There is one matter to which I adverted on the last occasion in regard to which I should like a little more information. The Minister described to us an operation which he was trying to prevent by this amendment, an operation through which goods as described in the amendment, or rather the ownership of the goods, was transferred to an agent, say in Britain, and the ownership having been so transferred, the goods were then sold into intervention. Does this amendment deal with that situation, and in which way? On the face of it, it would not appear to have any adverse effect on plans of that kind.
Finance Bill, 1976: Committee Stage (Resumed).
Debate resumed on amendment No. 19:
In page 25, before section 27, to insert the following section:
27.—Section 54 of the Corporation Tax Act, 1976, is hereby amended by the addition of the following subsection:
`(4) (a) "Goods" in this section shall not include goods sold to the agency whether or not the goods are exported out of the State.
(b) "The agency" in paragraph (a) means the Minister for Agriculture and Fisheries when exercising or performing any power or function conferred on him by Regulation 3 of the European Communities (Common Agricultural Policy) (Market Intervention) Regulations, 1973, and any other person when exercising or performing any corresponding power or function in any member state of the European Economic Community.'
—(Minister for Finance).
The amendment relates to export tax relief and to what exporters from Ireland are doing. If goods are genuinely exported to a foreign market export tax relief is available. If something happens after that, as a result of which goods from here go to intervention somewhere else, we have no control over that, but we are ensuring that if goods go into intervention here they will not enjoy export tax relief. The relief from tax is given as an encouragement to people to obtain foreign markets and to find foreign markets and it is inappropriate that the concession should be given to people who are putting them into intervention which is not in a true sense a foreign market. That is the illustration I gave the other day. Where goods exported from here to a third party end up elsewhere is something over which we have no control.
Have I misunderstood the Minister? I understand from what he is now saying, and I agree, that this amendment would appear to have the effect that if goods were sold from this country into intervention, the intervention depot being outside the State, the effect of the amendment would be that export tax relief would not apply to such transactions. That is clear enough. Am I right in thinking that the Minister is now saying that if there were an agent in Britain to whom ownership of the goods were transferred, and that that happened before the goods went into intervention, this would not affect that situation? I understood the Minister last week to say that was the kind of transaction he was trying to prevent.
If I said that or gave that impression, I am sorry. I did not intend to. What we are doing is putting on an equal basis all transactions within our control which end up with the goods in question being put into intervention. We obviously have no control over what happens in other jurisdictions, although the EEC may well have views about that situation, to regulate it.
Amendment agreed to.
I move amendment No. 20:
In page 25, lines 17 to 20, to delete subsection (2) and to substitute the following subsections:
"(2) This section applies to interest on housing loans received on or after the 1st day of July, 1975, by an approved bank, or a subsidiary thereof, being interest which has been charged at the approved rate.
(3) Section 52 of the Finance Act, 1920, shall not apply to interest to which this section applies.
(4) Section 79 (3) of the Corporation Tax Act, 1976, is hereby amended by the insertion, after paragraph (c), of the following paragraph:
`(cc) interest to which section 27 of the Finance Act, 1976, applies, and, for this purpose, that interest shall, without any deduction therefrom, be regarded as part of the income of the company for the relevant accounting period.' ".
Subsection (2) of the original draft section was prepared and printed prior to the passing of the Corporation Tax Act, 1976. Accordingly, it contained a reference only to section 52 of the Finance Act, 1920. The effect of the section, as drafted, was to exempt the interest on the banks' housing loans from corporation profits tax, leaving the interest liable to income tax only.
Consequential on the passing of the Corporation Tax Act, 1976, companies become liable to corporation tax and not to income tax. Accordingly, it is necessary to rewrite subsection (2) of the present section in terms of corporation tax so as to invoke the provisions of section 79 of the Corporation Tax Act. This is being done by replacing subsection (2) by three new subsections which ensure that, as well as applying the exemption from corporation profits tax, the reduced rate of corporation tax—35 per cent which is the equivalent of the existing standard rate of income tax which applied to companies up to the present—provided for in section 79 of the Corporation Tax Act, 1976, will apply. The exemption from corporation profits tax is available should the need for such exemption arise, which could happen if any company which commenced trading on a date after April 5th, 1973, undertook to operate the agreed scheme of housing loans.
Amendment agreed to.
Question proposed: "That section 27, as amended, stand part of the Bill."
Might I ask whether it is the intention that a bank or an approved subsidiary thereof, which advances loans for housing purposes on terms approved by the Minister, will be exempt from tax on the interest received on such a loan?
It is not a total exemption. It is an exemption of part only of the tax. It will be charged at a rate of 35 per cent, which means they are able to make available loans comparable to those of other agencies.
I think the Minister says he does not look at television.
Oh, I look at television all right.
And is not familiar with what I am about to say. There was a television programme some time ago in the course of which reference was made to the interest being received by banks on housing loans. I forget the exact details but I know that I was very surprised when I heard the reference because it would appear that it was assumed that the banks were not going to pay any tax on the interest being charged. I take it now that the position is that, in respect of any of these loans given by banks from the commencement of the arrangement made by the Government with the banks for the giving of housing loans—from the commencement of that scheme—banks will pay tax at the rate of 35 per cent?
That is right, yes.
On the interest arising?
Yes.
The Minister says that the effect of this will be to make the rate of interest which the banks can charge comparable with that of other lending agencies?
Yes, in the housing sector.
And that is the whole object of this section?
Yes.
Question put and agreed to.
SECTION 28.
Amendment No. 21 in the name of the Minister.
With the permission of the Ceann Comhairle, I should like to take amendments Nos. 21 and 22, which are related, together.
Amendments Nos. 21 and 22, by agreement, may be discussed together.
I move amendment No. 21:
In page 25, line 22, after "1975", to insert "or section 41 of the Capital Acquisitions Tax Act, 1976,".
The first amendment follows on the passing of the Capital Acquisitions Tax Act, 1976 and extends to interest chargeable under section 41 of that Act the prohibition against the deduction of the interest in the computation of profits or income.
The second amendment is a drafting one consequential on the passing of the Corporation Tax Act, 1976. It deletes the word "income" in the expression "the Income Tax Acts" and, by so doing, converts the expression into "the Tax Acts" which is defined in section 155, subsection (2) of the Corporation Tax Acts as meaning the Income Tax Acts, as defined in section 3 of the Income Tax Act, 1967, and the Corporation Tax Act of 1976.
