I listened with considerable interest to the case the Minister made in reply to the case we made yesterday. I should like to take the Minister up on his declaration that the social and political upheaval in other countries was the result largely—if I am paraphrasing properly—of reform of a taxation system. I should like to point out that the social and political upheavals have been due mainly to the failures of governments and the complications of bureaucratic legislation; the failures of governments to be Executives, creating impossible positions for their public service, the indecision of governments and their inability to lead. All of these constitute a far greater element in that social and political upheaval. I am afraid the Minister is contributing to that element in this whole attitude of his Government towards not only taxation but the whole of economics because the taxation proposals now before us have a very vital bearing indeed on economics. If the Minister wishes to make declarations of that nature and hold out the bogey that democracy is breaking down in this country I would tell him he is not the only person who fears it but that he had better look to the real causes as to why this House is becoming a futility, as to why we are becoming what we are becoming.
Finance Bill, 1976: Committee Stage (Resumed).
I am sorry to interrupt the Deputy but I am anxious that he relate his remarks more closely to section 6.
Taxation of this sort has a large bearing on it. I accept what the Chair says but perhaps I could digress on a generality here. To take up the point specifically, Deputy Fitzpatrick and I pointed out yesterday that there was a very big element of this community apparently singled out as targets by this Government for discrimination, which is rather surprising having regard particularly to the constitution and history of the Minister's party.
In this section we are dealing with Schedule D taxpayers. When the Minister spoke of Schedule D taxpayers he gave the impression we were dealing mainly with people who had investment or luxury income. Let me read what are Schedule D taxpayers. Perhaps I may refer to section 52 of the Income Tax Act, 1967 under the heading Schedule D which reads:
1. Tax under this Schedule shall be charged in respect of—
(a) the annual profits or gains arising or accruing—
(ii) to any person residing in the State from any trade, profession or employment, whether carried on in the State or elsewhere; and
In other words, it covers the self-employed, professional people and the unincorporated trader. We all know that in our society a very important element which has contributed to the social and economic life of the community has been the private trader, carrying on a small business, whether retail trading, manufacturing or anything of that nature. We all know the contribution our professional people, be they doctors, lawyers, or any other profession coming within the scope of section 52, have made. These are all chargeable under Schedule D and are therefore involved in this and, as we have submitted, they are being unfairly treated in comparison with other taxpayers.
I do not want to labour the point but, all in all, the attitude of the Government and of the Minister in regard to this seems to be one of discriminating against that element in our society. Having said that, let us take the financial facts. Traditionally, as I said yesterday, the position was that the Revenue got their tax in arrear in the sense that they did not collect the tax until the taxpayer had collected the money on which the tax accrued or in respect of which tax was payable. That situation developed through historical evolution. There was an effort to correct this, the most significant and main effort being that made in 1960 with the introduction of PAYE. Nobody will dispute that. Nobody quarrels with the Minister for wanting to correct the situation. I defined the principle as being one in which we should aim as far as possible at having the tax paid when the taxpayer receives the taxable sum. That is a fair principle and that would mean neither side would have an unfair advantage. It is no harm to put on record the fact that this involves a traditional advantage the taxpayer had and this is a further tightening up on the taxpayer's tax burden. Be that as it may, we will admit the principle that the tax should be paid when the money comes into the hand of the taxpayer. That has been achieved in the case of PAYE because the tax is deducted when the payment is due. I accuse the Minister of twisting when he said that that tax was taken in advance and I leave it to fairminded people to judge the justice or otherwise of my statement.
What happens? I am due a pay cheque on the last day of the month or a wage packet every Friday. I do not pay any tax directly on that wage packet because the tax is deducted before I get the packet or the salary cheque. There is no element of advance in that. In fact there is an element of arrear because the employer, the agent of the Revenue Commissioners, does not transmit the money deducted to the Revenue Commissioners until possibly a month later. To say the tax is paid in advance is typical of the irresponsibility of the approach that can be taken in this House to such matters. It is an approach I deplore. It should not happen on either side. The Minister's statement that PAYE tax is taken in advance is, and I say this directly, a false statement because no tax is paid in advance as far as the taxpayer is concerned.
Let us see now where we are going. I have disposed of statements made by the Minister. I want to emphasise again that we are dealing with the self-employed, what I call the middle class and the professional people. These were described adequately yesterday by Deputy Colley, Deputy Fitzpatrick and by myself. What I say cannot be controverted. I pointed out that on investment income, though this may not be quite as strong a case, the people involved were deserving of some sympathetic approach on the basis of justice. Let me put the case as succinctly and in as clear-cut a form as I can for the record. The new rules the Minister is providing in section 6 and elsewhere will mean that the taxpayer carrying on a trade or profession will pay his tax in two instalments, half in July in the year of assessment and half on 1st January in the year of assessment. That raises a difficulty. First of all, it is probably impossible to complete accounts in that period.
