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Dáil Éireann debate -
Wednesday, 30 Nov 1977

Vol. 302 No. 3

Value-Added Tax (Amendment) Bill, 1977: Second Stage.

I move: "That the Bill be now read a second Time".

The need for this Bill arises from the adoption by the Council of Ministers of the European Communities of a Sixth Directive on the harmonisation of the laws of the member states relating to value-added tax.

The first two directives in this fiscal area, which were adopted in 1967, fixed the basic principles and main features of member countries' systems of value-added tax—or VAT as it is generally called in this country. Those First and Second Directives on VAT applied to Ireland as from 1st January, 1974. The Third, Fourth and Fifth Directives were merely of ephemeral significance.

The Sixth Directive was adopted in May of this year, after nearly four years of detailed discussions between member states—first at the level of a working party of fiscal experts, subsequently at the Committee of Permanent Representatives of member states and, finally, outstanding points of difference were resolved at meetings of the Council of Ministers. The new directive advances considerably the process of harmonisation of the VAT systems of the nine countries. While it restricts the exemptions allowable it does not attempt to harmonise the rates of value-added tax applied in the various countries. Harmonisation of rates remains of course a long-term objective of the Community which looks forward to the eventual abolition of tax frontiers between the states.

A more immediate Community objective is to complete the "own resources" arrangements for financing the budget of the Communities. This aim will be achieved when member states implement the Sixth Directive and adopt financial regulations about the mechanism of collecting own resources. The decision to replace member states' financial contributions by an "own resources" system was taken by the then Community of the Six in 1970 and was accepted by the three countries which subsequently acceded. Two of the three constituent parts of "own resources" have already been flowing to the Communities—subject, in the case of the three new members, to certain ceilings agreed at accession; these two are the agricultural levies and the common customs duties on imports from countries outside the EEC. The third part will derive from the common VAT base of assessment now to be established and will be equal to the produce of a rate not exceeding 1 per cent applied to that base. There is, of course, no question of member states having to levy two VAT taxes—EEC and national—as distinct entities from VAT "own resources" purposes. The position is that member states will continue to apply their own VAT rates and out of the revenue from those VAT rates will pay over to the Communities the required sum in respect of VAT "own resources".

I have mentioned the implications of VAT for the completion of "own resources" arrangements for financing the budget of the Communities. That budget has, of course, a central importance for the future development of the Communities. The establishment of an autonomous revenue should help the Communities's efforts to be directed more effectively.

I should now like to mention a few points in relation to the provisions of the Sixth Directive. The directive prescribes common rules as regards the various matters which could affect the amount of own resources. Examples are the definition of taxable transactions; the taxable amount; the place of taxable transactions; certain deductions from liabilities; exempted transactions; special arrangements for farming. As will be appreciated, several of the provisions are obviously the result of compromises.

Certain specific derogations are allowed by the directive subject to review; these are designed to meet particular difficulties for some or other of the member states by allowing time for them to align with the full requirements of the harmonised base of assessment. For example, those zero ratings which were in existence in member states on 31st December, 1975, and which fulfil specified conditions can be retained until fiscal frontiers are abolished within the Community but will be subject to review every five years up to that time.

For other derogations a transitional period is to last initially for five years. Among the activities in the latter category, which qualify for continued temporary exemption, are telecommunications services supplied by the public postal services; the services of solicitors, barristers, accountants and actuaries; the services of travel agents; the services supplied by undertakers; the supply of greyhounds and horses; domestic passenger transport; and admission charges to sporting events.

Unanimous Council decisions will be required before any of the derogations referred to can be abolished. However, I should mention that member states availing of these continued exemptions will have to provide financial compensation to the Communities's budget equivalent to the loss of VAT "own resources" resulting from this non-taxation.

I might also mention that the directive makes provision for the establishment of a VAT Advisory Committee on which the member states will be represented, the chairman to be a representative of the EEC Commission. The Committee are to examine questions arising from time to time in regard to the application of the Community provisions on value-added tax.

I now turn to the implications for the Irish VAT system of the provisions contained in the Sixth Directive. Some services which are at present exempt from Irish VAT must be made liable to the tax. Those businesses which render these services will have to register for VAT, where their turnover exceeds £300 in a two-month VAT accounting period, and, in those circumstances, will be liable for the tax at the appropriate rate—which is ten per cent—in respect of their charges to the public. The main services affected are: the services of auctioneers and house agents; non-academic teaching—for example in driving schools; the valuation services of chartered surveyors; certain agency services but excluding agency transactions in relation to banking, insurance and finance which will continue to be exempt; admission to agricultural, commercial and industrial shows, fairs and exhibitions as well as to zoological gardens; and the natural or artificial insemination of livestock. The traders providing those services will be entitled to claim from the Revenue credit for input VAT—borne on their purchases —which at present they have to bear without recovery from the Revenue. They can also charge VAT to their customers who, if VAT-registered, may claim credit from the Revenue for such input VAT.

As regards the ending of certain exemptions, these result effectively from the fact that the directive affords authority only for a limited number of specified exemptions, temporary or permanent. In order to come into line with the directive we have therefore to terminate those I have mentioned. There can be no question, at this stage, of our picking out exemptions which we might desire for one reason or another. We are constrained by the directive as are our eight fellow-member states. As I mentioned earlier the directive results effectively from many compromises.