Just one small point on amendment No. 22. I know that we dealt with similar amendments earlier but I should like to be clear on the position arising. The expression "Tax Acts" is defined in the Corporation Tax Act. But is that definition carried into this Bill merely by referring to the Tax Acts or should it be necessary to refer to the Tax Acts as defined in the Corporation Tax Act?
The Corporation Tax Act, 1976, section 155, subsection (2) reads:
In this Act and in any Act passed after this Act, "the Tax Acts", except in so far as the context otherwise requires, means the Income Tax Acts (as defined in section 3 of the Income Tax Act, 1967) and the Corporation Tax Acts.
I think that clarifies the point made.
Incidentally, I mistakenly put the year 1976 in after my previous reference to this matter. In my opening statement on this section I said the Corporation Tax Act, 1976. As you see, the section refers to the Corporation Tax Acts and I should not have had the date in. While there is now only one Corporation Tax Act, the definition in the Corporation Tax Act, 1976 is "Corporation Tax Acts" which is, therefore, making provision for the day when there could be another Corporation Tax Act.
That explains a point I shall raise later on. We shall go into it in greater detail when we come to it. It does not explain it; it opens it up. However, I do not think it is appropriate on this amendment.
Amendment agreed to.
Amendment No. 22 not moved.
Section 28, as amended, agreed to.
SECTION 29.
I move amendment No. 23:
In page 25, to delete lines 30 to 39 and to substitute:
" `the specified amount of tax' means, in a case where notice of appeal against an assessment to tax has been given—
(a) the amount of tax specified in the notice in accordance with the provisions of subsection (2), or
(b) where no amount of tax is so specified, or where the amount of tax specified exceeds the tax assessed, the tax assessed;
`tax' means income tax, sur-tax, corporation profits tax, corporation tax or capital gains tax, as may be appropriate;
`the tax assessed' means the amount of tax charged by the assessment or, in a case where the tax is payable in two instalments, the amount of each instalment.".
This amendment alters subsection (1) which relates solely to definitions. Apart from a re-arranging of the sequence of the definitions, the amendment provides two changes from the subsection as introduced. They are, firstly, a re-wording of the definition of "the specified amount of tax" and, secondly, the introduction of a definition of "the tax assessed" which is now used in the revised definition of "the specified amount of tax".
The effect of these changes is to provide that, if a taxpayer does not specify an amount of tax—as required under subsection (2) (b) of the section, or if he specifies an amount in excess of the tax charged by the assessment, the specified amount will be the amount of the tax charged in the assessment. If the definition as introduced, were allowed to stand it would be open to a taxpayer to specify an amount which he clearly knew would be in excess of the tax ultimately chargeable on determination of the appeal. In those circumstances, having paid the specified amount, he would be entitled to a repayment of the amount over-paid with interest. Clearly, that would be contrary to the public good.
What rate of interest would he get?
Well, currently, 18 per cent.
Would he?
Yes.
In some instances, at any rate, I thought the Minister had refused to give the same sauce to the goose as to the gander and had not agreed to repayments of over-payments of tax carrying interest at 18 per cent.
In fact, there is no change in the rate of tax other than zero or 18. There is no variation. There were suggestions that there should be a variation but we have not made any.
I am speaking of course from rather dim recollection and it may be that what I am speaking of is a rate of interest on overpayment of wealth tax or capital gains tax. In one of these the Minister certainly refused to accept the proposition that there should be the same rate of interest on repayment as there was on tax overdue. Perhaps he could say what is the provision which obliges a repayment of tax of this kind to carry 18 per cent interest?
I would remind the House that the purpose of having a high rate of interest charged on arrears is to provide a penalty in respect of failure to pay tax promptly and to provide an encouragement to people to pay tax promptly. Subsection (4) of section 29 provides that where an overpayment of tax is to be repaid under subsection (3) the overpayment should carry interest at the rate or rates in force by virtue of section 550 (1) of the Income Tax Act, 1967, for the period from the date or dates of the payment of the amount or amounts giving rise to the overpayment, as the case may require, to the date on which the repayment is made. The Income Tax Act, 1967, also has a corresponding provision in section 419 which deals with appeal cases.
It is more recently that the 18 per cent per annum was introduced.
The rate was increased when it became apparent that people were of their own volition obliging the State to be lenders to them of money at a rate more favourable than they could obtain from ordinary banking sources.
Does the Minister recall in another Bill or Bills which he had before the House refusing to agree that an overpayment of tax would carry an interest rate of 18 per cent?
I do.
Presumably it does not apply to income tax?
I do not think the House would want the State to be put into the position of being an unwilling borrower of money at 18 per cent simply because——
It would be the best investment going.
It would certainly be the best investment going if the State could borrow money on better terms than that. That is something we clearly want to avoid. If however a person makes an overpayment, which is not related to an attempt to obtain a very good return on an investment and in circumstances which did not involve negligence on his part, I can see that a case can be made for some compensation in respect of an overpayment.
It might be easier to follow exactly what the Minister is trying to do in this amendment if he could specify how in the amendment it is ensured that the interest is payable where the overpayment is bona fide or inadvertent and not where it is designed to secure a good return on money?
We are providing here that if the Revenue Commissioners make an assessment and that assessment is in excess of the amount which is proper to be payable then the excess will be paid with interest. If however the taxpayer makes a self-assessment and that amount is in excess of that which is properly payable he will not receive interest on the excess. We are accepting if the mistake is on the part of the Revenue Commissioners then compensation is paid but if it is on the part of others it is not.
(Dublin Central): Will he not be making a self-assessment under this section?
Maybe in the first instance.
(Dublin Central): Is there any other way he can do it? I cannot see the accountant having it ready.
I can see what the Minister's difficulty is. It is certainly possible that somebody who is very well off and who is liable for £X tax could in fact pay £10X and then claim a refund of £9X at 18 per cent interest. This is obviously what the Minister is trying to avoid and one can understand that he would want to avoid it. Nevertheless the method he is adopting to avoid it seems to be one that deals with that case but it also deals with the case where somebody inadvertently or in good faith makes a payment based on a self-assessment which, as Deputy Fitzpatrick says, is the only way he can do it.
