I move: "That the Bill be now read a Second Time."
This Bill, in the light of the Government's legislative achievement in taxation matters, including the capital taxation proposals currently under discussion, is another milestone on the road to an equitable and efficient taxation system. The process of taxation reform is unavoidably arduous and uncertain but our aim remains constant: the achievement of a tax base which is broad, related to capacity to pay, immune as far as practicable to avoidance and evasion and free as far as possible from unnecessary disincentives and anomalies. We are not so presumptuous as to believe that we can please everybody but we are sufficiently anxious to endeavour to be fair to all.
This year's budget contained fiscal measures designed to provide significant tax relief for industry and also, for the second year in succession, for individual income tax payers. These reliefs will cost about £28 million in the current year. Given further but necessary increases in social welfare benefits and other payments, additional taxation, consisting mainly of customs and excise duties on nonessential commodities, had inevitably to be raised if the borrowing requirement were not to grow to unmanageable proportions.
This year's Finance Bill significantly provides for the abolition of death duties from 1st April next. This is in fulfilment of the pledge of the parties comprising the National Coalition Government to relieve the heavy and unjust burden of estate duties on property passing on death to widows and their children. The other related part of the Government's pledge to replace estate duties with taxation confined to wealthy persons and to property passing on death outside the immediate family is receiving attention in the capital taxation Bills. I will be referring to this later but I think it is pertinent to say at this stage that, as a consequence of the abolition of death duties and the new taxation measures, some 90 per cent of the people now at risk to pay estate duties will pay neither death duties nor capital taxation in future.
Part I of the Bill deals with measures relating to income tax and corporation profits tax. The principal changes in the personal allowances and reliefs and in the rates of personal tax are contained in Chapter 1. Section 12 outlines the new allowances, following the increases announced in the budget, which are to operate for 1975-76, while the reductions in the higher rates of tax—to coincide with the proposed introduction of wealth tax next April—are reflected in section 11. Section 2 provides for the restoration as from 1974-75 of the same cash differential which existed prior to April, 1974, between the tax relief given to higher-rate taxpayers in respect of life assurance premiums on policies with Irish and non-Irish companies.
Section 1 increases for the purpose of the dependent relative tax allowance the income limit of a dependent relative by reference to the budget increase in the social welfare noncontributory old age pension.
The purpose of section 10 is to exempt from income tax the new monthly payments by the Minister for Health to thalidomide children which supplement the already-exempted awards from the West German fund for thalidomide victims.
Certain amendments and extensions of existing capital allowances are also provided for in Part I of the Bill. In my budget statement I announced a temporary increase in the rates of industrial buildings allowances, from 20 per cent to 50 per cent in the case of the initial allowance and from 2 per cent to 4 per cent in the case of the annual allowance. In order to give an immediate stimulus to industrial building, these increases will apply to capital expenditure incurred after 15th January, 1975, Budget Day, and sections 5 and 6 provide accordingly. Section 5 also provides for an increase in the rate of initial allowance in the case of market garden buildings from 10 per cent to 20 per cent, which puts their allowances on a par with those for farm buildings, to which I will refer later.
Sections 4 and 8 extend from 31st March, 1975, to 31st March, 1977, the period of operation of 100 per cent initial allowance and free depreciation for expenditure on new plant and machinery. Section 9 continues for the same period the existing suspension of the shipping investment allowance which is in abeyance while free depreciation and 100 per cent initial allowance are in operation for the whole country. Section 7 provides for the continuance until 31st March, 1977, of the 20 per cent investment allowance for expenditure on new plant and machinery in the designated areas.
I now turn to Chapter II which deals with the taxation of farming profits. Section 13 is designed to remove anomalies that arose from the fact that up to now grazing profits were not regarded as farming profits. Land taken for grazing was not, therefore, included in determining land occupied for the purpose of the taxation of farming profits—although, for example, land taken for tillage was so included. The section provides that as from 6th April, 1975, land taken for grazing is to be regarded as land occupied for the purpose of farming and a grazier in effect will be regarded as carrying on farming.
Sections 14 and 15 contain provisions to remove a doubt which has been expressed about the application of sections 15 and 16 of the Finance Act, 1974, in relation to farmers who have land of £100 valuation or more and who are also carrying on another trade or profession. If these persons were not within the scope of section 16 of the Finance Act, 1974, then they would be entitled to marginal relief and to the option of being assessed on the notional basis. Since it was not the intention that they should be so entitled, the amendments proposed in sections 14 and 15, which will have effect as from 6th April, 1974, are necessary.
