I move amendment No. 1:
In page 5, line 25, to delete "was" and to substitute "were".
This is a simple drafting amendment.
Finance Bill, 1976: Committee Stage.
SECTION 1.
Could I ask what is the purpose of this change?
The section provides that in proceedings against an employer for failure to comply with obligations under the PAYE legislation, a certificate by an officer of the Revenue Commissioners that the defendant was an employer or was registered as an employer during a a period stated would constitute prima facie evidence to that effect. The question of proof that a defendant was an employer during a stated period has been raised in a case in which proceedings were taken. The certificate procedure which is used in other instances will enable this proof to be given in a straightforward manner. Of course if the certificate is challenged formal proof will be required by way of personal attendance or probity witnesses to give evidence.
Is there no change intended as regards the kind of officer who would give this certificate?
No, it would be given by an officer who would be competent to certify, but it would avoid the necessity of having the personal attendance of the officer in court.
(Dublin Central): This type of situation has not existed for some time.
Not in relation to PAYE legislation, but it does exist in relation to other taxation matters. It does not prejudice the person. It saves wasting the time of valuable officials.
(Dublin Central): Would he have all the relevant facts?
Yes.
(Dublin Central): Apart from the certificate, if there is to be a challenge?
Yes, of course.
Section 1, as amended, agreed to.
SECTION 2.
Question proposed: "That section 2 stand part of the Bill."
This section raises the income limit for the purpose of the dependent relative allowance from £497 to £510 for 1975-76 and to £575 for 1976-77. This ensures that a taxpayer who maintains at his own expense a dependent relative, having no income other than the non-contributory old-age pension, personal rate, will not have the income tax allowance in respect of that allowance reduced for either year because of the increases granted in pension with effect from October, 1975, and April, 1976.
I believe I have been under a misapprehension for quite a few years because I believed that a non-contributory pension was not subject to income tax. It appears from something I learned recently that it is subject to income tax but in practice has not been liable because of the amendments made annually in the Finance Bill to take the level up. I am not sure if I am raising this on the correct section because this is dealing with a dependent relative but it is a dependent relative of a non-contributory pensioner we are talking about here?
The Deputy's doubt is justified. The position is, and always was, that income of any kind is theoretically liable to tax but the level at which a person enjoys entitlement to a non-contributory pension is such that the personal tax allowances ensure that such pension is not caught for tax purposes.
Is that still the position? The reason I ask that question is that I have come across a case recently. There may be exceptional circumstances in it—Deputy Lalor is the Deputy involved in the case—and it appears from that case that now a person in receipt of a non-contributory is in fact being taxed.
It could only happen if the person was improperly in receipt of a non-contributory pension, improperly by reason of having an income which was not disclosed in relation to pension eligibility but which was known to the Revenue Commissioners. Tax would not be payable on a non-contributory pension by reason of the personal allowances.
It should not be payable?
It should not be payable and if any such person is paying tax it is not related to the non-contributory pension. If anybody has such a case in mind I would be glad to know of the details so that I could look into the matter.
The circumstances of the case I am talking about are very peculiar but it would appear that the person in question had other income, disclosed it and the Department of Social Welfare, as an interim measure, before awarding a contributory pension, awarded a non-contributory pension. The Revenue Commissioners assessed tax on the whole income including the non-contributory pension.
I would like to get the facts of the case to have them examined but the position is as I have described it.
No income tax should be payable if the only income is a non-contributory pension?
Yes.
Question put and agreed to.
SECTION 3.
I move amendment No. 2:
In page 6, before section 3, to insert the following section:
"3.—Section 174 of the Income Tax Act, 1967, is hereby amended—
(a) in subsection (1)—
(i) by the insertion after ‘required' of ‘by an inspector',
(ii) by the substitution of ‘the inspector is' for ‘the Revenue Commissioners are',
(iii) by the substitution of ‘an authorised officer may' for ‘the Revenue Commissioners may',
(iv) by the insertion in paragraph (a) after ‘inspector' of ‘or to the authorised officer', and
(v) by the substitution in paragraph (b) of ‘an authorised officer' for ‘any officer authorised by the Revenue Commissioners';
(b) in subsection (2), by the substitution of ‘authorised' for ‘other', and
(c) by the insertion after subsection (2) of the following subsection:
‘(3) In this section "an authorised officer" means an inspector or other officer of the Revenue Commissioners authorised by them to exercise the powers conferred by this section',
and the said subsection (1), as so amended, is set out in the Table to this section.
TABLE
(1) Where a person who has been duly required by an inspector to deliver a statement of the profits or gains arising to him from any trade or profession fails to deliver the statement, or where the inspector is not satisfied with the statement delivered by any such person, an authorised officer may serve on that person a notice in writing or notices in writing requiring him to do any of the following things, that is to say—
(a) to deliver to an inspector or to the authorised officer copies of such accounts (including balance sheets) relating to the trade or profession as may be specified or described in the notice within such period as may be therein specified, including, where the accounts have been audited, a copy of the auditor's certificate;
(b) to make available, within such time as may be specified in the notice, for inspection by an inspector or by an authorised officer all such books, accounts and documents in his possession or power as may be specified or described in the notice, being books, accounts and documents which contain information as to transactions of the trade or profession.
Section 3, as originally drafted, extended to all inspectors of taxes powers which had been reserved to the Revenue Commissioners specifically. It is now intended to limit this power to specially authorised officers who will in the first instance be inspectors and accountants serving in the investigation branch, and, possibly, one or two senior inspectors in head office. The giving of this power must be seen in the context of the anti-evasion campaign. The amendment achieves this by incorporating in subsections (1) and (2) references to "an authorised officer". The definition of "authorised officer" is needed and this definition is similar to that contained in section 33 of the Bill which deals with inspection of documents and records.
Is the Minister saying that heretofore the power involved was vested in the Revenue Commissioners?
Yes.
And under this amendment it is proposed to vest it in the Revenue Commissioners and in authorised officers of the Revenue Commissioners?
That is correct.
What is the practical difficulty about confining it to the Revenue Commissioners?
The practical difficulty is that confining to the Revenue Commissioners involves unnecessary work and imposes an unnecessary work load upon the Revenue Commissioners. If the power is delegated to senior officers, as proposed, such senior officers can then exercise the power without having to refer back to the Revenue Commissioners personally in each case.
As I mentioned in the course of my budget speech, it is the intention to improve the operation of the anti-evasion machinery. I regard as necessary to that objective that the senior inspectors operating the anti-evasion section should be empowered in this way. Otherwise, we would have a situation in which the Revenue Commissioners, who are already overburdened with the amount of work they have to do, would also have to be involved in consideration of the details of each case. I do not consider it would be warranted.
Everybody sympathises and, indeed, supports the Minister in the fair application of tax law and in anti-evasion measures, but it seems that here we are going so far as to put it in the power of unknown officers to exercise the powers of the Revenue Commissioners. I am not clear as to what content of the responsibility of the Revenue Commissioners is involved. That is like asking the question: what are the duties of a Minister? The Revenue Commissioners all through the years have by carrying their responsibility been able to use their officers, but the responsibility has still rested with the Revenue Commissioners where their responsibilities operated. Unless I am completely mistaken in my approach to this amendment and to the Bill in this connection, it seems that what we are doing is to absolve the Revenue Commissioners as such from the responsibility by implication and to transfer the authority to unspecified, unspecified in the sense of a priori, persons. An inspector is a very definite officer. The Revenue Commissioners have the responsibility and on that principle I have considerable misgivings about the Minister's approach to this.
I make these remarks not in any spirit of obstruction or lack of sympathy for the almost intolerable burden that our tax laws now place on the Revenue Commissioners, their officers and agents who have to deal with them. Incidentally, it raises the question with regard to some of those officers or agents as to whether they are subordinates under the direction of the Revenue Commissioners in all cases.
Here we are going to do something very fundamental and we should be cautious in legislation in this way. I regret I was not present when section I was being discussed because I would have made the following point with regard to paragraph (c) of the table. My point is that if there is a certificate purporting to be signed by officers of the Revenue Commissioners ipso facto whether or not the person signing it is an officer or has due authority it has statutory force unless there is positive evidence from the Revenue Commissioners to the contrary.
I would go so far as to say that even if an improperly signed certificate by somebody without authority within the meaning of the table in section I were tendered in evidence it would stand unless it could be proved that it was not in order. The only people who could prove to the contrary would be the Revenue Commissioners or their officers and if they chose to remain passive and do nothing the consequences would be as set out in this case.
I earnestly urge on the Minister to consider the implications of blurring the definition of responsibility in these statutes by the procedures he is adopting, irrespective of whatever difficulties may exist. I concede that the administrative difficulties are very great and, as the Minister knows, most of us have a real appreciation of the difficulties that confront the administration of the Revenue, particularly with regard to collection.
If the Minister persists in pursuing this line which is in the Bill itself and in the amendment also, I suggest that it needs to be followed up. If we go along with the Minister on this line then, for the long-term protection of the Revenue Commissioners, their officers and agents, he should reconsider the definition of responsibility. He should make equally clear the responsibility to the public as well as the burden and responsibility placed on the taxpayer. I say that in as objective a way as possible and I should like the Minister's comments on that view before we consider the details of the section.
I accept that it is desirable that significant decisions affecting the welfare of citizens should be taken at a senior level by persons on whom statutory responsibility is conferred. However I am conscious of the fact that we have many procedures and statutory obligations that, while theoretically within the area of responsibility of people such as Ministers, are such that Ministers are unable to give adequate consideration to the making of decisions which the statute calls on them to make. Indeed, some of the issues are matters that nowadays should not be the responsibility of Ministers.
I recall that I was not a Minister for long when I received for approval an order that had already been signed by the Minister for Defence but which required my approval before it became effective. That order was one that increased the daily ration of hay for Army horses. Immediately I formed the view that it was utterly ridiculous for the Minister for Finance to be called on to determine the appropriate ration of hay for Army horses, yet that practice had been observed during the years. I doubt if there is anyone in the Department of Finance, including the Minister, who is competent to determine the appropriate daily ration of hay for Army horses or to determine why in 1973 it was thought necessary to alter the ration. Following consultations with the Attorney General and others, I am glad to say we have been able to avoid that kind of ridiculous decision-making. When decision-making gets to that level it is not worth while getting a decision because proper attention cannot be given by the person who is charged with making the decision to all the factors that should govern it.