There should be no significant difficulties or hardship. Reference has been made in the media to the position of cattle marts. Their position under VAT will not differ from that of the 50,000 or so other VAT-registered traders of widely-varying turnovers. All such registered traders must keep full records of their business transactions which affect their VAT liability. The requirements are those which have been deemed necessary for VAT purposes since 1972. There can of course be no question of abridging VAT records requirements for those now coming into the system of the tax.

Still less could there be any question of devising a special VAT code in order to avoid any embarrassment for would-be evaders of any tax—whether VAT, income tax or other taxes. As Deputies will be aware the income tax code provides separately for Revenue powers of examination of records.

As regards the effect of the application of the tax to marts' fees, the size of the effect can be gauged from the facts that the rate of tax applicable will be 10 per cent and this will be levied on fees representing 1 per cent or 2 per cent of the value of the through-put at marts. Thus on £10,000 worth of stock sold at a mart the amount of VAT arising in respect of the auction fees would be of the order of £10 to £20.

A list of the categories of services which will qualify for exemption in future, and which does not of course include those I have mentioned, will be found in section 19 of the Bill. Another activity which will become liable to VAT under the Bill is the provision of services by agricultural contractors. This change results from a revised definition of "farmer" which is in section 6.

Farmers, as now defined, will of course retain the right to opt out of the VAT system, that is to refrain from registering for the tax and they may also render agricultural services which are incidental to their activity of farming without incurring an obligation to register for VAT. Another change required in order to conform to the basis of assessment prescribed by the directive is the replacement of the two-tier VAT which applies to certain goods under our existing arrangements.

Two-tier VAT rates apply to cars and motorcycles, television sets, radio sets, gramophones and records and some other goods. The arrangement can best be described by an example. In the case of television sets, for example, a rate of 40 per cent VAT is levied on a sale by a manufacturer to a wholesaler. The latter when he subsequently sells the set becomes liable for VAT at 10 per cent of the price charged by him to his customer; normally he would be entitled to set-off against that liability on his sales the full amount of input VAT borne by him on his trade purchases; however through a special restriction applying to these two-tier goods he is allowed credit for input VAT at 10 per cent only. This has the result that VAT at 30 per cent of the manufacturer's price is effectively "trapped" in the price of goods. The system is therefore commonly referred to as "two-tier VAT". The first tier is the element of tax which is trapped, on a sale by a manufacturer to a non-manufacturer; this tier is 25 per cent for cars and motorcycles and 30 per cent for the other goods. The second tier, for all the goods, is 10 per cent and this is levied at all subsequent stages of distribution. Both tiers are ultimately borne by the consumer.

Under the directive a single VAT rate must apply at all stages of distribution of goods, and, in general, traders must have the right to deduct input VAT in full. The VAT rate which it is proposed to apply in future to the cars, televisions and the other goods referred to is the 10 per cent rate—which of course applies already to a wide range of goods.

I might perhaps mention that some existing restrictions on deductibility by traders of input VAT borne by them will continue as heretofore. They are applied for anti-evasion purposes and are allowable under the directive. Examples are the non-deductibility of input VAT borne in respect of cars and petrol where these are not stock-in-trade.

It will be apparent that a reduction in VAT revenue will be caused by the abolition of the first-tier of the special two-tier VAT arrangement. The revenue thus forgone is to be made good by appropriate excise duties in relation to the goods now in question; the excise changes will be designed to match the incidence of the existing first-tier of VAT on these goods. Provision of the Bill relating to the replacement of the two-tier VAT are contained in sections 9, 1 and 24.

I now turn to the position of public authorities in relation to the VAT system. At present, Irish law provides a general exemption for services provided by the State or a local authority. The construction, repair and maintenance of roads, harbours and sewerage works by public authorities are zero-rated activities so that local authorities can recover VAT borne on their purchases of inputs for these services.

The Sixth Directive provides that public authorities are not to be considered as taxable persons when they perform services of a governmental nature, except where exclusion from taxability would lead to distortion of competition. In any case, they are to be considered taxable in relation to a number of specified services listed in the directive, subject, however, to some transitional derogations.

The overall effect is that very few services currently provided by the State or by local authorities would fall to be taxed. Accordingly, it is proposed to exclude these bodies from accountability for tax, except in those cases where the Minister for Finance, after appropriate consultations, by order otherwise provides. It is the intention that such orders would be made only where demonstrable competitive distortions would otherwise arise. Section 6 provides for the making of such orders.

Ae regards the present Irish zero-rating of the construction, repair, maintenance, and so on of roads, harbours and sewerage works provided by the State, local authorities or harbour authorities, the retention of these provisions would be incompatible with the directive. Accordingly, the Bill proposes to end these zero-ratings. The result would be to impose some extra costs, due to VAT, on local authorities' road and sewerage works with a corresponding benefit to the Exchequer. There would be little or no effect on the outlay of harbour authorities because most of their turnover is zero-rated and will continue to be so. The question whether any compensatory adjustment should be made as between the Exchequer and local authority finances will be considered as a separate issue.

Under section 11 of the Bill provision can be made in regulations for remissions or refunds of VAT in certain circumstances. For example, while in the ordinary way the zero-rate for exports may be claimed only where the goods involved have been exported by the seller, cases may arise which do not meet these requirements but in which it would be desirable to remit VAT. Accordingly, the section provides for regulations to be made to allow remission or repayment, subject to conditions to be specified, in cases where the Revenue Commissioners are satisfied that the goods have been exported or are to be exported.