The Minister says he is advancing the making of accounts up to 31st March and that is only three months. But anybody completing his accounts up to that date in each year will find that tax will be payable three months after the end of the accounting year and it will usually be impossible for him to complete his accounts. There is another essential point to be borne in mind here. The tax is assessed and levied not on the cash received, as in the case of PAYE, but on book-keeping results. The Minister is taxing book profits and if the books are not ready in time there will obviously be considerable difficulty. Furthermore, there is the difficulty and uncertainty and delay in collection. Not only is there the problem in making the accounts up to date but there is also the problem that you are not collecting your actual cash and there is there an element of payment in advance in certain cases.
Perhaps I had better explain that remark because the Minister might say that provisions in accounts would provide for this, but it is only bad debts written off that the Revenue Commissioners will allow. Provisions for debts that are not bad debts written off are not allowed in the tax computation.
This section is really unworkable. It is unfair, especially when any mistake in assessment can mean, as I pointed out yesterday, either an overassessment on the part of the tax-payer—then he is at a disadvantage as against other taxpayers no matter what credit is subsequently given to him—or, on the other hand, he is underassessed in which case he is liable to a penalty of 18 per cent under section 29. Those people are really asked to pay from three to two-and-a-half years tax over a period of two years. Is that fair? Will the Minister differentiate between the mechanics and the alleviation of the impost of burden? Will he reconsider the mechanics of this section in the light of the practicality and the unfairness of the submissions? Will he also give some bridging relief, some transitional relief, as he did in the case of the Schedule E people?
The taxpayer would be better able to discharge his liabilities for tax if the present date of the 1st of January were retained. That is the conclusion one must read from this. The second instalment might be accelerated so that after the end of the transitional period it would be payable in one instalment on the 1st of January each year. I would like the Minister to consider approaching the problem on that line.
I would like briefly to mention again the question of investment income which comes under Schedule D. I pointed out yesterday that that investment income may not be certain by the 1st of July. People in receipt of dividends for investment income generally may not know what they will receive. Even a person who has a bank deposit with fluctuating bank rates might not know what he will receive. I know it would not be a very significant sum but it certainly illustrates my point that with fluctuating interest rates the interest on a bank deposit, no matter how certain the deposit is to the end of the year, will not be certain.
In the case of dividends you might only have an interim dividend declared, which is not an uncommon feature. There is a great element of uncertainty in this. There is also the great element of impracticality and uncertainty when you approach this type of Schedule D taxpayer. The mechanics of all this needs to be looked at. I accept that people in old age or suffering from disability, who have had provision made for their old age or disability by an investment income, are by no means in a category that can be dismissed as the well-off. Even if you consider only the well-off, the mechanics of this are impractical.
It seems to have been completely forgotten that in most cases there is a levy of tax on this income. It is fair enough if it is a question of certain State income, that is income from certain gilts, but it is not. In the case of income from trading and dividends from a company there is normally a reduction of tax at something approximating to the standard rate. At least these taxpayers, so far as that kind of investment is concerned, are on the same basis as PAYE because the tax is deducted straight away. I know that under the new corporation tax there will be a change. A tax credit will be given instead, but that only means that the Minister has got all his tax from the company and the taxpayer is being put in arrears.
The cumulative effect of all the things the Minister is doing here will ultimately be the subject of an interesting investigation. The net practical result of the Minister's policy will be in the end to bankrupt the State. Goodness knows, with his borrowing and all the rest of it he is going near enough as it is directly to bankrupt the State without this indirect approach. In many cases where investment income is concerned tax is already deducted. Admittedly there may be a question of sur-tax but it is only the surplus, so that even in the case of Schedule D people, there is a very serious question.
There is an element of impossibility in the case of traders, professional people and the self-employed because accounts will not be ready in time. There is at least an element of confusion because the taxation year will be on book profits and not on money received. There is an essential difference there between direct payment through PAYE in any category. This is aggravated because tax very frequently can be collected as much in advance as in arrears. There is also the penalty and for investment income there is the impossibility of being certain on the 1st of July what the position is and already in many cases tax has been deducted. If the investments are State investments, gilt edge, then surely by taking this attitude towards investment income the Minister is offering a positive disincentive to investment in the State from the public. Let us see what should be done.
