Finance Bill, 1976: Committee Stage (Resumed).
Question again proposed: "That section 39 stand part of the Bill."
(Dublin Central): Deputy Colley put our case explicitly. I cannot follow the Minister's reasoning in increasing the price of petrol in an effort to reduce consumption, because that can be taken too far. It is important that we look at the full implications if we proceed along the lines of deliberately trying to reduce consumption. We are now in a completely retracted and reduced economy. The Minister told us of 8 per cent increases before 1973-74 and pointed out that the recent increase in price had produced results. We would want to be very careful about this. While it is a good thing to reduce consumption of petrol we want to ensure that a reduction in consumption does not also mean a reduction in the expansion of the economy. Undoubtedly this will happen if we proceed along those lines.
I am conscious of the fact that it will create a balance of payments problem, but if we continue to tax only for the purpose of reducing consumption there is no hope of expanding the economy as we would like to. If we want our economy to expand at the rate of 3 per cent to 4 per cent a year we will have to take into consideration that an additional consumption of petrol is required. That cannot be avoided if we are to expand. It is everybody's wish that we expand the tourist industry but it has declined over the past five or six years. That was not solely due to the price of petrol; it was due to other factors, including the problems in Northern Ireland. However, some of the reduction in consumption which the Minister spoke of was achieved by a decrease in the number of tourists from the Continent, America, England and Great Britain. It is bad policy to continue to increase prices with the intention of reducing consumption. If that is to be our policy with regard to tourism there is little hope for our hoteliers and those engaged in that industry.
I would tackle the problem in a different way. I would not be too concerned about the consumption of petrol if I could expand the economy and make up the difference with increased exports. The Minister is following a line of retraction and our economy is not expanding. If this is pursued to its logical conclusion the tourist industry will not expand. The increases will also affect manufacturing industry. The Minister will achieve his objective of reducing consumption, but at what expense? He will achieve it at the expense of more people being out of work. I would live with increased consumption if I was sure that the tourist industry was expanding. By doing that I would be in a position to offset the imbalance created by the increased consumption of petrol. We should not compare our economy with advanced European countries because those countries do not depend to the same degree on tourism. We are completely underdeveloped in comparison with those countries and we must create a different type of economic climate. While the guidelines laid down by some of the European countries are correct for them, I doubt if we can go with them because their economies are expanding at a rate of 3-4 per cent at present.
They started ahead of us. We have only begun to expand tourism and industry here in the past ten or 15 years whereas they have been doing so for a century. They may suggest guidelines for us but we must have continuing expansion in industry and tourism. The Minister put forward two reasons for his proposals: one, to reduce consumption and, two, to raise revenue. Revenue must be obtained—although I object to the particular increase the Minister has imposed—but we must seriously consider whether it is advisable to continue a policy of taxing to reduce consumption. This can only lead to further unemployment and it will affect not only tourism but also manufacturing costs. I know that other types of oil are used in heavy manufacturing but petrol figures to a large extent in the average large business that must use cars to take stock or travellers around the country. This will affect the unit costs of these companies.
We can see how the British have arranged their fiscal policies in their recent budget and the response from the trade unions generally. It is obvious that by next autumn we shall be at a tremendous disadvantage. The House should not be deceived by present export figures here. Some time ago the Minister pointed out that our balance of payments deficit was down to about £15 million, but it was down because imports of plant and machinery which should be taking place in the past three years were not taking place. I believe our exports have done reasonably well but this will be short lived because expansion is not taking place in the manufacturing sector and plant and machinery are not being imported to expand the economy. That is why the deficit has been reduced.
I am convinced that the petrol increase will affect our unit costs. Leading industrialists have stated that they are deeply concerned about their competitiveness in regard to the UK and other EEC countries. They have said that we will be from 8 per cent to 10 per cent on the wrong side in regard to unit costs by the end of the year. If the agreement now emerging in Britian is concluded and affects the mainstream of production, next autumn or early next year their unit costs will be reduced by 5 per cent or 6 per cent compared with Ireland. Anybody can see that is happening and the Minister could have made some concession in regard to tourism and industry, as both these vital sectors will be affected by the astronomic rise in petrol.
The Minister said he did not expect any reduction in consumption as a result of this increase during 1976. I do not know how he reaches that conclusion, because he also said that the tax policy over the past three years did produce some reduction in consumption. That seems contradictory. Even if there was only a small decline in consumption in the past three years, the taxation will be far more effective in 1976 for obvious reasons. In 1974-75 we can see the purchasing power that went into the economy and we can compare that with what we hope will be the increased purchasing power going into the economy in 1976. Wages in the private sector in 1974 increased by about 30 per cent and that figure was equalled, if not exceeded, in the public sector.
The Deputy seems to be going wide of the section.
(Dublin Central): I want to show the purchasing power for petrol in 1974-75 as compared with 1976 and that there will be a decline.
The Deputy appreciates that we are somewhat confined in the discussion of a section of a Bill like this.
(Dublin Central): The Minister said there would be no reduction but did not give a reason. We must see the purchasing power of the community to decide whether his statement is true or false. My argument is that in 1974 there was a 30 per cent increase in salaries going into the economy and, if we accept the Minister's statement, there was a small decline in the consumption of petrol. In 1975 the increase in the private sector was between 25 per cent and 30 per cent and in the public sector it was in the region of 40 per cent. This was the increased purchasing power put into the economy. Yet the Minister states the tax served its purpose because there was a reduction in petrol consumption.
I put it to the Minister that if those figures of increases in salaries were repeated the country would be in a sad state. If the salary increases envisaged will go into the private sector there will be a reduction of money in the private sector in the region of 10 per cent. If we accept the Minister's pleading as regards public service pay and take this into consideration we know there will be less money put into the economy this year than in the past two years. Therefore there will be a reduction of purchasing power in both public and private sectors and that will affect petrol as well as every other commodity. If anybody says that you can increase prices by 25 per cent or 30 per cent with no additional money going into the economy to purchase that commodity and that there will be no drop in sales, I cannot understand his reasoning.
The Minister stated that there will not be a drop in the consumption of petrol but I maintain there will. Common sense tells me that if you have not the money you cannot buy it. Ask any housewife about the economics of housekeeping and she will tell you that a drop in her housekeeping allowance means a reduction in purchases, and that is going to happen this year as regards petrol. It would not concern me if the householder with two cars had to reduce his consumption of petrol, or if the person who can use public transport had to do so. That would not be a loss to the economy. I am concerned with the deliberate attempt to make the price of petrol prohibitive for the section of the community that could help to expand the economy and create jobs.
The Government's approach to this is a negative one. The gain will close the balance of payments but the Exchequer will have to pay more unemployment benefit. We have got over balance of payments difficulties in the past by expanding the economy. It is all right to put import duty on a non-essential product, but fuel must be used to expand our economy. I cannot agree with the policy to reduce the consumption of petrol by a section of the community that could help to expand the economy and create employment. A lot of money has been invested in tourism. Indeed tourism is one industry we should concentrate on if we are to create more jobs. Tourism is the one industry which does not use imported raw material. The food and drink provided by the tourist industry is produced here.
The Minister's approach to this matter is a negative one. It is quite obvious that the increase of 28p over the past three years will achieve the desired effect. The consumer can only go to a certain limit. We must also consider the effect this measure will have on the car assembly industry, an industry which has a high labour content. This industry is contracting at present. You cannot expect expansion in an industry which is hit by road tax and petrol tax. Car assemblers have already changed their projections for this year by 20 per cent. The Minister's approach will add to inflation and increase the manufacturer's unit cost which, in turn, will make it difficult for him to export.
Question put.
The Committee divided; Tá, 63; Níl, 57.
Tá
- Barry, Peter.
- Begley, Michael.
- Belton, Luke.
- Belton, Paddy.
- Bermingham, Joseph.
- Bruton, John.
- 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.
- Dockrell, Henry P.
- Donegan, Patrick S.
- Donnellan, John.
- Dunne, Thomas.
- Enright, Thomas.
- Esmonde, John G.
- Finn, Martin.
- FitzGerald, Garret.
- Fitzpatrick, Tom. (Cavan).
- Flanagan, Oliver J.
- Gillhawley, Eugene.
- Governey, Desmond.
- Griffin, Brendan.
- 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'Sullivan, John L.
- Pattison, Seamus.
- Reynolds, Patrick J.
- Ryan, John J.
- Ryan, Richie.
- Spring, Dan.
- Staunton, Myles.
- Taylor, Frank.
- Thornley, David.
- Timmins, Godfrey.
- Toal, Brendan.
- Tully, James.
- White, James.
Níl
- Allen, Lorcan.
- Andrews, David.
- Barrett, Sylvester.
- Blaney, Neil T.
- Brady, Philip A.
- Brugha, Ruairí.
- Burke, Raphael P.
- Callanan, John.
- Carter, Frank.
- Colley, George.
- Collins, Gerard.
- Connolly, Gerard.
- Crinion, Brendan.
- 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, Hugh.
- Gibbons, James.
- Haughey, Charles.
- Brennan, Joseph.
- Breslin, Cormac.
- Briscoe, Ben.
- Brosnan, Seán.
- Browne, Seán.
- Healy, Augustine A.
- Hussey, Thomas.
- Kenneally, William.
- Kitt, Michael P.
- Lalor, Patrick J.
- Leonard, James.
- Loughnane, William.
- Lynch, Celia.
- Lynch, Jack.
- MacSharry, Ray.
- Molloy, Robert.
- Moore, Seán.
- Murphy, Ciarán.
- Noonan, Michael.
- O'Connor, Timothy.
- O'Kennedy, Michael.
- O'Leary, John.
- O'Malley, Desmond.
- Power, Patrick.
- Smith, Patrick.
- Timmons, Eugene.
- Walsh, Seán.
- Wyse, Pearse.
Tellers: Tá, Deputies Kelly and B. Desmond; Níl, Deputies Lalor and Browne.
Question declared carried.
SECTION 40.
Question proposed: "That section 40 stand part of the Bill."
This section imposes excise duty at the rate of 2p per gallon on gaseous hydrocarbons in liquid form. In effect, these are predominantly butane and propane gases. The section is also necessary for technical and legal reasons for the imposition of the 10p per gallon on gaseous hydrocarbons used for combustion in the engine of a motor vehicle. This duty does not come into effect until the commencement of section 41.
Would the Minister indicate the reason for the 2p per gallon here? I think he said earlier this is an application of duty to commodities which were not heretofore subject to duty. Is that correct?
Yes. This 2p is really the counterpart of the 2p on hydrocarbon oil. The 2p here is on gaseous hydrocarbons in liquid form and such will be charged at a rate of 10p per gallon. A rebate will then be given in respect of gaseous hydrocarbons in liquid form which are not used in motor vehicles. The rebate will be 8p per gallon.
What kind of motor vehicles are involved?
They are those converted to the use of what is called bottled gas.
In those cases there will be no rebate.
No. This section is a bit complicated and confusing. I must say it confused me when I first saw the draft. Section 41 is the one which actually deals with motor vehicles but, for administrative and technical reasons, we are in section 40 putting 10p on all gaseous hydrocarbons in liquid form, then giving a rebate of 8p if they are not used in vehicles, and then section 41 is the one that will deal effectively with the position.
What are the likely uses? In other words, what are the uses which will be subject to the 2p?
Usually uses for heating, lighting and cooking.
I suggest this is another example of shoving up the cost of living for various people. The Minister may say the revenue is necessary but he should consider the consequences of each step he takes of this kind.
Is there any information on the number of cars that have been converted to the use of gas?
It is difficult to know because we have no record of them, but it is estimated to be something over 3,000 cars and commercial vehicles, mainly commercial vehicles.
(Dublin Central): Is it the Minister's intention to have another look at this if the number of conversions increase?
The provision is being introduced because we are aware this is a growing practice and, of course, if this were not subject to duty the number would no doubt grow at a faster rate. There is no objection to cars being converted to gas but it is appropriate that other forms of energy that are there should be taxed.