In this section and in the amendment we are providing that the person charged with the responsibility of investigating the tax position be empowered to require people to deliver a statement of their profits or gains. It seems to me it is the proper thing to do, that those who are in possession of the facts, who know what is happening, should have the power to issue a requirement that the necessary information be furnished to the inspector.
We are not doing anything that is not already on the Statute Book. There is a much wider power conferred on inspectors in relation to value-added tax. Section 18 of the 1972 Act empowers an authorised officer to inspect books and records, and a similar provision appeared in section 104 of the Corporation Tax Act, 1976. That authorises an inspector to require close companies to furnish such particulars as he thinks necessary. I do not think anyone can dispute that this power is necessary and the only argument is whether or not the decision should be made by the inspector handling the case or by the Revenue Commissioners, who would not be handling the case until the report was presented to them by the inspector actually handling it. It is all very well to provide that the Revenue Commissioners may make the decision but, if we left it like that, the inspector would have to investigate and then the Revenue Commissioners would have to study his handling of the case before coming to a decision. That would generate unnecessary delays. If evasion is taking place and if the investigating branch is satisfied that the necessary information is not being furnished it is important they should be empowered to act quickly. The ultimate responsibility lies, of course, on the Revenue Commissioners because they are the people charged by law with the operation of the whole tax code and, just as officials may make decisions for which Ministers are answerable, so the Revenue Commissioners will be answerable for any decisions taken by inspectors.
As far as the Minister goes, I understand his arguments and I accept the greater part of them. The trouble arises in this way: the Revenue Commissioners are defined. An inspector or any identifiable officer creates no problem. The analogy is a Minister or any identifiable officer on the establishment of appropriate rank in his Department or in another Minister's Department. No question arises there. It seems to me, however, that the wording of this is wide enough to convey an authorisation of anybody for a purpose and it is at that I demur.
I demur, for instance, at the possibility—I hasten to add I do not think it is a probabilty or that there is any likelihood of its happening—of the Revenue Commissioners taking at random somebody and authorising him to act on their behalf. Of course, I do not think a Minister or the Revenue Commissioners would, so to speak, pick someone up off the street or select some particular agency and authorise, without any mechanism for identification, that person or agency to act but I see that extreme possibility and I think it is dangerous. The next thing you could have are secret agents. The admission of this principle would allow a Minister in any Department—say, in the Department of Justice for instance—to have arbitrary agents.
This says any officer authorised by the Revenue Commissioners. "Officer" is the operative word. Could we get this phrase "an authorised officer" narrowed down? In the case of the State it is, as I say, all right. In the case of the Revenue Commissioners—I may be wrong in the impression I have—there is a certain nebulosity about what the word "officer" means. Just as the Minister has pressed his point about evasion and administrative difficulties to the extreme, so I am pushing my point to the extreme and between us we may be able to find a solution. In the amendment before us, it is clear that on reconsideration of section 3, as presented in the original Bill, we find "authorised officer" coming in. This is amending legislation and we will be here all day if I start analysing it as against the 1967 Act but a great deal would be clarified if the particular class of officer were determined and specified.
With regard to the precedents, the precedents are there but I am afraid, as so often happens, that this is the thin end of the wedge and thin ends of wedges have made very large breaches in principles in the past—in, for instance, the VAT Act and the CTA Act. That is something I cannot ignore and neither do I wish to deny it. But we are now confronted with the position that we had a committee of this House, to which I have often referred and on which I myself sat, under the chairmanship of the late Deputy Sweetman. There we had tremendous assistance from the Revenue Commissioners themselves in consolidating the Income Tax Code and found it was sufficient to put the power to require the production of accounts and books in section 174 of the 1967 Act and that is what we are now amending.
One can understand that experience has proved it necessary to give power to the Revenue Commissioners to overcome resistance to a legitimate investigation but this game of, shall I say, cowboys and indians between the taxpayer and the tax collector has resulted in this succession of amending legislation which always means, of course, that the tax collector is going to win at perhaps a certain undesirable cost in the long term to the democratic structure. Here, I would like to remark in parenthesis, that we have something that threatens the whole democratic structure. It is not the fault of the Revenue Commissioners that tax law has developed in this way. In the original it was the Revenue Commissioners. It never occurred to the Members sitting on that committee or to the Members of this House to think of legislation empowering the Revenue Commissioners to be any different from legislation empowering a Minister and why one has to particularise the officers of the Revenue Commissioners more than particularising the powers of a Minister raises an organisational problem that I do not quite understand.
The Minister mentions the experience he had of having to investigate an order personally. I can understand that. However, we know that in the Book of Estimates the officers of the Minister who can act for him are clearly defined. In the case of the Revenue Commissioners I am not demurring at the word "inspector" at all. Inspectors are clearly defined officers. I may be under a misapprehension but I have always regarded inspectors as officers of the Revenue Commissioners. There are other very senior staff officers in the office of the Revenue Commissioners in the Capital Taxes Branch, the Income Tax Branch and so on. I have always regarded those as officers who ipso facto were senior officers of the Revenue Commissioners. One imagines, as happens in a State Department, that they have the delegated responsibility and power to act and if the signature of a Revenue Commissioner is placed on a document it is on the advice of the person concerned that the Revenue Commissioner who signs it will see the thing so quickly that no particular difficulty accrues to him.
The amendment states "an authorised officer" is to be changed to "any officer authorised by the Revenue Commissioners". That is a totally different thing from saying "an officer of the Commissioners". I would not be in a strong position to make my point if it was said here "inspector or any officer of the Revenue Commissioners". The original section has already been amended in previous Finance Acts. In this Bill it is further amended. This amendment states in (a) (v) that "any officer authorised by the Revenue Commissioners" is to be substituted for "an authorised officer". Any officer authorised by the Revenue Commissioners could be a very wide definition altogether. What is the point of substituting the words "an authorised officer"? Is he an authorised officer of the Revenue Commissioners?
Will the Deputy look at subsection 3 (c) where we define an authorised officer?
It states that "an authorised officer" means an inspector or other officer of the Revenue Commissioners authorised by them to exercise the powers conferred by this section. I read the two sections back to front. I am very glad that is so. However, that point can be turned my way because the very fact that this amendment is brought in now, although proof of bona fides—I fully accept it as that—shows the trap of this type of amendment. I wonder if there is not a question of more closely defining what an officer of the Revenue Commissioners is in relation to this. The word “authorised” qualifies “officer”. Can the Minister say what is an officer of the Revenue Commissioners? Can he define it? Inspector can be defined.
The Deputy can define it.
If the Revenue Commissioners say to me: "You are one of our officers" then I am an officer of the Revenue Commissioners whether authorised or not. If that can be done I would get rather frightened and make a bad officer of the Revenue Commissioners.
One could not become a Garda officer if somebody tells him. He has to be an officer of the Garda Síochána.
Exactly. I know what an officer of the Garda Síochána is. That is a very good example. There is an establishment and there is a commissioner. What is the structure of the Revenue Commissioners' organisation? I am not blaming the Revenue Commissioners, the Minister or anybody else. At the time the Revenue Commissioners were set up the burden on them was relatively small and they could function with clerical assistance but for legal and executive acts they were competent to discharge themselves. The scope of activity and responsibility develops. Inspectors of taxes have to be provided for. They are recognised officers and there is no problem there. There is a great burden on inspectors at the moment. They are highly trusted people and those officers help the inspectors to carry out their duties. The inspectors could not do without this staff. I often wonder, when contemplating tax law, what is the function of those people. Are they or are they not officers of the Revenue Commissioners?
I would have to start studying what are the responsibilities of civil servants of various grades in order to pursue that point in any rational way because I suppose there is an analogy here. I feel there is a certain ambiguity about this word "officer" and that the word "authorised" is possibly a danger from the point of view I am advocating at the moment. This should be cleared up. It is quite clear, as a result of all this, that a very heavy administrative burden is being forced on the Revenue Commissioners by current taxation measures and by the very nature of these measures tax evasion is being stimulated by the Minister's misconceived approach to this matter but it is the Revenue Commissioners who will have to find the answer.
That will mean multiplication of staffs, fraud squads and so on and will probably mean administrative complications, quite apart from administrative expense. I want the Minister to take what I am saying in the spirit in which I am saying it. Can we find some simplification, some clarification here and try to make it smooth for the people who must enforce the law? I am with the Minister about tax evasion but there are traps in the other and although I was late to comment on it, the implication of the table in section 1 which we have passed should not be overlooked. I hope I have made the general point here. It is a general point rather than a specific objection to the amendment.
I do not think I can put the matter further except to put this historical note on the record. In 1963 an income tax commission recommended that power be given to the Revenue Commissioners to send for books and papers and require production of accounts in order to give them effective powers to stop evasion. The amount of evasion may have increased in the meantime—there is good reason to believe this is so. Our taxes and the variety of them and the skill of people in avoiding and evading the law have also increased and life has become much more complex not only in Ireland but in the world.
The Minister has done his share.
I am glad to say that I have done my part in reforming the tax laws to ensure that people with comparable incomes pay equivalent amounts of tax——
The Minister does not mean it.
——which I think is the right thing to do. I know it is not the objective of Deputy de Valera to make it easy to evade tax. He is anxious that those who have an obligation to pay tax should pay it but I think it is necessary to give the Revenue Commissioners effective means to operate efficient anti-evasion methods. There is no use, as I have said here on many occasions, in passing laws imposing tax liability unless one provides the tools for those who have responsibility for executing the Act which will enable them to do so effectively. If, having regard to the fact that we have far more taxpayers than formerly, we continue to impose more obligations on the Revenue Commissioners personally, their work load will become impossible.
In this section we are providing that those charged with the responsibility of obtaining accounts and so on will be endowed with the means, where the information is not being furnished or where information which they believe is inaccurate has been furnished, to obtain copies of accounts and balance sheets and auditors' certificates and such books, accounts and documents as may be necessary in order properly to confirm a person's liability to tax. Those who will be able to issue notices requiring production of these will have to be authorised by the Revenue Commissioners.