Section 16 is an amendment to section 17 of the Finance Act, 1974. That section sets out the criteria for determining the occupation of land. It provides for apportionment of the rateable valuation of the land where the land is beneficially owned or occupied in partnership with others. During the passage of the Finance Bill last year it was pointed out that the section as it stood would not cover certain cases of occupation, for example, where an individual occupies land as a tenant-in-common. I have since, as promised, looked into the matter and the amendment proposed, which will be operative as from 6th April, 1974, meets, I think, the type of case mentioned last year.
As I indicated in my budget statement, the option provided for farmers under section 21 of the Finance Act, 1974, whereby they could elect for a notional basis of assessment for 1974-75, is being extended for a further year to 1975-76 and section 17 provides accordingly. This section also extends from six months to 15 months the time given to farmers to opt for the notional basis of assessment in respect of the tax year 1974-75. This extension is being granted as an exceptional measure and means that farmers will have up to 5th July next in which to exercise this option in respect of their 1974-75 liability. I might add that, since the circulation of the Bill, I have decided that it would be reasonable to extend similarly the six-months' period for opting for a current year basis of assessment in respect of tax liability for 1974-75 and I intend introducing an appropriate amendment at the Committee Stage.
Section 18 contains two further valuable concessions for farmers in relation to the annual farm buildings allowance of 10 per cent. In this context I should point out that the "farm buildings" allowance covers not alone capital expenditure on farm buildings proper but also a range of other work of a capital nature such as land reclamation and drainage, the installation of water and electricity, the provision of sewerage, the erection of fences and the construction of walls.
The first concession relates to the operative date of the allowance which, as introduced last year, applied only to expenditure incurred on or after 6th April, 1974. As many farmers undertook heavy expenditure of a capital nature in the years prior to 1974—at a time when farming profits were exempt from tax—so as to prepare themselves for the challenge and opportunity presented by this country's entry into the Common Market, the Government have now decided, exceptionally, to make the allowance retrospective so that expenditure incurred on or after 6th April, 1971, instead of 6th April, 1974, will qualify for the allowance.
The second concession in relation to the farm buildings allowance is the new extra initial allowance of 20 per cent which is being provided in respect of expenditure incurred on or after 6th April, 1974. In deciding to introduce this additional allowance the Government were influenced by the consideration that quite a considerable amount of expenditure on farm buildings nowadays relates to milk-parlours, piggeries and other types of expensive buildings which can become fairly rapidly obsolescent. This should provide a valuable incentive to farmers to undertake further capital expenditure.
Section 23 in Chapter IV of the Bill secures that the farm buildings capital allowances apply for corporation profits tax as well as for income tax.
Chapter III of Part I, covering sections 19 to 22, is concerned with the type of tax avoidance scheme I mentioned in my budget statement and was the subject of a Financial Resolution on Budget Day. The avoidance scheme in question involved the creation of a special lease so as to achieve a substantial tax deferral over a long period of years. Chapter III counters such schemes by tightening up the existing tax legislation regarding leases.
As regards Chapter IV, I have already mentioned the purpose of section 23. Because of the decision, already announced, to defer the introduction of the legislation relating to the proposed new system of company taxation which was to have come into operation on 6th April, 1975, it is necessary to continue for a further year the exemption from corporation profits tax enjoyed by certain public utility societies and other bodies, including building societies, and section 24 provides accordingly.
Chapter V of the Bill deals with a number of miscellaneous taxation matters.
Section 25 is aimed at overcoming a practical defect in existing law relating to the service of taxation notices. As matters stand notices may be served on a company only at its last known registered office and on an individual only at his last known residence or place of employment. This requirement has given rise to difficulties not only for the Revenue Commissioners but also for taxpayers who may find themselves liable to pay interest on overdue tax because of delays in the transmission of demands to them from addresses which have become out of date. It is therefore proposed that documents may also be served at places of business.
In my budget statement I referred to the fact that present interest rates on overdue tax have not been revised for some years and as a result do not constitute an effective deterrent against the withholding of tax or adequately compensate the State for its consequential borrowings. I indicated that I proposed to increase the rate of interest to a uniform 1½ per cent per month. Section 28 implements this intention.
Also in my budget statement I referred to a defect in existing law whereby interest on overdue PAYE tax, which is the subject of a formal estimate, does not apply until some considerable time after the end of the period to which the underpayment relates. Section 26 accordingly provides that interest will be payable on such tax with effect from the end of the year of assessment to the time of payment.