I may be misunderstanding the Minister in relation to what he is saying in regard to an assessment being made. If somebody makes a payment under this section on account and it transpires that, although made in good faith it was more than he owed, he will not get any interest on the money so made available to the Revenue Commissioners to which they were not entitled. That is my understanding of what the Minister said. It may be that there is a distinction based on whether or not there has been an assessment by the Revenue Commissioners. It would appear that this section only operates effectively where there has been an assessment and where there is an appeal against the assessment. If that is so it would seem that the effect of this amendment is that whether the overpayment is due to somebody trying to get the benefit of a high interest rate or whether it is inadvertent or due to the fact—we will be raising this point on the section— that there is a question of principle involved and if it is decided one way then he is liable for a substantial amount of tax but if it is decided the other way he is only liable for a small amount of tax.
It seems to me that this person is in the position that when he is making his appeal he has to gauge whether he is likely to win on this question of principle. If he wins he then has overpaid tax very considerably but gets no interest on it. If he loses on the question of principle then he has not overpaid but he has got to make this decision in advance before the appeal is heard and he has to do this all so that the Minister can avoid allowing people to use the Exchequer as a good form of investment which would yield 18 per cent interest.
The real trouble here, as we pointed out to the Minister before, is that the 18 per cent is usurious, harsh and excessive and has led, and is leading, to various anomalies. A lower rate of interest more related to the going rate would be effective for the Minister's purpose but would not produce this kind of anomaly. The only answer to this, which the Minister apparently has in this amendment, is to treat those who are bona fide and those who are not in exactly the same way.
This is the usual blunt instrument that the Minister tends to apply when he is trying to deal with any attempts at evasion or in this case attempts at making money out of the Exchequer, something that is not very commonly possible for taxpayers to do. He is applying a blunt instrument which is treating the person acting bona fide and the person who is not in exactly the same way. I do not think that that is the answer to the problem posed here, a problem which arises directly out of the inordinately high rate of interest which the Minister is imposing.
I think it encourages people to be careful. If they do not agree with the assessment and they decide to pay less and they are wrong in their calculations, then they will have to pay interest.
(Dublin Central): But if they overpay? How do you expect a man to be dead on 80 per cent?
You do not limit them. If they decide—which is most unlikely; people are not inclined to do it—to pay more tax than that for which they are assessed I do not think they are entitled to be paid interest on it.
There is another point that I intended to raise on the section but I think it is relevant now. Some time ago the Minister introduced a 10 per cent surcharge on the various bands of income tax above the lowest one of 26 per cent. I think that was introduced in June of the relevant year. It would appear that under this section if that were to happen again a person who had appealed on the basis of existing liability would be wrong because the law had been amended in the meantime. But under the section and under the amendment he will get no interest if he overpays, gambling on a change that may come, and, on the other hand, if the law has been changed so that he cannot possibly assess the correct amount of tax, the Minister says: "That is his hard luck; he underestimated and will have to pay interest on the amount he underestimated". Surely that is not a defensible position?
With respect, Deputy Colley is setting up a case which is hypothetical to say the least of it.
It happened under this Minister.
If any change were to occur which would give rise to the kind of liability which the Deputy contemplates, then the law effecting the change would have the necessary protection against an interest liability arising in the manner described.
One would like to hope so but one could not be sure that would be so.
I have every confidence in the Dáil and Seanad to see to it that if there is an omission elsewhere it will be made good.
The trouble is that you will not have a good, active Opposition for very long and then it will not happen.
You will not have a good active Government either.
Indeed, we will.
I should be surprised.
I cannot agree to this amendment. The more the Minister explains it the more objectionable it becomes. Is the Minister satisfied that he can find no other way around the problem he is trying to deal with except to treat the good and the bad in exactly the same way which is what he is going to do?
I do not like the terms "good" and "bad".
I am using them like shorthand; I used other terms earlier.
There are three courses of action open to the taxpayer. He may appeal and pay the amount of the tax which is actually charged in the assessment and if the amount paid is greater than the amount that is ultimately due he will receive a repayment of the tax overpaid together with interest at the rate of 18 per cent which interest is tax free. He really does well in that case. Secondly, he may specify the amount of tax which he thinks is his proper liability. In the normal course, unless there is a point of law at issue, he should be in a position to state fairly accurately what his income is and what the proper tax liability will be.
(Dublin Central): How could he, if he had not got his accounts up to date at the time?
Every man is presumed to have some capacity to handle his own affairs and we cannot design legislation to provide escape for fools. The chances are that if they are in that category they will not be in the tax bracket anyway. The assumption that a person will not be able to make a reasonably accurate assessment of his income is not a well-founded one. He may pay an amount which represents only 80 per cent of the tax to which he is ultimately liable. I can see problems arising in that area.
If he decides to make the minimum payment and this turns out to be less than 80 per cent of the tax chargeable, he will be subject to an interest charge but that is the result of his own decision. If he decides to play cute and reduce his payment to what he considers the lowest figure he could possibly hope to get away with and hopes to underprice himself, he will be asked to pay interest on the amount by which he has underpriced himself. It must be remembered that what the taxpayer should pay on the normal date is his full payment of tax. If he desires to do so and makes a proper estimate, he has nothing to fear. If he makes one which is not adequate he will be asked to pay 18 per cent on the short-fall. There will not be any atrocious penalty but there is encouragement to people to make a realistic assessment.
What is meant by the "amount due" as against the 80 per cent? The Minister says if he has played cute. Does he mean cute below the 80 per cent or below the 100 per cent?
Below the 80 per cent.
What is meant by "become due" in section 5, "the date on which it becomes due". Is this the date related to 5th April or the date related to the closing of accounts? That is very important if you are expected to pay your account within two months.
It is not related to either. The Minister talks about people being fools when he does not understand what is involved in this himself.
It is important to establish what the dates due are.
The dates due are set out in law.
Is this 5th April?
No, it used to be 1st January and 1st July and the dates have now been advanced to 1st October and 1st March.
(Dublin Central): If my accounts end on 5th April?
Say the accounts end on 31st March, is there a gap of two months?
The ordinary provisions relating to the payment of Schedule D tax apply. These are the due dates.
(Dublin Central): 1st October and 1st March?