If we are satisfied, as I believe Deputy de Valera is, that the Revenue Commissioners properly exercise their decision making powers—that is the argument advanced in favour of leaving this power with the Revenue Commissioners but not giving it to their officers—if they are going to act reasonably in one field I believe they will act reasonably in another and will only authorise such officers as they consider have the capacity and maturity to make proper decisions in this field.
The persons who will be authorised will be the inspectors or the accountants in the investigation branches who are handling these cases where no information or unsatisfactory information is forthcoming. It is interesting to note that the British Chancellor of the Exchequer is following my good example in this field. He announced in April that he proposed to give similar power to his inspectors of taxes. He remarked on that occasion that he found that the powers to combat evasion in other European countries and in the US and in Australia were far more severe against the potential taxpayer than anything he was proposing. If that is true of Britain, it is true here also. We are not proposing anything which is a radical departure from the previous position but are simply providing a more efficient way to enable the Revenue Commissioners to combat evasion. When the proposal was introduced in 1963 there were only 300,000 income tax payers: we now have over three quarters of a million taxpayers and people who have no opportunity of avoiding tax are naturally scandalised and irritated. There have been many stringent—and justified—calls for stronger powers for the Revenue Commissioners to ensure that all who have a liability to pay tax, discharge that liability. This measure is one small step in the right direction to ensure that people do not evade their proper liability.
I shall not controvert practically anything the Minister said because, basically, I agree with his approach but that is not my point. First, it is a pity that our tax code has become so complicated and that this whole approach is necessary. Secondly, I am not prepared to let my bone go with the Minister but I am prepared to share it.
Suppose I concede all that the Minister says, can the Minister not provide that authorised officers should have for these purposes some documents even if from an inspector and not from the Revenue Commissioners themselves treating the inspector as a well recognised officer and, putting on the face of his authorisation? I do not know what the Special Powers Acts imply but if the police wished to raid my house they had to produce a warrant and that warrant had to be signed by a recognised person. Otherwise, I could refuse admission. I do not want a warrant issued in every case—that would be multiplying administrative work—but I am asking that the officers who would be doing this work should have warrants, or the equivalent either from the Revenue Commissioners or some superior officer such as an inspector, or the head of a branch. There are such branches, for instance, as the Capital Gains' Branch, that authorisation should be inspectable on demand. I am back to the difficulty of the fact that I missed out to some extent on the table in subsection (1).
I ask the Minister to consider my suggestion. What I am suggesting is that a great deal of correspondence, say, for income tax or any other tax, will emanate from some branch where the inspector has quite a staff under him and a lot of the correspondence will be signed by somebody else on his behalf. The letter will probably read with the inspector's name and somebody who is implicitly authorised by the inspector signs it. There is nothing wrong in that. But it is a totally different thing when going in under a statutory power equivalent to a police search, demanding to inspect documents or other confidential information of a citizen or a company that is against their will. That becomes a formal act of law of considerable gravity. If it is an officer other than an automatically recognised one, like the head of a Department or a principal officer, then no question arises, but if it is some unspecified officer who may actually be very junior or of temporary standing—and the Minister knows, I presume, and the Revenue Commissioners certainly know their own administrative difficulties with movements of staff—could the Minister arrange—and I think it should be statutorily incorporated—that there would be a general warrant visible for inspection on demand by the person on whom the other demand is made, signed either by the Revenue Commissioners or by one of these recognised officers such as an inspector?
Is it asking too much for that compromise? That would go a long way to meet any substance there is in the objection I am making and it would amount to a complete concession to the Minister's point of view. I would seriously urge the Minister and his advisers to consider the long term desirability of doing this. Such a warrant, if I may call it that, can be either ad hoc or general. Again, I will not cavil at the employment of both procedures.
You can take a particular officer who is not in the category I am talking about and whether the Revenue Commissioners or one of their recognised officers signs it generaliter, then that officer can function for the purpose of this section as amended. I will accept that. I will further accept that in a particular case a person investigating it, an officer who would not be in the category I am talking about, can bring a form for the particular case and get the authorisation. Surely that would not be too much trouble administratively. Say it is somebody acting for an inspector who has not a general authorisation but because he has been dealing with the case he is the most likely person. Surely it is not asking too much that before he proceeds to exercise the considerable power conferred by section 174 as amended he would get this authorisation duly signed and that the authorisation would be producable on demand by the person to be subjected to the inspection or demand. It is a very simple thing.
I am going to meet the Deputy.
If the Minister does, I would be extremely grateful for that. It would do a lot in the long term. I thank the Minister.
For the reason which the Deputy has advanced and for another reason; it would be helpful to the Revenue Commissioners and according to law if an authorised person was able to produce ready proof of his authority. Obviously, therefore, if he were authorised in writing, such writing would be helpful. Under section 161 of the Income Tax Act, 1967, inspectors of taxes are readily identifiable and their warrant is signed by the Minister. We would possibly meet the point without amending paragraph (c) (3) by inserting "in writing".
I will not rush the Minister, but it would be an important thing to do. I thank the Minister.
(Dublin Central): At present this particular type of operation exists where VAT is concerned. In effect, it would be the same thing that is happening here. I should like to ask the Minister what grade within inspectors of VAT is authorised to inspect books.
They are specially authorised auditors.
(Dublin Central): Qualified auditors?
They would not necessarily be professional auditors but they are people who have experience in auditing. The rank would be that of higher executive officer and upwards.
(Dublin Central): How many years would they be in the service?
I would not know.
(Dublin Central): I am very anxious to know because this involves a highly confidential matter such as looking at bank balances. I am not questioning the people carrying out that business at present. I am anxious to know what grade VAT officers are authorised to carry out these inspections. They are authorised at the moment. As Deputy de Valera said, this is being implemented.
In relation to this section dealing with the Income Tax Acts, it will be the inspectors or accountants in the investigation branch. The number will be very few and they will all be very senior people.
(Dublin Central): That is good.
For the moment there is no danger because the confidentiality of the Revenue Commissioners is being preserved. It is the long-term dangers I am looking at.
This power is exercised by people who, under existing regulations, will have the information anyway.
Amendment agreed to.
Acceptance of the amendment involves deletion of section 3.
SECTION 4.
Question proposed: "That section 4 stand part of the Bill."
This section inserts a new subsection (1A) in section 197 of the Income Tax Act, 1967, and ensures that, where an application is made by a husband or wife for separate assessment to income tax for any year of assessment, the separate assessment provisions will be continued for each subsequent year of assessment unless and until the application is withdrawn. This amendment is, I believe, widely desired by married couples who, up to now, have had to make an annual application to have separate assessments. I am sure it will be particularly welcomed by those who are concerned to advance the rights of women.
There are two points I want to raise. The first is a general point. Would the Minister confirm that it is possible under the existing law for a wife or husband, if they so choose, to be separately assessed for the purpose of income tax, no matter what Schedule they come under? Is that so?
Yes.
I wanted confirmation of that because that was my understanding, but doubt was expressed to me recently as to whether this was so in all circumstances.
The application to be separately assessed must be made each year within six months of the period before the 6th July.
That is the second point I want to raise. There may not be anything in it, but since the date in question is the 6th July is there any danger of that being the wrong date? Having regard to the proposal in section 6 which is advancing the date of payment—I know it is not the date of assessment that is being advanced, but the date of payment—is there a danger that an application made, say, on the 3rd July, could in any way affect an assessment that had already been made and therefore make it incorrect?
The Deputy has raised a point and some difficulty could possibly arise. This is something we have considered already and we will make an amendment if necessary.
I see. It is possible that the 6th July is not the right date having regard to section 6?
Yes, it will not arise in this year in any event, but it could arise in future.
I appreciate that. I merely wanted to draw the Minister's attention to it.
I take it that one of the motivations in this amendment is the increased number of income-earning wives?
That is a factor, and a desire has been expressed to avoid the necessity of having to make an annual application which can so easily be overlooked.
Question put and agreed to.
SECTION 5.
Question proposed: "That section 5 stand part of the Bill."
This section ensures that certain amounts of annual interest which may be allowable in the computation of profits or income, but from which the payer is obliged to deduct income tax, cannot be used to augment a claim for relief in respect of losses. The purpose of the provision is to prevent the giving of relief twice over.
Section 316 of the Income Tax Act, 1967, which reproduces section 10 of the Finance Act, 1963, is concerned with cases where there is a trading loss and charges such as debenture interest are paid under deduction of tax which the trader has to pay over to the Revenue Commissioners by virtue of an assessment under section 434. Section 316 ensures that in such a case the tax charge is to be treated as increasing the loss, and loss relief may be claimed accordingly. In other words, the trading loss is increased by the total amount of the payment made —the net interest to the recipient and the tax to the Revenue.
Excluded from the scope of this provision were cases where, first, relief was otherwise obtainable or, second, where the section 434 assessment represented collection machinery—for example, where rents were paid to a non-resident. There is now being added to these exclusions the type of case where certain interest is paid under deduction of tax but which may, as a consequence of the amendments of the provisions in relation to the deduction of interest as an expense which were made in the Finance Act, 1974, be allowed as an expense in the computation of profits or income. The amendment ensures that there cannot be double relief in respect of the same payment of interest. Perhaps an example might help.
It would.
The position could be illustrated in this way:
|
Gross profit |
£100 |
|
|
Allowable expenses (general) |
£100 |
|
|
Interest paid to non-resident (tax deducted £35) |
£100 |
£200 |
|
Loss |
£100 |
|
|
Assessment to recover the tax deducted on payment of the interest |
£100 |
(tax £35) |
The £100 interest has been allowed as a deduction in arriving at the loss of £100, but it is possible to argue that under existing legislation the section 434 assessment of £100 increases the net loss of £100 and that £200 may be claimed as a "loss forward" or a "terminal loss".