(Dublin Central): One of the reasons for imposing duty was to reduce the consumption of petrol. From that point of view would the Minister not think he should be encouraging the use of gas? He cannot have it both ways. I am not arguing against this, but the Minister's argument is contradictory.
They are related products. Some gas is produced here but even what is produced here is produced from imported raw materials.
Question put and agreed to.
SECTION 41.
I move amendment No. 31:
In page 33, subsection (6), lines 20 and 21, to delete "and that the rebate has not been allowed" and to substitute "or that the rebate has been allowed, as the case may be".
This change is necessary because an error was made in the drafting. The purpose of the amendment is to correct that error in order to give effect to the intention of the section. The amendment makes the section clear.
Amendment agreed to.
Question proposed: "That section 41, as amended, stand part of the Bill."
The effect of the section is to introduce a duty rate of 10p a gallon imposed by section 40 on gaseous hydrocarbon in liquid form intended to be used for combustion in the engine of a motor vehicle. It also applies to the legal and administrative framework necessary to implement the duty and it will come into operation on a date to be appointed by order. It will be recalled that I referred to this matter in my budget statement when I said I had become concerned about the extent to which motorists had begun to convert their cars to run on liquified peroleum gas in order to evade payment of petrol duty. I could not countenance a loss to the Exchequer which a widespread application of this practice would produce and I therefore proposed to introduce a provision in the Finance Bill to render gas used in motor vehicles liable to duty. The statement followed developments over a period of time when the growth in the use of liquid petroleum gas as a motor fuel was kept under observation. The use of LPG as a motor fuel has now become a potentially significant threat to the fiscal revenue from hydrocarbon oils. As I mentioned previously something over 3,000 vehicles are now converted to run on LPG. If these vehicles, many of which have a high annual mileage, were using petrol as a fuel the benefit to the Exchequer could approach £1 million per annum. If they were diesel engines the Exchequer could receive some £350,000 in duty annually.
Since the budget announcement that the proposed duty would be at a rate which, when differing efficiencies were taken into account, was comparable to that charged on petrol, various trade representations have put forward the case that the rate should be related to the diesel duty rate. The representations have been based on the considerations that the usage of LPG in motor vehicles is basically commercial and that in the absence of LPG the alternative fuel would be diesel. However it is not accepted that all use of LPG as an automotive fuel is diesel substitution. There is a considerable level of LPG usage as a commercial motor fuel. For this reason therefore the duty level has been set at 10p per gallon, a rate which, when differing efficiencies are taken into account, is comparable to that charged on automotive diesel fuel.
Various methods of collecting duty on automotive LPG have been considered by the Revenue Commissioners. The system considered most effective is a rebate system based on the system currently in use for hydrocarbon oil of other sorts when it is used as an automotive diesel. Under a rebate system all liquid petroleum gas would be charged, at least notionally, at the automotive rate of 10p per gallon. This charge would be rebated down to 2p per gallon for gas which has been shown to the satisfaction of the Revenue Commissioners to be intended for use otherwise than as automotive fuel. With the operation of duty-free warehousing facilities, which allows for revenue control from the point of production or importation to the point of sale by the LPG companies, no actual payment of duty at the automotive rate need arise until the LPG companies involved actually deliver the gas to an automotive retail outlet or some other authorised automotive storage tank. At current level of usage the annual yield of the duty of 10p per gallon on automotive LPG is estimated to be of the order of £350,000, which the House will recollect would be the equivalent to what the revenue would be if the fuel used in these vehicles were diesel.
Can I ask the Minister if there were a very substantial changeover to liquid petroleum gas what the effect would be on the balance of payments as compared to the present position?
I understand the effects would be very slight, because the actual outlet of LPG from the refinery is very small. It would virtually all have to be imported.
Presumably if the market were changing in that way the local refinery would change its production schedule also?
Even if our own refinery were working at full capacity it could not produce sufficient for the market here if we had a significant changeover to LPG. If energy matters change significantly for this country—I refer of course to the possibility of producing energy of our own from this or related sources—then obviously one would be taking a fresh look at the situation or considering whether there should be adjustments made in rates of duty to encourage the use of one form of energy rather than another. At the moment there would be no advantage in switching our consumption to LPG rather than petrol as far as the balance of payments is concerned.
That would appear from the Minister's reply to be based on the present situation in Whitegate. Leaving aside the question of the production at Whitegate at the moment, can the Minister say whether the use of liquid petroleum gas would be on a comparable measurement of—I am not sure what the unit would be— with petrol or whether it would be felt in a smaller import value of crude, unrefined oil?
I am not purporting to be talking ex cathedra in a field which is not my speciality, but I understand that, first of all, there is a limit to the capacity of our refinery. If it is refining from crude oil, the cost of crude is less than the cost of importing the refined gas. Of course if one is producing LPG from crude one is producing other products as well which we would be obviously using, although of course we could re-export them, but they would be used because of the fact that we have a need to use their other oil products as well. The alternative now would be to import the liquid gas itself from overseas refineries such as Milford Haven. The cost of that would be much higher because it is refined and it would therefore be higher than the cost of the crude which we ourselves refine.
That is clear enough: that the cost of the importation of the actual refined gas would be greater than the cost of the crude. But I presume the Minister understands what I am really coming at. The Minister, if he wants to protect the balance of payments situation, presumably has examined the likely effects of, on the one hand, discouraging the use of petrol and, on the other, encouraging the use of liquid petroleum gas. He said that one of his objectives was to increase the tax on petrol so substantially so as to protect our balance of payments position. Is it not reasonable to assume that he has examined the possibility of protecting that balance of payments which was still found to be encouraging the use of liquid petroleum gas? This is what I am trying to ascertain. Has he considered it and, if so, what is the result of his consideration?
That is an irrelevant matter at present. It is not a very significant item in total energy consumption here but, as I have emphasised, we are limited in our own capacity to produce LPG here. At present it is related to the capacity of Whitegate and the capability of Whitegate to sell the other products which arise along with the production of LPG. We would probably be paying a lot more for imports of LPG than for petrol if everybody was to switch from petrol to LPG.
If you had to import it all refined?
Yes. I am talking about the capacity of the country and the consumption of the country now, but this is something which obviously will be looked at from time to time. If the Department of Industry and Commerce have any problems in this field which could be helped by an adjustment of the fiscal aspect of energy I am sure that any Minister for Finance would sympathetically look at that aspect.
Question put and agreed to.
SECTION 42.
The validity of the provision of section 42 has been questioned on the basis that the content of the section would conflict with the Money Bill requirements of Article 22.
Which amendment is the Minister now moving?
I am moving an amendment to delete section 42. The validity of the provisions of the section have been questioned having regard to the Money Bill requirement of Article 22 sub-article 1 of the Constitution in so far as the provisions of the section would apply to matters not related to taxation. The Money Bill character of the Finance Bill would consequently be questioned. It is accepted that some of the prominent uses of export entry are not directly related to taxation or other aspects of Article 22, sub-article 1. For example, export entry is used to regulate export prohibitions and compilation of export statistics. The export entry is used in a taxation context for the purpose of establishing entitlement to repayment and remission of duty where such is dependent on proof of export. In view of the doubt which has arisen it is considered that this section should be deleted, otherwise the status of the Finance Bill as a money Bill might be called into question.
When the Minister says that a doubt has arisen in this regard, how has the doubt arisen? Are there legal proceedings pending at the moment in this connection?
No, it is simply due to the very keen examination in the Dáil office.
Section deleted.
SECTION 43.
Question proposed: "That section 43 stand part of the Bill."
This section increases the penalty for the irregular use of rebated hydrocarbon oil in road motor vehicles, from £100 to £500 and makes provision for the forfeiture of a vehicle in respect of which an offence is committed, that is on the occasion of a second offence, or where the vehicle contains a concealed tank or similar device. I might add that the fine of £100 was fixed in 1940.
The circumstances in which it is proposed to forfeit the vehicle, is the second or subsequent offence or the operation of a hidden tank. Are either of these dealt with in previous legislation or is this a new provision?
Apart from increasing the level of the penalty the section also contains a provision setting out the circumstances in which the offending vehicle may be seized. Motor vehicles using marked oil are at present seized as forfeited under the authority of the Inland Revenue Regulation Act, 1890, but the Revenue Commissioners invoke this power only where the offence involved is not a first offence or where a vehicle contains a concealed tank or similar device. I consider it desirable that a specific provision should be made for forfeiture in the instances mentioned. The section consequently provides that the illegal use of marked hydrocarbon oil shall include forfeiture of a vehicle in respect of which the offence is a second offence or where there is a concealed tank or similar device because clearly on both occasions the offences are deliberate.
It would appear from what the Minister is saying that this section is providing a penalty which has already been in operation.
Yes, but it has been in operation as a matter of practice by invoking the powers under an Act of 1890. I am simply spelling them out now. It is quite likely that in 1890 the legislators were not contemplating the use of that Act for the seizure of motor cars which had not been invented at that time. It was better to modernise it.
Question put and agreed to.
SECTION 44.
Question proposed: "That section 44 stand part of the Bill."
This section increases the indictable limit for customs proceedings in the District Court from £100 to £500.
How does that compare with the other jurisdictions of the District Court at the moment or alternatively when was the £100 limit fixed?
It was fixed in the Finance Act, 1963. Does the Deputy know the civil limit of the District Court at the moment?
I thought it was £500 but I am not certain.
It has certainly changed since we qualified.
Question put and agreed to.
SECTION 45.
Question proposed: "That section 45 stand part of the Bill."
The effect of section 45 is to make specific provision for customs entry of imported dutiable aircraft, ships and so on and for payment of the appropriate duties thereon. It also provides penalties for noncompliance with these requirements. The law relating to the customs declaration of dutiable goods on Import Customs Consolidation Act, 1876, section 55, requires the importer of goods liable to duty to enter them on a prescribed form. Recently doubt has arisen about the application of the provision to import ships and aircraft. The purpose of this section is to make it clear that they must be declared on the standard form of customs entry. A period of seven days is provided under this section for compliance of formalities. The provision for forfeiture in the case of non-compliance is in line with the general provisions relating to failure to comply with entry provisions. The amount of the penalty proposed for conviction on an offence is £500. It is considered appropriate in view of the value of the goods concerned and the present day value of money.
It would be totally inappropriate if provisions were not there for forfeiture?
Is this a situation in which what is being done is to provide in this section for what the law is, as operated at the moment, but that some doubt had risen about it and the doubt is being resolved by making this provision in this section?
That is correct. Again I am sure aircraft were not in the minds of the legislators in 1876.
Is it the kind of doubt that has arisen because it is being operated at the moment under legislation which goes back so far, and which the Minister says did not contemplate this kind of thing?
Question put and agreed to.
SECTION 46.
Question proposed: "That section 46 stand part of the Bill."
This is a section which we invariably have in a Finance Bill to confirm orders which have been made. I will explain the orders if the House so wishes.
That will not be necessary.
Question put and agreed to.
SECTION 47.
I move amendment No. 32:
In pages 36 and 37, to delete subsection (2) and to substitute the following subsection:
"(2) Subsection (5) of section 49 and the proviso to subsection (4) of section 50 of the Finance Act, 1969, are hereby amended by the substitution of ‘6 years' for ‘two years', and the said subsection (5) and the said proviso, as so amended, are set out in the Table to this subsection.
This amendment is purely technical. The section of the Bill is as initiated. We reproduced the whole of subsection (4) of section 50 of the Finance Act, 1969 as it would stand after the passing of the Bill. Paragraph (a) of subsection (4) refers to a duty of 10 per cent on office blocks, and reproduction in the whole subsection of the 1976 Act might cause confusion since the rate of duty tax was raised to 15 per cent in the Dublin area in 1973. It was decided that in the interests of clarity it was better to reproduce only the proviso to subsection (4) in the table in the new section since only the proviso is being amended.
Amendment agreed to.
Question proposed: "That section 47, as amended, stand part of the Bill."
