The Minister for Finance was in possession on amendment No. 9.
Finance Bill, 1975: Committee Stage (Resumed).
Debate resumed on amendment No. 9:
In page 15, line 52, to delete "1.5" and substitute "1".
—(Deputy Colley.)
This is the amendment which seeks to have the interest rate of no more than 1 per cent on underpaid tax and tax which is in arrear. I have already given a number of reasons why it is desirable to have a higher rate than 1 per cent. The principal reason is that if the interest charged on tax arrears is not higher than the going bank rate, then people will withhold tax as a source of borrowed moneys. The Exchequer has no obligation to be a moneylender and the Minister for Finance has a duty to ensure that the system does not work in such a way as to permit people to borrow from the Exchequer at the expense of other taxpayers, because that is what happens when people borrow from the Exchequer.
The current overdraft rate from 8th April is 13½ per cent, but the current rate of interest charged on tax arrears works out at only 12 per cent. Therefore while a person in certain circumstances may charge interest on an overdraft against tax liability, the rate of interest charged on tax arrears is reasonably attractive, particularly to people who for one reason or another are unable to borrow elsewhere, because, for instance, the bank manager is not disposed to give them the money. However, when you take term loans, you find the rate of interest is even higher than the 13½ per cent. It can go to 14¼ for a loan for one to three years, to 15 for three to five years, and to 15½ per cent for five to seven years.
When the 1 per cent charge was introduced in 1960 the bank rate then was 5.75 per cent, so that there was then, if you like, a penalty of 6.25 against a person who was in arrear with his tax payments. Even though the figure of 1½ per cent per month works out at 18 per cent, the difference between that and the current overdraft rate is, in fact, less than the difference between the interest charged on tax arrears in 1960 and the then bank rate. It is necessary to maintain this margin as between the interest charged on tax and the interest which people will have to pay on borrowing.
The existing rate is not adequate to secure prompt payment of tax and, as a result, the amount of tax arrears has been increasing substantially for a number of years past. If it were only substantial in this year, no doubt it would be claimed it was attributable to the current economic climate, but that is not the situation. This growth in tax arrears can be directly related to the increase in the bank interest charges and to the failure to adapt the tax interest charges to the bank interest rate. If a margin had always been maintained, then I believe we would not have these substantial tax arrears which we now have.
The amount of income tax outstanding in 1974 and due for collection was almost 30 times what it was in 1964 when the interest rate was 1 per cent for PAYE. For comparison purposes I would point out that the amount of tax receipts for 1973-74 was only five times greater than that for 1963-64. Therefore the total amount of tax receipts has increased by only five times but the amount of tax arrears is six times greater than is warranted by the increased amount of tax collected, which is a clear indication that the existing interest charged is not sufficient to encourage people to pay tax promptly.
In regard to those figures for tax receipts, could I ask the Minister if he is referring only to income tax or to all the taxes?
I am dealing with income tax.
Only?
Yes, and corporation profits tax, but not VAT. If the interest rate on tax underpaid were to be at the going rate, this would make the Revenue Commissioners a lending agency, as I said earlier. That is not their function in law. Their duty in law is to collect tax as and when it is due and then pay the tax so collected to the Exchequer. If taxpayers wish to borrow money for personal or business reasons, they should seek their accommodation elsewhere, and not take it at the expense of the State's institutions which means ultimately at the expense of other taxpayers.
Deputy Colley has suggested that there are ways of collecting outstanding tax other than by charging interest. There are a number of ways of enforcing payment, including the institution of legal proceedings and the employing of the sheriff. But enforcement of collection through the agencies of sheriffs, court registrars and court proceedings is a relatively slow process, as the Deputy knows well. Such procedures are resorted to by the Revenue Commissioners only in exceptional cases. It is inappropriate that they should be considered as part of the ordinary administrative process to be applied in the generality of cases.
On average, tax collected through enforcement procedures is obtained about nine months after the date due. There is no legitimate reason for allowing people such a long period for the payment of tax that is due. Therefore it is necessary to have a not inconsiderable interest charge on outstanding tax. This reduces the number of cases which are forced to the stage of legal proceedings. I should not like to think that the whole process of tax collection would be so delayed and become so cumbersome as to require enforcement and court proceedings in the generality of cases. If we did not ensure prompt payment of tax the whole system would break down because of the volume of work which would be imposed on the Revenue Commissioners as well as on the collection agencies that would have to be employed.
We had a number of speeches from the Opposition and, in particular, from Deputy de Valera, emphasising the need for simplifying tax procedures so as to lighten the burden of work on the administration. This is necessary in the interest of equity. It is necessary also to ensure that the number of people employed in the public sector on tax collection duties is no more than necessary. The longer tax remains outstanding, the more work must be done—the more often a file must be resorted to, the more letters must be written and the more agencies must be engaged to effect the collection.
Even if enforcement agencies are resorted to, it is very seldom that the cost of employing those agencies goes any worth-while way towards meeting the total cost involved. Costs awarded in court form only a very small part of the total cost of collection. Like anybody else who would sue for the recovery of a debt, the Revenue Commissioners would have to pay their own administrative cost of collecting the money.
Therefore this method of collection is one to be avoided. If we can avoid it by having this interest charge, so much the better. There is no desire on my part or on the part of the Revenue Commissioners to collect interest for the mere sake of collecting it or to impose a penalty merely for the sake of taking that action but we see the prudence of providing an incentive to people to pay promptly. Prompt payment of tax will avoid any interest charge so there cannot be any question of unnecessary hardship.
I was interested to note that in his budget statement last week the Chancellor of the Exchequer in Britain was forced by recent experience in that country to take steps to ensure prompt payment of tax. We have a number of measures operating here of which there are no equivalents across the water; but it is proposed now to bring such steps into operation there, and no doubt the rates will be such as will ensure that people will pay tax rather than borrow from the State.
While, understandably, Deputy Colley from the Opposition benches would endeavour to be "Mr. Popular" by proposing an amendment such as that before us, I am sure that, as a former Minister for Finance, he will acknowledge the serious obligations on the Minister for Finance to ensure prompt payment of tax. He will acknowledge also the need for the Revenue Commissioners to ensure prompt payment. In the circumstances of today's money market when interest rates are so high there is a necessity, in equity, for the measure of charging interest to taxpayers who withhold tax.