The argument would be based on the changes made in the Finance Act, 1974, relating to deductions for annual interest and as to whether section 434 type assessments in certain cases fall to be made under the respective sections of the 1974 Act or under section 434 itself. If it were successfully contended that they were, in fact, section 434 assessments the result could, because of the omission in section 316 (2) of a reference to the relevant sections of the 1974 Act, be a double allowance in relation to claims under section 309, loss forward, and sections 311-315, terminal losses. What we are doing is removing the ground for any such claims.
In the case where the interest is paid, subject to deduction of tax, is it envisaged that the person deducting the tax has retained it or has paid it to the Revenue Commissioners?
If he retains the £35 he has effectively got the relief; if, on the other hand, he has to pay, let us say in the case of a non-resident, he will be assessed for payment of it, and this will then be treated as part of his loss.
In other words, this arises only where he has paid it over. Is that right?
Yes.
Could I ask the Minister if he gave notice of this amendment in his budget statement? If he did not, I am a little concerned about the 31st March, 1976.
That is the date on which the Bill was published.
All right.
Question put and agreed to.
SECTION 6.
I move amendment No. 3:
In page 7, after line 13, to insert a new section as follows:—
"6.—Section 439 of the Income Tax Act, 1967, is hereby amended—
(a) by the insertion, after paragraph (iia) (which was inserted by section 15 of the Finance Act, 1973) of subsection (1), of the following paragraph:
‘(iib) which being payable to any charity is so payable for a period which is or may be three years or longer, or'
(b) by the insertion after subsection (2) of the following subsection:
‘(3) (a) In this section "Charity" means any body of persons or trust to which the Revenue Commissioners have issued a certificate under this subsection.
(b) The Revenue Commissioners shall, after consideration of any evidence in relation to the matter which may be submitted to them and after all such consultations (if any) as may seem to them to be necessary with such person or body of persons as in their opinion may be of assistance to them, issue a certificate under this subsection to any body of persons or trust which proves to their satisfaction that it is a body of persons or trust established for charitable purposes only and that such purposes consist of any one or more of the physical, mental and social development or care of handicapped or deprived persons in the State.
(c) The Revenue Commissioners may at any time serve on any body of persons or trust to which a certificate has been issued under this subsection a notice of their determination to cancel such certificate if they are satisfied that such body of persons or trust has ceased or failed to satisfy the conditions specified in paragraph (b) of this subsection and upon the expiration of 28 days after the service of such notice such cancellation shall become effective and such body of persons or trust shall thereupon cease to be a charity for the purposes of this section unless within the said period of 28 days such body of persons or trust shall have served a notice of appeal under paragraph (d) of this subsection.
(d) (i) Any body of persons or trust which is aggrieved by any decision or determination of the Revenue Commissioners under this subsection may by notice in writing to that effect given to the Revenue Commissioners within 21 days from the date on which notice of the decision is given to it make an application to have the decision heard and determined by the Appeal Commissioners.
(ii) Where application is made under sub-paragraph (i) of this paragraph the Appeal Commissioners shall hear and determine the matter in like manner as an appeal made to them against an assessment and all the provisions of this Act relating to such an appeal (including the provisions relating to the re-hearing of an appeal and to the statement of a case for the opinion of the High Court on a point of law) shall apply accordingly with any necessary modifications'."
This amendment was put to the Minister in the past on behalf of the Union of Voluntary Organisations for the Handicapped, and I want to put it forward here and urge the Minister to accept the proposition that is involved. This amendment, if it were accepted, would give relief from income tax in respect of covenanted annuities payable to charitable organisations the purposes of which consist of the physical, mental or social development or care of handicapped or deprived persons in the State. It would have the effect that a charitable organisation having such objects could apply to the Revenue Commissioners for the payment to it of the tax paid in respect of an annuity covenanted for by any person or company who had entered into a covenant to pay to the charitable organisation an annual sum for a period which is or may be three years or longer. For example, if the covenanter was liable for tax at the rate of 50 per cent and covenanted to pay to the charitable organisation an annuity of £100 which would be payable out of his post-tax income, the charitable organisation could reclaim from the Revenue Commissioners the £100 tax paid by the covenanter, so that the organisation would receive an income of £200 at a cost of £100 to the covenanter, and of course, correspondingly, at a loss of that much revenue to the Exchequer.
As the Minister knows, there is a history relating to these covenants going back over quite a number of Finance Acts. They were being abused or at least the amount involved was becoming very large and over a period the areas in which they would be allowed were very much restricted. However, in recent years there has been a tendency to expand the area in which such covenants would be allowed, and the Minister himself provided in section 15 of the Finance Act, 1973 that in the case of annuities payable for a period of three years or longer and which were payable to bodies or persons having consultative status with the United Nations Organisation or the Council of Europe and having as their sole or main object the promotion of the observance of the provisions of the Universal Declaration of Human Rights or the implementation of the European Convention for the protection of Human Rights and Fundamental Freedoms or both, provided that certain conditions which were set out in the Act were complied with.
This amendment is fairly tightly drafted. It should be noted that the effect of it would be to afford relief to a limited class of charitable organisations. It does not propose to give relief to charities generally, and it is so drafted that the Revenue Commissioners, if at any time they are satisfied that an organisation has ceased to be established for the purposes I have mentioned, may withdraw their certificate to the effect that it is established for these purposes, and thereupon the relief would cease to be retained by that organisation. There is also in the amendment provision for the charitable organisations concerned to appeal against any determination by the Revenue Commissioners in relation to their status.
As I say, the organisations concerned are limited, but I am certain the Minister would agree with me that the work they are doing is of very great value and importance, that in purely monetary terms they relieve the State of a considerable amount of expenditure, that it is a case, even if they did not do so, for encouraging the activities of such organisations, and that, given present circumstances —the level of inflation and the other economic difficulties we are facing— such organisations are finding it more and more difficult to cater for the mentally and physically handicapped. I am sure he will agree this provision would be of very considerable benefit, and, indeed, might enable some of them who are in danger of having to close down to survive and carry on the excellent work they are doing. I think that, estimable as are the purposes provided for in the 1973 Act, relief for organisations promoting the observance of the provisions of the Universal Declaration of Human Rights or the implementation of the European Convention for the protection of Human Rights and Fundamental Freedoms, nevertheless, the work of the charitable organisations within the State catering for the needs of the mentally and physically handicapped are at least on a par with those objects for which relief was given in the 1973 Act, and I would urge the Minister to accept this amendment.
This amendment creates a difficulty for any Minister for Finance because he seems to be a hard-hearted and uncaring person in rejecting it. In that connection I am in good company in rejecting this, because the late President when he was a Deputy, Deputy O'Kelly, rejected this idea in 1940 when, in fact, he amended the law as it then stood in order to exclude the very benefit that Deputy Colley now seeks to reintroduce. In 1967 when he was being pressed by Deputy Dillon to make an amendment on the lines suggested by Deputy Colley and when the exemptions then existing were similar to those now existing except the addition in respect of consultative bodies of the Council of Europe and the United Nations concerned with civil rights, Deputy Haughey said he considered the situation to be bad but he did not consider himself justified in making it any worse by opening it to the several charities which were being urged upon him by Deputy Dillon.
What would happen if the amendment were to be accepted would be that people of means would decide to reduce their tax contributions by making donations to their own favourite charities. This would allow persons of means to decide in what way their funds would be allocated, while people without the ability to make such contributions would be denied the opportunity of making contributions to their own charities at the expense of other taxpayers.
In effect, the amendment suggests that people should have conferred upon them the right to make contributions which would satisfy themselves but to make them substantially, or certainly partly, at the expense of the general body of taxpayers. I do not think that is right. If it is considered that charities should receive support from public funds, then Oireachtas Éireann should vote those funds to the charity in question after a deliberate decision is taken that the charity in question should receive support. It is wrong that they should leave people with the option of making contributions to their own charities at the expense of other taxpayers.
There has been some concern expressed at the number of so-called charitable organisations. I am not wanting for one minute to taint the many reputable charities which we have with the questionable reputation which a very small number have, but I think it would be undesirable at present, having regard to the amount of public concern which has been expressed about some so-called charitable activities, to widen the scope of our tax laws in such a way as would enable persons not merely to donate money to charities of their own choice but possibly to devise new charities which they would want to support at the expense of the general body of taxpayers.
If aid is to be given at the expense of the public purse to charities, I would like to see such aid given after a definite decision is taken in Dáil Éireann after a debate has taken place on the merits and otherwise of the proposed contribution. That is the proper way in which to apply public funds for charitable purposes. I think it would not be appropriate to extend the exemptions which already exist but those are fairly tight exemptions. If they are for educational purposes, they have to be associated with research and the small extension of the exemptions in 1973 was very tightly drawn so that the organisations which benefitted were necessarily recognised by the United Nations or the Council of Europe and the charities were not ones prone to receive large donations from people.
In 1940, when Deputy O'Kelly changed the law, he expressed his concern at the very large loss of revenue which arose by the application of the kind of proposal Deputy Colley is now suggesting should be made. If there was a loss in 1940, I shudder to think what the loss of revenue would be in 1976. Since then people have become much more sophisticated in tax avoidance and tax rates have risen to most unattractive heights. If we had a situation in which effectively 77 per cent of the contribution of a wealthy person to a charity of his choice was paid by the Exchequer, as would be the effect of Deputy Colley's amendment, we would be introducing something wholly undesirable.
It is a little unfortunate that the Minister should have introduced the reference he did to a small number of what I think he called dubious charities. He may not have intended to do so but thereby he was casting a doubt on the bona fides of the great bulk of the genuine charities that could benefit from this amendment.
I very nearly said I was not casting doubt on the great bulk or the majority. I have no wish to do so. It would be wrong.
The Minister did not intend to do so, but he should not have referred to the others at all if he did not intend to do so. If there are such dubious charities, they should be dealt with under the law and not exclude benefits which might accrue to the many genuine charities by reference to the few dubious ones. That point is not valid and should be left out of the reckoning in any consideration of this amendment.