The Bill also restates, in conformity with terms used in the directive, the existing Irish provisions relating to VAT rates. This is done in section 9. That section also brings together existing provisions for reliefs in relation to certain cases of mixed goods. In general when different goods are sold as one package, the VAT rates for the package is the highest rate applicable to any of the constituent parts. This is necessary to counter evasion. However, there are reliefs from this rule for certain cases.

The various other provisions of the Bill, which are mostly of a technical nature not involving any significant change, are indicated in the explanatory memorandum circulated with the Bill.

As regards commencement, section 26 provides that the Bill when enacted shall come into operation on such day as the Minister may by order appoint. It is the intention to specify a date which shall be the first day of a two-month VAT accounting period. The House will appreciate that businesses affected by the Bill will have certain preparations to make for complying with the requirements for VAT; it is of course desirable that they should have adequate time to familiarise themselves with any changes which will affect them and have preparations put in hand.

The Sixth Directive as adopted prescribes 1st January, 1978, as the latest date for its implementation by member states; however the practical position as it is developing is that few of the member states may be implementing the directive promptly at the start of 1978.

In all the circumstances I think it is necessary to keep the matter under review for the present. Our starting date cannot be earlier than 1st March, 1978, therefore, and may be later; adequate notice will be given to enable traders affected to finalise any preparations necessary in their circumstances.

I think that is all I need say now about the provisions of the Bill which I commend to the House.

This is another Bill similar to the one we had earlier this morning necessitated by the Sixth Directive. It is a very difficult, complex Bill and, as far as I can judge, is bringing within the scope of VAT a huge range of people who were previously not eligible at all—auctioneers, house agents, driving school instructors, presumably dance school instructors, a lot of people who have no conception at the moment that they will be liable to and registered for the payment of VAT, possibly from the 1st March, 1978.

I understood that directives of this nature were, first of all, discussed in the Committee on Secondary Legislation. As far as I know this has not been discussed there. I presume it was because the Committee have not met for the last six months. A Bill like this, which affects such a large section of the community, should be discussed there and should come in here after they have had a chance to chew it over. They had done that in relation to the earlier Bill. After discussing the Tobacco Bill with members of that Committee I was able to get a much better idea exactly what it was about and I had a greater appreciation of the work they are doing in that Committee.

This Bill should have gone to that Committee. Before the Minister contemplated bringing it here, it should have been in that Committee for a considerable length of time. It is a lengthy Bill and parts of it are very technical. A lot of people will be affected by it. It was introduced first here a fortnight ago and then the Minister indicated he wanted to take it the following Thursday. It is unreasonable to the Minister and it is certainly unreasonable to the House to expect the House to deal with that type of legislation in that short period of time. It gives no chance to people affected by the legislation to make the normal representations to Members of the Opposition about points they wished to have brought up here.

May I interrupt the Deputy to say that I was only looking for the Second Stage? I believe that the fact we are discussing the Second Stage today will help to alert people to the fact that they may be affected. I do not propose to press immediately for the Committee Stage. It will allow an opportunity for people to make representations.

The Minister would not get it anyway.

It can be discussed fully on Committee.

There is a different wording in section 8 and another section. It is more clear in the explanatory memorandum which states:

Section 8 contains provisions in relation to the amount on which VAT is chargeable. Some of them re-enact the existing provisions.

The explanatory memorandum states in relation to section 16:

Under the Directive VAT registered traders must in future record details of importations in their regular VAT returns...

Is the inclusion of goods exchanged for trading stamps something which the Government are doing themselves or does it come under the directive? This, in my estimation, will at least double the amount of VAT available to the Government from this one activity alone. The original position was that VAT was charged at the cost price to the trading company but now it will be charged at the value represented by the stamps for which the goods are exchanged. There could be 100 per cent difference between those two charges.

With the new people being brought in and the changes envisaged, vastly increased sums of money will go to Revenue under VAT. There is no indication from the Minister exactly the amount of money involved and how much it is proposed to collect, except in the case of the marts. The Minister said in his speech:

Thus on £10,000 worth of stock sold at a mart the amount of VAT arising in respect of the auction fees would be of the order of £10 to £20.

Marts are held on five days a week in different parts of the country. The turnover of each individual mart is considerably greater than the amount stated by the Minister. I estimate that from this item alone approximately £500,000 will go into the Exchequer. I calculate that under section 8 double the amount of the tax previously collected on goods in exchange for trading stamps will go to the Exchequer.

The inclusion under another section of a new category of people such as auctioneers, estate agents, hirers of cars, driving school instructors and many other people will mean that vast sums of money will go to the Exchequer. I cannot assess the amount here because I do not know how much money they will all collect. The smallest trade is still being caught at £300 in a two-month period. Small traders with a turnover of £1,800 a year are being brought in and made register for tax. I am surprised that the Minister did not take this opportunity to increase the very low rate for registration of tax. He will probably say with the budget early in the New Year that it is inappropriate to make changes in the rate at the moment.

The Minister is writing into another Bill the same rates which applied since 1972. Those rates should now be adjusted upwards because the £1,800 of 1972 is probably worth about £900 now or maybe less. I will be putting down amendments on the Committee Stage to raise these significantly.

By the way, what is the turnover for travel agents? I know a little about them and a travel agent could be at the back of a food store and, because food is not liable to VAT, and the travel agency turns in £1,000 a year, does that mean that, because the rest of the turnover is made up of groceries and so on, he will have to register and pay VAT on the £1,000 a year or would it be just £1,800 a year on the turnover in the travel agency? There are many anomalies like that.