The purpose of the section is to extend from two years to six years the time limit within which it is possible to claim refunds of stamp duty. The cost to the Exchequer as far as is known will be negligible.
I presume some case has risen that necessitated this.
One significant case came to light but there have been cases from time to time where circumstances arose which gave a right in equity to a refund of stamp duty, but because the two-year limit was a statutory period a refund could not be made. I consider it only reasonable that an adequate amount of time should be left in order to correct errors which might have arisen. I took the six-year period because it is the ordinary limitation in relation to deaths and so on.
Question put and agreed to.
SECTION 48.
Question proposed: "That section 48 stand part of the Bill."
The purpose of this section is two-fold. First, it provides exemption from stamp duty for new houses which would have qualified for exemption by reason of their receiving grants under the local government arrangements in force up to December 31st, 1975, although those grants may no longer be payable.
Secondly, the section limits the exemption from stamp duty contained in section 49, subsection (3) of the Finance Act, 1969, to the disposition of houses by local authorities under the Housing Act, 1966. This is designed to withdraw the exemption from transfers of large undeveloped sites from local authorities to property developers.
In relation to the first part of this section, that is, that dealt with in the new subsection (2), what administrative procedure will be followed in order to determine whether a house is entitled to exemption from stamp duty having regard to the fact that presumably no application will be made for grants to the Department of Local Government since the grants are not available? In the interval since the Minister for Local Government announced the abolition of those grants how have these transactions been treated by the commissioners for the purposes of stamp duty? Have they been exempted and, if so, under what authority? But if they have not been exempted what is to happen in regard to those persons who have paid duty?
If there has been payment of duty by mistake there would be a right to a refund. The six-year limit would apply to such cases. I understand that administratively what is proposed is the same procedure as operated in the past: the deed would be referred to the Department of Local Government from where a certificate would be issued to the effect that the house was one which qualified for exemption from stamp duty.
That may be the situation from the point of view of the Revenue Commissioners, but how are the Department of Local Government to be in a position to issue such certificates? Will they have to receive applications from persons who before the abolition of the grant would have been entitled to such grants?
I made that statement on the basis of what my own experience was in the past, but it is some time since I have handled deeds. It used to be the practice that one referred a deed to the Department of Local Government and had impressed on it a stamp certifying that a house was one in respect of which a grant arose. On the face of it that was the certificate which granted the exemption. In practice what will happen now is that application will be made to the Department of Local Government for a certificate of reasonable value or for a certificate to the effect that the house is one in respect of which a grant would have been issued. I am not sure what particulars have to be furnished in that connection but presumably they will be similar to those which were furnished previously in order to obtain a certificate, the difference being that one does not get a grant but gets a certificate to say that the house is one in which a grant would have applied in the past.
Therefore am I right in assuming that the Department of Local Government will have to continue to operate the whole paraphernalia which has applied up to now, including inspectors going out to examine foundations and so on, but that the only difference will be the non-payment of a grant? Will all this information be directed towards furnishing a certificate of reasonable value and a certificate indicating that exemption from stamp duty should apply?
Can the Minister say what has been the position since 1st January, 1976, in respect of deeds of this kind? How have they been treated for the purposes of stamp duty?
Since January 1st the exemption has been allowed administratively on my direction. The legislation makes it effective from that date so that there cannot be any query raised as to whether deeds were stamped adequately. The Act will confirm that they have been so stamped.
Since January 1st have the Department of Local Government been issuing the kind of certificate that is involved here although no grants were being paid?
I can understand why the applicants involved should not have been deprived of exemption from stamp duty but they were being deprived of housing grants. However I should have preferred that the legal position was regularised quickly—if necessary by the passage of a short measure through the House or perhaps there is some procedure that would have been available on certain orders. I shall not query the matter and would merely remark that it is right to ensure that the people involved would at least have the benefit of exemption from stamp duty.
In regard to the second matter being affected by this section, what change is being made from the present position?
Up to now, due mainly to an oversight, the Housing Act, 1966, could operate in such a way that transfers of large underdeveloped sites from local authorities to property developers escaped stamp duty. The intention of that Act was to grant such exemption in respect of houses being disposed of by local authorities. The purpose of the amendment now is to put such sales of underdeveloped sites to property developers on the same footing whether they are coming from private developers or from local authorities.
The Minister spoke about transfers by local authorities to property developers, but I do not think there is any reference in the section to property developers. Is it reasonable, therefore, to assume that this can apply to a wider spectrum than the Minister mentioned? The purpose he mentioned may well be the reason for this change, but will it go further than that and apply to any transfer by any local authority of any property to any other party except the transfer or lease of a house under the provisions of the Housing Act, 1966?
We are replacing subsections (3) of the relevant section of the 1969 Finance Act which reads:
Stamp duties shall not be chargeable in the case of a conveyance, transfer or lease by a local authority under the provisions of the Housing Act, 1966, or of a conveyance, transfer or lease by a society registered under the Industrial and Provident Societies Acts, 1893 to 1966, and made in accordance with a scheme for the provision of houses for its members, to a member or to such member and the spouse of the member.
That is being replaced by this section.
The only change is to put in the word "house" in two places?
Then what I have said would appear to be correct—that in, future stamp duty will be payable on any conveyance, transfer or lease of any property to any party except in the case of a house.
I hope the consequences of that will not produce another amendment next year, because that is a good deal wider than what the Minister said in relation to the transfer of open spaces to property developers.
Local authorities are not known for disposing of property. Of course, there could be cases and if there are it is not inappropriate that the purchaser should pay duty. There is no doubt the 1966 Act was intended to grant exemption in respect of houses being sold by local authorities.
I do not want to raise hares on this but it strikes me that it is possible that a local authority might acquire property compulsorily with a view to development for housing and in times like the present, where the availability of funds is extremely limited, they might decide, and, indeed, in some cases should decide, in my opinion, to unscramble the CPO which would leave the property completely tied up for many years: in such a case the local authority might decide to retransfer the property they had acquired compulsorily. It would seem to me that the effect of this amendment would be to apply stamp duty in such a case. Obviously, if it is applied it will end up as a charge on the local authority. This amendment of the law may be going a good deal further than the situation outlined by the Minister and I would recommend that it be looked at to see whether it is going too far.
The charge will be on the purchaser and not on the local authority who would be selling the property.
Unfortunately, it is the local authority who would pay it.
One never knows to what extent prices are determined by other outlays which have to be met by the purchaser, but I would consider that other outlays would not be relevant. The 1969 Finance Act was clearly intended to deal with the provisions of the Housing Act, 1966, but the omission of the word "house" led to a situation in which some quite significant transfers and sales of property took place without stamp duty being paid by developers. I am sure that was not the intention of the Act, but I will bear in mind what Deputy Colley has said and if an amendment is necessary which the House considers to be deserving of attention, then an amendment will be put forward.
Question put and agreed to.
Before leaving this Part of the Bill I should like to mention two minor errors. One is a printing error and the other a drafting one, which has come to light. The first is in paragraph (c), line 51 on page 38: brackets were inadvertently put around "14". There is, of course, no subsection (14) in section 8 of the Value-Added Tax Act, 1972. The reference is to section 14 of that Act. That printing error does not require a formal amendment because it will be corrected in the next print of the Bill.
The second error appears in Part II of the Fifth Schedule to the Bill, and it requires an amendment. In the repeal provision concerning section 26 of the 1972 Act, which is on page 62 of this Bill, the word "other" should read "otherwise", and I will be bringing in an amendment to that effect on Report Stage.
SECTION 49.
Question proposed: "That section 49 stand part of the Bill."
This section provides for the coming into operation, as on and from 1st March, 1976, of those provisions in the Bill relation to VAT which have already taken effect under the relevant budgetary resolution. Together with section 63, providing for transitional relief for motor cars and motor cycles, the latter provision is necessary to provide for administrative authority for the relief which operated as from 1st March, that is, dealing with cars that were in stock under a different VAT rate. The other provisions in Part IV will have effect from the passing of the Bill. They are mainly provisions for clarifying and tidying up aspects of VAT law. Sections 51, 52, 54 and 56 are aimed at removing opportunities for avoidance.
There is one matter I wish to raise on this. It is the situation of a trader who accounts for VAT on a cash receipt basis while making his sales on a credit basis. I know this is not a new problem but in some cases it is becoming acute as a result of the increased VAT rates provided for in this Bill. Persons in that position may well suffer fairly heavily as a result of there being no provisions in the Bill for relief of such persons. I strongly urge the Minister to consider devising some method of giving relief. I do not think this is a new problem, it has arisen in the past, but is becoming much more acute because of the level of value-added tax rates now in force.
Of course, such people have opted for a cash basis. I can agree that certain disadvantage can arise in the kind of situation Deputy Colley mentions but I cannot see that we could devise a system to avoid the situation he describes.
It is not exactly analogous but bears some resemblance to the situation to which the Minister adverted a moment ago when speaking about cars and motor cycles and the relief necessary in respect of those in stock. I know it is not exactly comparable but I suggest there is a certain comparability and apparently a solution was found in that case.
In the case that Deputy Colley mentions the parallel he tries to draw is erroneous in that there is no element of option. While he is right in describing a cost situation which arises where rates of VAT are increased, the opposite can happen when rates of VAT are reduced, as happened, for instance, last July in respect of clothing, footwear and fuel, and arose also in 1973 in respect of foodstuffs. Therefore, we can only hope that it is a question of what one loses on the swings one picks up on the roundabouts.
Unfortunately, they are not the same people on the swings as on the roundabouts. There are people who have not got the benefit of any of those transactions, who are suffering very heavily at present because of the change. While it is true to say that people can opt for the cash receipts basis, it is also true to say that they took that option when the situation was rather different from what it is now. But they are not now suddenly allowed to opt back in order to avoid the worst results of the increased rates of tax.
It is a bit like matrimony that way.
That is true but I think the law relating to matrimony should not be on all fours with that relating to value-added tax.
There are advantages in both states.
The Minister does not intend to do anything about it does he?
I do not think it would be appropriate to do so. I can see there would be an outcry if we deprived people of gains if the VAT rates were being reduced.
Question put and agreed to.
SECTION 50.
Question proposed: "That section 50 stand part of the Bill."
This section contains definitions of the Act of 1973 and the Principal Act. It is self-explanatory.
Question put and agreed to.
My colleague, the Minister for Foreign Affairs, will deal with the next sections.
SECTION 51.
Question proposed: "That section 51 stand part of the Bill."
This section redefines and clarifies the circumstances in which a trader becomes liable to tax on a "self-delivery" of goods in accordance with section 3 (1) (e) of the Value-Added Tax Act, 1972. First of all, it ensures that a trader will become liable on a self-delivery only in those cases where the tax payable on the self-delivery cannot be deducted in full in the normal way from the tax payable on his sales of goods or other taxable transactions. In other words, self-delivery will be ignored where the treatment of the tax relating to it would be merely a matter of bookkeeping. Secondly, the definition is widened so that the provision can now be applied to a trader or a professional person who is engaged exclusively in exempted trading activities. Previously it applied only where a trader had some taxable activities.
Would the Minister mind repeating that last bit?
The definition is widened so that the provision can now be applied to a trader or professional person who is engaged exclusively in exempted trading activities. Previously it applied only where a trader had some taxable activities. It is one of the effects of the amended wording.
Presumably it is not an accidental effect?
No, it is the intended effect. I think the present wording is the use by "an accountable person" for the purposes of his business and it is now "the application by a person for the purposes of his business". Therefore, it is a change from "an accountable person" to "person" which has this effect.
I have no doubt that this is being done because of certain abuses that were discovered. Would the Minister be in a position to give an example of the kind of thing sought to be dealt with here and, in particular, the necessity for their bringing in persons, even those engaged in exempted transactions?