Yes, instead of 1st January and 1st July.
(Dublin Central): What happens if your accounts do not end on the 5th April?
If you pay the amount you are assessed with you are all right. If you decide it should be a lesser figure and you pay 80 per cent and if that turns out to be a good deal less than the 80 per cent due, then you pay the interest on your erroneous calculation.
Question put and declared carried.
Amendment agreed to.
I move amendment No. 24:
In page 25, subsection (2), line 43, after "assessment" to insert "or,".
This is a drafting amendment which I think speaks for itself.
Amendment agreed to.
I move amendment No. 25:
In page 26, after line 12, subsection (4), to insert the following proviso—
"Provided that—
(a) interest shall not be payable under this subsection if it amounts to less than £1, and
(b) income tax shall not be deductible on payment of interest under this subsection and such interest shall not be reckoned in computing income for the purposes of the Tax Acts."
This section, which would apply in the case of tax assessments made on or after the passing of the Act, amends the existing provisions in relation to payments on account in cases where appeals are made against assessments. The amendment brings into the new arrangements for payments on account a proviso similar to that which applied under the old arrangement in relation to agreed payments on account. The proviso ensures that where in appeal cases tax is overpaid and has to be repaid with interest, the interest will not be charged to tax. As an administrative easement and an easement to taxpayers interest will not be paid when the amount is less than £1. The proviso corresponds with that contained in section 419 (1) of the Income Tax Act, 1967, which will no longer apply to assessments made after the passing of the Act. Section 419 is the measure which provided for the enforcement of agreed payments on account in appeal cases.
Amendment agreed to.
I move amendment No. 26:
In page 26, to delete lines 15 to 17 and to substitute:
"that amount is not less than the lesser of the two following amounts—
(a) the tax assessed, and
(b) 80 per cent. of the amount of tax found to be chargeable by the assessment on the determination of the appeal,
interest shall not be payable on any balance of tax".
This is an amendment to subsection (5) which provides that if a taxpayer complies with certain requirements in relation to the payment of his tax liability he will not be charged interest on late payment of the tax. The requirements are that (a) the specified amount is paid within two months of the date it was due and payable; (b) the specified amount so paid is not less than 80 per cent of the tax found to be chargeable on the determination of the appeal; and (c) any balance of tax payable on determination of the appeal is paid within two months of the date of determination.
The amendment changes the requirement to the effect that the specified amount paid must not be less than the lesser of, firstly, the tax charged on the original assessment or, secondly, 80 per cent of the tax found to be chargeable on the determination of the appeal. In a case in which the tax charge in the original assessment is the specified amount and is subsequently found to be less than 80 per cent of the tax chargeable on determination of the appeal, the taxpayer would, apart from this amendment, be liable to an interest charge on the balance of tax payable. If, on the other hand, that taxpayer had not lodged an appeal and had paid the tax charged on the assessment within two months, no interest charge would arise. An additional liability would be charged in an additional assessment to tax which would be due and payable on a date fixed by reference to the date of the additional assessment. If the additional tax was paid within two months of that date, no interest charge would arise. The amendment will remove this anomaly treatment.
The Minister again repeated a point I questioned earlier. He said the interest would be payable on the balance of the tax payable. Does this mean the balance of the tax due in toto or the amount by which it was short of the 80 per cent?
The amount by which it is short of the 100 per cent, that is, full liability. A person who pays up to 80 per cent will not be caught short; the person who pays under 80 per cent will be paying interest on the full shortfall of the full tax liability.
Is this before or after assessment? We are talking about a client who makes a voluntary assessment which must be within 80 per cent of the total.
We are dealing with a person who makes a payment after an assessment. If he pays the assessment in full he is all right, no matter what his assessment might be; but if he decides to shortfall on the assessment and loses out in the long run, he will pay interest on the full shortfall of 100 per cent.
The net difference between the situation provided for in the amendment and in the section as it stands is what? The Minister referred to an anomaly but it was not clear to me that it was an anomaly he was curing.
If the amendment had not been made a person could find himself liable for payment of interest if the assessment was less than 80 per cent of the tax ultimately due. Under the amendment if the assessment is wrong and the person pays on foot of that assessment, even though the assessment is less than 80 per cent, the taxpayer will not be penalised on that account.
I see.
Amendment agreed to.
Question proposed: "That section 29, as amended, stand part of the Bill."
It seems to me that this section is based on a financial version of Russian roulette and is very objectionable in the way it will work out in some cases. Before I deal with that, on one of the earlier amendments I pointed out—it arises under this section —that one of the problems being created here is the extent of the interest rate charged on unpaid tax or the extent of the interest payable by the Revenue on overpaid tax. I have figures in front of me which show that the interest on unpaid tax here is considerably higher than that charged in Britain, Belgium, Denmark, France Germany, Italy, Luxembourg, Netherlands, Japan or the United States. Is the Minister aware of any country where the rate of interest charged is as high as it is here? As I indicated, it is so high here that it is creating problems, whether it is in the form of the interest chargeable on unpaid tax or interest payable by the Exchequer on overpaid tax. I believe it is not effective in trying to achieve what it is supposed to achieve.
As regards the whole machinery envisaged in this section, in my view that also is unsatisfactory. Many people who are more familiar than I am with the practical problems arising are convinced that this section is unworkable. First, we might have a look at the present position and what it would be if this section were not enacted.
Under the present system the inspector of taxes can agree or refuse to agree to a payment on account before an appeal is made and it is then up to the taxpayer to pay 80 per cent of the final liability if he wants to avoid liability for interest. The inspector would know from experience which taxpayers are offering reasonable payments on account and which are not. Where the inspector is convinced that the offer is not a reasonable one he can refuse to agree a payment on account. Even the present system is quite harsh because there is no right of appeal against the inspectors' refusal to agree a payment on account, but at least there is some discretion for the inspector.
I am not aware of any evidence that the system is not working in the way in which it would be wished that it would work. The Minister is not satisfied with that arrangement and he is introducing a situation in which in order to appeal against an assessment one must engage in a very risky calculation to try to determine what one's liability is likely to be. If one happens to be wrong one is liable for interest at 18 per cent per annum on the amount by which one is wrong. This has no regard for people acting in good faith. There is no flexibility built into this section. The interest rate of 18 per cent is clearly introduced as a penalty and should be applicable only where there is evidence of negligence or fraud. The taxpayer who acts in good faith and does his best to comply with the requirements of the inspector of taxes should not be called upon to pay interest at this penal rate.