I freely acknowledge that any Minister for Finance looking at this situation would be apprehensive about the possible impact of an amendment such as this, but the Minister should have looked at this implication in 1973 when he introduced an amendment which gave this very benefit to a limited number of organisations having consultative status with the UN or the Council of Europe. We never heard any convincing reasons why such organisations should be so singled out. My recollection at the time is that we had great difficulty in extracting from the Minister even an example of the kind of organisation that would benefit. Eventually he did mention one or two, but it was never very clear why such an amendment should have been introduced. However, having introduced it, one presumes the Minister was aware of what he was doing at the time and that in providing this kind of relief for such organisations devoted to the promotion of the observance of the provisions of the Universal Declaration of Human Rights and the implementation of the European Convention for the Protection of Human Rights and Fundamental Freedoms, the Minister was then aware of what the consequences of this would be. In effect, he is saying to us now that either those purposes are more worthy of consideration than the benefiting of charitable organisations devoted to the care of the mentally and physically handicapped in this State, or that they may not be superior but it would cost too much money to benefit the charitable organisations and it does not cost very much to the Exchequer to benefit these other organisations affiliated to or having consultative status with the UN and the Council of Europe.
I do not think that that is the right approach to be adopted. Indeed, previous Ministers for Finance are consistent that they were concerned with the abuses. They closed the door, but the door should have been kept closed or if it is opened it should not be opened only for such bodies as have this consultative status and closed on charitable organisations doing this excellent work in this country. The Minister would have a much stronger case if he had not done what he did in 1973.
I also think it was quite misleading for the Minister to make the argument he did. If, one applies his argument one would say that what he did in 1973 was to allow wealthy citizens decide that they would benefit organisations which had this consultative status and they would decide to benefit them rather than contribute to the Exchequer. They would do so without allowing a decision to be made in this House after full discussion as to whether such organisations were worthy of support. Those are the arguments the Minister advanced against those charitable organisations but precisely the same arguments can be applied as regards these consultative bodies to which he gave this relief.
The logic of the Minister's argument is not obvious. He has opened the door and it is impossible to justify closing it on bodies such as charitable organisations aiding the physically and mentally handicapped. That is what the Minister is doing and no amount of sophistry can avoid the fact that he is giving his benefit to the limited class having this consultative status and he is denying it to the various charitable organisations looking after the mentally and physically handicapped. It is unfortunate that the Minister should take this attitude. If he is taking this attitude he should at least have the grace to admit that he is doing it because he thinks it would cost more money than what was done in 1973. He should not try to dress it up in philosophical arguments which do not stand up or if they do should have been applied in 1973 as well as 1976.
I was not very much impressed by the arguments put forward by the Minister. Deputy Colley is talking about any body, persons or trust to which the commissioners have issued a certificate. That does not fit in with the Minister's description that people of means could decide on or devise new charities. If the Minister wishes to say that he is not going to make any allowances of this kind the reasons he has given for not doing so are not acceptable to me. The sort of payments being made under educational trusts, as I understand them, are donations that are made for three years or longer and the tax goes to the charity or benefit; it does not return to the contributor. I have never heard it said that people of means could decide; it sounds mysterious. I suppose if one stretches one's imagination very far one could think of some people coming together to form a charity in order to ensure that the Revenue Commissioners are deprived of a tax but surely that is in the hands of the Revenue Commissioners because they decide what is and what is not a charity. It is obvious that the Minister is not going to consider the amendment but he should consider that Deputy Colley is talking about charities for the purpose of helping people who are either physically or mentally handicapped. I cannot see how the Minister can justify his arguments when the amendment is so specific and seeks to place the matter in the hands of the Revenue Commissioners.
Amendment put and declared lost.
Question proposed: "That section 6 stand part of the Bill."
In many ways this section discriminates against certain people in the community, which seems to be the set policy for the Minister throughout his tax legislation. Deputy Fitzpatrick emphasised the unfair treatment of people who carry on a trade or profession in comparison with taxpayers under other schedules. This section seems to be something further in this philosophy. One gets the impression that the Minister is determined to do all in his power to destroy what I might call the private trader and the middle class professions. I am disturbed by this section as it seems to be so much in line with many other things that have been said on the capital taxation Bills.
This section has a particular impact on Schedule D taxpayers in contrast with other taxpayers. Does this include farmers also? Of course it does. Here again the professions, the private trader and the farmers are the target. What kind of social policy is behind this? What kind of social policy is behind this obvious leaning against those elements in our community? Essentially, Schedule D taxpayers will be the victims of this section. The new rules provide that individuals—private traders—carrying on a trade or profession will have to pay their taxes in two instalments, half in the first year of assessment and half on 1st January in the year of assessment. This means that such a taxpayer will on the average be paying on the same time schedule as PAYE payers. I anticipate that the Minister will make a great defence on this point but there is a very essential difference. When one applies PAYE one is taxing money that is being handed over and in hand. When one applies PAYE one is deducting from a sum of money simultaneously received by the recipient but when one applies the provisions of this section to a number of the Schedule D taxpayers one is asking them to pay tax in advance because in many cases that money is not in their hands.
It is essential that we grasp that fact. An employee who gets a pay cheque every month or a wage packet every week will get a net sum, that sum being what he is entitled to for wages or salary, less what is held back as PAYE tax. That tax will be paid over by the employer to the Revenue Commissioners but it is only taken from the taxpayer when he is getting the balance of the money. That is not the position with regard to the trader or the professional man who comes under Schedule D. He is not required, nor would it be feasible to require him, to deduct tax as he receives his money. It has to be done over a period. Admittedly it may be somewhat in arrears and in favour of the taxpayer but up to now it has not been done until the person concerned received the money. Now we are asking him to pay the tax in advance, before he receives the money.
A trader may be giving credit because that is part of his business. The Minister should know that professional people such as doctors or lawyers are not paid on the nail, that there may be a time lag. As I see it, the new dates mean that the taxpayer will have to pay the tax in two instalments, half on 1st July in the year of assessment and the remainder on 1st of January in the year of assessment. There is an essential difference between the PAYE taxpayer and the Schedule D situation.
In the case of traders and professional men, a further complication arises in that the preparation of accounts is not instantaneous. From the point of view of the taxpayer in the case of PAYE the necessary accounting is instantaneous. Some professional people or traders make up their yearly accounts at 31st March and the first instalment would be payable three months after the end of the accounting year. It will be generally impossible for them to complete their accounts in this time and, that being the case, how can they meet the time schedule set out in the Bill? In addition, under section 29 they will be liable for interest at the rate of 18 per cent. This Parliament is supposed to represent all the people and to keep a balance and it might be asked if this is a reasonable thing for us to do.
The Minister has been a professional man. I am a professional man and I will talk about the profession I know. The Minister can visualise how much more complicated will be the situation in his branch of the profession. A barrister or a doctor may have his fee book and he may be keeping an account of his fees. However, he may not know what will be allowed on taxation, he may not know what will be paid and what amounts will remain as debts. If such a person treats something as a debt when, in fact, it becomes a payment within the year of assessment, will he have to pay interest on a bona fide error? The private trader will also have problems with regard to his taxable income. How can he make up his accounts when he does not know if the debts due to him or expenses paid by him are recoverable? People who come under Schedule D are professional people, traders who are unincorporated and farmers.
There are two grave difficulties in this section. First, there is the time factor in making up the accounts because we are not giving them a chance of being reasonably certain of their returns. Although they may have all the bona fides and diligence in the world they will be subjected to the penalties provided by section 29 which sets out payment of interest at the rate of 18 per cent.
The second objection is that there seems to be a failure to realise the essential difference between the PAYE situation where it is cash in hand and the trading situation, whether it is a farmer, professional man or private trader who is involved, where there is delayed payment and where there is no certainty with regard to the time of payment. For these reasons I ask the Minister is he wise in proceeding on these lines? If the present payment date of 1st January were retained there could be some acceleration if, after the end of the traditional period, you could catch up.
In view of the fact that the Minister has put the screws on the civil service I do not in principle object to some reasonable acceleration here but I want to apply the principles of equity to what he is doing here which appears to be a continuation of a policy that has now assumed disturbing proportions. It amounts to asking for payment of anything from 1½ to three years' tax over the next two years and is a permanent level of a substantial amount of tax. In a sense what the Minister is doing is imposing a levy of the order of 50 per cent and then carrying it forward indefinitely. I know that because of the Minister's policy the Government are nearly bankrupt. I only hope we will be able to get out of the morass. I know the Minister is scraping the bottom of every barrel. We have only to read the statements he is making here, there and everywhere. In this case he is resorting to advance levies on people.
I do not want to digress too much on this. What I want to emphasise is that we are now being asked further to proceed, and this seems to be a set policy, in discriminating against a very basic element of our community—the private trader, the middle-class professional person, the self-employed and the farmer. This is all the more insidious and dangerous in that it is not being done as a direct impost. It is being done by the manipulation of dates with the sanction of section 29 under which, if the deadlines are not met, the Minister gets 18 per cent interest on the deficit outstanding. This is a very dangerous public policy indeed.
There is another aspect to this, though not quite as serious perhaps as the one I have just emphasised. There is the advancement of payment dates where investment income is concerned. The Minister will probably argue that he is only putting things pari passu with PAYE and that people fortunate enough to have investment income should be subordinated to the wage earner. That is a laudable principle perhaps but there are certain aspects that must be examined. Investment income is often the only support of people in retirement. It will affect the people I have already mentioned—the farmers, the professional people and the private trader. It may be somebody who is mentally or physically handicapped for whom provision has been made by prudent parents or relatives. These will all be affected as well as what might be described as the well off for whom investment income is a bonus. These people will have to pay tax about three months earlier than those who pay under PAYE. There is an element of uncertainty here because there may be difficulty in assessing income. How can you assess investment income in all cases by 1st July for the year of assessment? How can the recipient know what income he will receive after 1st July? What happens when an interim dividend is declared and paid after 1st July or declared but not paid in the year of assessment? How can the recipient know what his liability is? He may receive more or less. He may not receive a dividend at all. How can he carry out the requirement here? He will be faced with the possibility, if he underestimates, of having to pay interest. If he overestimates he will be paying tax he should not have paid, albeit he may get a credit subsequently.
