I move: "That the Bill be now read a Second Time."
The Bill gives effect to the taxation and other changes announced in the budget and it also provides for a number of other matters which I shall mention later. Apart from changes in tax rates, the main thrust of the Bill is towards the equalisation of the tax burden. This standing objective of Government policy is being further pursued by a variety of measures including some extension of the tax base, more uniformity in treatment of different categories of income tax payers and further anti-evasion provisions.
I have often thought that the ministerial practice of devoting much of the Second Stage introductory speech to a seriatim explanation of each section is a rather pointless exercise when the purpose of each section is already clear enough from the previously published Bill and the accompanying explanatory memorandum. I, therefore, propose to depart from this practice and trust Deputies will regard the departure as both a compliment to their intelligence and literacy and a worthwhile saving of parliamentary time.
Much of the Finance Bill is necessarily concerned with amendments to existing law. Compensation of what is involved in a particular section is often not apparent without a careful study of the original Act. It has occurred to me that it would be helpful to legislators and the public alike if the index to the Bill and the marginal notes were to briefly explain the matter to which the original section being amended referred. I am, therefore, hoping to effect appropriate changes to this Bill at a later stage.
Before I come to the Bill itself, there is one other matter to which I wish to refer—that is the disposition of people to the payment of taxes. The great democratic delusion is that people are entitled to free services from the State. A belief based upon an impossibility is obviously fallacious. The services rendered by the State are not free. They may not be charged for at the time and place at which they are rendered but they are paid for before or afterwards in taxes.
The resistance—to whatever extent— of some people to taxation is no doubt attributable in part to the fact that some taxpayers feel that they are obliged to part with money in return for which they received no immediately apparent benefit. The discussion of the annual budget in terms of millions has left little impact upon the individual and family consideration of each taxpayer. I would, therefore, like to illustrate the type of benefits which the typical family of parents and three children enjoy in return for payment of taxation in Ireland.
£ |
||
1. Primary and secondary schooling for children |
750 |
annually |
2. Medical services for parents and children |
400 |
,, |
3. The protection of the person and property from wrong-doers |
150 |
,, |
4. Social Welfare children's allowances |
120 |
,, |
5. Rates: The benefits of State subsidisation of rates to domestic rate-payers |
45 |
,, |
6. Subsidisation of foodstuffs, transport etc. |
100 |
,, |
7. Exchequer contribution towards cost of roads |
33 |
per private vehicle |
Thus will be seen at a glance that an average family can receive back from the State about £1,600 annually, over £30 per week in benefits. But that is not the end of the story.
The State subsidy for each tenant of a local authority house is worth on average £200 a year; the income tax relief for housing loan interest is worth on average about £60 a year to the taxpayers concerned; an unemployed man with three children has total social welfare benefits at a level equivalent to some £1,850 a year; a widow contributory pensioner with three dependants gets £1,150 a year and a pensioner couple up to £1,150. In the case of university education, in addition to the special grants which average about £400 per eligible student, the State contributes an average of £840 for every student in the system. There is also very heavy capital investment by the State in education, for example each additional place at primary level costs a sum of the order of £450 and at second level about £1,000.
State aid to agriculture averages out at about £550 for every worker employed. In industry, State aid for industrial job creation averages £3,500 per job and an average of almost £1,000 is contributed for every worker trained or retrained by AnCO.
We risk damaging community contentment through a dichotomy of protest that taxes are too high and State benefits are too low. When—as now —taxes and linked revenues cover only £66 of every £100 spent by the State and £34 of every £100 spent has to be borrowed, there is obviously no scope either for a reduction in taxes or for an increase in State expenditures. With those sobering thoughts in mind and subject to what I said earlier about not covering all the Bill in detail, I now turn to some specific provisions in the Bill.