We agree that cutting out delays in the accrual of tax to the Revenue is probably required and we have common case on the matter of evasion. Since that is so I suggest that the Minister approach the problem, first, by a revision of the rules from the viewpoint of practicality and fairness, having regard to the impossibilities arising from the date and also to the essential difference between assessment on book profits or assessment on income derived from investment and a tax on cash pay situation. There is a difference here which requires different mechanics and the Minister should consider this.
Also, some transitional adjustment is required because for the trader or professional man a cash problem can be precipitated in the transitional period and, as Deputy Fitzpatrick pointed out, if that problem reaches certain proportions the Minister will not get his tax because he will liquidate the source of tax. These considerations must be borne in mind. Therefore, I would ask in addition to some revision of mechanics that transitional relief be given on somewhat similar lines as was given to Schedule E taxpayers. Why should we not give Schedule D taxpayers the same consideration as was given to Schedule E taxpayers recently and to those who went on PAYE originally? In all these cases there was a sudden jump from paying tax in arrear to paying tax on the nail. I fail to see why there should be discrimination against the self-employed, the private trader, the professional man, the middle-class element and the recipient of investment income, the class comprised in Schedule D under the 1967 Act, when transitional relief is afforded to the rest of the community.
In 1960 in the transfer to Schedule E there was an adjustment of this nature; with the introduction of sur-tax payments in 1963-64 and with the recent transfer of other Schedule E taxpayers to PAYE the concession of a half-year's income being excluded from charge was allowed and I do not see why we cannot do something similar in this case. I want to put to the Minister therefore a recommendation that has already been made to him by other bodies that have considered the matter objectively—it does not come from people who have a personal axe to grind—and the recommendation is that transitional relief should provide that a half-year's tax should not be charged provided the taxpayer continues his trade or profession for a period of five years or some such period, and in the case of a taxpayer receiving investment income the date should be 1st October in the year of assessment, so that such taxpayers are treated equitably with taxpayers coming under the rules of PAYE.
I find it hard to see why the Minister will not accept these recommendations which are consistent with the arrangements for the changeover of Schedule E taxpayers to PAYE in 1960, with the introduction of updated sur-tax payments in 1963-64 and with the recent transfer of other Schedule E taxpayers to the PAYE system, all of whom were allowed the concession of a half year's income being excluded from charge. We are asking that the Minister will do the same in this case and, if he does, he will not meet much resistance from this side of the House in regard to the principle of trying to adjust matters. We also would like to see the principle operating of tax being due when the money is received by the taxpayer and tax paid when the taxpayer sees the money. That is a simple principle but it is not so easy to operate.
It does not happen in the case of PAYE because it is a question of cash. As far as the taxpayer is concerned, the tax is paid in cash. The mechanics of collection are part of the Revenue's organisation after that. In the case of companies, because profits and taxable profits which are the equivalent of income are only ascertained over a period through elaborate book-keeping, another system has to be used and that has been provided for in the Corporation Tax Act. In between you have the self-employed, the professional man and the individual trader. He has the disadvantage that he cannot pay cash nor can the Revenue collect from him on the basis of cash as he receives it because, being a business, it has the complications of business and it must be on the result of book-keeping. You cannot do that instantaneously like collecting your pay packet. This is essentially the gist of it.
Then of course when you are bringing a group forward and imposing a cash problem, as you are doing here, why is a cushion not provided as is done in the case of Schedule E? I am only asking for the same thing, nothing more or nothing less. I am at a loss to know why the Minister cannot do this. I know there is a good deal of scraping the barrel going on. It would be very interesting to know— only the Revenue Commissioners can know and I am sure they will keep the Minister advised—what the efficiency of this process is. How much in the long term is it going to mean to the Revenue? How much cost is going to be involved in implementing impossible provisions like this? There are a large number of questions which the public are asking. The Minister may feel that Schedule D taxpayers are fair game, but justice has a peculiar way of working through a community.
I will finish where I began by adverting to the Minister's remarks about social and political upheaval, where it originates and why. I accept completely the Ceann Comhairle's reasoning that to expand on it would be out of order in this debate. But, finishing on the Minister's remarks, I will simply content myself with this. I have outlined the objections to the section on the grounds of mechanical difficulty, fairness, and equity. I have made suggestions based on the grounds of equity and precedent for a transitional period. As we have not got the power to force it through this House I must leave it at that. I would like to say, although I have, as is the custom, directed my critical remarks at the Minister and the Government, that every Deputy who votes on these matters must carry the responsibility for the consequences of what he is doing. Every Deputy who goes behind the Minister into the lobby must share responsibility with the Minister and the Government for what is done. We have not got the power to do more than protest. On this section, on the grounds of equity and public policy, I protest most strongly.
Democracy is in danger when Opposition Members deliberately foment discontent and envy, and that is what Deputy de Valera and his colleagues have been at today and what they were doing yesterday.