Let us follow this through. A person with an investment income who does not know on 1st July what the dividend is cannot account for that income on 1st July. One of three things can happen here. He either underestimates his liability, in which case he pays 18 per cent interest on what he has not dealt with, he overestimates and presumably he is stuck for tax even though he gets a credit or else he hits the nail on the head and is bang on. If he can do that, I wonder if he would do as well on a racecourse. This is a very serious situation. Some adjustment is needed to treat such people equitably. I will not suggest what adjustment is needed but I believe I can suggest the principle which should be—this goes for the Revenue Commissioners as much as for the individual—that where money accrues, then pay your tax. We will not always be able to stick to that principle but if there is to be a little leeway, surely the State should give it.
I freely concede that heretofore there was a delay in collecting tax in that the taxpayer got the income into his hand sometime before he paid out the tax due on it. That was the common pattern up to PAYE. The first correction of that situation was PAYE. As far as salary earners and wage earners are concerned, the tax is collected simultaneously with the receipt of the money by the taxpayer, although there is still an administrative delay for the employer in that there is a certain time lag in transmitting the money from the employer who, incidentally, has turned into a tax collector. All employers are now officers of the Revenue Commissioners. On an earlier section I might have asked the Minister if an employer is an officer of the Revenue Commissioners. He is certainly one of their agents because he collects PAYE for them. God knows the Revenue Commissioners have enough trouble in getting the money from their agents but sin scéal eile.
As far as possible, the principle should be that there is no payment of tax until the money is there to which the tax is attached and from which the tax is payable. It is basically unfair to ask any taxpayer to pay tax in advance. The taxpayer, ideally, should pay the money as soon as it comes into his hands. On the other hand, it is highly desirable, applying the same principle, that the State should get its tax as soon as the taxpayer gets the taxable income. What is sauce for the goose is sauce for the gander. I know that in all fairness this is the motivating idea behind all that is done. While it is achieved with PAYE the effect can be disastrous for certain Schedule D payers. If you can bring about a situation by which you can get Schedule D payers to pay money as they receive it, I will go along with the Minister but we should not, above all, adopt a procedure which involves a penalty for a bona fide taxpayer who is put in an impossible position. That is what is in this section.
There is a transitional problem even if an acceptable solution can be found so let us approach the problem on the following logic. What is contained in the section is inequitable— indeed I would say it is iniquitous. Payment of tax and receipt of income should be simultaneous. If you want to apply that principle in relation to Schedule D taxpayers, then another method is needed. The present one introduces a very unfair penalty. If a new method is found, then transitional problems have to be faced. We better have a look at the section as it stands in relation to what can be done for transitional problems.
I freely acknowledge that the Minister graciously listened to me earlier. Suppose he does not listen to me on the substantive aspect of the section, will he take into consideration, even as a transitional measure, that people carrying on trades or professions will have an immediate cash problem? They will have to find cash to pay three years' tax in the period from 1st January, 1976, to 1st January, 1978. Not only will they have the 18 per cent penalty of section 29 hanging over them—this goes for farmers, private traders and professional people—but they will have the acute embarrassment of having to find cash to pay tax which may involve them in borrowing and a further penalty still.
The Minister surely is not unaware of the difficulties in these categories. I know that he has had difficulties, which we will come to on section 26, where he has a very large amendment, which we will debate later and I know the difficulties of meeting problems of this nature, but that does not mean that these problems need not be met. Without anticipating discussion on section 26, I should like to say to the Minister, by way of encouragement on this section, that whatever mistakes were made regarding section 31 of the Finance Act, 1935, and the relief given there, a great service was done to the community and the Minister need not regret any unforeseen loss or anything else because the good that was done by that section to the trade of the country offset any abuse. I ask the Minister to take the same kind of risk in regard to this very deserving element of the community, the private trader, the unincorporated trader. I shall not digress on the advantages or disadvantages of incorporation; that would bring me into the Corporation Tax Act; the ramifications of this are so great that it is really impossible to deal with it exhaustively in the House. I content myself by saying that if the Minister could provide some relief in the transitional period he would do something to ease the force of the impact of this section on this part of the community.
The suggestion has probably been made to the Minister already that transitional relief should provide that a half year's tax should not be charged provided the taxpayer continues his trade of profession for a period. I do not see an amendment down by the Minister but that suggestion would be analogous to what the Minister did for the public service, Schedule E taxpayers. The Minister attempted there the same type of thing that he is now doing to the Schedule D taxpayers. Suddenly, out of the blue they get a most severe and unfair jolt from a situation in which they were paying on one system and are suddenly brought up against instantaneity of PAYE. The Minister argued about it and published statements about it and then had to come into the House—I think on the Second Stage of this Bill—and exhort us not to denigrate public servants. It is we who have been very anxious to uphold the rights of the public servants. In any case, I think it was desired at the time by many in the public service to go pari passu with the other taxpayers and that was denied them. Then this Minister hits them a sudden wallop but, under pressure, he makes a half year's tax concession to Schedule E taxpayers— and very properly.
Let me plead with the Minister to do something equally equitable for the Schedule D taxpayers. Or, shall we find that we have a Government that will try to bully people who cannot stand up and retaliate and will give in and abdicate completely their responsibilities in the face of certain pressures? Inevitably, this is what will be thought of the Government as of the House if we pass this kind of legislation. I realise that it is the House that is passing this legislation. The Minister is proposing the legislation but every Deputy carries responsibility for it and every Deputy who votes has responsibility. However much I criticise the Minister for proposing anything to which I object, the responsibility for passing it is the responsibility of Deputies who vote for it. When I appear to castigate the Minister and the Government, I am castigating the majority of this House who maintain the Minister in Government. It is time the role of parliament were seen in that light.
I ask the Minister to make some such adjustment in the case of the Schedule D taxpayers. If he insists— and I object to such insistence, particularly, as I have said, because it is done through manipulation of dates—on passing this legislation as it stands, he should at least give this transitional relief as he was properly forced to do as far as justice was concerned at any rate—I qualify my remarks by that—in another case.
Not charging a half year's tax would be absolutely consistent with the change over of Schedule E taxpayers and with the introduction of updated surtax. I am asking that transitional relief be given in that way. It is not too late to reconsider this matter. I thought the Minister would have brought in an amendment to meet this because I know that representations along these lines have already been made to him. For instance, I know that reputable bodies, not individuals but very reputable bodies representative of professions, many of them incorporated bodies and therefore not personally subject to the impact of the section itself, in other words, people who can be considered to have made their representations in the public interest, have made representations to the Minister.
I am surprised not to find, if not an amendment of the section as I would wish, even if we have to take the section and its policy implications, at least some transitional provision. Maybe it is not necessary to put it in the section. If he is going to have a transitional provision it would be very wise of the Minister to announce it. There is great destruction of confidence and a great deal of despondency amongst people in these areas. For all these reasons I would ask the Minister to reconsider this section. It is unfortunate in its content and in its method. Lastly, if he will not do that, can he not at least treat that section of the community from a transitional point of view as he has treated another?
The eloquence of Deputy de Valera will not conceal the true facts of the situation. There has been a great deal of misrepresentation about this provision, but it is in line with the gross misrepresentation which we have witnessed in the last few years as the Government have gone about their programme of tax reform and tax equalisation. A great deal of vigorous and vicious opposition has been concentrated on the Government's reform programme. I offer this thought for serious consideration. I have no wish to name any other countries, but a number of countries will readily occur to the minds of sensitive people, which are today suffering serious political and social instability and upheaval because of failure to reform taxation systems. As a result of this, masses of people have been scandalised at the inequality and inequity associated with Government policies. Whatever else this Government may be accused of, they cannot honestly be accused of failing to extend equal treatment to all.
I would accuse them very much of that.
I said that the Government could not be fairly accused of that and I say that if the accusation is made it is grossly unfair. There are now about 800,000 income taxpayers in this country, 700,000 of whom pay tax before they even see their income because the tax is deducted at source. One hundred thousand Schedule D payers pay tax in arrear on income that they have enjoyed, on income they have had the full use of, on income which, although part of it is ultimately liable to be paid in tax, they can use to make profits for themselves until such time as the income tax is paid. These are the facts which should be recognised without emotion or accusation because no question of emotion or accusation arises. At present those 100,000 Schedule D income tax payers of whom, as Deputy de Valera correctly pointed out, I have been one—the most income tax I have ever paid has been under Schedule D—pay their tax up to 18 months in arrear. Under our proposal, which has been vigorously attacked by Deputy de Valera today and which has been attacked again and again since it was first announced, all we are doing is changing the 18 months arrear to 15 months arrear. The people will still enjoy the relative advantage over all other income tax payers, over the 700,000 PAYE payers, of paying their tax in arrear. At any time that is an advantage for the reason which I have stated, that such people have the use of the money pending payment of it, but it is a considerable advantage at a time of high inflation with money depreciating in value. Such an advantage can confer considerable additional benefits on Schedule D payers.
In many countries, including ones with which we are often classified, we being one of the best-off countries in the world, so-called Schedule D payers do not enjoy these arrears advantages which are enjoyed here. Many of them are required to pay their tax in instalments on account pending ultimate ascertainment of profits. We are not making any such proposal. The time for giving the kind of concession which Deputy de Valera has referred to, of a remission of tax, would arise if and when Schedule D payers are required to pay tax by instalments in advance of assessment of their profits.
There is no comparison which any honest person can make between the situation of PAYE payers and Schedule D payers. Persons who have been brought within PAYE this year, that is, people in the public service, Deputies, Senators and Ministers too, will be paying much higher tax this year because they will be required to pay tax on their incomes for the year 1976, whereas in 1975 they were paying tax on their incomes for 1974. The difference, as it were, in their tax burden is the difference arising between incomes in 1974 and 1976. No such situation arises in respect of Schedule D payers and therefore no case arises for the giving of the concession which is being given to those who have been brought within the PAYE net this year, which is similar to the concessions which the Fianna Fáil Administration gave to PAYE payers who were brought within the PAYE net in 1960.
I would hope, therefore, that we might have an end to the arguments being advanced which have no relationship to the actual position of Schedule D payers because the reliefs they are seeking are reliefs for problems which do not arise in respect of their tax liability. The Schedule D taxpayer who makes up his accounts on a calendar year basis, say, to 31st December, would at present be liable to tax for the tax year 1976-77 in respect of his profits to 31st December, 1975. He pays tax on profits he earned in January, February and March, 1975, on 1st January, 1977, nearly two years after profits were made if you take the commencement of the period and the first date upon which a liability to pay any taxes arises.