Part I of the Bill relates to income tax, sur-tax, corporation profits tax and capital gains tax. Although sur-tax and corporation profits tax have effectively been repealed, it is still necessary to provide for them in the Bill as some of the measures in the Bill could affect amounts of taxes which are still unpaid. Some of the provisions appearing in the Bill will of course need some amendment in order to take account of the recently enacted Corporation Tax Act, 1976. The Bill for that Act was still under parliamentary discussion when the Finance Bill was being drafted. I propose to bring forward appropriate amendments to the Bill on this account on Committee Stage.
Sections 9 and 10 provide for the continuation for 1976-77 of the rates of income tax which applied in 1975-76 and for the increases in personal allowances which were announced in the budget. A point I might perhaps mention is that the new married personal allowance of £1,010, when added to the working wife's allowance of £230, will give a total of twice the amount of the single personal allowance of £620.
The Bill contains two further income tax provisions for married persons specifically and I feel that they will be welcomed. Section 4 will dispense with the present requirement that a claim for the separate income tax assessment of a husband and wife must be renewed each year. The purpose of section 11 is to enable a married woman to complete a separate return of her own income.
The income tax free personal allowances improvements since 1974 are now costing the Exchequer some £80 million annually. The advancement of the due dates for payment of Schedule D tax, as announced in the budget is provided for in section 6. There are some points relating to this matter which are worthy of mention. Tax liabilities under Schedule D are not being increased by the present measures. These liabilities are continuing to be computed on the preceding year basis of assessment. At present the tax liability on profits does not have to be paid until long after the profits have been earned. The new provision modifies this unduly favourable position and the provisions of section 6 must therefore be viewed as an essential element in the Government's determination that those within the tax net must be treated as equally as possible.
A measure which may be associated with the advancement of the due dates of Schedule D tax is the proposed change, outlined in section 29, in the provisions relating to payments on account in cases where tax is the subject of an appeal. The section ensures that where a payment on account is made which turns out to be less than 80 per cent of the final liability, an interest charge will apply to the balance of tax unpaid. Hitherto the payment of substantial amounts of Schedule D tax could be delayed for lengthy periods, and interest charges avoided, by the payment on account of sums which although corresponding with liabilities in previous years were in fact much less than the actual liability of the year of assessment. Section 29 is accordingly designed to ensure that payments on account are made in realistic amounts.
A further measure relating to the equalisation of tax burdens is contained in sections 15 and 16 of the Bill. Section 15 of the Bill will extend PAYE to employees and pensioners at present excluded from the scope of that scheme. The decision to make this change was announced in June, 1975. Over 100,000 people, including Members of the Oireachtas, the Judiciary, civil servants, national teachers, the Garda, the Army, employees of the Central Bank, of the Commissioners for Irish Lights and of the Dublin Port and Docks Board and certain employees of the Bank of Ireland are affected by the change.
In my budget statement on 28th January last I said (a) that the change would take effect from 6th April, 1976; (b) that I had had discussions with staff associations in the public service on means whereby the transition to the new system could be eased; and (c) that the estimated cost of the easement was being taken into account in the budget for 1976. As recently announced, the easement decided upon by the Government, and which is provided for in section 16 of the Bill, will mean that one-half of the tax assessment for 1975-76—which is based on income in 1974-75—will be set, in three equal instalments, against PAYE tax due for the years 1976-77, 1977-78 and 1978-79. Thus in each of those three years the relief will be equivalent to one-sixth of the tax assessment for 1975-76.
In considering the easement I took account of the fact that employees in the private sector who were changed to PAYE in 1960 were given a remission of six months' tax. That remission was given in its entirety before PAYE deductions commenced. I also took into consideration the fact that the change to the new system will involve a considerable increase in tax liability for the groups affected and that this could cause hardship in cases where workers had entered into binding commitments.