House agents are another category. The big agencies in the cities have an enormous turnover. They also have very big staffs with all the essential secretarial and accountancy backup and they can easily assess for how much the customer is liable. If VAT is at 10 per cent and a three bedroomed semi-detached house changes hands here in Dublin the customer must be charged 10 per cent of the 5 per cent and 5 per cent of £15,000 is £750 and that means an extra £75 in VAT. With something in the region of 16,000 or 17,000 houses coming on the market every year will each one be liable for an extra £75, which will be a considerable sum of money, or is it only those going through estate agents which will be liable? The vast majority go through estate agents. In rural areas it is as often as not a once-off sale. Each one of these will be liable for VAT because the auctioneer will pass it on to a customer. VAT is consumer based.

The Minister mentioned local authorities and certain local authority works which will not be liable for VAT. As far as I can judge, the Minister could zero rate all local authority works under the directive, except possibly houses built by direct labour. They may be subject to VAT. Now the very works mentioned by the Minister will now be subject to VAT. His colleague, the Minister for the Environment, has told local authorities they may not raise their rates above a certain amount and the Exchequer will recoup only 11 per cent of the expenditure. Where will the difference come from? The Minister should explain exactly how local authorities will pay VAT on certain of their undertakings if the Exchequer will not recoup them.

I referred earlier to trading stamps. These are given to customers as a proportion of the amount of money the customer spends. Ultimately the customer goes to the company and changes the stamps at a rate previously designated. Up to now VAT was charged on what the trading stamp company paid for the goods. It will now be charged on the value of the stamps, as represented by the amount of goods, as a percentage of the proportion of the amount of money spent by the customer in order to collect these goods. That will be a difference of 100 per cent. Within the last 48 hours the GAA announced the launching of a trading stamp venture to pay for a pitch in Cork and, hopefully, if the venture is a success, it will be extended to other things. What will be the effect of this legislation? Will this be treated as a sporting fixture? According to the section, sports fixtures will be exempt. In this new venture the stamps will be exchanged for money. No goods will be involved. If trading stamp companies will now have to pay VAT will 10 per cent be charged on this GAA venture? If it is it will upset all their plans and ruin their chances of paying for their pitches.

VAT will now be charged on entrance to fairs and exhibitions but not on entrance to sporting events. Does that mean the Dublin Spring Show will be charged VAT but the Horse Show will not? These points have probably occurred to those responsible for drafting this legislation and I am sure the Minister will be able to deal with them. As I said, many thousands will be affected by this legislation and it needs to be very carefully considered. People will be brought in who have no idea today, 30th November, that from 1st March next they will be liable to VAT and their activities likewise. This should all have been discussed with the different trade associations, who probably have no realisation that their members will be liable. It should all have been discussed in the Committee on EEC Secondary Legislation. It will certainly have to be thrashed out here. I doubt if there will be time to do that before the Adjournment. Perhaps the Minister might arrange a special sitting.

Each section will have to be examined very carefully to ensure that those affected will not be severely damaged. I will be proposing amendments to raise the levels of the taxes. I should like to get an assurance from the Minister that the new-stamp-trading scheme to be operated by the GAA will not be affected by this and that their sums will not be put out of kilter by this legislation thereby ruining chances of paying off their grounds in various parts of the country.

The Minister has indicated to the House that he accepts that the changes envisaged in this measure may come as a shock to those services which for the first time will be obliged to pay VAT. The list given is not exclusive and services indicated by the Minister include auctioneers and house agents and valuation services of chartered surveyors. The exemptions given in Directive 6, which this Bill is based on, suggest that one may have exemption for tuition given privately by teachers and covering school or university education. Another exemption suggested is in relation to certain services closely linked to sport or physical education supplied by non-profit making organisations to persons taking part in sport or physical education. Since the effects of this measure are far-reaching and since it is suggested that March, 1978, may not be the final date for implementation of it in the other new Community countries I enjoin the Minister—he indicated his agreement to this to the House—to accept that this is a case where we should hasten slowly. If our membership forces extension of VAT to businesses not already covered by such purposes, then a necessary preliminary, I suggest, is that discussions be held with groups who might be affected to ensure that there is full understanding of their obligations under the measure. Such discussions would also permit the Minister to fully avail of the allowances under the directive. There is machinery under that directive, in Article 27, allowing a member state to introduce special measures for derogation from the provisions of the directive. Admittedly, the derogation can only take place in order to simplify the procedure for charging the tax or to prevent certain types of tax evasion or avoidance but there is the possibility there of derogation from the provisions of this directive.

The provision of a committee to examine all the difficulties arising from the introduction of this tax in member states not already having it suggests to me that the March, 1978, date will not be the final one for implementation of the tax in certain member states affected. The Minister suggested that even though the directive prescribes 1st January, 1978, as the latest date for its implementation by member states, the practical position as it is developing is that few of the member states may be implementing it promptly at the start of 1978. I do not think the implementation date will be 1st March, 1978. It may, in fact, be considerably later and, therefore, I suggest that we should hasten slowly and that there should be full consultation with all interests concerned so that the full implications of this measure can be teased out and understood and that the exemptions listed can be gained.

