estate has yet been administered in respect of a person who died as recently as April.

Progress reported; Committee to sit again.

The Dáil adjourned at 10.30 p.m. until 10.30 a.m. on Friday, 27th July, 1973.