In a large portion of these cases the tax payable does not belong to the taxpayer because in many cases it would have been deducted by employers from the pay packets of employees so that the employer has no right to withhold it for any period of time. Failure to pay over the money is a form of embezzlement. Likewise, the trader who charges VAT is collecting a tax that is due to the Exchequer, but to withhold that money would be a form of embezzlement. The temptation to do so may be great. A person may wish to use the money to pay outstanding bills or to ease cash flow, but that is not the purpose of these taxes. To allow a scheme to operate whereby people could continue to withhold tax would be to impair seriously the system of collecting taxes and would force the Exchequer to borrow against future tax payments, none of which can in equity be warranted.
The Minister indicated earlier that the growth in arrears of tax was of the order of 30 times the increase in ten years while the growth in tax revenue for the same period was of the order of five times the increase. In response to a question from me he indicated that the figure to which he was referring in regard to revenue was related to income tax and corporation profits tax but not to other tax, VAT in particular. Can he say whether the 30 times increase in arrears was related only to income and corporation profits taxes?
Yes.
(Dublin Central): Including PAYE?
Including all income tax and corporation profits tax or, in other words, direct taxation as distinct from indirect taxation such as VAT.
Can the Minister give us any indication of what the figures would be if he were prepared to include all the taxes covered by this section and as defined in the last subsection?
I have not got those figures because we did not have VAT in 1964. The only taxes in respect of which I have figures are income and corporation profits taxes.
The Minister will understand the purpose of my question—to ascertain whether the growth in arrears is proportionate to the growth in revenue. If it is, the argument he has been putting forward does not apply. The position appears to be that we do not have that information. It may be that the suggestion the Minister is making is correct but we do not know because the section we are dealing with and to which this amendment relates defines specifically the taxes involved in subsection (3), which refers to the tax as meaning income tax, surtax, corporation profits tax or value-added tax.
It also seems to me that the logic of most of what the Minister said is that you could justify an interest charge of 100 per cent, as against the 18 per cent which the Minister is attempting to justify, in regard to most of what he said. He made certain arguments to which this would not apply but the bulk of what he said would seem to justify a rate of 100 per cent or any percentage you care to think of. Taking the case to extremes, as that is doing, illustrates the fact that the argument which the Minister put forward to which this can be applied is not really valid.
What we should be trying to achieve is a rate of interest which will act as a sufficient incentive to the taxpayer who is in arrear, to pay his tax and as a sufficient deterrent to the taxpayer not to be in arrear with his tax—sufficient to do that but not to operate as a penal, exorbitant and usurious rate of interest. Almost by the week, and certainly by the month, the extent to which the Minister's proposed rate of tax of 18 per cent per annum is becoming extortionate and exorbitant is increasing because interest rates are, and have been over the past 12 months, decreasing. If this section is enacted without this amendment, it will be built into legislation and it will be extremely difficult if not impossible to reduce it in the future and we shall end up with 18 per cent in the legislation while the current and going rate of interest is reducing— hopefully—over the next few years so that the discrepancy arising will be very substantial. I say that no matter what Government is in power because I know how difficult it is to make that kind of adjustment once it is built into the legislation. Therefore, there is all the more reason why we should look at the provision more closely now.
The Minister indicated on the last occasion that there were cases known of taxpayers who deliberately withheld their tax and invested the money in order to get a high rate of interest and that they were able to make a profit on this while still paying interest to the Revenue Commissioners. Would it be possible for the Minister to indicate whether such cases were private individuals or people in business or who had businesses and were doing this as part of their business? I suspect the latter is the case. The position now is that in the case of a private individual there is a limit to the amount of interest on which he can claim any relief but he cannot claim relief on £1 interest he owes the Revenue Commissioners—there is no relief for him there. Businesses can claim relief but not in the case of interest owed to the Revenue Commissioners so that the actual rate of interest being charged, as compared with the rate at which one can borrow—which was the rate to which the Minister referred—is quite different from what it appears to be on its face. The existing rate of 12 per cent is much higher if one allows for the fact that there is no deduction allowed in respect of income tax liability in regard to this interest and the rate of 18 per cent proposed in similar circumstances is—I have not done the sum—somewhere probably in the region of 23 per cent or 24 per cent. That is the real rate of interest that is proposed to be charged.
I do not think the Minister can justify such a rate of interest which is exorbitant and is not justified by the needs of the Exchequer because if one accepts that argument about the needs of the Exchequer being paramount one might as well say it should be 100 per cent and that people should pay their tax promptly or take the consequences. This is to be applied in the generality of cases, as the Minister indicated, and should, therefore, be fixed at a rate which is an inducement to a taxpayer to pay his tax on time but not so as to be an exorbitant penalty. If one wants to apply that approach in particular cases where it is justified the Revenue Commissioners have other remedies. Some of these may take time—they do not all take a great deal of time— and even if they do, the Revenue Commissioners are earning interest in the meantime. The Minister has indicated—correctly, I believe—that it would not be proposed to apply these remedies in all cases of arrears of tax but, putting it very roughly, only bad cases so that what we are talking about in regard to the rate of interest here is what I might call the ordinary case of arrears of tax, either income tax, surtax, corporation profits tax or value-added tax.
On the previous occasion I adverted to the fact—this is something of which I am aware and I am sure the Minister also is aware because I think he has received representations on it—that today, because of the economic climate, some people, particularly wholesalers, are in the position that they have been forced to extend their normal credit substantially and are paying considerably more for stocks and paying interest on the money to their banks and they have to pay value-added tax to the Revenue Commissioners long before they receive that tax themselves. For the Minister to say that in all cases of arrears of VAT people are virtually embezzling the money because they are holding other people's money is not correct in cases of that kind: it is the taxpayers' own money that is being paid over and he has to wait a considerable time to receive VAT from his customers. We know there is quite a number of such cases and I am sure the Minister knows it.