If, for example, a bank or insurance company decided to manufacture their own requirements of stationery, they would have borne tax on the purchase of the machinery and raw materials and escaped tax on the manufacturing costs. Equity would seem to require that they should pay tax on the same basis as an independent supplier. The new text will ensure that that is so. Otherwise there would be a distortion, a situation in which people would start to undertake new activities of this kind in order to avoid tax. There is no reason why a bank or insurance company should not manufacture their own stationery but they should not have an incentive to do so of a tax avoidance character.
Question put and agreed to.
SECTION 52.
Question proposed: "That section 52 stand part of the Bill."
The taxable amount on a sale of goods within the State is normally the actual price paid. When dutiable goods, such as wines and spirits, are sold while stored in a bonded warehouse and before the duty falls due—which is on delivery from the warehouse—value-added tax is charged, at present, by reference to the actual sale price which does not include the duty. This can lead to a distortion of competition and, in the case of a sale to an unregistered person, loss of tax on the duty element. The section provides that in future the taxable amounts of value-added tax on sales of goods in bond will, in all cases, include the duty payable.
Could the Minister indicate what effect this is likely to have? The most obvious areas to be affected would be those of spirits and tobacco. Is the effect of this section likely to be to increase the cash requirements of publicans and tobacconists and, if so, to what extent? Would the Minister be able to give an idea of what would be the percentage increase involved?
I do not think so. Before checking whether I am right in that, I should explain that what has been happening in the past has been that in respect of sales in bond— usually sales of fairly large quantities by importers to spirit and wine dealers —they paid duty on release of the goods from the warehouse to meet orders in the trade from individual customers, and value-added tax was paid on the full selling price. But, in recent years, some dealers have adopted the practice of selling small quantities, often single cases, in bond before the duty is due. If this is sold to an unregistered person, it would mean a loss of duty.
We should be clear on this. It is designed to restore equity where equity is undermined when some, by buying single cases in that way, could be avoiding an element of duty and getting an unfair advantage vis-á-vis other retailers buying their goods in the ordinary way and paying tax. Obviously, for those concerned, they are paying more than they have been by this avoidance, if you like, arrangement that exists now. But it does not increase the cash requirement or the cost to retailers purchasing their goods in the normal way.
How were such people succeeding in avoiding duty as distinct from what we might call the ordinary trader?
Value-added tax is paid on the price exclusive of duty at present. Where somebody buys a case in bond, value-added tax is then paid on the price, exclusive of duty, and subsequently—often within a few days—the dealer, acting ostensibly as agent of the new owner, arranges for the release of the goods from the warehouse and pays the duty. He then invoices the duty to the consumer as a separate agency transaction not forming part of the sale of goods and not liable to VAT. This application of VAT only to what is called the short price gives the dealer competitive advantage over another dealer who is selling from duty paid stocks.
It is a deliberate, artificial operation to avoid the VAT?
Yes, it is turning into that.
Question put and agreed to.
SECTION 53.
Question proposed: "That section 53 stand part of the Bill."
This section ratifies the changes in the rates of VAT which was announced in the budget and which took effect on 1st March, 1976, that is, from 6.75 per cent to 10 per cent, from 19.5 per cent to 20 per cent and in the case of motor cars and motor cycles a reduction from 36.75 per cent to 35 per cent which, of course, is tied into the lower rates and in the case of television and radio sets, gramophones and records an increase from 36.75 per cent to 40 per cent. There are other budget measures from 36.75 per cent to 40 per cent. There are other budget measures affecting VAT in later sections of the Bill, sections 60 and 81, but this particular section deals with these changes in the rates.
I wonder if the Minister could give me some guidance in this matter. I want to raise on the appropriate section the question of the rate of duty charged on motor cycles. It seems to me that this may be the correct one but I do not want to raise the matter on this if it is not.
I will have a couple of things to say in regard to the section but I might, first of all, deal with the question of duty on motor cycles. I have received representations in regard to this and I believe the Minister for Finance has also received representations. The main point of the representations is that because of the high rate of VAT on motor cycles the production and sale of motor cycles is going steadily down-wards with a consequent loss of employment.
When the VAT rates were fixed in the first instance and I was Minister for Finance representations were made to me that the rate was being fixed at too high a level and would have this effect. I wrote to the people concerned at the time indicating that it was my intention to keep the situation, as indicated by the yearly statistics, under review and if it turned out that what they were saying was correct, that the level of the rate involved would be reconsidered. I understand that representations have been made to the Minister for Finance but that he either has not responded at all or has not responded favourably to them. The statistics seems to show that motor cycle sales were as follows: 1972, 7,806, 1973, 6,669, 1974, 6,384 and 1975, 5,187. If these figures are correct, it certainly seems that there is a continuing downward trend.
I must confess that on a purely personal basis I have no great love for motor cycles. I have never been on one and I do not intend to be on one. Nevertheless, the question of employment is involved here. If it can be shown that the rate of VAT applicable is having a considerably detrimental effect on employment then it behoves the Minister and the Government to consider the position. I, therefore, strongly urge, in the light of the situation revealed by the representations, that the rate applicable to motor cycles be reduced in order to preserve, and possibly create, employment in the industry dealing with the sale and possibly the assembly of motor cycles. I am not certain if motor cycles are assembled here but I believe some limited assembly takes place here.
Assembly takes place here on quite a small scale. It does not appear on the figures available to me that there is a decline in the sale of motor cycles—although there has been some decline in the last couple of years—commensurate with that of motor cars, or indicating in any way that motor cycles are more hard hit, or that there has been a definite pattern. I have not got the 1972 figure for motor cars so I will just stick to the years 1973 to 1975 for comparison for the moment. The Deputy mentioned motor cycle sales figures as being 6,669 in 1973, 6,384 in 1974, and 5,187 in 1975. That is a drop over the two years, 1973 to 1975, of about 1,480 or about 22 per cent. In the same period car sales fell from 74,789 to 52,432, that is a drop of 22,357 or about 30 per cent.
While I cannot swear what the comparison would be if one went back to the Deputy's base year of 1972, certainly over the two years 1973 to 1975 the decline in the sale of motor cycles has been less than in the case of motor cars. The Deputy's case on that basis does not seem very strong. As I understand it, there is no net change in the taxation imposed here. The adjustments being made here relate to increases taking place in the lower levels of VAT and are necessary in order to more or less contain the present position. I hope I have understood that correctly. The same rate applies to motor cars and motor cycles. There is no evidence of motor cycle sales declining more rapidly than motor car sales so it does not seem that there is any very strong case. One would have some hesitation in doing anything which would be an incentive to greater sales of motor cycles in view of the greater danger associated with them than in the case of cars.
It is true that the adjustment being made here in the rate of VAT on motor cycles is simply maintaining the present position. What is sought is that the rate be reduced, which is what was sought when I introduced the rate originally, as I said. Unfortunately, the figures quoted by the Minister are misleading, as he will appreciate, because what he was calculating was the drop in the sales between 1973 and 1975 and was comparing that with what happened in the case of cars. That is the period in which the energy crisis was presumably making its major impact.
The figure for the previous year which the Minister does not have in the case of cars, would be more relevant. I am also informed that in the late 1960s the sales were as high as 12,000 units per year so it appears that the graph is one of continuing fall to less than half of that in 1975. The comparison between 1973 and 1975 is misleading for the reason I have mentioned but if one takes a longer period one finds that there is a steady fall. I freely admit that there may be factors involved in that fall other than the rate of VAT. I urge, since the case that was made at the time of the introduction of VAT appears to have been borne out prima facie, there is a strong case for a reduction in the rate unless it can be shown that the fall in sales is not due to the VAT rate.
I assume, even if the case were overwhelming, that it will not be conceded across the floor of the House by the Minister for Foreign Affairs. I do not expect that but I strongly urge that serious consideration be given solely on the grounds of the employment involved. There is no other reason why I am urging this case.
I am not really convinced. My recollection of work done in another incarnation is that the sales of motor cycles rose sharply and reached a peak somewhere around the end of the fifties. Since then, there has been a decline which was to be expected because with growing economic prosperity there is a long term trend to shift over from the motor cycle, which, apart from its attraction for some young people, is obviously a poor man's motor car, to cars. There is no evidence of anything different from that happening since VAT was introduced. I have not the complete figures here and would have to trace back to the exact point when VAT came in and the different level of tax, but I do not think there is any evidence in any of the figures I have here or that I can recall for a change in the trend which would indicate that VAT is having a particular effect. In the first three months of this year, sales of motor cycles have risen by about 7 per cent. This I have to admit is significantly less than the increase in the sale of cars. They are still losing ground to cars but there has been a recovery in sales.
I would be very hesitant to accept the proposition that anything should be done designed to give an incentive to the sale of motor cycles because of the danger element involved. Like the Deputy, I have never been a motor cyclist although I once got on one and made it go for a short period—I am sure quite illegally—but was sufficiently petrified by the experience never to want to do it again. In the light of the absence of an adequate case statistically for what the Deputy is saying and the aspect of the relevant danger, I would be reluctant to make any change here, even if this were my own departmental responsibility and I were not standing in for the Minister in question.
I do not want to do this problem to death, but I will take issue with the Minister on the question of there being an absence of an adequate statistical case for the case I have made. In so far as there is an absence, it is in the Minister's brief. He does not have the information which would enable him adequately to judge the statistical case made. I would urge that the Department of Finance examine the case as adequately as possible. If it would appear that there is even a prima facie case, they should contact the people making the representations to them and discuss it with them.
I will pass that on to the Minister. It is not possible to get complete figures at this moment.
I am not criticising the Minister for that. The effect of this section is to increase the rates of value-added tax on most items across the board, except those which have been totally exempt or effectively in the case of motor cars and motor cycles, the rate is not being changed. On virtually everything else VAT is being increased. I do not want to get into the argument as to why the Government need so much additional revenue, but if I have to I will.
I am very disturbed at the failure of the Government to recognise the consequences of what is involved in this section and this is merely symptomatic of what the Government have done on a number of occasions since they came into office. They have applied taxes in such a way as to cause a significant increase in the consumer price index, to be followed within a reasonably short time by negotiations for a national pay agreement, with the consequences of the national pay agreement being negotiated based on the consumer price index, heavily influenced by the Government's taxation. This in turn leads to a settlement at a level very much higher than would have been fixed if the Government had not applied such taxation. Such a settlement is then carried right through the whole economy, in particular applied in the public service, but it is applied outside the public service too. The whole consequence is an enormous increase to our economy far out of proportion to the amount of revenue the Government recover as a result of these impositions. We get ourselves into this vicious circle situation in which the Government then find it necessary to impose further taxation to meet the result of that increase in the public sector pay and so we start the circle again.
While this is affecting the private sector our industry is becoming less and less competitive. When this is happening at a time when our competitors are getting their inflation under control, the consequences are even more serious. It may seem that I am going far from what is in this section, but I submit that I am not. The most significant consequence of this section is what I have been describing.
It is not an answer to say that the Government have to find the money somewhere to meet their enormous bill because the size of the Government bill is not, as they would have us believe, virtually entirely outside their control. In most cases, the size of the bill is the result of conscious decisions by the Government to embark on certain expenditure. One frequently gets the impression that the Government, having made such decisions, and having got the maximum credit they can extract from such decisions, try to convey the impression that they have no responsibility for the unfortunate and unpopular measures necessary to raise something even remotely approaching the necessary revenue.
Therefore, this section seems to me to involve increases across a very wide spectrum of commodities, with considerable ill-effects for those engaged in the production of those commodities, particularly where the profitability is marginal. It has caused the loss of a number of jobs, it is increasing the cost of living for everybody and is having the most significant economic consequences for the reasons I have outlined. This section seems to go much further than a simple increase of rates of VAT in order to achieve a greater degree of revenue for the Government. It has much more serious implications and this is the occasion for us to say so.
I do not want to pursue the Deputy too far because we could get back to a Second Reading debate quite easily. It is the case that one of the significant sources of additional revenue in the budget was the increase from 6.75 per cent to 10 per cent in VAT rates. For the rest the difference was negligible or nil. The increase came at that particular level and the Government were faced with the problem of the appropriate balance between expenditure cuts and borrowing and increased taxation. The Government had to arrive at the best balance.