The time limit for making an appeal is 21 days. If one allows time for the notice—and the post is not at its best at present—to reach the taxpayer and the appeal to reach the Revenue Commissioners, and allowing for the intervention of weekends, the period for the appeal will normally be less than 15 full working days. If the appeal notice is issued during a holiday period it will be shorter than that. In many cases during this quite short period the taxpayer will be required to consult with the tax agent in order to calculate his tax liability. In some cases it may well be necessary to prepare accounts. It would be unusual if such a thing could be done in 15 working days.
Having regard to the provisions of section 6 of this Bill, under which it is proposed that the first instalment of tax would be paid on 1st July in the year of assessment, it can be presumed that the assessment would be issued shortly after the 6th April each year. In those circumstances the taxpayer will have to make his appeal and get an accurate estimate of his tax liability before the 30th of April, Many people who have practical experience in this field believe that this kind of arrangement is unworkable. If we must have a section like this—and I do not think we should have it at all because the existing system is good enough—there is a very strong case for extending the period of appeal. Alternatively, if the 21-day period for appeal is retained, the taxayer should be given a considerably longer time in which to specify the amount of tax which in his opinion is likely to become payable on the determination of his appeal.
As I indicated earlier, a very difficult problem arises here if a taxpayer is making an appeal on a question of principle or law. The Minister made some reference in parenthesis to this in relation to an appeal on a point of law, but he did not say what would happen to the taxpayer if such a thing happened. It is worth considering the provision of this section in the light of that. If somebody is making an appeal on a point of law or principle, the difference between what he could be liable for if the appeal is in his favour or if it goes against him could be considerable. The Minister's only answer to that situation is that the taxpayer must assume that it will go against him, pay the much larger sum involved and be out-of-pocket on that sum while the appeal is pending. There is no real way that a taxpayer can readily calculate what his liability will be in the circumstances. I submit that a taxpayer acting in the best of good faith should not be penalised, should not be liable in this way to a clearly penal interest rate of 18 per cent per annum. A change in the law under this section can put a taxpayer on the wrong foot and make him liable for interest.
The Minister says that in the event of a change of the kind he brought in some time ago introducing the surcharge of 10 per cent one can take it that the necessary changes would also be made in this section. I hope he is right. It would clearly be a gross injustice if such a thing were to happen. The Minister has not appreciated the problems which can arise for taxpayers. Such taxpayers, in case there is any doubt about it, would appear very definitely not to be confined to individuals but to include trading companies as well. I do not think the Minister has grasped the problem that can arise for taxpayers where their year of account comes at a particular date and they have not accounts prepared in time to make the calculation of how much they should lodge. I believe that the use of the computer by the Revenue Commissioners has meant that assessments for each tax district are issued on the same day. The consequence of this is that agents for taxpayers are inundated with assessments on the same day. Many such agents will receive assessments on behalf of 50 per cent of their clients in a period of one week. They will be required in many of these cases to advise clients and calculate their tax liability so that their clients can make a payment on account which will not result in their being liable for interest at this penal rate of 18 per cent.
All of this seems to me to add up to an unworkable and unnecessary provision in this section—unnecessary because there is no evidence that the existing system is not effective, and unworkable for the reasons I have outlined. It is also unjust in many cases and, in particular, in the light of one of the amendments the Minister has now brought in whereby, in effect, if a taxpayer is wrong, that is his hard luck, but if the Revenue Commissioners are wrong, that may be the the taxpayer's hard luck too. I am not saying this is being done merely to grind the taxpayer into the ground, but I am saying that in order to get at people who might abuse this and invest their money in the Revenue Commissioners at 18 per cent per annum, in order to prevent that the Minister is using a very blunt instrument which is going to prevent them from doing it but he is also getting at the great majority of taxpayers who are acting in good faith. There is no flexibility in this. There should, at the very least, be a provision in this section which would give the Revenue Commissioners a discretion which they could exercise where they were satisfied that the taxpayer was acting bona fide, that he would not be subjected to a penal interest rate of 18 per cent. That is the very minimum that is required in this section if it is to be even remotely acceptable.
In a case where a taxpayer appeals against an assessment and is required to specify an amount of tax which would be not less than 80 per cent of the tax which would be ultimately due, he may have difficulty in doing so if a substantial portion of his income is taxed income. I accept that case which has been made. Tax income, for example, dividends which he receives under deduction of tax, is chargeable for tax on a current year basis and, as a very significant portion of it is received towards the end of the year, a taxpayer might not be in a position earlier in the year to assess what that income is likely to be. The point is made that it would be unreasonable to require him to specify an amount of tax in these circumstances with the overhanging threat of an interest charge if he does not make the required payment on account.
Another case which has been made, particularly by accountants, is that the responsibility of appealing against assessments has been left to their profession, in particular, by their clients. Because of the computerisation of assessments, large numbers of these cases arrive in the tax agent's offices at the same time, and at present there is a 21 day limit on the making of appeals against these assessments. It is their view that if they are required not alone to appeal against the assessment but to specify an appropriate amount of tax to be paid on account, the 21 day period might not be adequate and it is, therefore, suggested by Deputy Colley and others that it should be extended.
In response to these arguments I am prepared to give an assurance that I will bring in amendments on Report Stage to the following effect: first, the taxpayer can be given the option of taking the tax income of the preceding year instead of the current year for the purpose of calculating the 80 per cent of the tax ultimately due. This will clearly take care of the problem of not knowing what the tax income is for the current year. Secondly, the period of 21 days for appeals will be extended to 30 days. I think this will go a long way towards meeting the problems which have been recognised, which I accept as being legitimate and which I would want to avoid.
It is not ideal, but it is certainly an improvement on the section. I grant that.
Could the Minister give an example because either some accountants are misleading themselves or we in the Opposition may be misleading ourselves on what is meant by the Bill? If accounts close on the 31st March in a given year, the first question is, when will the assessment be made and, secondly, when will the first instalment be due?