I would ask the Minister to consider those cases. Is it just to apply a rate of interest to arrears in such cases which effectively works out at considerably more than 20 per cent per annum? Is it necessary? I do not believe it is. Where the Revenue Commissioners are satisfied that it is a bad case, not just a normal case of being slow in paying tax, they can go after the taxpayer concerned but we are talking about the normal case and it is not necessary to apply such a rate of interest. It is not just and I doubt if it will be very effective especially in the present economic climate. If you make it very expensive for a taxpayer, you can go so far that he might as well be hung for a sheep as a lamb and not pay at all. If it happens to be a limited liability company, if the amount due is too great and if the interest is too great, they may go into liquidation. They may leave the Revenue Commissioners with their priority, which they have on a liquidation, trying to recover. I doubt if there is any great advantage to the Revenue Commissioners in that procedure.
I would strongly urge the Minister to look at this matter again. Whatever justification there might be for an 18 per cent rate of interest per annum— I think there is very little—that justification is disappearing rapidly. By this time next year I hope the justification will be even less, on the grounds that the going rate of interest will have decreased considerably. The Minister should consider the situation where such a figure is built into the legislation and he should recognise the practical difficulties, as distinct from the theoretical position, of amending this provision. I know that theoretically there is no problem in amending the provision but the Minister must know that in practice there are great difficulties in effecting this kind of amendment.
This is a very serious matter. It is not likely to help the Exchequer and the Minister must see that it will impose not just hardship but injustice in some cases with regard to arrears of tax, where people are paying their own money in advance of collecting the tax they must pay the Revenue Commissioners.
(Dublin Central): I should like to support the amendment put forward by Deputy Colley. It is interesting information that income tax is practically 30 times what is was ten years ago.
The Deputy means the arrears.
(Dublin Central): Yes. I suppose this is an indication of the times. Anyone who is running a business today appreciates the delicate balance required to keep it going. In difficult times like this there is bound to be an increase in arrears of income tax but I doubt if the Minister's proposals will solve the present problem. The majority of retail outlets are balancing their payments in that they pay one wholesaler one week, another firm the following week and then they pay the Revenue Commissioners.
One of the reasons for the present situation is the system introduced by the banks in the last two or three years, known as the term loan. The majority of business people are placed on term loans and payments must be made every month or every three months. This kind of situation did not arise three or four years ago. Today the banks automatically deduct their term loans from current accounts and these payments must be met. For the majority of business people their overheads are increasing but the profits are getting tighter and, consequently, they are barely able to keep going. Smaller profits combined with the term loans, have contributed to the present situation with regard to payment of income tax and surtax. If the Revenue Commissioners check their books they will see that many people are in this situation now, people who formerly would never have considered withholding income tax payments.
Of course there are other taxpayers who will deliberately withhold tax. Perhaps some of these people have re-invested their money and made profits. I would have no hesitation in using the full force of the law to collect those arrears but I am sure that in the course of the next year or so there will be many people who will genuinely be unable to meet their income tax payments due to circumstances outside their control.
Deputy Colley has mentioned the case of the wholesalers. Many of them have been put in this situation today because of the high bank rate the distributive trade are paying on over-drafts. Naturally they are delaying payments to the wholesalers for as long as they can. The two months allowed to the wholesalers at the moment is not long enough because they have a dreadful problem trying to collect debts from the distributive trade. Nobody likes to lose business in these difficult times. Many wholesalers do not like to force customers too much to pay their bills, they try to use gentle persuasion, but very often they may have to wait for three or four months. A rather different situation obtains with regard to big monopoly firms; some of these firms can afford to demand their cash in 28 or 30 days but other smaller firms are not in that situation.
The Minister should consider the position of wholesalers who have to wait for their money for long periods when the question of the interest rate arises. I realise that PAYE should be submitted to the Revenue Commissioners within a given time because generally it is in the hands of the employers but it is more difficult for people to pay the other taxes. Once we establish a figure of 18 per cent with regard to income tax, that will be carried forward into the other capital taxation measures going through the House. In this connection I am referring to the legislation dealing with capital gains tax, capital acquisitions tax and wealth tax. I can visualise the problems that will arise with regard to the wealth tax if the 18 per cent is carried forward over the next 12 months or two years. I can see it being applied to 95 per cent of the people who will be subject to wealth tax. They have no hope of getting their accounts through or assessing exactly what they are worth. It would be senseless to apply that rate. Whatever justification there may be in charging a high rate for PAYE, it is a different proposition to charge that tax for the capital acquisition or the wealth tax. It would impose a very serious burden on people and a sliding scale should be operated in this area.
It is obvious that next October many people will be subject to wealth tax and if this is carried forward in the same way as PAYE and VAT, I doubt if many will be in a position to pay. Deputy Colley has outlined our opposition to this. I doubt if it will help the Exchequer to any great extent. I should like to see an encouragement clause, to start at a lower rate, say 12 per cent, and have two rates, the higher to apply if the tax has not been paid within three months after the final date. Let us have the other rate at 14 per cent or 15 per cent, but coming in with the 18 per cent after a given time is too harsh.
Wholesalers have a scheme through which they get their revenue in very effectively by a sliding scale of bonuses for prompt payments. If we could introduce some such sliding scale, we would get our revenue more quickly. Honest tax payers never withheld tax but this harsh system proposed by the Minister is too penal and unfair. The Revenue Commissioners could give a reasonable time during this period of economic difficulty. A certain element of sympathy is needed here. Business people will always try to stay in business for as long as they possibly can but I am afraid of the effects of this new penal system. There are many concerns at the moment desperately trying to stay in business and for that reason alone I urge the Minister to be more sympathetic in the administration of this provision, of this extortionate rate to be charged immediately after the final notice. As I said earlier, it should be scaled if payment is made within two or three months. We should try gentle persuasion rather than this punitive system.
I should like to inquire from the Minister whether the 30 times in ten years relates to the volume or to the number of cases. It seems to me that it is not so much the rate of interest as the difficult circumstances which business has been facing in the last 12 to 15 months that could have caused an increase of that kind. I do not think the Minister, on behalf of the State, is setting a good example in increasing the rates of interest on taxes payable by 50 per cent. In reality, it is far more than an 80 per cent increase because it is on a monthly basis and there is a computation upwards if payment is delayed.
As Deputy Colley said, it would not vary in a year by 18 per cent but by a much greater percentage. Our economy depends to a considerable extent on the prospects of a reduction in bank rates to stimulate business, and for the State to increase interest rates is going in the very reverse direction. Deputy Fitzpatrick has a point when he refers to a possible increasing rate at a later stage. As we know, the State has a tremendous advantage over all business enterprises. Most accounts for purchase of goods by business firms are payable on a monthly basis subject to some form of discount. Probably many wholesale and manufacturing firms would hardly be able to survive if purchasers did not have the encouragement of a reduction of the total amounts by percentaages of 2½, or 3¼ in some cases, for early payments.