In order to correct any misapprehensions which may exist I should like to make quite clear the effects of the change to PAYE for the taxpayers concerned. The change will mean that the tax liabilities of those affected will be considerably increased. It is estimated that the gross PAYE liabilities of the groups in question will total some £76 million in 1976-77. This compares with an estimated amount of some £60 million which would have been their tax bill in 1976-77 if they had been allowed to remain on the old basis of assessment instead of being changed to PAYE. Thus it is obvious that the change to PAYE will result in a much heavier tax take from the public service in 1976-77 than would otherwise be the case, even when one deducts the value of the remission instalment of some £6 million being allowed in the year 1976-77.
The fact that income of the year 1975-1976 will not be taken as a basis of tax assessment has misled some people into thinking that this will in some way confer an exceptional benefit on public service taxpayers. In fact the contrary is the case. As I have shown, the Exchequer stands to gain substantially from the public service taxpayers by reason of the substitution of 1976-77 incomes for 1975-76 incomes as the basis of assessment.
Sections 30 and 31 are concerned with the tax deductions which may be claimed in respect of expensive motor cars used for business purposes. Deputies will recall that the Finance Act, 1973, provided that capital allowances for cars would be restricted to a maximum of £2,500. Because of the increase in car prices since 1973, an increase in this limit to £3,500 is now appropriate. In the 1973 legislation however no tax restriction was provided in respect of the running expenses claimed for business purposes. Accordingly, as announced in my budget statement, it has been decided to restrict the tax deduction in respect of the running of expensive business cars. The limit for both the running expenses and the capital allowances restriction will, with effect from 29th January last, apply to cars costing more than £3,500, and sections 30 and 31 provide accordingly.
Two sections in the Bill are concerned with the taxation of benefits-in-kind received by employees. The principal legislation on this subject was introduced in 1958 but it has not applied to employees who are paid from outside this country and are thus outside the scope of the PAYE system. Section 22 is therefore designed to ensure that all employees are equally treated as regards benefits-in-kind. Such benefits may in some cases be very substantial in relation to the taxable salary.
Section 23, the other benefits-in-kind section, provides for the introduction of a minimum charge where an employee has available to him for his private use a car provided by his employer. Our approach to this matter is influenced by the fact that the overwhelming majority of motorists have to meet their total motoring costs out of after-tax incomes. It must be borne in mind that where a taxpayer has available to him the private use of a car provided by his employer there is a very considerable benefit to him even though his private motoring might be relatively limited. Apart from the capital cost of providing a car, there is a saving to him of the fixed motoring costs of depreciation, road tax and insurance. It seems reasonable, therefore, to hold that the availability of a car for private use constitutes a benefit-in-kind—of a certain minimum value —irrespective of the extent of private use. In present circumstances a minimum benefit, as provided in section 23, of £300 or 15 per cent of the cost of the car, if greater, can hardly be regarded as excessive.
I now turn to the taxation of farming profits which is dealt with in sections 18 and 19. In February, 1975, following an agreement between the Government and the Irish Farmers' Association, the whole question of farmer taxation was referred to the National Economic and Social Council for examination. The report of the council was received by me on the evening before the January budget. The report has since been under examination which is continuing. In the meantime however it is necessary that certain measures in relation to the taxation of farming profits should be provided for in this Bill. These concern the notional basis of assessment to tax and certain anti-avoidance measures.
Section 18 extends for 1976-77 the option of the notional basis of assessment and also contains an anti-avoidance provision. The purpose of the anti-avoidance provision is to eliminate a doubt which has arisen as to whether a farmer who opts for assessment under the notional basis can claim loss relief where the notional basis calculations produce a minus figure, that is, where the total of rates, wages and depreciation exceeds 40 times the rateable valuation. It was never the intention that loss relief should be available in those circumstances. Section 19 counters attempts to avoid tax by the fragmentation of farm holdings.
At this stage I should like to mention other anti-evasion provisions of Part I of the Bill. For too long the opinion has been held in some quarters that the evasion of tax is a tolerable activity which is to be practised if possible. The truth of course is that it is not merely anti-social but also illegal. In its consequences it is no different from many other illegal acts against the community which society rightly considers shameful. The white-collar crime of tax fraud is no less shameful than simple theft and is not entitled to a more lenient attitude by society.