All we are doing is shortening that period by three months. That is not a shocking imposition. That is not increasing the rate of tax. That is not increasing the burden, but it is a movement towards equal treatment under our tax laws. It is a move that should have been taken many years ago if Government in Ireland had been anxious to treat all people equally under the tax laws. Because we did not have an adequate pace of tax reform, we in Government have had to run to catch up with the rest of the world.
The first day I spoke about tax reform in this Dáil I forecast that it would not be likely to increase my popularity or the popularity of the Government with the people who might be affected by the changes. Some people might find themselves paying more tax than they did in the past, for the simple reason that they would be treated the same as others and would not enjoy privileges they previously enjoyed. The task of tax reform involves uncertainty, the fear of the unknown. As I said, this task should have been undertaken long ago. It is now well advanced, and at the end of the day we will have a tax code in which people will be convinced that every practical step that could be taken to treat people equally under the tax law has been taken.
I will come back again to the specific example I was giving. I pointed out that a person with accounts to 31st December would, for 1976-77, pay tax in respect of his profits for the year from 1st January to 31st December, 1975.
(Dublin Central): Would the Minister start from 1975-76 and see how that works?
I am starting with the year in which this new provision will apply.
(Dublin Central): The Minister picked the best year.
I am starting with the year in which it applies, which is the proper thing to do. Half the tax for profits earned in the year 1975 will be payable on the 1st January, 1977, and the other half will be paid on 1st July, 1977, 18 months after the end of the accounting period in question, or 26 months after its commencement.
When was the work done for which that payment was made?
The work was done in 1975 in some cases——
Years ago.
Yes, there are variations. I want to finish this illustration because there has been so much written and spoken about this which, in my opinion, was misconceived and I want to complete the picture of what will occur in future.
That taxpayer is now being asked to pay tax three months earlier this year, that is, he will pay the instalment which used to be due on 1st January, 1977, on 1st October, 1976, and the second moiety will be payable on 1st April, 1977, that is, 15 months after the end of the accounting period.
Deputy de Valera described the position of a number of professional firms who give extended credit to clients and who may advance money on behalf of clients.
I did not say anything about any professional firm advancing money on behalf of its clients.
I am sorry, but it can occur.
I can see how the thought occurs, but I did not say it.
It can occur, particularly in that branch of the legal profession of which the Deputy was not a member. Business does not extend as much credit nowadays as it used to do, particularly if it is an efficient business. It can be, and it is, argued by professional bodies that they should not be as liberal in leaving fees outstanding for such long periods or in advancing money on behalf of clients.
Can they help it?
Yes, they can. If one did not do it, the other would not do it either. The cure lies with the professional bodies themselves.
Things must have changed since the Minister and I left the area.
I have so argued as a practising solicitor and I will argue here too. It is wrong that professional persons should operate their business in an inefficient way, just as it is wrong that any other business should be operated inefficiently. I would consider it desirable from their own point of view to advance the date for the collection of fees.
Did the Minister ever have a chancery suit?
Indeed, yes.
Then the Minister knows what I am talking about.
If it is any comfort to the Deputy, I am still awaiting payment of fees in respect of suits.
Was it inefficiency? Whatever I would say about the Minister I would never accuse him of professional inefficiency.
There are opportunities for remedying these things and also opportunities for declining to take on business if you think you are not going to receive payment for it.
Sometimes one has to.
Sometimes one has regard to certain obligations to do it. I would accept that. However, to come back to the overall, we must not continue the pretence that the problem facing Schedule D payers as a result of this amendment is the same as that facing PAYE payers who are being brought within the net this year. There is no comparison, and it is an unworthy argument to suggest that it is.
Could I put this proposition? Supposing six months' tax remission were to be given, as argued by Deputy de Valera, and some future Administration were to introduce into Ireland what is a regular practice elsewhere, that is, requiring Schedule D payers to pay instalments on account in advance of their accounts being available, would they then be justified in calling for a further six months' remission to compensate themselves for paying tax on a current basis?
Surely that is a non sequiter?
No. They are related, and I would suspect that, whether it would be Deputy de Valera or myself or my colleagues who would be on that side of the House, whenever such a proposal would be made, we would argue and, I believe, argue convincingly, that a concession should be give to such persons because at that stage they were going to be called on to pay on a current year basis.
The Minister is missing the whole point.
No. I am not missing the point. They certainly cannot get the concession twice and that, in effect, is what is being argued here, that they should get six months' remission now, when their burden of tax is not being increased, because it is still being paid on an arrears basis in respect of profits that have already been earned. Of course, the situation in relation to a large number of Schedule D taxpayers is not that of the professional practice, to which Deputy de Valera referred, but it could be in relation to businesses where the profits are received as the work is done——
Agreed.
——and in respect of which there is well over a year's, maybe two years', use of that money before the tax attaching to it is paid. Those are considerable advantages which are going to remain in the future. They will be curtailed only by a three-month period.
It is very disturbing to note that the Minister now appears to be believing in his own propaganda, because he dwelt with some passion on the necessity for equitable treatment in the tax system and claimed that he was introducing this. We had earlier this afternoon an admittedly small but clear example of the Minister's willingness to give equitable treatment under our tax code when I sought to have certain benefits conferred on charities engaged in helping the mentally and physically handicapped. The Minister refused to agree to it, although he had given precisely the same benefits as I sought to bodies which have consultative status with the United Nations and with the Council of Europe.
Whatever justification there is for what the Minister's attitude is, he cannot say that is equitable treatment. I have already pointed out to the Minister on several occasions the danger of his alleged equitable treatment as being an aim put before the people. He should know, because he has been told often enough, that that is not what he is doing, that that is not what he is trying to do. He denied, and the Taoiseach came in here and denied, that that is what they were trying to do on the Government side of the House when I pointed out that equitable treatment, in the sense that the Minister says, for people with equal incomes would involve abolition of the tax-free concession on exports. The Minister and the Taoiseach have assured us that they do not intend to abolish the tax-free concession on exports, and for a very good reason, because there is more involved in the administration of taxation and in the job of the Minister for Finance than equal treatment of equal incomes. The sooner the Minister recognises that the better, and stops this nonsense he is putting forward about achieving equitable treatment when he is not and is not trying to, and if he tried to he knows very well he would be running the country into even worse difficulties than it is in at the moment. Let us have an end to this propaganda which means nothing when you analyse it.
In this section we have another example of lack of equitable treatment. I interjected when the Minister was talking to say that it seemed to me he was missing the whole point of the argument here, and I am convinced now listening to him that he has missed it. He said on more than one occasion when he was speaking that the burden of taxation was not being increased on the persons affected by this section, generally the self-employed. I do not know what the Minister means by the burden of taxation not being increased. The words mean something different to him from what they mean to me if he still maintains that, in the light of the fact that on his own say so, in 1976 the taxpayers concerned are going to have to pay one-and-a-half years' tax in the one year, on 1st January, 1st July and 1st October. If you have to pay one-and-a-half years' tax in one year, does the Minister say that is not increasing the burden of taxation on those persons? I would just like to know if we are talking the same language.
The tax burden in relation to any given period of profits will remain the same.
Anybody who takes the trouble to note that question and that answer will understand, whatever else he will not understand, at least something of the approach of the Minister for Finance. The fact is that these taxpayers are being obliged to pay one-and-a-half years' tax in one year, or putting it as Deputy de Valera did, they are being obliged to pay three years' tax in two years.
Do you still pay one-and-a-half years' tax in one year and a day?
On 1st January, 1st July and 1st October of 1976 they are due to pay a half year's tax.
Yes.
They would have paid on the following 1st January. They will now pay on 1st April and 1st July.
That is a year and a day.
Yes. They are now going to pay in 1976 three half years, in 1977 two half years, advanced earlier. On the Minister's basis of counting in the day as being just a day and nothing extra on them, take the 1st January, 1978, and what do you find? Six half years paid between 1st January, 1976 and 1st January, 1978. Therefore, whatever justification there may be for it, there is no way the Minister can say such persons will not have an increased burden of taxation.
I suggest to the Minister that if it is administratively feasible to tax the self-employed on the basis of their earnings as they earn them there is a great deal to be said for that proposition, not only from the point of view of equity of taxation but even from the point of view of the self-employed themselves.
However that is not what the Minister is attempting to do. He is simply shoving forward, as he says, the date of taxation, but the net effect is that he expects to get an extra £10 million revenue this year and those people will have to pay one-and-a-half years' tax in 1976 instead of one year's tax. The Minister argues that it is quite unfair, misleading, and I am not sure if he did not say dishonest, but he certainly implied it, to argue that such persons in these circumstances should get some form of compensation, and he compared their position with that of PAYE payers. He did not advert to any great extent, except to the extent to which he was obliged to by one or two interjections, to the position of those self-employed who are paying tax on money received for work done perhaps some years previously. It is only one category, but it is one category, and if one is to argue about the position of people paying tax on an income received the year before, it is relevant to raise when was the work done for which these persons are being paid and on which they are paying tax. It is by no means a conclusive consideration of this matter but it is relevant.
I urge very strongly on the Minister that he omitted the really relevant comparison when dealing with this matter. He talked about those who were on PAYE for many years but is not the real comparison with the public service and office holders whose position is being changed this year under this Bill? Is that not the real comparison? Are they not people who have heretofore been paying their tax on their previous year's earnings? Therefore are they not a far more relevant comparison? If one makes that comparison one finds that in their case, that is in the case of the public service and office holders such as Deputies, Senators and Ministers, as the Minister said, what is happening is that they are having a half year's tax remitted altogether and are not being charged any income tax on overtime earned in one year. I do not know why that happens, how it happens and why it has to happen, but it is a fact. The Minister was keen that we should talk about the facts in relation to persons who are, under this Bill, being changed from paying their tax on the previous year basis to the current year basis, the PAYE basis. It has been pointed out that when PAYE was introduced a similar approach was adopted; a half year's tax was remitted. A similar approach was adopted in another case where there was a change of a somewhat similar character in relation to surtax; a half year's tax was remitted.