Let us take a year of assessment ending on 31st March, 1976. The assessment in such a case will be made in or about May, 1976, and tax will be payable in October and April next based upon the tax of the year 1975-76 which ended on 31st March, 1976. Does that answer the Deputy's question?
It does, partly. The end of the year is 31st March and the assessment will be made in May. Am I to take it that the two months specified are April and May?
First of all, the two months to which the Deputy refers, April and May, have nothing to do with the two months referred to in the section. They are just——
Fortuitous.
Yes, that is the word. Subsection (5) says:
Where the specified amount of tax is paid not later than two months from the date on which it comes due and payable...
That is two months from 1st October and 1st April.
If the accounts close on 31st March and the assessments are to be made in May, I doubt if accountants would have time to do the work in the majority of cases, other than in very large concerns who are doing a six monthly or a three monthly job. The danger I see here is that accountants would be advising their clients to make a higher payment on the estimate in order to protect the accountants from any friction with their clients.
Maybe that is what the Minister wants.
Oh, no. Now, now, Deputies know that is not so. The amendment will go a long way to meet the difficulty.
Good. The dates the Minister has given are for the year 1976. Is there not a change in 1977?
Yes.
What will the months be in 1977?
Still finishing one's accounts on 31st March.
The due dates of payment will be 1st July and 1st January.
Assessment still being in May.
Aye.
That is for 1977 or 1978.
The same dates, July and January.
That means that the first instalment will become due in 1977 four months after the accounts are closed. Is that correct?
Yes, in the case mentioned by the Deputy. Of course, all accounts will not end in March.
(Dublin Central): Some will end in the middle of June.
Will the Minister allow firms to change the dates of their accounts in order to stretch out the liability? The Minister is squeezing to a considerable extent, I think, and that may cause some difficulty. On the calculations the Minister has given me he could be causing a great deal of upset with what I would describe as very good taxpayers.
The amendment on Report Stage will overcome the difficulties.
That is going a little far. It will go some of the way. Would the Minister indicate what is wrong with the existing system?
The principal reason is that payments are not made when they ought to be made.
The Minister will have much more trouble with this.
(Dublin Central): The Minister may go a small way towards relieving the problem by amending this legislation. As it stands, I doubt if any businessman could work this and be reasonably accurate as to 80 per cent. At 81 per cent one would be paying too much and at 79 per cent one is charged interest.
As the Bill stands, one must pay 80 per cent of what is due. In my opinion that will be impracticable. There should be some room for manoeuvre between 80 per cent and 85 per cent. That would be a common-sense approach. No businessman knows exactly what his income tax will be until his accounts are finalised. The Minister must realise it is impracticable to insist that one assesses oneself as to 80 per cent of what is due. Accuracy will be impossible. If the intention is to assess on last year's assessments, then 95 per cent of public companies will be paying too much because profits have dropped. This might be possible in an expanding economy with increasing profits but in a declining economy and declining profits it will be utterly impossible.
The Minister's amendment will not work. The cash flow has almost entirely dried up. This is the second section in this Bill which will not work. What the Minister is trying to do here is extract more tax. It is possible there will be an overpayment and very few businesses can afford that today. I can see no reason for this section. The existing system has worked well. This will cause confusion. Accountants will not be in a position to advise their clients. Already, with capital gains tax and wealth tax, they are not able to handle the business at all. Here the Minister proposes to give them an additional burden. It will be a huge burden on accountants and business people generally. This just will not work. What additional revenue does the Minister hope to collect as a result of this? I do not believe it will be a substantial figure. Why the present system, which operated so well as between the Revenue Commissioner, auditors and their clients, should not continue is something I cannot understand. Even if the Minister modifies this, I maintain it will cause nothing but confusion.
In reply to Deputy Fitzpatrick, a person is not supposed to be shooting at a target of 80 per cent and hitting the bull's eye. This is simply a concession. The taxpayer is under obligation to pay 100 per cent due tax.
(Dublin Central): I know that.
He is being allowed a margin of error of one-fifth. He can be 20 per cent wrong and not be involved in a penalty. I do not think that is an ungenerous concession to give him.
(Dublin Central): How can he pay 100 per cent or even 50 per cent if he has no accounts? If he has his accounts finalised he will know exactly where he stands and he will be able to pay 100 per cent. If the accounts are not finalised, he will not be able to assess accurately what is 80 per cent of his liability.
I think the provision will help people to be more accurate.
The fact that the Minister has announced that he proposes to bring in two amendments on Report Stage, and knowing the Minister and his general approach, is eloquent evidence of the unworkability of the section as it stands and as we have contended.
The principal amendment which the Minister proposes, namely, to give the taxpayer the option in such case of basing his assessment on the previous year's income is ineffective in a situation of a declining economy and declining profits. Deputy Fitzpatrick has pointed this out already. The Minister has not made a convincing case for a change from the existing system. As far as I am concerned, even though the Minister proposes to amend the section, it will be unworkable and, far from being an improvement on the present position, it is likely to cause much greater problems.
Question put.
The Committee divided: Tá, 59; Níl, 51.
Tá
- Barry, Peter.
- Barry, Richard.
- Begley, Michael.
- Belton, Luke.
- Belton, Paddy.
- Bermingham, Joseph.
- Bruton, John.
- Burke, Joan T.
- Burke, Liam.
- Byrne, Hugh.
- Collins, Edward.
- Conlan, John F.
- Coogan, Fintan.
- Cooney, Patrick M.
- Corish, Brendan.
- Cosgrave, Liam.
- Costello, Declan.
- Creed, Donal.
- Crotty, Kieran.
- Cruise-O'Brien, Conor.
- Desmond, Barry.
- Desmond, Eileen.
- Dockrell, Henry P.
- Donegan, Patrick S.
- Donnellan, John.
- Esmonde, John G.
- Finn, Martin.
- FitzGerald, Garret.
- Fitzpatrick, Tom. (Cavan).
- Flanagan, Oliver J.
- Gilhawley, Eugene.
- Governey, Desmond.
- Griffin, Brendan.
- Hegarty, Patrick.
- Hogan O'Higgins, Brigid.
- Jones, Denis F.
- Kavanagh, Liam.
- Keating, Justin.
- Kelly, John.
- Kenny, Enda.
- Kyne, Thomas A.
- L'Estrange, Gerald.
- Lynch, Gerard.