On the contrary, we are looking for fairness.
I gave the Deputy a silent hearing.
I am sorry.
They are putting forward a case to give relief to people who are not being asked to pay a higher amount of taxation because people who are being obliged to pay a higher amount of taxation are going to get some relief. The Deputy is asking for a massive concession to be given to people who will pay the same bill but who will not get the same lengthy period of credit. He wants a six-month remission for people who, instead of enjoying 18 months credit as they did in the past, will in future enjoy only 15 months credit.
There are 700,000 people in this country who pay their income tax on their current earnings at the time at which they receive their earnings. There are 100,000 people who enjoy 18 months credit and who, during that 18 months, can use the profits that they earn to generate further profits for them because the money does not reach the Exchequer until 18 months after it is earned. In fact, in a large number of cases it does not reach the Exchequer until after two years or more. There are few countries, if any, where such extended credit is given to income tax payers.
I reject totally the unfair and inaccurate allegation that this Government are hostile to the group that the Deputy has classified as the middle classes, or that we are hostile to the self-employed, the professional person, or the trader. What about the concessions that have been enjoyed by those people, that have been given by this Government and that were not given by our predecessors? I want to list them, Sir. I would suggest that fair-minded people will see that this Government have gone out of their way to assist the independent and self-employed people who are making a worthwhile contribution to our community. We have given in each of three succeeding years, in a time of very serious budgetary difficulties, very substantial increases in income tax allowances, increases of about 55 per cent in income tax allowances which are costing the Exchequer £18 million. That would go a long way towards the reduction of the deficit. That would go a long way towards reducing the borrowing if we had not given that concession, but we gave it.
Among those who benefited are the classes Deputy de Valera says we have no sympathy for. We showed a great deal more sympathy for them in the last three years than the Fianna Fáil Government did for 11 years, during which they gave no improvement in personal allowances for income tax. We have given life assurance relief to the same people. This is a very significant benefit for people who pay the higher rates of tax. We have increased the limits for payments by the self-employed to secure retirement benefits, a long overdue relief. But we gave it so that the self-employed may now allocate as much as £1,500, or 15 per cent, of their earnings towards their retirement pension.
That is a very significant relief to the people in the Schedule D class. We have given free depreciation on plant and machinery for a further two years. We have given stock relief. These are all very significant and material benefits for the people about whom Deputy de Valera has the audacity to allege we have shown certain hostility. These material benefits show our real concern to assist them.
That is not all. The principal beneficiaries of the abolition of death duties happen to be people in the same category. I consider it appropriate to point out that many of these people are no longer burdened with the difficulties of having to assess, charge and remit value-added tax from food, clothing and footwear, items in which the majority of traders are involved. These are real reliefs, real benefits. Of course, eaten bread is quickly forgotten and Oppositions are not prone to remember this. Eaten bread has helped people. The bread is still there and is still being eaten. The material benefits are still there and are much more significant than the restriction of the credit period from 18 to 15 months as proposed in this Bill.
The essential difference between Schedule E and Schedule D taxpayers is this. The Schedule E taxpayer's liability is being increased because he is being transferred to a current year basis. The self-employed will still be on a preceding year basis. I am satisfied that the public sector employees, over 225,000 of them, would very happily elect to get the treatment that will still be enjoyed by the Schedule D taxpayers, and to enjoy that without getting a six months remission. They would be much better off if they were to have that right conferred on them. If it was proper—and we believe it was—to bring as many people as possible within the PAYE system to achieve some equity in tax treatment, it is also proper that the period of credit extended to others who pay their tax in arrear should be abridged somewhat. We have done this in a mild way. We are not proposing to do as so many other countries do, to require Schedule D taxpayers to pay instalments of tax on current income pending final assessment. As I said yesterday, if that is ever proposed here, then that would be the appropriate time to give what the Opposition are now looking for: a remission of tax to compensate for the change. That is not proposed and therefore it is not relevant to the treatment of Schedule D taxpayers to demand that they get six months remission of tax when their overall tax burden is not being increased.
That is not true.
Schedule E taxpayers, employees in the public service, are having their tax burden very substantially increased——
They have to pay more tax.
——because they will be paying on the current year. People who are having their credit terms abridged are not paying more tax. They may be required to pay it in an accelerated manner, but they are not paying more tax. Therefore, the case for the extension of remission to them does not stand.