On the expenditure cuts side, the Deputy will be aware of the very considerable cuts on the non-pay side. As the Deputy has commented, the pay side is a separate issue.
Does the Minister mean cuts in Estimates from the Departments or in other estimates?
In the first instance cuts in Estimates from the Departments with the effect of holding down non-pay expenditure at a level that, in real terms, is fractionally lower than last year. As the Deputy will know from his experience as Minister, that is neither easily achieved nor commonly arrived at.
To have gone beyond that and to have cut the non-pay side more than that under any heading would have involved cuts adversely affecting employment. At other times and in other places the Deputy has commented unfavourably on the level of borrowing. and he seems to share the Government's view that it should not go any higher. In those circumstances the choice is between further expenditure cuts which would have had to be in areas directly affecting employment or an increase in VAT rates involving some increase in the cost of living. Quite rightly, the Government made the latter choice.
The effect of the VAT increases— the rate of 10 per cent is the one that bears the brunt—was 1.6 per cent on the cost of living. If possible it was something to be avoided but the alternatives of bigger expenditure cuts, more borrowing or more direct taxation were even less desirable. When we came to look for this marginal additional sum this seemed to be the optimum way of doing it.
We could have proceeded by abandoning zero rates but it has been our policy in Government to maintain zero rates for necessities. I am convinced that is the right policy and I wish some of our EEC partners would see the social wisdom of it. In view of the general sharp decline in the sale of consumer durables and goods of that kind—items such as cars which have been referred to earlier in the debate on this section—further increases there would have had significant employment effects. Therefore, the rate of VAT that seemed most fitting to bear an increase was the 6.75 per cent rate. This rate is basically for goods that are neither necessities nor luxuries but which fall between the two categories.
I would easily stand over the position that this was the best way to get this sum of money despite the fact that obviously if one can avoid it it is not desirable to increase tax of this kind in a way that inevitably has an effect on the cost of living. It was the least undesirable course of action open in the situation which the Government faced.
I think our EEC partners might see greater social wisdom in zero rating of certain essential commodities if we were paying our way. What we are doing is borrowing a great deal of the money that we are using to run our affairs. In those circumstances, the level of borrowing in which we are engaging would tend to make our EEC partners less than sympathetic to the kind of argument the Minister for Foreign Affairs has put forward.
It is not sufficient to suggest that what is involved here is marginal. I should like to remind the House that the last recorded quarterly increase in our cost of living was the second largest we have had. According to the OECD, so far this year we have had a higher rate of inflation than any other developed country in the world. In those circumstances one cannot be dismissive of a 1.6 per cent increase in the consumer price index which the Minister says is the consequence of the VAT rate increases. I am not sure he is not underestimating it when he gives a figure of 1.6 per cent but for the moment let us assume it is correct.
These VAT increases were not included in the last quarterly increase to which I have referred because that was based on a survey carried out on 17th February and the increases operated from 1st March. The increases are coming on top of the second highest increase recorded. I suggest that the situation in which the Government have found themselves is one that is very difficult to get out of but it is not one that is adequately answered by pointing out that we have this expenditure and asking where we are to find the money. It is not good enough for the Government to ask whether they are to borrow the money or the increase taxation. We cannot ignore the situation that has arisen and how it has arisen. We cannot assume it arose in the last 12 months. It did not. It was a gradual course on which the Government embarked, not without warnings that that is where they were heading. Having followed that course it is not good enough to say to us: "What do you want us to do? Do you want us to borrow more money or to increase taxation?". In order to get an adequate and fair answer we must look at what has happened since the Government took over and see how they got to the stage where such enormous expenditure was involved.
I do not think the Government were unaware of the consequences of what they were doing. In particular, the Minister for Foreign Affairs was not unaware of the consequences of this and other proposals in the budget. He must have known very clearly what was going to happen to the consumer price index, what the likely effect would be on the national pay agreement negotiations and, in particular, what would be the likely effect on the Exchequer and its expenditure.
This kind of situation into which the Government have got themselves and the rest of us is symptomatic of the approach that we have repeatedly warned against and cannot support. The attitude that is involved and which has produced this situation is exemplified in this section. For that reason we cannot support it.
I did not intend to be dismissive of a tax increase of the order of 1.6 per cent increase in the cost of living. Indeed, on the contrary, I drew attention to the fact that this was the effect of it. I did not refer to it as a marginal increase. I said that when one comes to take a decision at the margin between a number of different choices one has to choose that which is least undesirable. I did not use the adjective "marginal" and certainly I was not wishing to diminish the significance of what is involved here. There is no doubt but that this is a significant increase in taxation and it has to be faced.
When the Deputy says that it is not good enough to pose a dilemma that faces a Government and ask what course of action should be pursued in those circumstances, one must look back and see how one got into the situation. Frankly, that is not good enough unless the Deputy is a bit more specific. If the Deputy thinks we are in a situation we should not be in because the Government incurred additional expenditure which he disapproves of he has the opportunity, briefly, on this section to elucidate which expenditure he thinks we should not have incurred and what he thinks should be cut. He should tell us what cuts in expenditure should be made now to remove increases that were incurred earlier. He should tell us what cuts would be advocated by his party. He has been conspicuously silent on this. One of the advisers to his party suggested social welfare as a possible solution, but it is one we reject.
Any other cuts beyond which the Government undertook in pruning its non-pay expenditure this year would inevitably impinge directly on employment, about which the Deputy and his party are properly concerned at present. It is not good enough to dodge the dilemma and say this situation should not have arisen if the Deputy is not willing to indicate what parts of the Government's programme he feels should not have been undertaken and should now be pruned and cut out regardless of the effects on the living standards of those in the social welfare categories or on those whose employment would be affected if further significant cuts were made in non-pay expenditure. I must rebut the Deputy's position and reiterate that the Government were faced with a choice and the choice they made in this instance was the least undesirable choice and one which I, therefore, have no hesitation in defending.
I do not wish to spread this debate too far but I must avail of the Minister's invitation to explain on this section what I think should have been done. I am singularly unimpressed, as I told the Minister for Finance earlier, with public waving or reductions in Estimates by various Departments. That happens every year. It means nothing. What counts is what is published, what is decided by the Government as the Estimates to be met and how they meet them. The accumulation of expenditure which the Government have had over the past three years is what we are talking about and we talked about it as it was occurring. There is no way any Government can avoid responsibility for the level of expenditure which they decide on. That is their responsibility and the finding of money to meet it is their responsibility.
Anything I am about to say is not to be taken as in any way subscribing to the proposition that any Government can saddle anybody else, Opposition, trade unions or employers, with the responsibility which clearly rests on the shoulders of the Government in power. I shall now give the Minister an example of the kind of expenditure the Government should not have to be financing. In the budget of January, 1975, the Government introduced taxation which caused an increase of approximately 4 percentage points in the cost of living immediately before national pay negotiations. That was taken into account in the national pay negotiations and carried through into the public sector pay. Subsequently, of course, the Government did what we had been urging them to do before the budget, they introduced subsidies of different kinds. Had they done that the expenditure the Government would have had to undertake in regard to public sector pay would have been much lower and the Government would not have had to find and still have to find the expenditure necessary to meet that part of public sector pay. That is only one example. I could develop it but I am not entitled to on this section.
The Chair is concerned with the trend of debate at present. It could develop into Second Reading speeches. We are in Committee and we should stick closely to the section before us which deals with VAT levels.
I demur the Deputy's arithmetic but in deference to the Chair's ruling I will not try to explain in detail why I think it is defective.
Question put.
The Committee divided: Tá, 58; Níl, 52.
Tá
- Barry, Peter.
- Begley, Michael.
- Belton, Luke.
- Belton, Paddy.
- 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.
- Dockrell, Henry P.
- Donegan, Patrick S.
- Donnellan, John.
- Dunne, Thomas.
- Enright, Thomas.
- 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.
- Kenny, Enda.
- Kyne, Thomas A.
- L'Estrange, Gerald.
- Lynch, Gerard.
- McLaughlin, Joseph.
- McMahon, Larry.
- Malone, Patrick.
- Murphy, Michael P.
- O'Brien, Fergus.
- O'Donnell, Tom.
- O'Sullivan, John L.
- Pattison, Seamus.
- Reynolds, Patrick J.
- Ryan, John J.
- Ryan, Richie.
- Spring, Dan.
- Staunton, Myles.
- Taylor, Frank.
- Timmins, Godfrey.
- Toal, Brendan.
- Tully, James.
- White, James.
Níl
- Allen, Lorcan.
- Barrett, Sylvester.
- Brady, Philip A.
- Brennan, Joseph.
- Breslin, Cormac.
- Briscoe, Ben.
- Brosnan, Seán.
- Browne, Seán.
- Brugha, Ruairí.
- de Valera, Vivion.
- Dowling, Joe.
- Farrell, Joseph.
- Faulkner, Padraig.
- Fitzgerald, Gene.
- Fitzpatrick, Tom (Dublin Central).
- French, Seán.
- Gallagher, Denis.
- Geoghegan-Quinn, Máire.
- Gibbons, Hugh.
- Gibbons, James.
- Haughey, Charles.
- Healy, Augustine A.
- Herbert, Michael.
- Hussey, Thomas.
- Kenneally, William.
- Kitt, Michael P.
- Burke, Raphael P.
- Callanan, John.
- Carter, Frank.
- Colley, George.
- Connolly, Gerard.
- Crinion, Brendan.
- Cronin, Jerry.
- Daly, Brendan.
- Davern, Noel.
- Lalor, Patrick J.
- Leonard, James.
- Loughnane, William.
- Lynch, Celia.
- Lynch, Jack.
- MacSharry, Ray.
- Molloy, Robert.
- Moore, Seán.
- Murphy, Ciarán.
- Noonan, Michael.
- O'Connor, Timothy.
- O'Kennedy, Michael.
- O'Leary, John.
- O'Malley, Desmond.
- Smith, Patrick.
- Timmons, Eugene.
- Wyse, Pearse.
Tellers: Tá, Deputies Begley and B. Desmond; Níl, Deputies Lalor and Browne.
Question declared carried.
SECTION 54.
Question proposed: "That section 54 stand part of the Bill."
The effect of this section is to limit to 10 per cent the amount of input tax deductible in respect of Fourth Schedule goods in the two new cases, that is, (1) where the goods are obtained by self-delivery and charged as such to value-added tax, and (2) acquired by the manufacturer or assembler of such goods for use otherwise than as stock-in-trade. The third case mentioned in the section, namely, goods acquired by a person other than a manufacturer or assembler of such goods was already covered by the provision which is being replaced. Fourth Schedule goods comprise motor cars at 35 per cent, motor cycles at 35 per cent, and television sets, radio sets, gramophones and records at 40 per cent.
The tax on Fourth Schedule goods is imposed at two levels, 35 per cent and 40 per cent, as the case may be, and is imposed at the manufacture or import stage. At these rates only 10 per cent may be deducted as input tax by dealers who are not themselves manufacturers. On the other hand, when those dealers re-sell their stocks they are chargeable at the rate of 10 per cent only. At present the restriction on the deduction of input tax does not apply to the manufacturers of these goods because, as all sales by manufacturers are liable to the higher rate, it was assumed that the tax would always be collected at a later stage. However, cases have now come to notice in which manufacturers are directly involved in the hiring out of Fourth Schedule goods which are liable to tax at the 10 per cent rate only. In these and similar cases tax at the higher rate is being deliberately avoided. Accordingly, the proviso to section 12, subsection (1), of the VAT Act, which limits input tax deduction to 10 per cent, is being extended so as to apply to Fourth Schedule goods used by a manufacturer for any purpose other than as stock-in-trade. The provision will also apply to Fourth Schedule goods purchased by the manufacturer as well as to those purchased by him and treated as self-delivered under section 3 of the VAT Act as amended by section 51 of this Bill.