At present the power of the Revenue Commissioners to demand the production of books and records is limited to cases where no tax returns or unsatisfactory returns have been made. This limitation clearly offers considerable scope to would-be evaders. Section 33 closes the loophole by enabling Revenue officials to inspect business records for income tax purposes. It should result in the more certain detection of cases of tax evasion and help to curb such evasion in future. Section 3 is a consequential administrative measure.
A particular field in which further anti-evasion measures are needed is the construction industry. As I explained in my budget statement, the 1970 scheme of tax deductions from payment to certain sub-contractors has proved to be defective and open to abuse. Section 21 accordingly provides for revised arrangements. Tax will be deductible from payments made to a sub-contractor by principal contractors unless the sub-contractor has obtained a specific Revenue certificate of authorisation and the principal contractor has received specific authority to pay without deduction. The issue of certificates will be subject to stringent conditions. As these arrangements cannot be put into operation until next December, the Bill also provides—in section 20—for transitional arrangements, which were introduced by a financial resolution on budget day and will operate until 6th December next.
Anti-evasion provisions are also contained in sections 1, 14 and 17. The basic purpose of these sections is to ensure that PAYE tax, and tax which is deductible from payments to sub-contractors, are not retained by employers or principal contractors but reach the Exchequer without delay.
Two sections in the Bill arise from matters announced in my financial statement of 26th June, 1975. The first, section 25 provides for the exemption from tax of payments made to employers under the premium employment programme. The other, section 27, provides that interest on housing loans made by banks under approved schemes at specially reduced rates will be subject to a reduced rate of tax so that the net return to the banks will be the same as if the bank had lent the funds at ordinary commercial rates. As I said last year, the Government welcome the co-operation of the banks in this very important sector.
Sections 12 and 26 provide for the continuance for one more year of the stock relief introduced last year and for its extension, with retrospective effect to 1974-75, to individuals. It should be noted however that the relief for the third year is being expressed as a deferral in the first instance. Stock relief is a matter to which I will give further consideration as the year progresses but at this stage I think it well to provide only for deferral of tax in respect of the third year of relief being afforded by the present Bill.
A provision to reduce tax avoidance —as distinct from evasion—is contained in section 13. The combined effect of the 20 per cent income tax surcharge to be imposed on retained income of certain discretionary trusts and of income tax at the standard rate will be total income tax of 55 per cent, as compared with the present maximum personal income tax rate of 77 per cent. In the absence of this new provision, wealthy individuals could resort to discretionary trusts to an even greater extent than they do at present for the investment of their spare funds and the accumulation of earnings on that investment, because the Corporation Tax Act, 1976, contains provisions to counter tax-avoidance by such persons through another device, namely, closely controlled investment and service companies. I am satisfied that the exclusions from the surcharge which are set out in section 13 are adequate to cater for discretionary trusts set up for worth-while purposes and in accord with public policy.
I now turn to section 32. The Government adhere to the view expressed in my financial statement on 28th January last that it would be inequitable to continue the tax exemption hitherto enjoyed by agricultural and fishery co-operatives. The circumstances which gave rise to the exemption are not those that obtain now. Inequity arises from the unfair competition of agricultural co-operatives against firms subject to normal taxation. I cannot over-emphasise the necessity to broaden the tax base fairly so as to ensure general public acceptance of our taxation system. The Government will not be deflected from pursuing this essential task.