This "own resources" discussion has been going on for some time at Community level. This matter has been discussed frequently since the sixties, especially with the original members of the Community, and it has always been linked with an increase in the budgetary powers of the European Parliament. In other words, the element of accountability as we have it in this Parliament would seem to be a necessary consequence of the provision of own resources for the Community in its own operations. In general, the State has gone along in supporting the movement of own resources in the Community. We have gone along with the principle, since we accepted the obligations of membership of the Community, that the replacement of separate financial contributions from member states by a system of own resources necessitates a redistribution of budgetary powers between the institutions and necessitates, in particular, the strengthening of the powers of the European Parliament. The sad fact is that although we are now taking another step on the way to the provision of own resources for the Community, the European Parliament has no real authority over the disposal of the increased budget being given to the Community. It is true that the Parliament has some slight powers over the operation of that part of the Community budget dealing with the operations of the Community but it is a very slight power and there is a good deal of ambiguity surrounding the exercise of that power.

We are now taking a step from the system of contributions by member states from national taxation in which we enjoy sole competence to a system in which contributions, known as Community resources, which member states will levy will be paid over to the Community without any control by the national parliaments. While one might accept this movement away from control by the national parliaments over such sums, the fact is that we are doing it in a situation where the European Parliament lacks any real power in the matter of decision or the European budget. We are obliging this Parliament to grant to the Community undefined instruments of fiscal sovereignty which will escape any form of control at Community level. We give the 1 per cent VAT and it joins the agricultural levies and the customs tariffs but over these sums the Community has very little control. I am talking about the Community in a democratic sense, at parliamentary level. Therefore, we are giving powers to a structure which is at present antidemocratic at Community level, a structure which is dominated by the

Council of Ministers which is, in effect, an executive board and which is under no obligation to conduct its proceedings in public and escapes any form of direct control. It exercises a full range of legislative powers at Council of Ministers level and will, in future, as this trend of own resources is strengthened, have at its disposal its own resources enabling it to by-pass the control which national parliaments have so far been able to exercise, if only indirectly. So far national parliaments have been able to exercise some control over resources going to the Community because at least they have the power and the right to discuss the national contribution to the Community.

The discussion on own resources at Community level has always linked the development of own resources strategy with greater control by the European Parliament, ensuring that there is some accountable institution. It has always been held that if direct elections to the European Parliament developed, budgetary powers should accompany that development. Here we are taking the step on the own resources role of the Community in a situation in which the Community institutions have become increasingly authoritarian.

The Commission, who, by virtue of the Treaty, should act independently of member states and have a duty to initiate, have now reached a stage at which more often than not they simply enter into preliminary negotiations with governments, so that instead of there being an independent expression of opinion at Community level the views given are increasingly coloured by the atmosphere and balance of forces within the Council of Ministers. Since the development of meetings of prime ministers at European Council level, it increasingly means for a small country that decisions are taken by the small club of the larger states within the Community. This is a grave consequence of this development. In present circumstances the Commission have tended to become mediators and assume more and more the characteristics of a secretariat rather than the body originally envisaged in the Treaty. The Council of Ministers is the dominant body and the most dominant members are the representatives of the larger states. Increasingly decisions are being taken by the even more exclusive club of prime ministers and the representatives of the smaller countries like Belgium, Denmark and ourselves must follow the decisions taken at that level.

We have a Parliament which has some control but only over the administrative expenditure and that represents only about 4 per cent of the budget of the whole Community. This is an unsatisfactory state of affairs, though I do not know if the Minister for Finance would agree that it is so. I mention the matter because all the debate at Community level on the own resources strategy has linked it with democratic control by the European Parliament. Those powers of control are still absent. It is not the fault of this Parliament. We are marking today a significant point on the road to the provision of autonomous budgetary resources to the Community, when the European Parliament lacks any real power. When he was Chancellor, Mr. Brandt explained that the Community's resources are in themselves a component of a federal order.

Deputy Barry referred to the implications of this for taxpayers at home. New categories of businesses may be taken in and may find themselves under an obligation for levying purposes under this tax. That is one consequence. Another consequence is that we are handing over to the Community moneys that they can, by virtue of this measure, levy directly in our territory. Yet the Community lacks an institution which can exercise any democratic control over the spending of the budget given to the Community. We are preparing for direct elections to the European Parliament when there is no evidence that the Parliament has any real control over the disposal of resources now given to the Community, an undemocratic Community whose institutions, apparently, are not answerable to anybody. That is the significance at Community level.

The significance at home, on which more interest will be focused, is for the new categories of people who may be covered under the new tax measures. I would suggest to the Minister that it is one measure on which there should not be undue hurry. It is possible that this measure will not be implemented in the first six months of next year and we should allow before the next stage of this Bill full discussions with all the interests involved, so that we may seek derogation for certain businesses where there is such a possibility. Under Article 26 of the directive, there is provision for a possible exemption for travel agents. It is admittedly a very confined possibility of exemption. It is provided that the article shall not apply to travel agents who are acting only as intermediaries. I know that the matter has been discussed here by the Dáil Committee on Secondary Legislation, but the implications of this measure would come as a surprise and shock to many categories who up to now have not been covered.

I will be very brief indeed. This is the type of legislation on which I have commented in this House on many occasions. It is sent by the EEC and it seems that the Minister has no option but to bring our tax measures into line with those of the other countries within the Community. I believe that the provisions of these directives should be debated in this Parliament before the directives become law in Europe. During the last four years I have frequently commented on the irrelevance of this Parliament concerning EEC directives. The Minister is simply putting forward a document which has already been sanctioned by the EEC and which must be passed by this Parliament if we are to remain members of the Community. There is little we can do about it.