Does this mean that a manufacturer or wholesaler would be subject to a minimum rate of 10 per cent on goods bought for own use rather than for resale?
We are closing off an avoidance practice whereby the people who enjoyed the 10 per cent rented out the goods involving a tax of only 10 per cent, whereas it was never intended to be at 10 per cent but at 40 per cent. It is putting, as it were, rent operations on the same basis as if the goods were sold.
You have not answered the Deputy's question.
It limits to 10 per cent the amount of input tax deductible in respect of Fourth Schedule goods obtained by way of self-delivery. Does this tax relate to goods purchased by a manufacturer, wholesaler or retailer for own use rather than for resale or hire?
Does it mean that where formerly a manufacturer, wholesaler or retailer could reclaim the VAT on goods for own use he now can reclaim only down to 10 per cent?
The present prohibition extends to wholesalers and retailers only, not to manufacturers. The effect of this section would be to extend it to manufacturers as well.
I do not follow that. Does this section cover goods bought for own use?
For own use other than as stock-in-trade.
You mentioned wholesalers and retailers. At present wholesalers and retailers can charge VAT. In other words, they can reclaim VAT charged on goods which they have purchased for their own use. I do not want to confuse the Minister, but he has excluded retail and wholesale in his reply.
Will the situation in regard to what Deputy Brugha is talking about continue, or is a possible claim for rebate blocked?
We are not changing the position of wholesalers and retailers but simply extending to manufacturers the regimes applied to wholesalers.
On all goods under the Fourth Schedule?
Is the purpose of this section to close off some method whereby manufacturers were able to purchase goods in that category and hire them?
Will VAT be charged on such goods in future at a minimum of 10 per cent?
In future it will be 10 per cent on the rental and 30 per cent on the capital cost.
(Dublin Central): Ten per cent on what?
Ten per cent on the rental, 30 per cent on the capital cost of the goods.
(Dublin Central): What is the VAT rate on those goods?
It will depend on the precise rental and capital elements but it will be tantamount to 40 per cent.
(Dublin Central): This section seems to be confined to manufacturers only. As an instance, let us consider an assembler of cars who has a car hire service, a manufacturer operating on a rental basis. This is a new practice that has developed to a large extent whereby companies do not buy cars anymore. There are motor manufacturers who are also hirers of cars in another section of another company, but I thought that they would have to pay the VAT when they were transferring the vehicle to another company. Evidently this is not so. I did not realise they were operating within their own company of assemblers. This can apply also where television sets are concerned. I could see the possibility of assemblers of television sets branching out into the rental service, and this section provides that they would be liable to VAT. If they were renting the television sets or motor cars, there would not be any sale as such in the company. The company would still hold the car, radio and the various other things that are mentioned here in the Fourth Schedule.
What I want to satisfy myself about is that this provision does not include any of the articles at present exempt where retailers are concerned, that they can claim VAT for a particular type of goods that are not for resale but are needed in the course of their business. Are there any of these articles that can be caught and that are already exempt?
(Dublin Central): This deals specifically with the situation where a manufacturer establishes a rental operation. Articles that are mentioned here in the Fourth Schedule can be exempt from VAT?
(Dublin Central): But if they were sold to another manufacturer who was operating in the same business, a wholesaler, the wholesaler would be subject to VAT, and the Minister maintains that this would give an unfair advantage? Is that the picture?
(Dublin Central): I thought that in the Finance Act last year that loophole was closed. I can see what the Minister has in mind. However, if a company contracts 12 months in advance with another company when this Bill becomes law they will be liable to 30 per cent VAT. Having made an agreement for 12 months in advance, it may not be possible to pass on that charge. They may contract for anything in the region of 1,000 cars— there is nothing unusual about that— and a rate has been quoted before the passing of this Finance Bill, and does not take this additional tax into consideration? Therefore, a reasonable time should be given to companies that find themselves in this situation to ensure that they do not incur what could be a substantial loss.
Furthermore, I want to ask the Minister at what stage will the car be caught. Will secondhand cars be caught or is it only the new car that is leaving the factory as and from now when this Finance Bill is enacted that will be caught or will it apply to other cars which the company has rented out, which, as I have already mentioned, could involve 500 to 1,000 cars? That is a point that would want to be clarified in respect of these companies. I do not mind provision being made in relation to cars leaving the factory when this Bill passes through the House, but if it goes back and catches the cars I have mentioned, I think it will cause a problem.
The only transactions which will be affected will be transactions which commence after the passing of the Bill, so the fear which Deputy Fitzpatrick has about existing contracts will not arise.
(Dublin Central): That is all right.
Our information is that the practice is not widespread, but we know it to exist, so we are closing the gap before it develops into a big racket.
(Dublin Central): Provided it does not include those cars in respect of which contracts have been made with other companies——
It will deal only with transactions from the passing of the Bill.
We welcome any means the Minister adopts to close off evasions but could he explain something to me? I quote from the explanatory memorandum which says:
Section 54 limits to 10 per cent the amount of input tax deductible....
What does that mean? Does it mean 10 per cent of the tax chargeable?
The businessman will pay whatever the appropriate tax is, 35 per cent, 40 per cent, and when he is paying over to the Revenue Commissioners the value-added tax on the sales made by him he is entitled to deduct 10 per cent in respect of the Fourth Schedule goods. That is what is meant by "input tax deductible". He is entitled to deduct 10 per cent——
I understand that, but it is 10 per cent of the 40 per cent, which is 4 per cent, or is it 10 per cent, a quarter of the 40 per cent?
It is 10 per cent of the value of the goods.
Question put and agreed to.
SECTION 55.
Question proposed: "That section 55 stand part of the Bill."
The effect of this section is to update the provisions of section 15 (4) (a) of the Value-Added Tax Act, 1972, dealing with the valuation of imported goods for the purposes of the tax. The new wording takes account of various developments of European Community law as applied here.
First, the valuation of goods for customs purposes, which is also used as a starting point for VAT purposes, is now governed by Regulation 14 of the European Communities (Customs) Regulations, 1972, and a reference to this regulation is substituted for the reference to the Finance Act, 1952. This will have no practical effect on present procedures. Secondly, the import duties which are to be included in the valuation are expressed in general terms with a view to obviating further amendments arising out of changes in customs laws. The text refers to "any duty, levy or other tax (excluding value-added tax) payable in relation to importation".
Before 1st January, 1976, only customs duties were mentioned in the provision. As from that date, the provision was amended by the Imposition of Duties (No. 221) (Excise Duties) Order, 1975, to include the excise duties imposed by that order in lieu of revenue customs duties which were abolished as a result of EEC commitments. A further extension became necessary to cover the special excise duty on liquid petroleum gas as from 29th January, 1976. This amendment is dealt with in section 40 (8) of the Bill. The amendment will apply up to the date of the passing of the Bill, on which date the text of the present section will displace it. It is not intended that the present application of the provision shall be affected in any way. Should new taxes be imposed on imports in the future the provision would, of course, automatically extend thereto.
(Dublin Central): Perhaps the Minister would clarify a point for me on this section. We know value-added tax is not imposed on the importation of certain goods. Furniture manufacturers and other manufacturers are concerned about this and I am sure they have put their case quite forcibly to the Minister. They have to pay value-added tax on their raw materials here and therefore imported furniture has an advantage. There is a certain anomaly and that is giving outside manufacturers an advantage over home manufacturers because they have to pay value-added tax on the raw material long in advance of selling the goods.
That has been frequently raised and it is difficult to explain the position but we have looked into it very carefully. First of all, we cannot impose value-added tax on imports because EEC rules prevent us doing so and we are, therefore, legally constrained. There is, too, a certain amount of misunderstanding. If a trader purchases from an Irish manufacturer he may obtain credit for value-added tax in respect of the goods purchased even before the supplier of the goods has paid. The credit would arise when he makes his value-added tax returns to the Revenue Commissioners. He would be entitled to set off against what he would pay to the Revenue Commissioners the value-added tax he has to pay to his supplier. Depending on the terms of the credit he could, in fact, get the use of quite an amount of money, as it were, before actually paying the value-added tax to his supplier. That credit cannot arise in respect of imported goods because there is no liability to pay value-added tax at the point of importation and so no credit can be claimed against the Revenue Commissioners in that case. If anything, traders gain by buying from Irish manufacturers. They would get less benefit by purchasing from abroad. I am quite anxious to encourage purchases from Irish manufacturers.
(Dublin Central): I am not sure the people engaged in furniture manufacturing would accept the Minister's argument. The Minister says that those who buy home manufactured products can claim credit for value-added tax but the fact is value-added tax must be paid on the raw material. The credit may be only two months but value-added tax must be paid well in advance of the purchaser receiving his credit back from the Revenue Commissioners. I see the Minister's point of view. I am wondering how the Minister carried out his research and came to this conclusion because those working in this sensitive manufacturing area are working on very tight margins and they have a different view from that held by the Minister. They have to pay value-added tax and there is no value-added tax charged on imports. They tell me they are at a disadvantage and I can only take their word for it.
I met quite a number of deputations on this. There are many difficulties which could arise if we were to apply value-added tax at the point of importation—that is, if we were given permission to do so. It would have to be applied to all goods of the appropriate category and that would mean imposing value-added tax on imports necessary for manufacturing here.
(Dublin Central): I see that point.
This could well create problems of liquidity. We could give credit but those involved could be tied up in the meantime. I can say definitely that there are people who, on reflection and having studied the matter with the Revenue Commissioners, saw the situation was not in fact to their disadvantage and agreed it was better to maintain the present system. Others are not yet convinced but we have nothing to convince us that the system is working to their disadvantage.
(Dublin Central): Does the same concession apply when we export?
(Dublin Central): I know that this is not relevant——
Then the Deputy should refrain from raising it.
(Dublin Central):——but value-added tax is not charged on exports of antiques but it is charged on the antique purchased by a national in the country. That happened at the recent sale in Malahide Castle. An antique bought to be kept in the country had VAT charged on it but those bought for export were exempt.
It is not relevant and the Deputy should not raise it.
(Dublin Central): I might not have an opportunity of mentioning it again.
The Minister said that this section "will have no practical effect on present procedures". He brings a section into this Bill which is, as he explained, necessary but then he says it has no practical effect. I wonder if the Minister could elaborate on that.
The existing cross-references are to an Act which itself is not the textbook of definitions. It does not contain the classifications. The classifications for customs purposes are now contained in European Community law. They are comparable in so far as their effect is concerned, but I consider it proper that we should have in our legislation the proper reference rather than that we should have a reference which is now not the one being used.
That is the point. Was the former reference to the Finance Act, 1972?
Yes, the Finance Act of 1952. Basically Regulations No. 14 of the European Community Customs Regulations of 1972 are exactly comparable with the regulations made in 1952 under the Finance Act.
That is the point, the more or less part. I find it difficult to appreciate that the Department of Finance in preparing a Finance Bill in 1952 could be so far-seeing as to cover exactly what was going to be covered in the EEC regulations of 1972.
I am not saying that the 1952 Act is comparable in all respects with Regulation 4 of the European Community Customs Regulations, 1972. I say that by reason of our obligations in the EEC we have had to bring in the European customs regulations from the 1st January of this year. That is now what governs our law. Our Constitution so provides. The Community law is superior to our own. That is what we are operating under at the moment, although our statute refers to the Act of 1952. I am bringing the Community regulations into the Act so that the Act has a proper reference.
From the manner in which the Minister explained that there was no real practical difference I felt he was paying a wonderful tribute to the Minister for Finance of 1952 and I feel that Mr. MacEntee's attributes in this respect should be recognised here today and put on the record.
By way of final comment on that, there was a great co-operation between customs authorities right across the world. There was a customs co-operation council in existence before any of us were born.
I am not sure whether I am taking from the glory of the Deputy or of the Minister.
Question put and agreed to.
SECTION 56.
Question proposed: "That section 56 stand part of the Bill."