Section 31, together with the Third Schedule, is designed to give effect to the proposals announced in my budget statement to give a measure of relief from taxation to certain classes of companies which, because of the exceptionally high cost of replacing trading stock, have had to plough back into their businesses profits which would otherwise have been free for other purposes. In order to defer the collection of tax on those profits, it is proposed, generally speaking, to allow a deduction in the computation of profits for tax purposes of the amount by which the increase in the value of trading stock and work-in-progress exceeds 20 per cent of the trading profits. The relief will in general apply to corporation profits tax for accounting periods ending in the tax years 1973-74 and 1974-75, and to income tax for 1974-75 and 1975-76—which would normally be based on the profits of those accounting periods. The question of the most appropriate time to recoup the tax so deferred will be considered later in the light of the economic situation and other material factors.
The proposed relief must be regarded as a temporary expedient designed to give immediate help to those companies in need of assistance. Obviously, some companies are more adversely affected by inflated replacement cost than others and deferment of tax is not necessary at all for certain types of business, for example, cash businesses with a rapid turnover. Accordingly relief is being confined to companies engaged wholly or mainly in manufacturing, construction or farming or in the sale of plant, machinery or material to those sectors. It would not be administratively feasible to bring unincorporated traders in the qualifying sectors within the scope of the relief at present but I propose to include legislation in next year's Finance Bill to accord them the same measure of relief. The provisions of the Bill and this announcement will mean immediate significant relief for business.
The remaining sections in Part I of the Bill are of a mainly consequential nature. Sections 3 and 33 provide that in computing the amount of various reliefs and charges, the references throughout the Income Tax Acts to capital allowances shall include the new capital allowances introduced in recent years, for example, the farm buildings allowance, so that the new allowances shall be treated on the same basis as other capital allowances such as wear and tear.
Likewise section 29 provides that in cases where a refund is made of the value-added tax paid in connection with capital expenditure on mining or farm buildings, the capital allowances shall be computed only on the net expenditure. Similar provisions in relation to the capital allowances then existing were contained in the Value-Added Tax Act, 1972, but, as they are regarded as being more properly concerned with income tax and corporation profits tax, the intention is to repeal, rather than amend, the relative provision in the Value-Added Tax Act, 1972, and to substitute a new comprehensive section within the income tax and corporation profits tax code.
Section 27 ensures that interest paid to the Revenue Commissioners by a principal contractor, because of the late remittance by him of tax deducted from payments to subcontractors, will not qualify for tax relief and will therefore be treated on the same basis as interest on other kinds of overdue tax. Section 30 extends to shareholders' dividends the benefits of the tax exemption on income from patent royalties enjoyed by companies under the Finance Act, 1973. Sections 32 and 34 effect some minor drafting corrections in existing legislation.
I now come to Part II of the Bill covering sections 35 to 44 which deal with customs and excise duties. Apart from sections 43 and 44, the sections confirm the various budget increases. Sections 35 to 39 relate to the customs and excise duties on beer, spirits, tobacco, wine and table waters. Section 40 increases the off-course betting duty from 15 per cent to 20 per cent. Section 41 raises by £60 per annum the excise duty chargeable on licences for gaming premises with pro rata increases for shorter periods. Section 42 provides that a new excise duty, at the rate of £50 per machine, will be imposed with effect from 1st May, 1975, on gaming machines in use on premises licensed for gaming under the Gaming and Lotteries Act, 1956. The penalty proposed for not taking out a gaming machine licence is £300 in respect of each machine and the machine in question will be liable to forfeiture.
I am satisfied that, in present economic circumstances, it is only equitable that taxation increases to meet pressing economic and social needs should fall on less essential items. The new taxation in this year's budget was introduced with this in mind. As was stated in the National Partnership White Paper, it will assist to maintain employment and living standards if the better-off do not demand income compensation for these additional taxes on luxuries.
Section 43 is a provision which has not already been announced. It increases the rate of the annual dog licence duty from 25p—last fixed in 1925—to £1 and the rate of duty on a general licence, which permits the keeping of any number of dogs, from £10 to £25 per annum. The section also increases the excise penalty for keeping an unlicensed dog from £2 to £10. As Deputies are aware, the Minister for Local Government has tabled an amendment to the Local Government (Planning and Development) Bill, 1973, which is before the House, which would permit local authorities to provide shelters for stray or unwanted dogs and also to assist bodies of persons in providing homes or shelters for such animals.