I am particularly worried about how this legislation will affect people who are not already within the VAT tax net. There are very few people here who know much about farming. We produce store cattle in the west and they are finished in the east. We sell very few cattle to the factories because they are not finished, therefore all our cattle are sold through the marts. There are no longer fairs. These are hard facts at the moment. We set up this system ourselves in order to introduce a more modern system of selling cattle. This VAT will be passed on to the seller and will make things very difficult for the small marts. The larger marts will be in a position to go into competition and will be able to reduce commission in order to avoid passing on VAT.

I was very closely associated with the introduction of the marts system and I know that these smaller marts are struggling for existence. We knew there was going to be a change anyway and we were not going to allow foreigners to come here and set up marts and put themselves on both sides of the counter. We did it ourselves but many of the smaller marts are still struggling and I cannot see how they will be able to afford to pay this tax. It will be one hell of a burden of taxation for the seller of livestock, particularly the seller of store cattle. It may be the cause of reviving private sales which would be detrimental to our livestock marts. Many people are presently employed in our livestock marts.

According to the Bill, all kinds of agricultural and educational shows are subject to VAT. Deputy Barry said the Spring Show would be taxed and that the Horse Show would be exempted. How will this affect the show-jumping horses? Another point is that auctioneers will not pay VAT themselves but will pass the charge to their customers. I understand that farm contractors will have to pay VAT. If I have not interpreted the brief correctly I apologise to the Minister, but my understanding of it is that small contractors who are not themselves farmers will have to register for VAT. There are many of these small contractors in the west and they will pass the charge to the small farmers for whom they mainly work.

Any man who does not give his true opinion of this Bill should not be in the House. I have no hesitation in giving my opinion because I am worried about the number of people who will be affected by this Bill.

Sport has been excluded but I should like the Minister to consider the VAT situation in relation to the GAA.

It is deplorable that member states are not given prior notice of EEC directives and sufficient time to debate them. At present we are rubber-stamping EEC directives. If the Council of Ministers want to change the taxation system they should give us time to discuss the matter in this House.

I have never been in favour of this type of tax. I was against turnover tax, particularly when it was applied to food as it was when Fianna Fáil introduced it many years ago. If there is a blessing in this Bill it must surely be that Fianna Fáil have not put VAT on food. When we first heard of this Bill our one fear was that Fianna Fáil would resort to their earlier tactics. At this late stage I would ask the Minister if it would be possible to set up a special committee to deal with this complicated Bill, which will affect many people. There will be many amendments to the Bill on Committee Stage. If people like Deputy Barry and Deputy Callanan were allowed to discuss the Bill in Committee with the Minister there would be less friction and a better consensus.

This is a great opportunity for the Minister to show his flair, particularly in regard to the different rates of taxes in Northern Ireland and here. One of the greatest difficulties in Border areas is the difference in the price of such goods as motor cars, television sets and so on. If this Bill was introduced to harmonise price structures——

It does not purport to do that.

When we entered the EEC we believed that all taxes would eventually be the same. Every day hundreds of people cross the Border to buy goods. This Bill provides us with the opportunity to harmonise price structures. In the case of petrol, there is a difference of about 10p a gallon. Barley is being smuggled right, left and centre because of the difference of about £20 a ton. The Minister should take a much more solid stand on this instead of getting bogged down in the Department with a lot of civil servants telling him what to do.

There are many anomalies. For instance, why are day-old chicks subject to VAT while poultry and eggs are not because they are classed as food? We hear the cattle marts are to be subject to VAT. That is all right, but an animal put up in a mart may be sold ten times and it will be subject to VAT each time.

Section 10 (2) also discloses an anomaly as far as fishing boats are concerned. It is an improvement on the existing situation, but I do not think it goes far enough. For instance, if a fisherman buys a boat outside the country and brings it in here, if he is not qualified for a grant or a loan from BIM, the vessel will be treated as a pleasure cruiser and it is subject to VAT. The fisherman may be genuine but is subjected to VAT while his colleague who gets a grant from BIM gets a rebate of VAT. That is another anomaly.

I have been reading the Bill in the past few days and the more I read it the more complicated it becomes. I suggest, therefore, that an all-party committee be established to go into the Bill and discuss it through the eyes of businessmen with the hope of coming to some common-sense consensus before we come to blows across the House on it.

Perhaps the first thing I ought to say in replying to the debate and in view of the points raised is that I inherited this situation; I did not create it.

That is no excuse.

There seems to be some misunderstanding in regard to the procedure whereby this Bill came before us. There is some misunderstanding on the part of Deputy Barry in regard to the factual situation, and on the part of Deputy O'Leary and, to a lesser extent, on the part of Deputy Callanan in regard to the procedures followed and available to us to deal with directive of this kind. The Joint Oireachtas Committee on EC Secondary Legislation examined and reported on the original draft directive in 1974, and in March of this year a memorandum was sent to them by the Minister for Finance. At that time the directive had been practically finalised and the memorandum was sent at the request of the Committee. So there have been consultations with representatives of this Parliament during a number of years in regard to the evolution of the directive.

It is also important to understand in regard to some points made by Deputies O'Leary and Callanan that it is not a matter of a directive of this kind simply being produced by the EEC and rammed through this Parliament which has to rubber-stamp it. In this case negotiations went on during a number of years at different levels and the final difficulties were sorted out by the Council of Ministers. Eventually, the Council of Ministers approved of it on 17th May this year.