Section 56 advances the date from which interest on unpaid value-added tax begins to run, in cases where an unofficial estimate is made under section 23 of the Value-Added Tax Act, 1972. In the normal case an interest rate of 1½ per cent per month is charged on unpaid tax as from 19th day of the month following the end of the two-month taxable period. Where for enforcement purposes tax is included in an estimate under section 23 of the Principal Act, interest does not begin to run until after the expiration of the period—14 days—allowed for lodging an appeal or the final determination of the appeal should one be lodged. As a consequence of this arrangement defaulters can postpone the operation of the interest provision by a substantial period simply by lodging an appeal against an estimate even when no other grounds for an appeal exist. The present section substitutes a new paragraph for paragraph (b) of section 21 (2) of the Principal Act. It provides that interest will in the case of tax included in an estimate under section 23 be calculated as from the 19th day following the taxable period included in the estimate or the last such taxable period, if there is more than one.
The provision is analogous to that contained in section 26 of the Finance Act, 1975, in relation to PAYE.
Does "official estimate" mean where the Revenue Commissioners have not got the return?
Yes, or where there is a difference between what could be the proper return and the return that was made
Is that the difference between what was submitted and revenue estimates?
Yes, where there is a difference
The Minister mentioned 14 days. Should the ordinary date in standard practice be the 19th?
No, from the date of an assessment there are 14 days within which an appeal can be lodged. Unless you make this change it means that until such time as such an appeal is determined the interest cannot be charged. There have been cases when appeals have been lodged simply for the purpose of getting an extended period for the payment of the tax without interest. All we are creating now is a provision whereby that facility cannot be availed of in future and that interest on whatever is found ultimately to be due will be payable as and from the 19th day after the conclusion of a two-month period, in the same way as would apply if the person had not made an appeal.
In effect what the Minister is saying is that interest is chargeable whether there is an appeal or not.
Yes, but if the appeal establishes that there is no liability there is no interest.
(Dublin Central): Interest could not be charged even when the appeal was decided, but when the Minister talked about an estimate of what could be due I presume he is speaking about people who would not submit VAT for five or six months, or is he speaking about where there is a dispute about VAT due on the 19th day of the second month, or about a prolonged period where VAT has not been received and the Revenue Commissioners submit an estimate? Is that the type of case he has in mind, or is it a general appeal that the Revenue Commissioners would be interested in?
Interest begins to run from the 19th day. If a trader is in disagreement he can appeal. If he wins his appeal he will not pay interest.
(Dublin Central): There is no estimate on the 19th day sent out by the commissioners; it would be a month later or two months surely. It is very seldom they send out an estimate.
The interest runs from the day upon which the proper amount of VAT should have been paid. For a variety of reasons that might not be determined until long after, but the interest runs from the day upon which it was due to be paid, that is the 19th day, the end of the appropriate trading period.
(Dublin Central): There are companies going bankrupt or businesses running into trouble all the time whose accounts are not made up to date. The people I pity are small retailers working on a very small scale who are not in a position to have accounts ready. Anyone who has any knowledge of VAT knows that it is a cumbersome job to write up invoices. I refer particularly to small grocers who have thousands of invoices.
Groceries are not affected by VAT.
(Dublin Central): There are other lines of business where a huge amount of invoices present a problem and there is very little compensation involved. There are several commodities which can be obtained in groceries that are not exempt. The Minister knows perfectly well that it is a cumbersome and time-consuming job for people in this category who may close their business at nine or ten o'clock in the evening and VAT is due within the following two days. It can take nights to try to make up the VAT. I can see the Minister's point where a person deliberately lodges an appeal and VAT could not be charged but I am concerned with the smaller type of unit that has not the personnel and have to try to do the business themselves and make up the VAT. It can pass beyond the 19 days of the second month.
In practice, the Revenue Commissioners do not look for their pound or ounce of flesh, as far as industries are concerned, if there is a fairly good record of regular returns.
It appears arising from the introduction of the section, and from what the Minister has explained, that if for any surreptitious reason a trader appeals and the appeal is not genuine, this section is closing a gap obviously for the reason that some people have been making use of this loophole. I take it that in the normal course the ordinary small trader is expected to send in his value-added tax by the 19th of the following month. Normally, he does not get notice. The situation is that he gets his form, he puts down the amount and sends it in. Arising from that the Revenue Commissioners might write to him and say he has not paid enough. I presume that this is technically an appeal situation, where the trader writes in and says that he has paid enough. I presume that letter is taken as being a type of appeal. In the normal course, basically, the trader is not getting a straightforward assessment. There is a provision built into section 56 which says: "...whether a notice of appeal under that section is received or not ..." The explanatory memorandum says:
Section 56 advances the date as from which interest may be calculated in relation to unpaid VAT covered by an official estimate. The new date will, as nearly as possible, be the same as that which would apply if no estimate had been made.
We are talking about an estimate from the Revenue Commissioners and if no estimate is received there is no appeal. As I see it this is not tax avoidance. It is a question of a trader having collected tax on behalf of the Revenue Commissioners by way of VAT and not having sent it in. That is, I suppose, a tax paying avoidance, rather than a tax avoidance as such. What if a trader were to write in religiously every month saying that he was in disagreement with the Minister, that under existing legislation he could accrue a debt to the Revenue Commissioners but that under the previous Finance Acts he was not liable to pay interest on that debt? I would like to get that confirmed.
Technically, yes. That could be the position provided he lodged an appeal. An appeal is not simply a dispute with the collector, but it is the lodging of the appeal to an appeal commissioner. The normal case where this would arise would be where on an audit the Revenue Commissioners were satisfied that an adequate return of VAT had not been made. Then an estimate for a greater amount than that returned would be made and presented and an appeal would arise from that. We are certainly closing a loophole that certain people have availed of.
Question put and agreed to.
SECTION 57.
Question proposed: "That section 57 stand part of the Bill."
This section deals with the forms of certain evidence to be presented before a court. It is provided that a certificate signed by an officer of the Revenue Commissioners certifying a number of factual matters will be accepted as evidence, until the contrary is proved, or the matters so certified. This certificate is similar to that which we have already provided in some other matters of tax administration. The matters which can be certified are that the defendant was during a stated period an accountable person, that the defendant was during a stated period a registered person and that a person was not during a stated period a registered person. This procedure is in line with that already prescribed in section 26 of the Value-Added Tax Act, 1972 for the certification of other matters, and they included that stated particulars, or stated deterrents were not furnished, that a stated document was duly sent to the defendant, that a stated notice was not issued to the defendant. It has the advantage of enabling these matters to be proved without requiring the quite expensive and unnecessary attendance of personnel at the Revenue Commissioners and at the same time the defendant is at no disadvantage because the matters so certified will obviously have to be proved.
Question put and agreed to.
SECTION 58.
Question proposed: "That section 58 stand part of the Bill."
This section extends the powers to the Revenue Commissioners to make regulations in the area of income tax deductions. Regulations in this provision may provide for the adjustment of any such deduction made by an accountable person where within five years of the original deduction a change has occurred in the factors by reference to which the original deduction was made. Normally, application of the new powers will arise only in the case of a person whose business is mixed, which is partly taxable and partly exempt.
Question put and agreed to.
SECTION 59.
Question proposed: "That section 59 stand part of the Bill."
The effect of this section is to remove a doubt as to whether goods held for self-delivery are to be excluded in assessing stock-in-trade. It will be recalled that the new proviso to section 12 of the principal Act, as inserted by section 54 of the Bill places a 10 per cent ceiling on the amount of input tax deductible in respect of "Fourth Schedule" goods purchased by the manufacturer of such goods and applied by him otherwise than as stock-in-trade, and that the new definition of self-delivery which is inserted by section 51 of the Bill applies to cases in which the tax chargeable on goods would not, if the goods had been purchased subject to tax, be wholly deductible and thus extends the goods covered by the proviso. The purpose of the section is to avoid the danger of circularity of definition in relation to goods covered by the proviso.
(Dublin Central): What happens if a manager is engaged in an industry himself?
Deputy Fitzpatrick raised this question earlier when he thought what we are now doing was what we had done last year. This was in relation to dealing with rentals, the same as with sales. Last year we dealt with an avoidance practice whereby manufacturers sold to their own wholesale companies at artificial prices.
Is it on this section that the 1 per cent refund to farmers is being withdrawn?
It is being withdrawn on the Fifth Schedule.
Question put and agreed to.
SECTION 60.
Question proposed: "That section 60 stand part of the Bill."
This section serves three main purposes. The first is to consolidate and re-enact the First, Second, Third and Fourth Schedules to the Value-Added Tax Act, 1972. These Schedules deal with the tax classification of goods and services and have been amended substantially since 1972. Consolidation should be of considerable assistance to trade generally and to the legal and accountancy professions. The second purpose is to carry into the law the changes in the tax on certain goods and services as announced in the budget. These are: removal of exemption for short-term car hire and the application of 10 per cent; secondly, removal of fur clothing from the zero rating and the application of the 20 per cent rate and, thirdly, the application of a 10 per cent rate to dances which formerly were liable to the 11.11 per cent rate. The third purpose of the section is to avail of the opportunity of the consolidation of the Schedules in order to effect a small number of drafting corrections in the text. These changes will not affect the present liability of goods and services. In addition, the Fourth Schedule has been split into two parts as a result of the specification of two rates—35 per cent and 40 per cent—in lieu of the 36.75 per cent rate. The section comes into effect as and from 1st March, 1976, to conform with the relevant budget resolutions.
The consolidation of the Schedules is a useful exercise. There have been changes from time to time and it will be helpful to have them altogether in this way.
There is one matter to which I wish to draw the Minister's attention. This is in regard to the Second Schedule, which provides for goods and services chargeable at the rate of zero per cent. So far as I am aware that Schedule includes firelighters but I understand that candles, nightlights and matches are charged at the 10 per cent rate. These are major sources of lighting especially in emergencies such as when gas and electricity fail. Indeed, they are of every day use both for the poorer sections of the community who cannot afford all the electricity they need and for those living in parts of the country where electricity is not available. My point is that if it is correct to treat firelighters with the zero rating, it should be correct also to treat these other commodities in the same way. There may be a case for treating them more favourably than firelighters which, although useful, are in the luxury category, whereas candles, matches and to some extent nightlights are not in that category. Therefore I ask the Minister to agree to make the necessary changes so as to ensure that these commodities too would be zero rated.
The Deputy has made a very illuminating contribution which is adding fuel to the fire of VAT.
The Minister should not go too far on that path lest we would begin to follow him thereby preventing him from getting any further business done.
I am complimenting the Deputy and his advisers. While I am aware that he carries out a great deal of research I doubt if he found all that information of his own accord.
I received representations in the matter.
The reason for firelighters being zero rated is that they are regarded as fuel whereas the other items mentioned are not so regarded. The matter is under challenge at present and I am not sure whether it has reached the point of litigation. In any case the issue is being processed and I am not in a position to throw light on the outcome.
I understand that firelighters are regarded as fuel but how does the Minister regard the situation? Does he consider it a reasonable division to zero rate firelighters but to subject matches, candles and nightlights to a 10 per cent tax?
They are all very helpful in lighting fires.
If one is left in the dark it is very handy to have a candle to help one find these other commodities but they are not related.
I am not sure what the Minister means when he says the matter is under challenge. Perhaps he will understand the point I am making when I tell him that among those who have made representations to me are the management of a factory in my constituency who tell me that the situation may be affecting employment. Representations on behalf of that factory were made recently to the Revenue Commissioners. I think it is possible for the Minister, without legislation, to change the classification of these items or at the very least to undertake to give sympathetic consideration to the representations made to him.
I will look into the matter but I am not aware personally of having received any representations in this regard.
The representations have been made to the Revenue Commissioners but, presumably, they will reach the Minister eventually.
That is not always the case.
I would like the Minister to ensure that in this case the matter receives his attention.
When I said that the matter is under challenge I was speaking of its being under appeal to the appeals commissioners on a question of classification so we must await the outcome of this before making a final determination.