I conclude as I began with an appeal to the Opposition to stop what they have been doing for the past three years, that is, trying to stimulate envy and discontent on the part of any group who are having applied to them the same tax regime as applies to the majority of the population. If we want to be a just society we cannot have a small group given exceptional treatment in circumstances that do not justify that exceptional treatment and which do not confer any benefit on the community. It is proper that all should be treated alike. When benefits are extended and reliefs are given they should be given across the board unless there are special reasons why they should apply to a particular group or class of taxpayers. Likewise the burden must be fairly carried. That has always been our policy and we believe it is the only justifiable policy. We will never in Government be party to a policy of unfair treatment of taxpayers in any group.
I am sure most people would find it almost incredible to hear the Minister for Finance accuse the Opposition of fomenting discontent and envy for the past three years, of all people to say that, the Minister for Finance, who has based the whole justification for what he has been doing over the past three years on envy and allegations of unfair treatment for one section over another. The whole basis of justification for what he has been saying over the years has been the politics of envy. He and his colleagues have battened on that and the country is faced with the results of that kind of politics. To listen to the Minister one would think he believed in the proposition that people should be treated equally under the tax code.
Only a few months ago he introduced in this House the Corporation Tax Bill. How did he provide for the payment of income tax by companies who are trading under that Bill? He provided that as a general rule 50 per cent of the tax is to be paid nine months after the end of the accounting period. For existing companies their present two dates for payment have been preserved. Some companies will do better than the general rule and some will be worse off. A company preparing accounts to 31st March would be the worst off because their full tax liability is payable nine months after the end of the accounting period. An individual who is trading, as distinct from a company, and preparing his accounts to the 31st March, would have to pay 50 per cent of his tax on 1st July following the end of the accounting period and 50 per cent on the following 1st January.
Would the Minister care to explain how he reconciles that kind of approach to a company which is trading with that to an individual who is trading, and how he reconciles that with the loud talk about equity of treatment under the taxation system? What is the big distinction between a company, on the one hand, and an individual, on the other hand, each of whom is trading, that they should get this quite different treatment under the tax code? Why should the individual who comes within the general description of the middle class that have been referred to earlier in the debate on this section be singled out for this unfavourable treatment?
The Minister has denied that that class is being discriminated against by himself and his colleagues, but it is very difficult to convince people in that category that they are not being discriminated against when they see the different treatment being accorded to them from that being accorded to their competitors who are organised companies, when they see that the public service and office holders who are being brought into the PAYE system and who heretofore have been paying on a previous-year basis, are getting a half year's remission of tax, when they see that the self-employed and the sole trader are being asked to pay an extra half year's tax.
The Minister can juggle around with words any way he likes as to whether there is an increase in the tax burden, but the people affected by this section will have to pay an extra half year's tax in a period, depending on how you look at it, of one year or in a period of two years from 1st January, 1976, to 1st January, 1978. However you put it, you come up with an extra half year's tax. For the Minister to say that it is not increasing your tax burden is simply playing with words. What is really happening is that their payment of tax is being accelerated. Now they are going to pay on this year's salary; under the previous system they would not have paid until next year.
The really important question for all taxpayers is, how are they going to pay the money and out of what are they going to pay the money? The people affected by this section will be asked to pay an extra half year's tax out of, in many cases, what will be available to them in the form of a smaller income because of the downturn and recession in trade. That is what will drive a number of these people out of business, those who are on the verge of bankruptcy at the moment. The Minister has talked as if all the people affected by this are on the top rate of tax. Of course, they are not. Many of them have incomes which certainly do not put them into that category. It does not help for the Minister to engage in sophistry, to pretend that they are not being adversely affected by this section. They are being adversely affected at the worst possible time for them.
There is also the question of the impracticality of this, to which Deputy de Valera referred and to which the Minister did not advert at all, the difficulty in many cases of producing accounts in the three-month period to which people are being limited under this Bill. The Minister talked about the benefits conferred in the form of income tax allowances to taxpayers under this Government. The fact of the matter is that because of the enormous inflation under this Government, there would have been a revolution in the country if there had not been increased allowances. But it is also a fact that in real terms taxpayers were better off under the provisions of the 1972 Finance Act, the last one introduced by the Fianna Fáil Government, than they have been at any stage under this Government. I defy the Minister to contest that. He need not be claiming any great credit for increasing the allowances when he was forced to do so in order to meet the enormous inflation which has taken over and, of course, he did not go anywhere near meeting that inflation; he merely gave a sop to the taxpayers. However, that is largely an irrelevant matter on this section. The reality of this section is that the taxpayers affected will be required to pay an extra half year's tax, that the Minister proposes to ignore that fact and to make no provision which would give them any relief and enable them to meet that increased liability, as distinct from his approach when he is doing the same thing effectively in the case of the public service and the office holders affected by a later section.