The Government are, of course, fully aware of the special problems of agricultural and fishery co-operatives and are therefore, studying the matter most carefully in the light of the submissions which were made by representatives of those co-operative and of the discussions which both the Minister for Agriculture and Fisheries and I have had with those representatives. Following those meetings, I have carefully considered what would be an appropriate response to the particular problems posed. The detailed package which will be necessary will require quite an amount of draft work in order to fit it into the new corporation tax code but I am hopeful that it will be available in a few weeks for all concerned. At this stage, however, I consider that I should give Deputies the broad outline of the new tax provisions. These will affect profits arising on or after 6th April, 1976 only, and not earlier ones. This I hope will remove the major anxiety expressed to me about the effective date of operation of the new tax provisions and the need to retain funds to pay tax. Co-operatives can make provision to meet the due tax which will fall for payment in 1977 and later. Broadly, the corporation tax code with its allowances and reliefs which is applicable to companies will apply to co-operatives also. As a transitional measure to take account of heavy capital investment in recent years, the co-operatives will be able to claim the balance of capital allowances over normal wear and tear allowances in the first year under corporation tax if they so wish. I feel that the provisions outlined will be welcomed by those concerned.
One other section in Part I to which I would like to refer is section 24. This section continues for the year to 5th April, 1976 the provisions whereby an Irish resident is chargeable to tax on the amount of any tax credit to which he is entitled under the 1973 double taxation agreement with the United Kingdom as extended in 1975 for one year. As recently announced, active steps are being taken towards the conclusion of a new agreement. Such agreement would, of course, come before the House in due course.
Part II deals with customs and excise. Sections 35 to 38 confirm the budget increases in excise duties on beer, spirits, tobacco and wine. Much publicity has been given over the last week to representations made to me for a reduction in the increase in excise duty on beer which if given might be matched with reductions in the brewers' and traders' margins of profit. In determining what increase in excise duty on beer to recommend to the Dáil, the Government carefully balanced both the necessity to increase revenue and the capacity of individual forms of consumer expenditures to bear additional taxation. The tax increase on beer approved by the Dáil on 28th January last was between excise duty and VAT 6p per pint, I repeat 6p per pint and no more. Subsequently with effect from 1st March the breweries, albeit with the approval of the National Prices Commission, and traders generally, without the approval of the National Prices Commission, increased the price of a pint of beer by a total of 4p per pint.
The pattern of beer consumption following the budget, but prior to the trade increases in price, would indicate the correctness of the Government's tax calculations. Relevant to any consideration as to whether the price of beer should be reduced is the purpose to which recent increases are applied. Every penny of the 6p tax increase is returned to the public benefit, the other 4p increase goes to the private interests which imposed them. Having considered with care every aspect of the situation the Government are satisfied that the correct course is to adhere to their original taxation measures which were designed to result in additional revenues of approximately £23 million in the current year for the public benefit.
Section 39 increases the duty on mineral hydrocarbon light oil by 9.36p per gallon. In addition, this section imposes an excise duty of 2p per gallon on all hydrocarbon oils, other than dutiable petrol and diesel. Section 40 imposes a new excise duty of 2p per gallon on gaseous hydrocarbons in liquid form, and contains the legal and administrative framework for the implementation of the duty. This section also provides for the imposition of the duty at a rate of 10p per gallon, at a date to be appointed by order under section 41. A rebate system will ensure that the 10p per gallon rate will apply only to gas intended to be used for automotive purposes and that other gas will continue to bear duty at 2p per gallon. Section 41 provides that the duty rate of 10p per gallon imposed by section 40 shall apply to gaseous hydrocarbons in liquid form intended to be used as motor vehicle fuel. The resulting price to the user of liquid petroleum gas in a motor vehicle will therefore be comparable to the price of diesel. The legislative and administrative framework necessary for the implementation of the duty are contained in this section. The penalty provisions for contravention or noncompliance with the requirements of this section are set out in subsection (9).
Section 42 empowers the Revenue Commissioners to amend or revoke any order made under section 139 of the Customs Consolidation Act, 1876, under which they may require the entry of goods about to be exported. This provision is required to put beyond doubt the legal basis of the requirement that goods for export must be entered. This facilitates the Revenue Commissioners in the enforcement of prohibitions and restrictions on the exportation of certain goods and in the compilation of trade statistics—which are then furnished to the Central Statistics Office for inclusion in publications and periodical returns issued by that office.