Business in general, barring the fortunate few multi-concerns, is suffering very seriously due to inflated increased costs of goods, and as Deputy Fitzpatrick has said, this is not a good time to introduce a provision of this kind. If the Revenue Commissioners have found, and it seems from what Deputy Colley has said that they have, some cases where the device of not paying tax has been used to make other moneys, I find it difficult to believe this could be widespread. Possibly it would apply to some selected groups who pay considerable amounts of tax of one kind or another and find they can make some quick money, but it is not very widespread. Therefore, I do not think this type of penalty should be imposed on the generality of taxpayers.
The Minister should find some other way to deal with such cases if many of them exist. He seems to have adopted the same attitude as he did to the Opposition's proposal on the Capital Gains Tax Bill. We put forward the proposition that easy money, speculation money made quickly in a year or two, should be subject to a higher rate of tax, a proposition which the Minister was not prepared to accept, I think wrongly, because if you deter enterprise you slow down the economy. The principle of taxing the easy money speculator is one this side of the House is prepared to support, but the increase in interest charged by the Revenue Commissioners here, bringing it to double the bank rate in a full year, is a device I would use only on the sort of element the Minister has referred to who are trying to make money out of the money due to the Revenue Commissioners. I do not think this is a time to discourage business enterprise. The Minister must know enough about the problems related to redundancy and unemployment to at least agree with that approach. The Minister should consider some amendment to this increase of 50 per cent in the rate of interest chargeable on tax due, before we pass from this section.
The figures I gave are money figures. I have not got the number of taxpayers. These figures are published by the Revenue Commissioners annually in their published accounts showing the value of arrears outstanding.
The Minister does not know the number?
I do not know the number. Probably the number of individuals has increased. Some cases have come to light of outright abuses where people deliberately withheld substantial amounts of money for their own purposes. Some of them admitted as much when they were pressed for payment. Their answer was that the money had been used for certain purposes.
Speculative purposes.
Surely interest is too easy a way out for those people? They should get tougher treatment than just increased interest.
Is the Deputy suggesting jail?
(Dublin Central): Have they not got property?
There are other remedies open to the Revenue Commissioners which should be applied very toughly.
Is the Deputy suggesting legal proceedings? Supposing there was no interest charged on overdue tax the only interest the Revenue Commissioner could get, and it would be a matter of obtaining judgment, would be 4 per cent because that is the maximum that the law permits to be charged on judgement debts. It is, of course, a derisory figure. The Opposition were arguing the very case, which I find unacceptable, that taxpayers should be allowed to withhold tax from the Revenue Commissioners. They said that due to current difficulties——
It is the rate of interest, not withholding.
We are not concerned with charging interest. What we are concerned with is making it unattractive to withhold tax. The vast majority of taxpayers have no option at all. It is taken under the PAYE system out of their pay packets. I am sure there are plenty of workers who would find very good use for their gross pay if they could get it but the Legislature many years ago decided, in its wisdom or otherwise, to collect tax under the system of PAYE. Under that the vast majority have no opportunity to elect between paying tax and withholding it. In equity we must provide that people who are paying tax in arrears should be discouraged from withholding tax. The kind of people we are dealing with here in the main are people who are withholding the employees' tax or VAT or they are the self-employed who are paying tax in arrears. Their 1975 tax liability is based upon their earnings for 1973-74 and with inflation running at a rate of 20 per cent that is a whale of a bonanza.
We are concerned here with VAT.
We are concerned with all taxes. If one wants to be fair to the general body of taxpayers, one must provide a system which at least will not be an incentive to withhold tax and that is what we have at the moment. The present rate is an incentive to withhold tax.
Surely not, in reality?
Yes.
When one cannot claim it against one's income tax liability it costs considerably more than the 12 per cent on its face.
Some people, very expert in financial matters, are known to have withheld tax and placed the money to earn for them attractive rates of interest. If one looks at the money market today one can see there are opportunities for earning such money.
Is it not true that one cannot claim interest due to the Revenue Commissioners against one's income tax liability?
That is true. One cannot claim against a tax liability a penalty imposed by the law. I know of a firm who claimed that they were entitled to set off against their tax liability fines which they had to pay from time to time for illegal parking of their vehicles which were used in the course of business. Their argument was that it was a payment which they necessarily had to make in order to make deliveries.
Wholly and necessarily incurred in the course of business.
Yes. One could see, in theory anyway, that there were grounds for their case but they lost it because the law cannot allow a penalty to be set off against a tax liability. Similarly, if interest is paid here on outstanding tax it would be inappropriate to allow that to be set off against tax liability. The State is not interested in collecting this interest. The State is interested in collecting the tax and in removing any incentive which the present system gives to withhold tax. That is the only way in which we can approach this section.
Most countries that I know of have a charge of interest nowadays in respect of overdue tax and these rates of interest have tended to increase because of the high cost of money. It could be argued that there should be a relationship between the interest charged and the going bank rate at any given time. There is an annual Finance Bill and it can be adjusted. This is preferable to operating a system which would require the rate of interest to be calculated for broken periods which would complicate the system. I hope this 1½ per cent will not be a permanent rate. It will only be a permanent rate if money remains as costly in the future as it is today. If the cost of money goes down, I would consider it appropriate to have an adjustment made of this.
It has gone down marginally in the last couple of months.
(Dublin Central): Substantially.
It has gone down marginally. The element of penalty in the rate we are now proposing is much less than the element of penalty in 1960. There was a difference of 6.25 between the penalty rate in 1960 and the then bank rate. The figure proposed in this Bill is by comparison not unfair.
Can the Minister give us any information on the rate of interest charged in the other countries to which he referred?
It varies.
I would hazard a guess that he would find it difficult to produce one which is charging 18 per cent.
Some are fortunate enough to have people who recognise their tax obligations more readily than many of us tend to do here.
The Minister is letting the cat out of the bag.
No.
Is amendment No. 9 withdrawn?