The Minister gave no indication in what he said of why one should not make this comparison, but on the one hand the self-employed are affected and on the other hand the public service and office holders who are being brought in under PAYE. This brings one to the matter referred to by Deputy de Valera, the social and indeed economic implications of this section, and leads one to wonder does the question of whether, when being treated in this way, one gets a concession or not. Does that depend on whether one is well organised? Does that depend on whether one can pressurise the Government, or does it depend on equity and one's approach to real equity in taxation? It is difficult to escape the suspicion that the treatment one gets in matters of this kind does depend on the degree to which one can pressurise the Government and threaten them with defeat in the next election if they do not give the kind of concession that was given in the past.
I tell the Minister seriously that there is grave danger under this section that many small traders may find themselves out of business. He knows, as we all do, that many traders are existing on a knife-edge at the moment. If they are to be obliged in effect to pay an extra half year's tax in the one year, or 1½ years' tax in one year, to put it another way, this could well be the straw that is going to break the camel's back. This is happening at a time when they are being stretched to the limit of their capacity, not alone by the downturn in business but by the effect of inflation on their costings and on the stock they have to carry. Even to carry the same amount of stock as in the previous year they have to expend approximately 20 to 25 per cent more money. That is a considerable stretch on their resources for which they have to pay interest, which is a further burden on any profit they make. If the Minister is going to add to that burden at this time when business is so difficult for them, does he realise the implications? I am not talking about large businesses. They will feel the burden too in other ways, but I am talking about the small retailers mainly around the country, and the danger of this section putting them out of business.
The philosophy behind this section makes one wonder, as Deputy de Valera indicated, what is the general attitude of this Government to such persons, to people who run their own small businesses, to the self-employed? It would be very easy to come to the conclusion, not only from this section but from other general approaches of this Government, that there is a determined effort to wipe them out. I do not say that is so. I would find it very difficult to believe that the Minister had determined on a policy of that kind. I might not find that quite so difficult to believe of all of his colleagues, but I would doubt it very much of the Minister for Finance and indeed of some of the Deputies behind him. What I am afraid of is that this is happening without the Minister realising that that is exactly what he is doing, because he is so obsessed with this alleged equity, which he is not achieving, that he is ignoring the economic and social consequences of what is happening.
I urge very strongly on the Minister to think again about this section. I urge very strongly, that if administratively it can be done, he must bring about a situation in which the self-employed will pay their tax on their earnings as they get them. There is an extremely strong case for this. I have doubts as to whether it is administratively feasible, but if it is that would be a far preferable thing to what the Minister is doing here, certainly far preferable from the point of view of the taxpayers in general. What is being done in this section is an in-between arrangement not terribly satisfactory to the Revenue, although it is estimated to bring in another £10 million this year, but it is fraught with great risks and dangers for many of the taxpayers concerned. It is not, I submit, giving anything like equitable treatment to the self-employed as against the public service and the office holders who are being brought into the PAYE system. If the Minister is concerned with equity and equitable treatment, he has got to do a lot better than he has done so far in his arguments to show why there should be this enormous difference in treatment between the self-employed, on the one hand, and the public service and office holders on the other.
The Minister ought seriously to consider a completely different approach to the self-employed. He held up to us the idea of the self-employed paying as they earned and told us that this is done in other countries. He held it up as a step we might reach in the future and said that people would be looking for compensation if that happened. If that was being achieved under that section, there would not be any great cause for compensation. It could be argued very strongly that that was not but so much worthwhile could be achieved if that was being done that I urge the Minister, if he thinks it is feasible, to have another look at the situation and bring in that kind of proposition, not the one in this section. The section, even though it may confer a short-term benefit on the Exchequer this year, may well bring about serious consequences socially and economically. As a consequence of the economic damage, it might result in a greater loss to the Exchequer in the long run because of the risks of serious damage being done to people who at present are teetering on the edge of survival and viability. It is my view that the Minister believes what he says but he is wrong in that belief. I am not imputing bad faith to him but I am imputing bad judgment. I urge him to go back once more and think again about this section. He should see if he can find a more equitable and workable method of achieving what he is trying to achieve, something with which we do not disagree provided it can be achieved without inequity and without damage to the social fabric of the country.
Would the Minister tell the House the category he referred to as paying in advance? The Minister told us that something in the region of 7,000 paid in advance and about 100,000 in arrears.
I said that PAYE payers pay tax before they get the income into their hands. It is deducted at source; they never see it; they never have the use of the money.
It is deducted simultaneously. The Minister did not make an accurate statement.
They never get the money into their hands.
The money is not payable as tax until they do.
They do not have the use of the money.
I agree.
But Schedule D payers have.
That is twisting it.
(Dublin Central): The Minister told us that democratic institutions in other countries were brought down because of inequity as regards taxation but one thing which will contribute to the fall of democracy and our democratic institutions is the excessive taxation by the Government in the last three years. Most of the unemployment has been caused by the excessive taxation imposed by the Minister. We are all for harmonising taxes but we should bear in mind that businesses and industries are struggling for survival. They are all finding it difficult to survive and for that reason it was wrong of the Minister to bring in this section. We all realise that it is most important that industrialists are given the incentive to expand, but our economy remains stagnant and there is no expansion in business or industry. This section will also have a detrimental effect on expansion.
The effect of this will be that £10 million will be taken from this section of the community. That amount of money may not contribute a lot to the Exchequer but it could be usefully spent in expanding businesses and that is what should be considered. Businesses are fighting for survival and trying to keep a cash flow. We are all aware that many business people experienced a shortage of cash over the last few years. We are also aware of the interest that must be paid to banks on borrowed money. Businesses must face those problems in the coming months and also prepare for the payment of three instalments of tax in one year. The Revenue Commissioners can tell the Minister that there is no surplus tax held by business people today.
I am aware of the fact that this is money which is due to the Revenue Commissioners but the business people would invest it in their concerns, expand and employ more people. When business people realise that they will have to pay three instalments of tax in the next twelve months they will have to reconsider their operations. I would not object to harmonising the taxes if it was undertaken three or four years ago when there was buoyancy in every business. At that time money could be borrowed at a lower rate of interest, but every business that I am aware of is now experiencing a considerable reduction in profits, rising overheads and increased bank interest rates. In fact, the Minister should be encouraging people to expand; he should be giving them the incentive to borrow more money. The banks can tell us that in the private sector there is no scarcity of money but they cannot get suitable clients who are prepared to make the money work and repay it. There is a lack of confidence in our economy and that situation will continue. I am convinced that many of the Bills introduced into this House, whether dealing with matters of a capital nature or of a current budget, have had a detrimental effect on the economy.
The Minister should have waited for an upturn in the economy, until there was a growth rate of 3 or 4 per cent. That would be the right time to equalise taxes when business would be able to sustain it. The Minister is introducing this measure at a time when the economy is at its weakest and that is not sensible. He told us that this measure will yield £10 million but that will not be the case because there will be a further downturn in business. People will have to postpone development plans, business will slow down and the economy will be affected.
Deputy Colley has pointed out that with regard to the 1975-76 taxes the first instalment was payable on 1st January, 1976, and the second instalment will be payable on 1st July, 1976. For the 1976-77 taxes, the first instalment will be due in October, 1976, and the second instalment on 1st April, 1977. For the 1977-78 taxes the first instalment will be due on 1st July, 1977, and the second instalment on 1st January, 1978.
Of course, I accept that the money is due to the Revenue Commissioners but much of the sum involved is not merely cash in hands. There are large retail units in this city that have £1 million or £1½ million in stock and when the audit is taken stock in hand will be taken into consideration when compiling profits. It is no good saying that the entire stock will be disposed of in two or three months because we know that will not happen. There are many kinds of businesses where there is a turnover of stock only once every six or 12 months. Much of the stock may be on hand for 12 months but it will be included as part of the profits when the stock is taken. There is no comparison with this situation and that obtaining with regard to the PAYE taxpayer. As Deputy de Valera has mentioned, certain types of business deal in credit and amounts can be outstanding for a considerable time. That kind of situation must be considered. To try to equate the PAYE section with this situation is misleading.
Nobody disagrees with achieving equity between those two sections of the community. I accept that the PAYE taxpayer has a grievance. He is paying too much tax and the rates are too high. In this Bill we are consolidating an increase of 10 per cent which was never taken off. Excessive taxation will not create a climate where expansion of the economy can be obtained. What is necessary is incentive. Nobody will refuse to pay his fair share of taxation. All of us realise that social welfare must be paid for by the Exchequer.
If I had the responsibility of drawing up a Finance Bill I would be careful to ensure that I did not take too much finance from the private sector. In the first place, it is too costly because the money will have to be borrowed from the banks to pay the three instalments of tax in 12 months. I cannot understand the Minister's attitude in dealing with this section of the community. As Deputy de Valera has pointed out, these people have contributed substantially to the economy. They have been burdened with collecting PAYE, VAT, income tax, insurance stamps and pay-related benefits and the time involved for the proprietor or an employee of a company to deal with all these matters is quite substantial. I doubt if the small units will be able to survive. These concerns are being burdened with additional duties and many of them are folding up.
I am not saying that it is not desirable to bring Schedule D more into line with Schedule E. I think the gap should be closed slightly but I am criticising the Minister for doing it at this time. The cash flow in many businesses is limited and we are in a time of recession. It was unwise and undesirable to choose this time to extract a further £10 million from this sector. As Deputy Colley has pointed out, the Minister will lose more in the long run.
The Minister has specifically stated that he is trying to bring our tax laws into line with other European countries. In Britain the Chancellor of the Exchequer has introduced various reforms but we know that the British Government and the Chancellor have concluded agreements that will help their economy. As yet the Chancellor has not introduced a wealth tax although we were told when our Bill was going through this House that the British Government were going to introduce such a tax. We are still waiting to see Denis Healey introduce such a Bill in the British Parliament. All of our Bills dealing with financial matters have not contributed in any way to our economic expansion.
Progress reported; Committee to sit again.