Section 43 provides for an increase to £500 in the penalty for the irregular use of rebated hydrocarbon oil in road motor vehicles and confirms the powers of the Revenue Commissioners in regard to forfeiture, in certain circumstances, of a vehicle in respect of which an offence is committed. There has been a very significant increase in detections in the illegal use of rebated hydrocarbon oil in recent years. The existing penalty of £100 was fixed as far back as 1940. Section 44 increases to £500 the indictable limit for customs proceedings in the District Court. The present limit of £100 was fixed in 1963.
Section 45 provides for the customs entry of aircraft, ships and the like imported into the State and for payment of the appropriate duty. A penalty of £500 and forfeiture of the vessel is provided for failure to comply with these requirements.
Part III of the Bill contains a few stamp duty provisions. Section 47 extends from two to six years the period during which a refund of stamp duty may be claimed. Section 48 provides for the continuation of the exemption from duty of those types of new houses which would have qualified for a State grant prior to 1st January last —from which date eligibility for grants was restricted by reference to income criteria. Section 48 also amends the Finance Act, 1969, by limiting the exemption allowable thereunder in respect of dispositions by local authorities under the Housing Act, 1966. There is obviously good reason why an exemption should apply to houses sold by local authorities to their tenants. However as building land bought by private housing developers, other than from local authorities, is subject to stamp duty, there is no good reason why such land bought from a local authority should be exempt; accordingly exemption will not in future be allowable in respect of dispositions of building land by local authorities.
I now come to Part IV of the Bill which deals with value-added tax. The provisions in this Part of the Bill fall into three categories, firstly, the VAT changes announced in my Financial Statement on 28th January last; secondly, consequential matters arising from those changes; and finally some anti-avoidance and miscellaneous provisions.
First of all, I will deal with measures related to the January budget:
Section 53 provides for the changes in the rates of VAT which were announced in the January budget and came into effect on 1st March.
Apart from changes in rates, other matters covered by the budget and dealt with by section 60 of the Bill include the ending of the VAT exemption for short-term car hire and the application of the 20 per cent VAT rate to fur clothing which had previously been zero-rated.
As regards both short-term car hire and fur clothing, the Government carefully considered the cases advanced by various interests affected to abandon or at least defer the implementation of the proposed change. They decided however that they would not be justified in according any special concession in all the circumstances.
Certain transitional arrangements in relation to cars and motor cycles are necessary on the changeover to the new two-tier rates of 25 per cent and 10 per cent which replaced the former rates of 30 per cent and 6.75 per cent. These arrangements are provided for in section 63. They will ensure that new cars and motor cycles which bore tax at manufacturer or import level before 1st March, 1976, at the old 36.75 per cent rate, will be liable only at the 6.75 per cent rate on any further sales of these vehicles by wholesalers or retailers up to and including 30th April, 1976. Without this provision, such vehicles could, fortuitously, be liable for excessive VAT.
In the remaining Fourth Schedule items such as radios, television sets, gramophone records and so on, are, since March, 1976, liable to VAT at 40 per cent comprising an effective 30 per cent at manufacturing level and 10 per cent at subsequent levels.
Deputies will be aware that during the past few years a considerable number of amendments have been made to the first four Schedules to the Value-Added Tax Act, 1972, which set out the classification of goods and services for the different VAT rates. Further changes are now needed in view of the January budget changes and of other provisions in this Bill. So as to provide a clear, simple and unified reference course for all concerned, section 60 provides for re-enactment in consolidated form of the amended Schedules.
I should also refer to the abolition, with effect from 1st March last, of the 1 per cent VAT credit allowed to VAT-registered customers of unregistered farmers and fishermen. The abolition is being effected by means of the repeals outlined in Part II of the Fifth Schedule to this Bill. The flat-rate credit of 1 per cent to farmers' customers was designed to secure that such traders would be willing to pay a slightly higher price to farmers and fishermen and thus compensate them for any input VAT borne by them on purchases of farm requisites.