In view of the fact that the Minister wants to impose on us at a rate of interest which apparently is higher than that in any other country, and in view of the fact that in particular cases we regard this as extortionate, we would ask you to put it.
Question "That the figures proposed to be deleted stand".
The Committee divided: Tá, 50; Níl, 44.
Tá
- Barry, Peter.
- Barry, Richard.
- Belton, Paddy.
- Bermingham, Joseph.
- Bruton, John.
- Burke, Dick.
- Burke, Liam.
- Byrne, Hugh.
- Clinton, Mark A.
- Conlon, John F.
- Coogan, Fintan.
- Cooney, Patrick M.
- Corish, Brendan.
- Cosgrave, Liam.
- Costello, Declan.
- Coughlan, Stephen.
- Creed, Donal.
- Crotty, Kieran.
- Cruise-O'Brien, Conor.
- Desmond, Barry.
- Desmond, Eileen.
- Dockrell, Maurice.
- Donegan, Patrick S.
- Dunne, Thomas.
- Enright, Thomas.
- Esmonde, John G.
- Fitzpatrick, Tom
- (Cavan).
- Flanagan, Oliver J.
- Gilhawley, Eugene.
- Hegarty, Patrick.
- Hogan O'Higgins, Brigid.
- Jones, Denis F.
- Keating, Justin.
- Kenny, Henry.
- Kyne, Thomas A.
- L'Estrange, Gerald.
- Lynch, Gerard.
- McLaughlin, Joseph.
- McMahon, Larry.
- Malone, Patrick.
- Murphy, Michael P.
- O'Brien, Fergus.
- O'Sullivan, John L.
- Pattison, Seamus.
- Ryan, John J.
- Ryan, Richie.
- Taylor, Frank.
- Timmins, Godfrey.
- Toal, Brendan.
- Tully, James.
Níl
- Andrews, David.
- Barrett, Sylvester.
- Brennan, Joseph.
- Breslin, Cormac.
- Briscoe, Ben.
- Browne, Seán.
- Brugha, Ruairí.
- Burke, Raphael P.
- Callanan, John.
- Carter, Frank.
- Colley, George.
- Collins, Gerard.
- Connolly, Gerard.
- Cronin, Jerry.
- Cunningham, Liam.
- Daly, Brendan.
- Dowling, Joe.
- Farrell, Joseph.
- Fitzgerald, Gene.
- Fitzpatrick, Tom
- (Dublin Central).
- Gallagher, Denis.
- Geoghegan-Quinn, Máire.
- Gibbons, James.
- Haughey, Charles.
- Herbert, Michael.
- Hussey, Thomas.
- Kenneally, William.
- Kitt, Michael P.
- Lalor, Patrick J.
- Lemass, Noel T.
- Leonard, James.
- Lynch, Celia.
- Lynch, Jack.
Tellers: Tá, Deputies Esmonde and B. Desmond; Níl, Deputies Lalor and Browne.
Question declared carried.
|
McEllistrim, Thomas.Moore, Seán.O'Connor, Timothy.O'Leary, John.O'Malley, Desmond.Power, Patrick. |
Smith, Patrick.Timmons, Eugene.Walsh, Seán.Wilson, John P.Wyse, Pearse. |
Amendment declared negatived.
Amendment No. 10 is deemed to be out of order.
Question proposed: "That section 28, as amended, stand part of the Bill."
May I ask the Minister whether subsection (3), which defines tax within the meaning of the section as meaning income tax, surtax, corporation profits tax or value-added tax, includes all forms of tax on which interest is chargeable if the tax is in arrear?
This covers all such taxes. Has the Deputy any other forms of tax in mind or contemplation?
I am referring to existing taxes only, taxes for which the legislation authorising same has already been enacted. As the Minister is aware, I had an amendment down to this section, an amendment the Ceann Comhairle was obliged to rule out of order on the ground that it could involve a charge on the Exchequer, and I want to put to the Minister now the principle involved in that amendment. The principle is that, in any case in which interest is payable on tax in arrear, similar interest should be payable at precisely the same rate by the Revenue Commissioners on tax which is overpaid. The case for this is self-evident. I do not propose to argue it unless I have to and I sincerely hope I shall not have to. Does the Minister accept the principle?
The Deputy is aware that where taxation is under appeal there is provision under which the State is liable to pay interest on tax which is overpaid. That provision is not in any way affected by this legislation.
That is not quite the question I put. Does the Minister accept the principle that where the taxpayer is liable to interest on tax in arrear the Revenue Commissioners should be equally obliged to pay interest at the same rate on tax which is overpaid?
If there is a question of tax being overpaid the taxpayer will naturally challenge the overpayment and in such cases interest is payable at the appropriate rate.
Would the Minister have any objection in principle to amendment No. 10?
The Chair hopes we are not now getting into a discussion on an amendment which has been ruled out of order.
No, Sir. We are getting into a discussion on the principle involved in amendment No. 10.
In practice, the principle is recognised and the Revenue Commissioners pay interest where tax is overpaid.
That is not quite the position. I must confess I thought it was the position in regard to value-added tax. I thought I had introduced such a provision but, as it has worked out under the legislation, it does not apply in that way. It is quite clear that if we are to accept the argument which the Minister has been making for some time—that the taxpayer should be obliged to pay interest at what is admitted to be a penal rate on tax which is overdue— equity demands that the Revenue Commissioners should pay tax at the same rate on any tax which is overpaid. Whether or not there is an appeal, once it is determined—it may well be determined in various circumstances that there is an overpayment of tax without an appeal—the tax should be refunded. Frequently there are complaints about the delay which takes place in refunding overpaid tax. I am not dealing with that point at the moment.
I am dealing with the principle that interest should be payable on that money at the same rate as is charged on overdue tax. I want to be quite clear about this. I do not want any misunderstanding about this or about the Minister's position. I should like to know precisely what is the Minister's position on this. Does he accept that in all cases in which there is an overpayment of tax interest should be paid by the Revenue Commissioners on that overpaid tax from the date of its overpayment to the date of its refund to the taxpayer?