I want to make another point clear. It is that at any stage, particularly at the Council of Minister stage, it is open to each Government to make their position clear and to make a stand on certain issues if they feel it is important that that should be done. I am not to be taken as saying that on every issue that comes up when we do not like it our representatives will say "We will not have it and that is the end of it". If that were the position it would be the end of the Community. On the other hand, it would be wrong to think that these matters are forced through whether a government or parliament are willing to accept them. That is not the way it works. I should not like people to think that the EEC simply want us to rubber-stamp such things.

There has been some apprehension that the operation of the Bill will result in vastly increased payments of VAT and increased revenue for the Exchequer. That is not so. It will be appreciated that one must take an overall view of it. Some items will become liable to VAT which were not liable heretofore and others which have been included will be excluded. In the case of items that will be brought in, traders can claim a greater refund from the Revenue Commissioners in respect of the VAT they have been charged. Taking an overall view, it is estimated that the gains in revenue to the Exchequer will be in the region of £1 million, perhaps a little more but, if it is more, not very much more. That is in the context of a total VAT yield of £320 million. It will be seen that the overall effect will not be a major one in relation to the existing operation of the VAT system.

Deputy Barry raised a query on section 8. Under the directive, we are obliged to make the provisions contained in section 8. I think Deputy Barry asked if we had a choice. We did not. The Revenue Commissioners have discussions in progress with the trading stamp interests about the details of the application of these new arrangements to their operations. In that connection, I should say with regard to the point put about the new trading stamp scheme being introduced by the GAA in Cork, it would appear on the face of the scheme as described by Deputy Barry——

I have only newspaper reports.

——that it would not come within the tax. Of course, I am not giving any authoritative statement on that. The case would have to be examined in detail. It may be some consolation to know that prima facie it would not appear to come within the tax.

Is that because money is involved?

Yes, rather than goods.

The Minister can see the implications for other trading stamps and for his own revenue.

I can. I am not unconscious of that.

The Minister will get rid of his £1 million quickly.

It is true that, if the possibilities adverted to by Deputy Barry were to be exploited, or unduly exploited, we might have to make certain changes.

The GAA would have to be brought in.

Let us not cross too many bridges at one time.

Not that one anyway.

Deputy Barry also mentioned travel agents. This Bill will not bring travel agents into the tax net in the forseeable future. It is true the directive envisages that travel agents will be taxed eventually after the end of the period of transition, which will be five years initially but which is almost certain to be extended.

Is this using the exemption section of the directive?

I understand it is article 28 of the directive. There is a derogation under which travel agents may continue to be exempt for the present. This is likely to be continued for a very considerable time. I should say the Irish Association for Travel Agents have been consulted and are aware of the position as it stands.

A question was raised, too, about the effect of this on house prices. It is not thought it will affect the price of houses to any notable degree certainly. On the question of new houses, to the extent that builders avail of the services of auctioneers and estate agents in the selling of new houses, as VAT registered persons they will be entitled to recover from the Revenue any VAT arising on the auctioneers' fees. There is no reason why they should add it on to the price of the houses.

As regards second-hand houses, VAT on auctioneers' fees, which would be the 10 per cent VAT rate, would be payable by the vendor. This would represent about one quarter of 1 per cent on the price of the house—for example, £25 on a £10,000 house where the auctioneer's fee was 2½ per cent as it is in Dublin city, Cork and Limerick. I think it is 3½ per cent outside those areas. An additional liability of £25 on a £10,000 second-hand house is unlikely to cause the vendor to hold out for that much higher a price. It is unlikely that there will be any effect on the price of houses as a result of the impositions contained in this Bill.

On the general question of derogations—and this point was raised by Deputy O'Leary in particular—the approach adopted has been to try to have the minimum amount of change in our existing system and to avail ourselves fully of the possibilities of derogation under the directive. That is the general approach which has been adopted.

On this whole question of own resources system for the EEC there may be some substance in what Deputy O'Leary said, but I think he exaggerated one aspect and ignored another aspect. The fact is that the adoption of the own resources system in the EEC is reducing the power of the Council of Ministers and, for that reason, the European Parliament has called repeatedly for the expedition of the own resources system. This will be obvious if one thinks about the fact that the basis of the own resources system is that there would be an autonomous source of revenue to the EEC, autonomous of the Council of Ministers, not determined by the Council of Ministers, who would thereby be able perhaps to dictate certain aspects of policy. It would mean that the Community, and the Commission administering the various affairs of the Community, would have revenue independently of the Council of Ministers and, to that extent, it would reduce the power of the Council of Ministers.

It is also true that the European Parliament have some control over the budget. I freely admit it is limited, but some changes which have been made fairly recently have tended to increase the power of the Parliament in this regard. I have also noted that there appears to be a particular concern on the part not only of the Commission but also of the Council of Ministers to try to reach an understanding with the European Parliament in regard to the budget. There are provisions which have been used for meetings between representatives of the Council and of the Parliament to try to sort out disagreements which may have arisen between them with regard to the budget. I do not say the European Parliament have substantial control over the budget, but I do say they have some control.