I regret very much that the Minister does not appear to have grasped the implications of what he is doing in this section. As I said yesterday, the economic and social consequences could be extremely serious. We have done our best on this side of the House to point out to the Minister what those consequences could well be. Some suggestions have been made as to how the problem might be approached, but there has been no recognition by the Minister of the fact that there is a problem or, if there is, that some effort should be made to tackle that problem and give some form of relief in the transitional period. The Minister has failed either to respond to the suggestions from this side of the House or to come up with any other suggestions of his own, presumably on the basis that he does not acknowledge that there is a problem at all.
If that is so, I do not think there is anything more we can do on this side of the House to bring it home to him that there is a problem. However, if he does not recognise it now he will recognise it before he is very much older. When this comes to operate and the taxpayers concerned find themselves in dire economic difficulties as a result, then the Minister will recognise that there was a problem under section 6 and that we told him that he should do something about it, as we have had to do on many other occasions but he did not recognise the truth and the reality of what we were telling him. So be it, but let it be clear that the responsibility for what is being done under this section lies on the Deputies on the other side of the House and not on this side.
Tá
- Barry, Peter.
- Barry, Richard.
- Begley, Michael.
- Belton, Luke.
- Belton, Paddy.
- Bermingham, Joseph.
- Bruton, John.
- Burke, Dick.
- Burke, Joan T.
- Burke, Liam.
- Byrne, Hugh.
- Clinton, Mark A.
- Cluskey, Frank.
- Collins, Edward.
- Conlan, John F.
- Coogan, Fintan.
- Cooney, Patrick M.
- Corish, Brendan.
- Cosgrave, Liam.
- Coughlan, Stephen.
- Crotty, Kieran.
- Cruise-O'Brien, Conor.
- Desmond, Barry.
- Desmond, Eileen.
- Dockrell, Maurice.
- Donegan, Patrick S.
- Donnellan, John.
- Dunne, Thomas.
- Ryan, John J.
- Ryan, Richie.
- Spring, Dan.
- Taylor, Frank.
- Finn, Martin.
- FitzGerald, Garret.
- Fitzpatrick, Tom (Cavan).
- Flanagan, Oliver J.
- Gilhawley, Eugene.
- Governey, Desmond.
- Griffin, Brendan.
- Harte, Patrick D.
- Hegarty, Patrick.
- Hogan O'Higgins, Brigid.
- Jones, Denis F.
- Keating, Justin.
- Kelly, John.
- Kenny, Enda.
- Kyne, Thomas A.
- L'Estrange, Gerald.
- Lynch, Gerard.
- McLaughlin, Joseph.
- McMahon, Larry.
- Malone, Patrick.
- Murphy, Michael P.
- O'Brien, Fergus.
- O'Connell, John.
- O'Donnell, Tom.
- O'Leary, Michael.
- O'Sullivan, John L.
- Pattison, Seamus.
- Reynolds, Patrick J.
- Timmins, Godfrey.
- Tully, James.
- White, James.
Níl
- Allen, Lorcan.
- Barrett, Sylvester.
- Brady, Philip A.
- Brennan, Joseph.
- Breslin, Cormac.
- Briscoe, Ben.
- Brosnan, Seán.
- Browne, Seán
- Brugha, Ruairí
- Burke, Raphael P.
- Callanan, John.
- Colley, George.
- Collins, Gerard.
- Connolly, Gerard.
- Crinion, Brendan.
- Cronin, Jerry.
- Crowley, Flor.
- Daly, Brendan.
- Davern, Noel.
- de Valera, Vivion.
- Dowling, Joe.
- Fahey, Jackie.
- Farrell, Joseph.
- Faulkner, Pádraig.
- Fitzgerald, Gene.
- Fitzpatrick, Tom (Dublin Central).
- Flanagan, Seán.
- French, Seán.
- Gallagher, Denis.
- Geoghegan-Quinn, Máire.
- Gibbons, Hugh.
- Haughey, Charles.
- Healy, Augustine A.
- Hussey, Thomas.
- Kenneally, William.
- Kitt, Michael P.
- Lalor, Patrick J.
- Loughnane, William.
- Lynch Celia.
- Lynch, Jack.
- McEllistrim, Thomas.
- MacSharry, Ray.
- Meaney, Tom.
- Moore, Seán.
- Murphy, Ciarán.
- Noonan, Michael.
- O'Connor, Timothy.
- O'Leary, John.
- O'Malley, Desmond.
- Power, Patrick.
- Smith, Patrick.
- Timmons, Eugene.
- Tunney, Jim.
- Walsh, Seán.
- Wilson, John P.
- Wyse, Pearse.