The section provides that the increases in the licence fees will come into operation on a date to be fixed by the Minister for Finance by order. The annual renewal date for such licences is 1st January and it is hoped that local authorities will have the necessary powers to provide shelters by January next which would be a convenient time for introducing the proposed licence increases. The additional revenue yield will enable extra finance to be provided to deal with the problem of stray dogs and for the protection of dogs generally.
Section 44 confirms three orders made by the Government under the Imposition of Duties Act, 1957, as amended, details of which are outlined in the explanatory memorandum. Of the three orders, only No. 214, which increased the customs and excise duty on petrol by 13.3p per gallon in December last, need be mentioned in further detail. Deputies will recall that in my statement to the House on 4th December last I proposed to make provision in the Finance Bill, 1975, to convert the extra customs and excise duty of 13.3p per gallon into a value-added tax charge. Following a detailed study of the question however it is apparent that such a conversion would create major difficulties for the petrol trade and unnecessarily add to the complexity of the value-added tax code. In all the circumstances I have decided to allow the extra charge of 13.3p per gallon to stand as a customs and excise duty and accordingly provision is being made in this Bill to confirm the order.
Part III of the Bill provides for the abolition of the existing death duties as from April, 1975, when the proposed wealth tax is to come into operation. As I mentioned earlier, the abolition of death duties and their replacement by the proposed reformed system of capital taxation will mean that over 90 per cent of those people now at risk to death duties will be totally free in the future of death duties and any capital taxes.
Part IV of the Bill, which deals with stamp duties, converts into permanent legislation the stamp duty changes announced in the budget, which are given temporary effect from 1st March, 1975, by an order under the Imposition of Duties Act, 1957. That order will be revoked on the Bill becoming law and the new permanent legislation will be as set out in the Fourth Schedule to the Bill. Briefly, the budget changes in stamp duties involve an increase from 3 per cent to 4 per cent in the rate on property transactions exceeding £20,000 and up to £50,000 in value and from 5 per cent to 6 per cent on property transactions of over £50,000 in value.
Part V of the Bill deals with value-added tax. Sections 48 and 49 put into legislative form proposals to counter avoidance of VAT to which I referred in my budget statement and details of which are to be found in the explanatory memorandum. Section 50 suspends for a temporary period commencing on 1st March, 1975, the tax credit of 1 per cent at present available to meat factories and other registered purchasers of live cattle. The purpose of this temporary suspension, as explained in the budget statement, is to provide extra funds to be channelled to small farmers to alleviate their feed problems. The traders affected are being informed by the Revenue Commissioners that the suspension of credit will have statutory effect from 1st March as soon as the Finance Bill becomes law. Section 51 provides for an amendment to the Third Schedule of the Value-Added Tax Act, 1972—covering goods and services chargeable at the present rate of 6.75 per cent— consequential on the VAT changes made by the Finance Act, 1973.
Part VI of the Bill is concerned with a number of miscellaneous matters, of which the most important is the proposed amendment to the Provisional Collection of Taxes Act, 1927, as outlined in section 53. This arises from the revision of Dáil Standing Orders and consequential amendments to the 1927 Act last year.
Prior to last year's changes the time available for the passage of the the Second Stage of a Bill confirming budget day Financial Resolutions was 20 sitting days from the time resolutions were approved by the Dáil as a whole. As, however, the Resolutions were passed by the Committee on Finance on Budget Day and not approved by the Dáil until the conclusion of the general budget debates, the number of sitting days available from budget day for the passing of the Second Stage of the confirming Bill was in practice up to 30. However the revision of Dáil Standing Orders in 1974 involved the abolition of the concept of the Committee on Finance and the 1927 Act was amended, accordingly, by the deletion of references to that Committee.
As a consequence of these changes Financial Resolutions moved on Budget Day are now approved by the Dáil as a whole on that day so that the time limit for the passing of the Second Stage of the Bill operates from Budget Day. In practice this means a reduction of the time available for the preparation of the annual Finance Bill if Deputies are to have reasonable time in which to study the Bill. This year, for instance, in order to meet the statutory deadline the Second Stage of the Finance Bill must be passed by the Dáil by next Tuesday at the latest. As this constraint is considered to be unnecessarily tight, section 53 proposes that for the future the 20 sitting days limit will be increased to one of 30 days.
The other sections in Part VI of the Bill are of a routine nature. Section 52 is the annual provision relating to the Capital Services Redemption Account. Section 54 is the usual care and management provision, and section 55 provides for the short title, construction and commencement of the Act. I commend the Bill to the House for a Second Reading.