In view however of the considerable increases in income that have accrued to farmers since VAT was introduced in 1972, and having regard to the considerable income tax exemption enjoyed by the agricultural community generally—less than 1 per cent of agricultural incomes but about 18 per cent of non-agricultural incomes are taken in income tax— I feel that the abolition of the 1 per cent VAT credit is fair in all the circumstances. In this connection I should like to mention that the extensive zero ratings of agricultural inputs have not been changed. For example, fertilisers, animal feeding stuffs, seeds, animal oral medicines and other items are zero rated so that no input VAT arises for farmers on purchases of these items. Furthermore direct refunds of the VAT incurred on certain grant-aided outlays on farm buildings, land drainage and land reclamation remain available to farmers.
As I mentioned earlier, the Bill contains a number of measures to counter avoidance practices and to tighten up the VAT legislation generally. The twin objectives of these measures are the safeguarding of tax revenue and the prevention of trade distortions. Sections 51, 52, 54 and 59 are anti-avoidance provisions.
Section 51 provides for the redefinition of self-delivery which is contained in section 3 of the Value-Added Tax Act, 1972. The existing definition is somewhat vague and some doubt has arisen as to the scope of the term "use" contained therein.
Section 54 limits to 10 per cent, which is the new second tier of the top VAT rates, the amount of VAT which may be deducted by VAT-registered traders where top rate goods are used other than as stock-in-trade. The primary aim here is to ensure that a person who, as a registered manufacturer or assembler of top rate goods, is normally entitled to full credit for VAT on purchases of such goods will not be able to avoid the first tier of VAT. For example, a manufacturer of television sets will not now be able to avoid the manufacturing or import stage of the top rate by a practice of hiring rather than straightforward selling of the sets.
Since the ceiling on deductions of top rate goods is defined in part by reference to their use otherwise than as stock-in-trade, it is necessary to make it clear by means of section 59 that stock-in-trade does not include goods held for self-delivery.
To counter a weakness in the law which has led to some distortion of trade, section 52 of this Bill provides for some changes. At present it is possible to buy alcoholic drink which is in bond and thus avoid VAT on the excise duty which arises when that drink is eventually removed from bond. Traders who do not have a warehouse must charge VAT on a price which includes the relevant excise duty. While the practice does not appear to be widespread, it is only fair that competing traders should not be put at a VAT advantage or disadvantage and section 52 is so designed.
The basic objective of sections 56 and 57 is to secure the prompt remission to the Exchequer of VAT due by traders. The approach follows closely the approach adopted in relation to the paying over of PAYE income tax collected by employers.
Section 58 of the Bill provides for control of the relief allowed to VAT-registered traders in respect of inputs used by them in both VAT taxable and VAT exempt activities. The review period is being extended from one year to five years so as to ensure that a true apportionment will be made as between exempt and taxable activities.
Section 62 will ensure that VAT due by traders to the State will have the same preference in bankruptcy, receivership and winding-up proceedings as that already attaching to income tax collected by employers under PAYE.
I now turn to Part V of the Bill— sections 64 to 79—which deals with excise duties—road tax—on mechanically propelled vehicles.
The Government have been very concerned at the widespread evasion of road tax. It is a hard fact that there were approximately 40,000 prosecutions for motor tax offences last year. Although it is impossible to be precise about the full cost of the evasion to the Exchequer, it has been estimated at some £4 million a year even before the introduction of the new tax rates. This is over 16 per cent of the road tax paid in 1975. The majority of motorists are quite rightly aggrieved at this scandal and I have received many representations on their behalf. It is high time this injustice ceased. The Government have decided therefore that new and stronger anti-evasion measures should be introduced.
The measures in the Bill to counter evasion of road tax do two things; on the one hand they make provision for the introduction of a system of continuous liability to road tax and, on the other hand, for the strengthening of existing provisions and the increase of penalties for offences related to vehicle registration and licensing.