This section corrects a drafting flaw in section 497 of the Income Tax Act, 1967, which deals with the repayments of tax. The section was amended in 1974 following the introduction of the unified system of personal income tax. Section 497, as it stood prior to the Finance (No. 2) Act, 1975, provided that tax repayments in respect of personal allowances or reliefs were to be made, save as otherwise provided, at the standard rate of tax or at the higher rates, as the case might be. The references to these rates were adopted in the Finance (No. 2) Act, 1975, to take account of the 10 per cent surcharge. As the section now stands, it is thought that it might be open to a taxpayer in certain circumstances to claim repayment of an amount greater than the amount of tax paid by him. Although this has not occurred, the present section, by adding an appropriate proviso, clarifies the position as respects any claim for repayment of tax made on or after 30th March, 1976, which is the date on which the Finance Bill was released for publication.
The explanatory memorandum, and the Minister just now, uses the following sentence:
...it is thought that in certain circumstances a taxpayer might claim repayment of an amount greater than the amount of tax paid by him.
But the proviso being added in by this section states:
...the amount of tax to be repaid under this section to any person for any year shall not exceed a sum equal to the difference between the amount of tax paid by him...and the amount of tax which would be payable by him for that year if his total income had been charged to tax in accordance with the provisions of this Act.
I am slightly confused as to whether the two things mean the same thing or not. Would the Minister clarify the position? It seems that the amount of tax paid by him is not the same as the difference between the amount of tax paid by him and another sum.
If I understand the Deputy correctly his query relates to the wording of the section which states that repayments shall not exceed a sum equal to the difference between the amount of tax paid by him in respect of his income for that year and the amount of tax which would be payable by him for that year if his total income had been charged to tax in accordance with the provisions of this Act. The Deputy's question relates to the difference.
The explanatory memorandum, and the Minister's explanation of the section, suggested that the object was to ensure that a taxpayer could not claim a refund of an amount greater than the amount of tax paid by him.
Yes.
The section seems to refer not to the amount of tax paid by him but to the difference between the amount of tax paid by him and another sum. They do not seem to be the same thing.
It is. The amount of tax could be a combination of that to which he had been directly assessed and deductions made from payments which were due to him. They might not be at the rate which would be appropriate to the taxpayer in question when his total income had been assessed.
There is an essential difference between the two documents and one would want to analyse the basis of the section to dispose of the point. A taxpayer might claim repayment of an amount greater than the amount of tax paid by him according to the explanatory memorandum but according to this document if he had only paid a certain amount of tax he could not get a bigger refund than the amount paid by him. In the Bill it is stated:
the amount of tax to be repaid... shall not exceed a sum equal to the difference between the amount of tax paid by him,...and the amount of tax which would be payable by him for that year if his total income had been charged to tax in accordance with the provisions of this Act.
It is obvious that there would be no repayment unless the difference is in favour of the taxpayer. The Minister is confining the repayment to the difference between the two as set out in the Bill and if that is the intention it is fair enough. Section 7 states:
Provided also that, in relation to repayments of tax made on or after the 30th day of March, 1976,...
I would ask the Minister to ensure that if there is a cumulative refund or credit it will not be confined to a difference that was not intended. I do not want to go into details across the floor of the House. What is intended here is that if a taxpayer has paid more tax than he should have and is entitled to a repayment or credit of that tax he is only entitled to what he has overpaid and nothing else. That seems reasonable enough and there is no point in labouring the matter. However, I am somewhat nervous about the way dates operate under this legislation. Will the Minister ensure that it will apply over a period as well as in any particular year? I am at a loss to know why the Minister has put in a date and perhaps he would tell the House why a date is specified in this section. If it is merely to ensure that only the net overpayment is paid back or credited the situation seems relatively simple.
The difficulty arises that as we are identifying a flaw here if we did not put in a date people could make claims based on that flaw which was never intended. What has happened here is that the Revenue Commissioners were cleverer than other people and they got in first to correct the flaw. If we were to allow people to use that flaw in respect of claims in the last ten years it could be very costly.
I can give an explanation which may help to illustrate what we intend doing. Let us take the case of a single man whose total income for 1974-75 consisted of a taxed dividend of £6,000 from which tax, at the standard rate of 35p, has been deducted. His tax position for 1974-75 would be as follows: income, £6,000; tax deducted at source, £2,100; single allowance, £500 and the taxable income would be £5,500. That amount would be taxed in the following manner: the first £1,550 at 26p; the next £2,800 at 35p and the next £1,550 at 50p, giving a total liability of £1,958. The credit tax deducted at source would be £2,100 and the repayment due would be £142. However, the taxpayer might claim that under section 497 the repayment should be computed as follows: repay £500—personal allowance—at 50p which would be £250; repay £1,550 at 9p, the difference between 35p and 26p, which would be £139.50, giving a repayment of £389.50 instead of the £142 which would be the sum due. The gain to the taxpayer would be £247.50 and it is to prevent such a situation that we are making the amendment.