So far as VAT is concerned, if there is an overpayment the Revenue Commissioners invariably make some adjustment of the tax. As the Deputy knows, VAT is invariably an ongoing account. Where somebody is in business or in trade the tax is paid at regular intervals. It is not uncommon if a person has made an overpayment in one tax period that he withholds tax in the following period of an amount equivalent to what has been overpaid. In actual practice the Revenue Commissioners usually do not press for payment of interest in respect of the tax withheld in such situations. As the law stands at the moment it operates in such a way as to give to the taxpayer who is in genuine dispute about tax and who has made a payment on account interest on such excess if excess is found after the tax has been properly assessed. This is the system which was in operation when Deputy Colley was Minister. I think he found in practice this worked out satisfactorily and that is why he did not make any amendment in the law.
That is not so. I confess I was under the impression that I had made the amendment in the law which I am now seeking. I was somewhat disturbed to find I had not, that it had not worked out as I thought it would. I have no doubt now, and I had no doubt when I was Minister for Finance, of the equity of the principle involved. If the taxpayer pays interest on unpaid tax the Revenue Commissioners should pay tax on overpaid tax. It is a simple, fair proposition and in practice the cost to the Revenue Commissioners is minimal, as the Minister should well know. In comparison with the amount of tax in arrears the amount of tax which is overpaid is quite small. There is no substantial amount involved for the Revenue Commissioners in accepting this principle but there is a good deal to be gained by demonstrating an even-handed approach.
There may be some practical difficulties, particularly in regard to VAT, and the Minister has adverted obliquely to some of them. It is true that the period of payment of VAT is at two-monthly intervals. Therefore the fact that somebody has overpaid VAT for a period of two months, which he can adjust after two months, means that in practice this is not too bad a position, although strictly speaking he ought to be paid interest for that period that he has overpaid.
I doubt if the Minister would accept the argument he was making for the Revenue Commissioners if a private taxpayer were involved. If, for instance, an income taxpayer were to say: "Of course, I have a running account with the Revenue Commissioners because I am liable for tax every year. I am underpaid here so I will adjust next year." The Minister does not accept that. He says: "No, you will pay 18 per cent interest on it." It seems to me that, subject to the practical difficulties which may arise, particularly in regard to VAT—and human ingenuity is not such that it will not find a solution to it—the principle involved should be accepted. I am trying to establish clearly whether or not the Minister accepts it. If he does I call on him to amend this section accordingly. If he does not accept it we would like to know that precisely and why he does not accept it.
I think the existing law covers the situation satisfactorily.
May we take it then that the Minister does not accept the principle?
I am saying the existing law recognises the principle and covers the situation satisfactorily.
(Dublin Central): Is it a fact that the Revenue Commissioners get 18 per cent interest on money overpaid? Is that principle established?
If a person is in dispute and establishes that money has been overpaid, then the Revenue Commissioners make a refund with the interest.
Let us be quite clear about this. Is it not the position that the Revenue Commissioners will repay overpaid tax with interest only (a), where there has been an appeal that has established there is an overpayment and, (b), where prior to the appeal the taxpayer has paid a sum amounting to 80 per cent of the amount he was asked to pay? I think those two conditions must be fulfilled before the interest arises. Is that not the case?
That is correct.
(Dublin Central): We had a situation today where the Revenue Commissioners are demanding payment on account before any appeals are finalised? Is that not the case in the majority of cases?
That is true.
(Dublin Central): This can often be an overpayment.
In that case when the appeal is determined there will be a refund with interest.
(Dublin Central): I think Deputy Colley has said it must be 80 per cent of that which has been paid.
A sum of 75 per cent to 80 per cent of the amount demanded must be paid prior to the appeal.
It must be 80 per cent of the amount ultimately found to be due, that is the correct amount.
Must that be paid before any question of the Revenue Commissioners paying interest arises?
You would have to pay 100 per cent plus. It would have to be in excess before there was any question of interest.
In a case where a taxpayer overpays and this is discovered without any appeal the Revenue Commissioners presumably would refund the overpayment of tax but they would not pay interest on that refund. Is that the position?
That is the position.
Does the Minister think that is satisfactory?
I think it is extraordinarily rare if it ever happens at all.
That is all the more reason why the Minister should have no trouble in accepting this.
I cannot see how this could be fair. If the Minister overpays me for something and I have money belonging to him for a certain length of time I give him no interest but he charges me interest if I do not pay him enough. Surely what is sauce for the goose is sauce for the gander? Several people have told me there is overpayment of tax. This should operate fairly both ways. I do not think it is fair that a man should have to wait for an appeal before he gets his money. The principle should be accepted that where there is an overpayment you should not have to appeal to get interest. In my view this is a very valid and common-sense point. It will raise the prestige of the Revenue Commissioners in rural areas and they need that badly.
(Dublin Central): I can see the sense in the Revenue Commissioners, if they are satisfied on appeal, making a refund with interest. I can see complications arising in connection with VAT and I am not sure if the same principles should be applied. If one voluntarily submits VAT and overpays, there is no provision to readjust that the following month. My recollection is that the refund is paid by cheque. If there is a mistake in the calculation and the figures that may not be noticeable to the Revenue Commissioners, I do not think the businessman is permitted to carry that forward to the following two months. Where an overpayment is made by mistake to the Revenue Commissioners, I would not expect the Commissioners to pay interest on that, especially at 18 per cent. This overpayment could be made in a deliberate way also. The case for VAT is exempted from this suggestion. In the case of VAT the demand is not made by the Revenue Commissioners. We should establish that where demand is made for payment of an amount in excess of the amount due, interest should be paid on the overpayment. If that is established we will be satisfied.
The Deputy is correct in regard to the practice. In the case I illustrated earlier which can occasionally happen the refund is not made. The very fair rule of thumb applies in such cases that interest is not charged on a payment which is theoretically due if, at the time it is due, there is a refund due to the VAT payer. The bulk of VAT claims are disposed of within three weeks of receipt. It is cause for some satisfaction that the Revenue Commissioners have speeded up the processing of the VAT claims. It is very rare that any case goes beyond that time. If there is a claim outstanding for a longer period, it is oftentimes not attributable to causes entirely within the Revenue Commissioners' control. The most important thing is to speed up the process of refund and if this can be got to work efficiently—it works much more efficiently now than it used to and the refund section is much better staffed and works more speedily than it used—we would be doing the best service to the taxpayer.
I adverted to some difficulties that would arise in regard to VAT and I accept the idea that separate arrangements would need to be made in regard to that tax because of the intervals at which it is paid. If we leave VAT out of the reckoning, why can the Minister not accept the principle we have put forward, that what is sauce for the goose is sauce for the gander?