Continuous liability, as provided for in section 70, basically means that the owner of a vehicle will be liable for road tax, whether he uses the vehicle or not, in much the same way as a person is liable for a television licence. However, a motor dealer will not be subject to continuous liability in respect of vehicles which he keeps in the course of his business. This new system is a vital part of the Government's anti-evasion policy. Because of the need to revise administrative procedures at local level and to prepare regulations it will not be possible to introduce it immediately. But the intention is to introduce it at the earliest practicable date.
Section 60 provides that the classes of vehicles to which continuous liability will apply will be specified by Government order, to come into effect only after it has been approved by both Houses of the Oireachtas. Initially it will be applied only to certain classes of vehicles, particularly private cars. A vehicle which is permanently incapable of being used, has been broken up or destroyed, has been exported permanently or has been stolen and not recovered will cease to be subject to continuous liability.
In addition to continuous liability, this Part contains, as I have already mentioned, a number of provisions designed to strengthen existing anti-evasion measures and to increase penalties. These provisions can be introduced almost immediately and should ease the problem of evasion pending the introduction of continuous liability. In the longer term, a number of these provisions, while applying to all vehicles, will be of particular importance in the case of vehicles not subject to continuous liability.
Section 65 provides for the making of regulations by the Minister for Local Government pursuant to this Part of the Bill. Section 66 specifies the general application of this Part of the Bill to all vehicles liable to road tax subject to the exemption from certain provisions of vehicles used by motor dealers under the authority of a trade licence.
A person who keeps a vehicle is required under section 67 to notify the local licensing authority of both the keeping of the vehicle and the transfer of his interest in the vehicle. This section confirms the existing legal requirements which have previously been provided for only in regulations.
Section 68 provides that where road tax is not paid within 14 days of the expiry of the previous tax, it shall be recoverable by the local licensing authority as a simple contract debt. This section will enable the authorities themselves from their own records to take proceedings in cases of unpaid tax. However, this will not affect the existing powers of the Garda to prosecute those whom they find using untaxed vehicles.
At present only the user of an untaxed vehicle can be prosecuted for unlicensed use of that vehicle. As a result the unsatisfactory situation at present exists that if an untaxed vehicle is parked in the public road the Garda can only prosecute for unlicensed use where they can identify the user, that is, they must wait for the user to return to the car so that he can be identified. Section 71 removes this anomaly by providing that, henceforth the registered owner of the vehicle, if he has authorised its use, will—as well as the user—be liable for the use of an untaxed vehicle. An employee will not be liable if he is using the vehicle on the orders of his employer.
Fines imposed for the use of an untaxed vehicle are often not a sufficient deterrent to repeated evasion by unscrupulous persons. Section 72 provides that the court shall, in addition to any penalty which it may impose, order the payment of the arrears of road tax due to the licensing authority.
Section 73 provides that both the user and the keeper of a vehicle shall be subject to prosecution for the non-display of a current tax disc. Section 74 brings this offence within the scope of the "fines on the spot" procedure.
Section 75 put the onus of proof on the defendant in any proceedings for an offence under this part to show the existence of a current road tax licence, that this vehicle was not subject to continuous liability or that he had not authorised the use of his vehicle, as the case may be. This section will enable cases to be dealt with quickly by removing delays arising from the need for the licensing authority to provide documentary evidence which may not be readily accessible.
Evasion of road tax is a sufficiently serious offence to warrant a hefty maximum fine. Sections 76 and 77 provide for this—£100 in each case. Section 77 also provides for the settling by regulation of the fee payable for a duplicate registration book—up to now the maximum fee of 25p has remained as fixed in the 1920 Roads Act. Under section 78, liability for road tax relates to use of the vehicle in a public place, whereas up to now it was confined to use on the public roads.
Section 79 provides for the new annual rates of road tax for private cars which came into effect on 1st March, 1976. It also specifies that the additional proceeds arising from these new rates will not be taken into account in determining the amount to be paid into the Road Fund in respect of road tax and related charges.
I commend the Bill to the House for a Second Reading.