This section amends a drafting flaw in section 525 of the Income Tax Act, 1967. That section, which was an anti-avoidance provision, originally provided for the grossing-up for sur-tax purposes of sums received in respect of restrictive covenants. The section was amended in 1974 when the unified system of personal taxation was introduced with the consequential abolition of surtax.
The 1974 amendment provided that any sum received by a person in respect of a restrictive covenant was to be treated "as received by him after deduction of tax". The amendment clarifies the matter by substituting the phrase "as if it were a sum received by him after deduction of tax at the standard rate". Again, it might help the House if I gave an example.
A managing director of a company on resigning is given a payment of £6,150 by the company in consideration for an undertaking by him under a restrictive covenant that he will not set up a business in competition with that company. He has a pension of £3,000 from the company, he is married and has one child. Under section 525 of the Income Tax Act, 1967, he is deemed to have suffered income tax at 38.5 per cent on the gross amount of £10,000 but this amount is not regarded as part of his taxed income for the purposes of any relief. His tax liability for 1976-77 will be computed as follows; pension £3,000, "grossed-up" payment under restrictive covenant, that is £6,150 grossed up at 38.5 per cent, £10,000, total income £13,000, personal allowance £1,250, taxable income £11,750. The income would be charged as follows: the first £1,550 at 26 per cent, the next £2,800 at 38.5 per cent, the next £2,000 at 49.5 per cent, the next £2,000 at 60.5 per cent, the next £2,000 at 71.5 per cent and the balance £1,400 at 77 per cent. That is tax of £6,189. Credit for tax deemed to be deducted for gross payment under the covenant would be £3,850 and the total tax payable the difference between £3,850 and £6,189, or £2,339.
Were the words being deleted under this section inserted by the 1974 Act?
Yes.
This section provides for the continuance for 1976-77 of a surcharge of 10 per cent imposed on the standard and higher rates of income tax for 1975-76 in the case of individuals.
It is a little ominous that this section is in again, recalling the fact that income tax as a whole when introduced in the last century was introduced as a temporary measure and was renewed as a temporary measure every year since until in 1972 or thereabouts when it was made a permanent feature of our tax code. I trust that this surcharge will not have the same kind of history and that it will be possible to get rid of it, hopefully as soon as there is a change of Government, if not before.
I share the Deputy's desire to see this 10 per cent surcharge removed as early as possible. I recall it was introduced in order to finance the cost of food and transport systems. I am glad to hear Deputy Colley express his regret that income tax brought in as a temporary measure was made permanent. It was he who introduced the legislation to make the income tax permanent.
The Minister's remark on that calls for our contribution on the section.
Apart from misrepresenting what I said.
The 10 per cent surcharge on the income tax standard rate is being renewed, we will not debate for what purposes. We have a continuance here of complication, of legal complexity in our income tax code. We have a statutory provision extended by amendment. The Minister referred to the Income Tax Act, presumably of 1967, and subsequent codes. These codes were to be revised and brought into some kind of order. Since this Minister took office the Finance Bills have become more complex. This is a superb example of it; it is all amended by legislation. That means that the only people who can possibly know what it is all about are the experts and those who had a hand in framing the legislation. This is a thoroughly unsatisfactory way of presenting legislation. In a Finance Bill of this nature, with a substantive provision of this nature I believe that the enactment should be re-enacted. It will cost a little more in paper, printing and time but it will be cleaner. Reading section 9 one would merely think that two dates were substituted one for the other. That might be all right if you were dealing with administrative procedures, a schedule or something like that, or a section that lays down a whole lengthy procedure. When it comes to a substantive provision, as we have here where we are in effect determining the standard rate per year, it is not good enough that it should be buried away and covered up by a section such as this. The marginal note reads:
Amendment of section 1 of Finance (No. 2) Act, 1975. 1975, No. 19.
Then the section reads:
9. —Subsection (1), (2) and (3) of section 1 of the Finance (No. 2) Act, 1975 are hereby amended by the substitution of "1976-77" for "1975-76" in each place where it occurs.
That is the whole of the section. If I hand this section to any person other than an accountant or lawyer how would he guess that that section was fixing the standard rate of income tax?
It is a painless way of doing it.
It is not fair to communication, whether it is a manager who has to tell his board or a trade union official who has to inform his members or a journalist who has to inform the public. Who, looking at that, without having to do research, could tumble to the fact that this Finance Bill was fixing the standard rate of income tax? I know the Minister will say it is only a continuation of what is happening.