Furthermore, the lessons of history would suggest that, when the Parliament are a directly elected Assembly, they will almost certainly have an evolution of powers particularly in regard to the budget. If that does not happen, it will be contrary to the lessons of history in democratically elected parliaments in general in various countries. The system of own resources was laid down in 1970 and was accepted by the then member states, the Six. Acceptance of it was a condition of our accession and that of Britain and Denmark. As I am sure Deputies are aware, the Treaty of Accession provides for a progression towards the full own resources system by the new member states. It is envisaged that the full own resources system will operate for all member states from 1980 onwards. Certain limitations are laid down as to the contributions to be made by the three acceding member states over that period up to 1980. The article dealing with that limitation, article 131, has been forming the basis for the arguments which have been going on for some time between the member states in regard to the contributions to be made by them. It is a matter that is of particular concern to us. It is not directly applicable to the present Bill but it is very much tied in with the whole "own resources" system to which reference has been made.

Deputy O'Leary also raised the question of the implementation of the directive by other member states. I understand that in Britatin legislation has been passed but they can bring it into operation by order whenever they think it is appropriate. I understand that in other parliaments the necessary legislation will shortly be introduced but it seems unlikely that many of the other countries will be in a position to implement this directive in the time laid down, to operate from 1st January next. It seems that we are all more or less in the one boat and, as I indicated in my opening remarks, I intend to keep the matter under review. We are anxious to have a system of "own resources" operating but we are not anxious to rush ahead of our fellow members in implementing these provisions. So, I propose to keep the matter under review and the provision in the Bill whereby it can be brought into operation by order would enable us to do that.

Deputy White suggested that this Bill should be referred to a special committee. I have no objection in principle to that. It is a technical Bill and contains some very highly technical sections but I should like to make it clear—in view of something he said, he may be under a misapprehension— that the Press are admitted to the hearings of special committees in this House unless there is a specific decision to the contrary. There are certain advantages in special committees on Bills of this kind but I should like to examine that a little more closely. The Deputy may take it that there is no objection in principle to it but whether, in relation to the parliamentary programme at the time when we will be dealing with Committee Stage, it will be feasible is another matter. It will certainly be considered.

The Deputy also raised the question of differing rates of VAT operating in the North from those operating here. It is true that this is unfortunate and in some cases there can be unfortunate consequences but it should be realised that unless there were agreed rates of VAT on various items, operated as a result of negotiation and agreement between the two Governments, we will have these consequences. The alternative is that the Irish Government would simply follow what the British Government does. That is an unacceptable approach and I do not think the Deputy is advocating that. It would be unacceptable from the point of view of national sovereignty and also on practical grounds. The economic and social reasons which dictate particular rates of VAT are different here and in Britain and to achieve the kind of situation the Deputy would like to see in effect would require not only negotiations between the Irish and British Governments and agreement on the different rates of VAT but would require the British Government to apply different rates of VAT in Northern Ireland from those applying in Britain. I have not discussed this with any member of the British Government but I would be rather doubtful that they would agree easily to that proposition. It is not a proposition to which we would raise any objection; on the contrary, it is one that I would favour but the practicability of it is another matter.

It should not be impossible. In the long term this is the greatest barrier we have, the economic barrier.

I agree that it is a serious one but the Deputy will appreciate that while there would be difficulties on our side I think the British would see many more difficulties on their side.

It has been said that politics is the art of what is possible.

I am not ruling it out. I agree with the proposal if it could be implemented. In my opening speech I dealt with the question of VAT as it would apply to the marts. Perhaps there is undue apprehension as to the effect it would have. Certainly there is no estimate available to me that would suggest that a vast revenue would be received from applying VAT to marts. It is important to bear in mind that marts are very big business and if other businesses, large and small, are subjected to VAT it is difficult to understand why marts should be excluded. This is a situation in which we really have no choice, given that agreement was previously reached on the terms of the directive, and so it is a question of trying to ensure that it operates as smoothly as possible and to the least possible detriment of all involved in the operation of the marts, including the farmers.

If there are problems arising or envisaged which could be overcome to make the operation smoother and less difficult for those involved I would be quite willing to consider any representations made in that respect but I would urge people not to exaggerate the consequences. They should not, perhaps, be led to believe that the consequence of applying VAT of 10 per cent to the commission in the marts—that is what is involved —will be a disaster for our livestock industry or for the farmers who are selling their cattle in the marts. If there are any persons who wish to make representations on the operation in relation to the marts or any other matter affected by the Bill where they feel improvements could be made, I will only be too glad to give serious and sympathetic consideration to them. Other detailed points were raised in the discussion but it would probably be more appropriate that they be dealt with on Committee Stage. As was said earlier in the debate, this is very much a Committee Stage Bill.

The Minister mentioned that the proposed changes came before this House. Did the report of the Committee which discussed them ever come before the House?

I do not think they normally do.

I hope I did not say, and I am sure the Deputy will find that I did not say that it came before the House. I said that there is a Committee of this House and of the other House which discussed the draft in detail in 1974 and then, when the directive was virtually finalised in March of this year, got a memorandum from the Department of Finance which set out the details as it then was. I also made the point that the final decisions were made by the Council of Ministers in May of this year. It would not be true to say in these circumstances that this Bill simply came before the House to be rubber-stamped. That would not be an accurate representation of the position or of the possibilities that were available to deal with this matter before the directive was finalised.

Question put and agreed to.

When is it proposed to take Committee Stage?

It is not intended to take it before Christmas. Perhaps the first sitting day after Christmas.

Committee Stage ordered for the first sitting day after Christmas.
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