- McLaughlin, Joseph.
- Malone, Patrick.
- Murphy, Michael P.
- O'Brien, Fergus.
- O'Connell, John.
- O'Donnell, Tom.
- O'Sullivan, John L.
- Pattison, Seamus.
- Ryan, John J.
- Ryan, Richie.
- Staunton, Myles.
- Taylor, Frank.
- Timmins, Godfrey.
- Toal, Brendan.
- Tully, James.
- White, James.
Níl
- Andrews, David.
- Barrett, Sylvester.
- Brady, Philip A.
- Brennan, Joseph.
- Breslin, Cormac.
- Briscoe, Ben.
- Browne, Seán.
- Brugha, Ruairí.
- Burke, Raphael P.
- Callanan, John.
- Carter, Frank.
- Colley, George.
- Collins, Gerard.
- Colley, Gerard.
- Cronin, Jerry.
- Crowley, Flor.
- Daly, Brendan.
- Davern, Noel.
- de Valera, Vivion.
- Dowling, Joe.
- Farrell, Joseph.
- Faulkner, Pádraig.
- Fitzgerald, Gene.
- Fitzpatrick, Tom. (Dublin Central).
- French, Seán.
- Gallagher, Denis.
- Geoghegan-Quinn, Máire.
- Gibbons, James.
- Haughey, Charles.
- Healy, Augustine A.
- Hussey, Thomas.
- Kenneally, William.
- Kitt, Michael P.
- Lalor, Patrick J.
- Leonard, James.
- Lynch, Celia.
- Lynch, Jack.
- McEllistrim, Thomas.
- MacSharry, Ray.
- Meaney, Tom.
- Molloy, Robert.
- Moore, Seán.
- Murphy, Ciarán.
- Nolan, Thomas.
- Noonan, Michael.
- O'Malley, Desmond.
- Power, Patrick.
- Smith, Patrick.
- Timmons, Eugene.
- Walsh, Seán.
- Wilson, John P.
Tellers: Tá, Deputies Kelly and B. Desmond; Níl, Deputies Lalor and Browne.
Question declared carried.
SECTION 30.
Question proposed: "That section 30 stand part of the Bill."
The section raises from £2,500 to £3,500 the existing limit by reference to which capital allowances may be granted for motor cars provided for business use after 28th January, 1976, budget day. I should like to add that the raising of the limit will cost the Exchequer about £800,000 in a full year.
Would the Minister explain the two provisos in subsection (2), in particular paragraph (a) which is not quite clear on its face.
Paragraph (a) secures that expenditure incurred on or before 28th January, 1976, on the provision or hiring, except by means of hire purchase, of a vehicle is not to qualify for the increased limit. Also excluded from the new limit is expenditure incurred within 12 months after 28th January, 1976, under a contract entered into before that date. This corresponds with a similar provision in section 30 (5) of the 1973 Act. Paragraph (b) provides that expenditure under a contract of hire purchase entered into on or before 28th January, 1976, is not to qualify for the increased limit of £3,500. The provision in the 1973 Act excluded from the £2,500 restriction expenditure under a contract of hire purchase entered into before 16th May, 1973.
I should add that in 1973 we deliberately set about not catching contracts which had been entered into before the date on which the restriction was brought in. For that reason we are following the same line of thinking and not conferring the benefit which accrues under this Act to contracts made prior to the date of the budget.
The Minister said that the 1973 Act excluded from the limitation hire-purchase contract entered into before the relevant date in the 1973 Act but what is the consequence of paragraph (b) as regards hire-purchase transactions? If one did not apply the restriction of the 1973 Act then in regard to hire-purchase contracts up to now or up to January of this year was there no restriction at all or was some restriction in operation?
There was a restriction which was £2,500 but when the contract would have been entered into the person would have been aware of what was in the provision and it is to be presumed that their decisions were governed by the conditions which then existed and not by any forecasting they might have made, and there might have been a change later on.
Is the effect of paragraph (b) to continue that £2,500 restriction?
Yes.
In respect of any hire-purchase contract entered into before 28th January, but one thereafter would be subject to £3,500.
Yes.
Question put and agreed to.
SECTION 31.
I move amendment No. 27:
In page 27, subsection (1) (b) lines 2 and 3, to delete "section 214 of the Income Tax Act, 1967" and to substitute "section 15 of the Corporation Tax Act, 1976, or that section as applied by section 33 of that Act".
This amendment is in consequence of the Corporation Tax Act, 1976. Section 214 of the Income Tax Act, 1967, which provided for deduction in respect of management expenses, has been repealed. The matter is now governed in relation to investment companies by section 15 of the Corporation Tax Act, 1976. Section 33 applies the provisions of section 15 to the expenses of management of assurance companies.
Amendment agreed to.
Question proposed: "That section 31, as amended, stand part of the Bill."
The purpose of this section is to provide for a restriction on the amount of running expenses allowed as a deduction for tax purposes in respect of cars costing over £3,500. The restriction which would be applied to the amount of expenses which would be allowable under the existing rules will be one-third of the cost of the car over £3,500. If, however, it is more favourable to the taxpayer, he may opt to have the amount of the running expenses reduced in the proportion which £3,500 bears to the cost of the car. The restrictions relate to running expenses incurred after 28th January, 1976, the date of the budget——
May we take it that this is adjusting the restriction on the allowance of running expenses in proportion to the increase on £2,500 to £3,500?
Yes. I should add that there was not, in fact, any restriction of £2,500 previously, but this is bringing the running expenses element of cars in line with the costing element.
Was there not a restriction of £2,500 from 1973?
Only in respect of capital allowance, not in respect of the running allowance.
Does the Minister mean that there was no restriction in regard to the running expenses at all?
No.
Was this a new provision altogether?
Yes, but I think it is very difficult to quarrel with the need for this if one accepts the need for a limitation in respect of the capital element because the running cost element is obviously related.
Where a taxpayer can show that the actual running costs exceed the one-third figure provided here, is he allowed that if he can vouch it?
He may opt to have the amount for running expenses reduced in the proportion which £3,500 bears to the cost of the car.
But is that any advantage to him?
In some cases it would be and in others not.
Is he restricted under this section irrespective of what the actual running expenses are?