We are in some difficulty here because the section incorporates part of the Schedules and these are very extensive. I take it that it is on this section, if at all, that we must raise any points we wish to raise in regard to any of the Schedules.
They are all part of the section.
Question put and agreed to.
SECTION 61.
Question proposed: "That section 61 stand part of the Bill."
This section provides for various amendments consequential on the budget measures affecting VAT. The amendments which are specified in Part II of the Fifth Schedule to the Bill, have effect as from 1st March, 1976.
Question put and agreed to.
SECTION 62.
Question proposed: "That section 62 stand part of the Bill."
Value-added tax is not, at present, a preferential debt in bankruptcy and liquidation proceedings. This section grants to the tax the same degree of priority as that at present applicable to PAYE tax. Under the provision, tax in respect of the 12-month period prior to the commencement of the bankruptcy or winding up, et cetera will rank equally with most other taxes and certain other preferential debts in priority to all other debts.
How did it happen that VAT did not have preferential treatment?
Because Deputy Colley did not provide for it in 1972. I understand it was not in the 1972 Act nor was there a provision in the Turnover Tax Act, 1963. I appreciate that the Deputy was anxious in 1972 to keep the new tax as much as possible in line with the old one but there have been complaints about the revenue losing money because of misapprehension by business people and others.
Question put and agreed to.
SECTION 63.
Question proposed: "That section 63 stand part of the Bill."
The purpose of this section is to provide transitional relief in respect of new motor cars and motor cycles held in stock by dealers immediately before 1st March, 1976, the date when the relevant tax rate was changed from 36.75 per cent to 35 per cent.
It will be recalled that the 36.75 per cent rate was effectively chargeable at two levels—30 per cent at the manufacturer or import stage and 6.75 per cent at the retail stage, and that the equivalent tranches of the new rate are 25 per cent and 10 per cent respectively. In the generality of cases, the new rates were not expected to increase the burden of VAT on motor cars. However, it was represented that the application of the 10 per cent rate to retail sales of vehicles which had already borne the 30 per cent tranche at an earlier level would constitute a hardship for dealers who would not be in a position to recover the extra tax by way of higher prices. Accordingly, it was decided to provide a measure of relief designed to ensure that the 6.75 per cent rate would remain in force, up to the end of April, as regards resales of new vehicles which had already borne the 30 per cent tranche. It is expected that this moratorium will provide ample time for the disposal of existing stocks.
Question put and agreed to.
SECTION 64.
Question proposed: "That section 64 stand part of the Bill."
This section provides for interpretation and commencement of this part of the Bill. Subsection (1) comprises definitions necessary for the purposes of this part of the Bill. They are largely self-explanatory. The following, however, call for special mention:
"General licence" as stated in the definitions means a licence issued under section 9 of the Roads Act, 1920. It is commonly known as a trade licence. Under the provisions of section 15 of the Finance Act, 1922, two types of trade licence can be issued by licensing authorities, viz. "general trade licences" and "limited trade licences". As may be inferred from the title, the issue of both types of trade licence is confined to "motor dealers"; a motor dealer is also defined "as a person who carries on the business of manufacturing, repairing or selling vehicles". Such licences do not attach to a particular vehicle and may be switched from one vehicle to another by the motor dealer in the course of his business. The conditions attaching to the use, and so forth, of general and limited trade licences are set out in articles 23 and 24 respectively of the Road Vehicles (Registration and Licensing) Regulations, 1958 (S.I. No. 13 of 1958).
The essential difference between the two types of trade licence is that in the case of the limited trade licence separate records must be kept of each journey undertaken by a vehicle using such a licence. It will be clear that due to the fact that trade licences are transferable from one vehicle to another to suit the dealer's business, it would not be practicable to apply the continuous liability provisions— section 70 of the Bill—to such licences.
Furthermore, the numbers and types of trade licences are strictly controlled by licensing authorities and are renewable annually. Appeals against issue and/or renewal of trade licences lie with the Minister for Local Government whose decisions in such cases are final; it is necessary to retain such controls to prevent abuses in the use of the licences and it will be apparent that exercise of such controls would conflict with the continuous liability principle. It is recognised that some abuse of trade licences does exist and it is intended to review the whole question in the near future in consultation with the motor trade. In the short term, however, it is vitally important to try to maintain goodwill and co-operation with the motor trade for various purposes connected with the operation of the new provisions and also in connection with the implementation of EEC directive on infrastructure taxes on goods vehicles. The numbers of trade licences current at 30th September, 1975—latest available date—are: general trade licences, 1,675; limited trade licences, 1,494.
"Public place": under the existing code, liability for vehicle excise duty—motor tax—only arises when the vehicle is used on public roads. This has given rise to difficulties in taking proceedings in cases where untaxed vehicles are found parked in public places which are not public roads e.g. public car parks or car parks of shopping centres, etc. Vehicles which are brought under continuous liability will be liable to tax whether they are used or not, but other vehicles will, as a result of section 78 of the Bill, be liable for tax if they are used in "any public place". A definition of "public place" is accordingly necessary. The definition is the same as that adopted in the road traffic code.
"Relevant person": ideally, liability for road tax in respect of a vehicle should rest with the legal owner of that vehicle. However, the person registered as the owner of a vehicle with the relevant licensing authority is not necessarily the legal owner of the vehicle and may not necessarily be the person who ordinarily keeps and uses the vehicle. For example, vehicles owned by business firms are sometimes registered in the name of the employees who keep and use them. There are also difficulties associated with defining "ownership" in relation to a vehicle because of such factors as hire-purchase, hiredrive and leasing agreements, and so forth. For the purposes of this Part of the Bill, therefore, it is proposed that the "owner" shall be the "relevant person" i.e., the person whose name is last registered with the relevant licensing authority as the keeper of the vehicle. It should be noted that the draftsman did not favour the continuation of the strategy developed in the existing motor tax code up to now whereby "owner" was defined— Article I of the 1958 Registration and Licensing Regulations—as "the person by whom the vehicle is kept" and that the word "ownership" was to be construed accordingly. The "registered owner" is defined under Article 18 of the 1958 Regulations as follows:
18. For the purpose of any enactment referring to the registered owner of a vehicle, the registered owner shall be:
(a) in the case of a vehicle used under a trade licence—the holder of such licence;
(b) in the case of a vehicle in respect of which a declaration (in the Form R.F. 6) in respect of more than six vehicles of uniform type in the same ownership, is current the person shown on the declaration made in respect of such vehicles as the owner thereof;
(c) in the case of a Stateowned vehicle—(not being a military vehicle) the Department of State referred to in the declaration made in respect of such vehicle under sub-paragraph (2) of article 22 of these Regulations;
(cc) in the case of a military vehicle—the Department of Defence;
(d) in any other case—the person shown as the current owner in the registration book issued in respect of the vehicle.
I hope those comments may be of some assistance.
Question put and agreed to.
Sections 65 to 67, inclusive, agreed to.
SECTION 68.
Question proposed: "That section 68 stand part of the Bill."
This section provides that the relevant person, that is the person registered as the keeper of the vehicle, shall be liable to unpaid motor tax in respect of that vehicle and that the relevant licensing authority may recover such unpaid tax from him as a simple contract debt.
Question put and agreed to.
SECTION 69.
Question proposed: "That section 69 stand part of the Bill."
This section provides for the application of section 70— continuous liability to classes or descriptions of vehicles.
As the Minister says, this section has to be read in conjunction with section 70. It introduces the concept of continuous liability in respect of motor vehicles. The justification for this given by the Minister is to assist in the collection of tax on motor vehicles but there are various other provisions in this Bill designed to improve the collection of tax. There are other methods open, which are not in the Bill at all, which might be adopted to improve the collection of tax. However, I would suggest that is grossly unfair and is applying the sledgehammer approach which is not uncommon with the Minister. What the Minister is providing, in effect, is that if one has a motor car —whether one uses it or not; whether one lays it up on blocks or not— one is liable to road tax on it. In order to avoid that liability in the normal way one really has to prove that that vehicle cannot be made to move, cannot be used and, in most cases, that is impossible. There are many people who cannot afford to tax a car all the year round, particularly with the new and increased rates of tax. Older people, retired people especially, find themselves in that position and people whose health is bad will not undertake driving in the winter months. Heretofore they have been able to lay up their cars, and, once the car was actually laid up and not in use, they were not liable to tax. Under this provision they will be so liable. I believe it is wrong, unnecessary and that the Minister is mistaken in providing in this way.
Another area in which problems will arise—and I think the Minister's attention has been drawn to this—is in the case of those who have antique cars as a hobby. Apparently, they also will be liable for substantial road tax, because many of those cars are of heavy horse-power but are not used. I hope it will be possible to find a solution to that.
I know that the provision is that the Minister has to make an order in regard to a particular class of vehicle to which this would apply and that he has indicated that private vehicles would be the ones he would have in mind. In that connection I should like to have an assurance from the Minister that there is no intention of making an order in regard to any other class of vehicle, for instance, there are such things as luxury coaches used during the tourist season but not used for the rest of the year. The House would appreciate an assurance that there is no intention whatever of making an order in repect of such coaches which would have the effect of rendering them liable to road tax during the period when they are laid up, the off-peak season of the tourist industry.
The Deputy raised a number of interesting points which the Government will take into account and the Minister for Local Government in particular when he is making the appropriate regulations. The actual number of car owners who use their cars for a limited period of the year is very few. It may well be that there are cars taxed for only three or six months. That does not necessarily mean they are not used during any other part of the year. The need for this legislation has arisen out of the very large numbers of cars which are on the roads untaxed, which is unfair to the majority of motorists who tax their cars and who, by reason of the default of others, have to pay a higher tax. We hear a lot about TV spongers. There are road spongers too, car spongers, and this section is necessary in order to bring to an end the very wide scale sponging which is going on on the part of quite a number of motorists.
It will be possible to exempt certain categories from continuous liability. Deputy Colley mentioned one. At this stage I do not want to anticipate what form the regulation might ultimately take. For instance, it could be provided that a car that was 25 years of age or over could be treated as a vintage car and be taxable for a limited period of the year when it would be on the road, or something of that nature. Obviously, it is not beyond the ability of the Minister, public servants or draftsmen to draft regulations which would deal with cases of genuine non-users of cars. Certainly at the outset, we would not visualise that vehicles like commercial vehicles or buses would be involved in continuous liability. The number of such is fewer and they are easily policed. As Deputies will see, the section provides that continuous liability may be revoked when a licensing authority are satisfied that the vehicle has become permanently incapable of being used, by being broken up, destroyed or exported. We have deliberately provided in the legislation for the making of regulations so that they can be attuned to the needs of the situation when those needs have been adequately and properly identified.
Of course, it will operate also to relieve the Garda Síochána of a considerable amount of work in which they now have to engage. It is estimated that up to one-third of Garda time is involved in operating the Road Traffic Acts and movement of traffic on the roads, which is a very high cost indeed and perhaps not the best use of the great skills which the Garda Síochána could bring to bear for the betterment of the community. That is why we consider it very advantageous to enable local authorities to sue for road tax in the same manner as they can sue for an ordinary debt.
The House has decided that the Committee Stage should be concluded by 4 o'clock.
Sections 69 to 82, inclusive, agreed to.
SECTION 83.
I move amendment No. 33:
In page 59, line 6, after "Part", to insert "and (so far as relating to corporation tax) shall be construed together with the Corporation Tax Acts".
Amendment agreed to.
Section, as amended, agreed to.
First, Second, Third and Fourth Schedules agreed to.
FIFTH SCHEDULE.
I move amendment No. 34:
In Part I, page 62, column (3), to delete "In section 477 (2) (a) the words from ‘except' to ‘a year'".
What is the position in regard to the amendment and possible discussion on it?
The House has already agreed that the Committee Stage of the Bill would be disposed of at 4 o'clock and that we would proceed to the Report Stage.
That includes amendments?
Amendment agreed to.
Fifth Schedule, as amended, agreed to.
Title agreed to.