The law recognises that already.
Only in a limited form, (a) where there is an appeal and (b) where there is 80 per cent of the money paid in advance before the appeal.
If there is a question of a refund, there has to be more than 100 per cent paid in advance.
Yes, but those are the two conditions that have to apply before any interest is paid by the Revenue Commissioners as things stand. Does the Minister not recognise that a number of other cases in which there is an overpayment can arise? In such cases the overpayment could be discovered, without an appeal, and agreed. Such cases occur but why should not the taxpayer in such circumstances get interest on the money he overpaid?
I agree it can happen in theory but very rarely in practice.
I suggest that one reason the Minister might not be happy about this is that he has raised the rate of interest to such a high level that he might find people investing in the Revenue Commissioners for the yield they will get. They will find it hard to get that kind of yield anywhere else. That is one of the Minister's problems.
We are not interested in interest either way; we are interested in prompt payment of tax.
The Minister is painting an extraordinary picture by endeavouring to convey the impression that where there are overpayments to the Revenue Commissioners the pattern and format is that overpayments are cleared and repaid within a month. This certainly arises in relation to the subsection of this section which involves the deduction of payments to subcontractors. In my constituency contractors who are carrying out repairs to local authority houses and are erecting isolated cottages cannot procure subcontractors' certificates. In such cases they are paid only 65p in the £ for the work done. If such contractors are cleared by the clerk of works for doing £1,000 worth of work the local authority, on the instruction of the Revenue Commissioners and under the law, gives that contractor a cheque for £650. The contractor then has the problem of trying to establish to the Revenue Commissioners that he is entitled to an amount or all of the balance. This regular feature is holding us up in so far as cottage repairs and buildings are concerned.
For the Minister to suggest that the overpayments, or over-stoppages as I would prefer to call them, by the Revenue Commissioners, should not be paid back within a month is wrong. Earlier, when replying to Deputy Colley who asked the Minister to name other countries where the interest on overdue amounts of income tax was as high as that imposed under this section, the Minister blandly stated that our people, speaking on behalf of Irish people, are probably the worst payers in the world.
I did not say that.
The Minister did not put it in so many words but——
That was the message.
I said in some countries people have a greater inclination to pay their tax than here, which is true.
What the Minister said was that here they had far less inclination to pay tax than in any other country, which is a slightly different thing.
I did not say that.
In this context I would nearly go so far as to say—maybe it is not as politically unwise, because one is having a go at the Revenue Commissioners, as what the Minister says; I could say just as vaguely as did the Minister a few moments ago—that the Revenue Commissioners are twice as slow as any other Revenue Commissioners to pay back what is due to the taxpayer.
But there is a principle involved here. It is the old one I remember hearing first when I was four years of age, that is, what is sauce for the goose is sauce for the gander. In this instance that principle must be accepted. The only objection the Minister can possibly have is the one Deputy Colley put a few moments ago. If the Revenue Commissioners are not guilty, as I am charging at present, there should be no problem about the Minister conceding this. If the Minister makes the point that if there is overpayment to the Revenue Commissioners and that 99 per cent of those overpayments are returned within a month, there is no possible basic objection he can have to including a provision in this section making sauce for the gander the same as sauce for the goose and agreeing to pay the 1½ per cent on money overheld by the Revenue Commissioners.
In practice, the Revenue Commissioners make the refund within a month. There are cases where they are unable to do so. Most of such cases arise where the documentation is not furnished by the person making the claim. When I was in Opposition, and indeed as a practitioner, I had occasion to complain from time to time about delays on the part of the Revenue Commissioners, no doubt, in some cases, warranted. Even there, in many a case in which I made representation, I discovered the blame was not on the commissioners' side alone. In fact, in many cases it was not. Even now —and I am sure Deputy Colley would confirm this too—I find that quite often, when complaints are made against the Revenue Commissioners, the commissioners are awaiting some documentation from the person making the complaint. Until the information required, by law, in order to make an assessment is furnished, obviously the Revenue Commissioners are not in a position to dispose of the claim.
The important thing is to speed up the process of repayment. If Deputies are aware of any cases where they believe there is undue delay on the part of the Revenue Commissioners, I would be very glad to know of it. Indeed the Revenue Commissioners would be glad to know of it because their anxiety is not less than the taxpayers to ensure a system of taxation which is fair and is seen to operate fairly and efficiently. The Revenue Commissioners realise that, unless goodwill exists, their task is all the more difficult. They are quite anxious to make repayments but there has to be a readiness on the part of the taxpayer to furnish information necessary for the purpose of making a proper assessment.
Does the Minister not see that a very potent way of making the taxation system not only fair but seen to be fair and of building up some goodwill in favour of the Revenue Commissioners would be to accept the proposition we put forward? It does not really matter, for the purpose of this discussion, whether delays which occur are the fault of the Revenue Commissioners, the taxpayer or both. That is relevant perhaps to discussion of the efficiency of the system. The fact is that what we are talking about is a situation in which, not the Revenue Commissioners, but the Minister for Finance has the use of taxpayers' money to which he is not entitled. Therefore, should he not, when repaying it, pay the going rate which he has prescribed, and voted for a short time ago, of 18 per cent per annum, which he is applying to overdue tax? To me that is self-evident. As far as I am aware, the Minister has not given us any reason why he should not accept this principle, except perhaps in relation to value-added tax, where there may be some practicable problems. But, in relation to the other taxes specified in this section, why should the Minister not accept this proposition? Has the Minister any reason?
I have not rejected it.
But he has not accepted it.
I have said that the law accepts the rule that sauce for the goose is sauce for the gander.
Unfortunately not in all cases. Would the Minister come clean with us now and tell us what is the difficulty?
I have said there is a process in the law under which a person can obtain interest on overpaid tax.
When he appeals?
Yes.
Suppose he does not appeal and a refund is made without appeal, then what is the situation? What situation does the Minister think should arise there?
I think the Deputy will accept that it is in dispute cases only that a question of refund arises.
I do not accept that.