If the car is over £3,500, yes. He gets an allowance which is related to a car which is worth £3,500 or under. If he goes above that, the value of the allowance is proportionately less in relation to itself than what it would be to others.
Question put and agreed to.
NEW SECTION.
I move amendment No. 28:
In page 27, line 33, before section 32, to insert the following section:
"32.—(1) In this section—
`society' means a society registered under the Industrial and Provident Societies Acts, 1893 to 1971, which is an agricultural society or a fishery society within the meaning of section 220 of the Income Tax Act, 1967;
`period of account' has the meaning assigned to it by section 155 (5) of the Corporation Tax Act, 1976;
`wear and tear allowance' means an allowance under section 241 of the Income Tax Act, 1967;
`initial allowance' means an allowance under Chapter I, Part XV of the Income Tax Act, 1967;
`investment allowance' means an allowance under section 22 of the Finance Act, 1971.
(2) In the case of a trade carried on by a society no transaction on or after the 6th day of April, 1976, shall be regarded as an exempted transaction for the purposes of section 220 of the Income Tax Act, 1967.
(3) Where a society comes within the charge to corporation tax in respect of a trade before the 6th day of April, 1976, an accounting period of the society shall end for the purposes of corporation tax on the 5th day of April, 1976.
(4) Where a society carrying on a trade incurred before the 6th day of April, 1976, capital expenditure on the provision of machinery or plant for the purposes of the trade and that expenditure was either—
(a) qualifying expenditure within the meaning of section 11 of the Finance Act, 1967, or
(b) expenditure on qualifying machinery or plant within the meaning of section 26 of the Finance Act, 1971,
an allowance equal to the specified amount of that capital expenditure may at the election of the society be made in taxing the trade of the society for the accounting period which commences on the 6th day of April, 1976, as if it were an allowance on account of the wear and tear of the machinery or plant in that accounting period, and where such an election is made, the amount of the capital expenditure on the provision of the machinery or plant still unallowed as at the time of any subsequent event shall for the purposes of Chapter II of Part XVI of the Income Tax Act, 1967, be deemed to be nil.
(5) For the purposes of subsection (4) the specified amount of the capital expenditure means the amount of that capital expenditure together with any investment allowance in respect of that expenditure after deducting from the aggregate amount thereof—
(a) the amount, as diminished by section 220 (5) of the Income Tax Act, 1967, of any investment allowance made to the society in respect of that expenditure;
(b) the aggregate amount, as diminished by the said section 220 (5), of the wear and tear allowances and initial allowances made to the society in respect of that expenditure for all chargeable periods before the accounting period commencing on the 6th day of April, 1976;
(c) the aggregate of the amounts by which the wear and tear allowances in respect of that expenditure would have been diminished by the said section 220 (5) if the only wear and tear allowances for those chargeable periods in respect of that expenditure were the amounts which would have been made if a proper claim had been duly made by the society for each chargeable period without regard to section 11 of the Finance Act, 1967, or section 26 of the Finance Act, 1971.
(6) Where—
(a) a society comes within the charge to corporation tax in respect of a trade,
(b) the society was within the charge to income tax for the year 1975-76 in respect of the trade, and
(c) a period of account of the society commences before the 6th day of April, 1976, and ends on or after that date,
the income from the trade for the period of account shall be computed (in accordance with the provisions applicable to Case I of Schedule D) without regard to the provisions of section 220 (3) of the Income Tax Act, 1967, and the income as so computed shall be apportioned to the part of the period of account falling before the 6th day of April, 1976, and the part falling after that date, and for the purposes of subsections (3) and (4) of section 220 of the Income Tax Act, 1967, and section 70 (5) of the Finance Act, 1963, each such part shall be deemed to be a period of account and the income from the trade for that part shall be the amount apportioned to it under the provisions of this section.
(7) Any apportionment to different periods under this section shall be made on a time basis according to the respective lengths of those periods.".
Acceptance of this amendment involves the deletion of section 32.
There are few sections of this year's Finance Bill which have given rise to more inaccurate comment than this section and the amendment thereto. The vehemence, inaccuracy and irrelevace of much of the comment made about the original section are now equalled only by the vehemence of some comment which is now being made about some of the amendments which I have introduced to the original Bill. I, therefore, would like to deal with this matter at some length.
The amendment substitutes a new provision for section 32 which would extend the tax-charged profits from exempted transactions of agricultural and fishery co-operative societies. Those exempted transactions are very numerous and far-reaching, so numerous and far-reaching as to extend virtually full exemption in tax to most of these societies. The scope of some of the operations of these societies has now become so vast, extending far beyond agricultural and fishery activities into motor assembly and production, oil development and exploration, as certainly to blur the contrast which was at one time drawn between what one might call traditional agricultural and fishery co-operative societies and private enterprise. The extension of the tax charge, as we know, to profits made by agriculture and fishery co-operative societies has been very strongly opposed by representatives of the organisations concerned and they have taken great pains to secure support from many thousands of people, who will in no way be affected by tax provisions, by attempting to play upon their emotions.
It is necessary to look at this in perspective. The actual amount to the tax charge—I speak about the tax charge as distinct from what the net take will be after certain allowances are given—will be about £3 million. This will come out of a turnover of over £750 million and cannot, I say with respect, be regarded as an unduly heavy contribution to the running costs of the country by a section of the community whose prosperity has increased considerably over the last few years. As I indicated previously, the new tax provisions will affect profits arising on or after 6th April, 1976 and the balance of capital allowances over the normal wear and tear allowances in respect of certain capital expenditure incurred in earlier years will be allowed in the first year of the charge to corporation tax.
Since the new charge would apply to profits arising on or after 6th April, 1976, and since most of the societies have accounts made up by reference to calendar years, the first payment of tax to be paid by societies generally speaking will be in October, 1977. Subsection (1) defines "society" as:
...a society registered under the Industrial and Provident Societies Acts, 1893 to 1971, which is an agricultural society or a fishery society within the meaning of section 220 of the Income Tax Act, 1967.
Subsection (2) provides:
In the case of a trade carried on by a society no transaction on or after the 6th day of April, 1976 shall be regarded as an exempted transaction for the purposes of section 220 of the Income Tax Act, 1967.
The profits arising from all transactions of a society as of that date will, therefore, be chargeable to tax.
Progress reported; Committee to sit again.