In the generality of cases that is what would happen. If a person pays tax and is content with the amount of tax he pays, that is the end of it. It is only when he is dissatisfied and when on appeal it is found that the tax is less than the Revenue Commissioners were seeking that the question of a refund arises. In such cases the Revenue Commissioners, as it were, would have put themselves in the wrong by seeking too much in the first instance, and they are repaying——
I think the Minister is doing an injustice to the Revenue Commissioners when he says that.
They will be paying quite a handsome rate of interest in respect of such overpayment.
Would the Minister not accept that the Revenue Commissioners are a little more humanitarian and perhaps efficient than he has described? If they assess somebody for tax and he pays and then he discovers that the assessment was wrong and he should not have paid as much as he did, the Revenue Commissioners do not always insist on his going through the whole appeal procedure. If they can see straightaway that he is right in that they will accept that situation and refund the money to him. In such circumstances why should interest not be paid on it at the rate now prescribed in this section?
Certainly it helps to speed up the processing of all cases of this kind if a person cannot anticipate a handsome payment of interest on money which has already been overpaid. It is quite surprising how often cases are not completed because of absence of the necessary information to the Revenue Commissioners.
I accept that.
Once it is given, particularly in recent years, there has been a very speedy solution of any outstanding differences. If we can concentrate on that aspect of the matter we are doing the best service to the taxpayer.
I am afraid the Minister is disclosing that he is more and more mentally orientated towards the collection of revenues than giving justice to the taxpayer. Surely, in the kind of case I have described, justice requires that the taxpayer be paid interest on the money he has overpaid on foot of a wrong assessment without necessarily having to go through the whole procedure of appeal? Would the Minister give us one good reason why a person should not be paid interest on his overpayment in such a case?
I have fairly dealt with the matter already. I have said that the law, in practice, deals with the normal situations of overpayment which arise. I do not honestly think there would be further case for any adjustment of the law which cannot be dealt with in a practical way if and when difficulties arise.
Despite the Minister's earlier disclaimer it is now plain that he does not accept the principle that a taxpayer who overpays is entitled to interest on his overpayment in the same way as the Revenue Commissioners are entitled to interest on a withholding of tax. Under the existing provisions for repayment of tax, has the adjustment in the rate of tax from 12 per cent per annum to 18 per cent per annum been incorporated in this section?
Yes.
I am both surprised and disappointed at the Minister's failure to accept the principle we put forward. Despite his disclaimers, where he said earlier that he was accepting it, it is now quite clear that he is not accepting it. He may have good reasons for that but if he has, he has not given them to the House. The principle, in my view, is so self-evident, right and just that to indicate our disapproval and dismay at his refusal to accept it, we must oppose the section.
I would have been much more impressed if Deputy Colley when Minister for Finance had given effect to the noble thoughts he has been expressing from the Opposition benches, but he did not.
Not alone did I try to do so but I expressed them from both sides of this House and they are on the record. If what emerged from the parliamentary draftsman was not what I said I wanted, that is no reason why the Minister should resist the principle. To my credit I tried to do it. All the Minister is trying to do is mulct the taxpayer. He does not give a damn about the taxpayer who overpays. He has made that position quite clear.
That is the lamest excuse I have ever heard from a Deputy—that he could not do something when he was Minister because the parlimentary draftsman could not interpret his thoughts.
The Minister will find out in due course, as indeed he has in this Bill, if he is to be believed. We have a number of sections in this Bill which the Minister now says are somewhat different from those put forward last year. He will learn. I tried from both sides of the House to do this. However, we will have the opportunity to put this right in a reasonably short time.
At the moment it is important that we should record our disapproval of the attitude of the Minister for Finance in being one-sided in favour of the Revenue Commissioners. He wants to charge the taxpayer 18 per cent per interest annum on tax paid late and refuses to do anything about giving interest to a taxpayer who overpays, except on foot of previous legislation. He is not prepared to accept our proposition in general—that an overpayment of tax should carry a similar rate of interest.
I would like to put a hypothetical case to the Minister. I overpay £1,000 tax to the Revenue Commissioners for the year 1973-74. I am fighting the Revenue Commissioners for the repayment of that money. During the next financial year I allowed £2,000 to accrue in arrears, but after two years the situation is resolved because the Revenue Commissioners accept that I am entitled to the return of my £1,000 for 1973-74. They also determine that I am liable for the £2,000 payable the next year. I reckon that I could settle with the Revenue Commissioners by the payment of £1,000 plus interest. I am assuming that under this section the interest on £2,000 over a two-year period would amount to £360. Subtracted from that would be the credit of £1,000, but no interest. This means that I am paying 36 per cent interest on the £1,000 owed. The Minister should be able to devise a formula to repay the overpaid tax plus interest. He says that if the Revenue Commissioners have all the data and the taxpayer fills in his form properly there is no doubt the commissioners will have refunded the extra tax within the month.
My understanding of this section is that the rate of 1½ per cent is chargeable each month or part of a month. In other words, if a month and a day are involved the Revenue Commissioners are empowered to charge 1.5 per cent for two months. As Deputy Colley said, all the legislation is geared to mulct the taxpayers. There is no provision for being generous. Deputy O'Malley laughed at me the other day when I thought the Minister was bringing in a section to protect the taxpayer from the Revenue Commissioners. The Deputy was entitled to smile at my naivete.
While the Minister says he would like to be able to do something to help, he has stiffened his back by way of opposition to anything of that nature. We have looked at this in every way and asked him to give some indication of his willingness to amend the section in order to provide for the unlikely event of the Revenue Commissioners holding over money for a month in order that the taxpayer would get the same rate of interest he would be charged if he owed money. We do not seem to be getting anywhere with the Minister.
Could the Minister tell us how much per year is refunded to taxpayers without appeals being made? There must be a very substantial amount involved when the Minister is so reluctant to change the section.
Overpayments arise in cases where taxpayers have not furnished the correct information. If taxpayers furnish the correct information about their income then the correct assessment will be made and the correct payment will be made. The case is now being made here that where a taxpayer furnishes inadequate information and as a consequence makes an underpayment of tax, the taxpayer should make a gain on the failure to furnish the correct information.
I thought it was the going rate.
I have never said it was the going rate. Deputy Colley is quite wrong there. I said the State is not interested in collecting interest. The State is interested in providing a disincentive to withhold money from the Exchequer. That is the purpose of it; it is not to collect interest at all.
Debate adjourned.