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Dáil Éireann debate -
Wednesday, 23 May 1979

Vol. 314 No. 8

Finance Bill, 1979:Committee Stage (Resumed).

Debate resumed on amendment No. 18:
In page 10, before section 9, to insert a new section as follows:
"9.—For the year of assessment 1979-80 and any subsequent year of assessment, relief shall be given in respect of any payment of rent by an individual of an amount not exceeding £4,000 for any year of assessment.".
—(Deputy P. Barry.)

We were discussing income tax allowances and reliefs for people who are paying rent. If this new section were inserted the allowances would be increased to an amount not exceeding £4,000 for any year of assessment. I was endeavouring to outline to the Minister the benefits which could accrue from increases in allowances for people living in rented accommodation. I was also endeavouring to outline the position of people who were considering building houses for renting. If these reliefs were granted, people might be encouraged to provide housing.

A number of young married couples are unable to provide their own private housing. Corporations and Councils have long waiting lists. If reliefs of this nature were provided, people would be encouraged to rent accommodation. If rented accommodation were provided, more people would be looking for rented accommodation. Private individuals might consider forming companies, acquiring land and providing houses, as has been done successfully in Dublin in the past by some property companies. Substantial numbers of people would invest in a company which had as its objective the provision of houses for renting. The company could be quoted publicly and the houses could be provided. This would have the merit that the tenants could obtain income tax relief. It would also help to alleviate the serious housing problem.

On the whole, a scheme of this nature would have a great deal of merit. It would ease the problems of pressures on building socities for loans, pressures on local authorities for loans and pressures on insurance companies for loans. It would create a fund and a method for providing houses which would be of benefit to everybody. It would encourage in a progressive and positive way the building of a good type of house and this would be of benefit to everybody in the long run. It would cost the Exchequer a very small amount of money and it would have very beneficial consequences. For these reasons I would ask the Minister to consider the amendment sympathetically.

A provision for a reduction for income tax purposes in respect of rent paid for residential accommodation would have to cover, first, rent paid in respect of privately owned houses, secondly, rent paid to local authorities for houses and flats and, thirdly, rent paid to owners of private houses let in flats, or bedsitters, or whatever. While the figures on which to base an estimate of the cost of such relief are not readily available, it is possible that the cost could be of the order of £50 million. If a reduction of that amount in the yield from income tax could be tolerated, it is likely that many people would consider it would be more appropriately used to remove from the tax net a number of lower paid workers.

In the case of rent paid to local authorities for houses and flats, in most cases if not all, there is a substantial degree of subsidisation. It would be difficult to reconcile that with a tax allowance in so far as it was not based on the economic rent. I am a little mystified by the case made by Deputy Barry, and perhaps to a greater extent made by Deputy Enright, who appeared to be saying that the acceptance of this amendment would lead to companies, and perhaps even co-operatives, getting together and investing in the provision of further rented accommodation. Inherent in that seems to be the idea that this would happen because people could afford to pay higher rents if they were getting a tax allowance.

Basically what the Deputies seems to be saying is that rents should be higher in order to encourage the provision of more rented accommodation. It is an arguable case, but a number of people might argue on a different basis from that put forward by Deputy Enright and Deputy Barry. It may be that this amendment is based on an assumption that it is anomalous that a house buyer can get income relief on the interest up to £2,400 on the money he borrowed to acquire an asset, whereas a tenant gets no corresponding relief in respect of rent paid for a similar property without ever acquiring any proprietary interest in it.

Apart from the difficulties I have mentioned, particularly in regard to local authority housing, and apart from the question of cost, the removal of this apparent anomaly would give rise to another one, in that the rent paid by a tenant normally includes elements in respect of the landlord's expenses such as insurance, ground rent, repairs, and so on. It would be very difficult to justify a relief to a taxpayer in respect of such expenditure which is effectively borne by another person.

There are other aspects of this matter explaining the background to it which are of historical and academic interest. I will not detain the House by going into them unless Deputies want me to do so. They throw light on the development of this whole concept of giving this kind of relief, how it originated and how it developed. I do not know that it will affect the basic position which is that, while it is difficult to estimate the cost of this, it would cost in the region of £50 million. If one were prepared to contemplate that kind of expenditure is this the best way to expend it? Problems and anomalies would arise if this proposition were accepted.

There could be another interpretation on how it would be of benefit to house building, but I do not think this is the place to go into it. I will come back to it again at another time.

Amendment, by leave, withdrawn.

Amendment No. 19 is related to amendment No. 18 (a) and they may be discussed together.

I move amendment No. 18 (a):

In pages, 10, 11 and 12, to delete subsections (1) to (5) and to substitute the following subsections:

"(1) (a) In this section—

‘employee', in relation to an employer, means a person employed by the said employer including, in a case where the employer is a body corporate, a director, within the meaning of Chapter III of Part V of the Income Tax Act, 1967, of the body corporate;

‘employer', in relation to an individual, means—

(i) a person of whom the individual or his spouse is an employee,

(ii) a person of whom the individual becomes an employee subsequent to the making of a loan by the person to the individual and while any part of the loan, or of another loan replacing it, is outstanding, and

(iii) a person connected with a person referred to in paragraph (i) or (ii);

‘loan' includes any form of credit, and references to a loan include references to any other loan applied directly towards the replacement of another loan;

‘preferential loan' means a loan made to an individual or his spouse by a person who in relation to the individual is an employer save that a loan shall not be a preferential loan if it was made before the 6th day of April, 1979, and at the time the loan was made, the making of loans to persons, other than employees, for a stated term of years at a rate of interest which does not vary for the duration of the loans, formed part of the trade of the said employer and interest is payable in respect of it at the rate of interest at which the employer in the course of his trade, at the time the loan was made, made loans at arm's length to persons other than employees for the purpose of purchasing dwelling-houses for occupation by the borrowers as residences;

‘the specified rate' means the rate of 12 per cent. per annum.

(b) For the purpose of this section, a person shall be regarded as connected with another if that person would be so regarded for the purposes of section 8 of the Finance Act, 1978.

(c) In this section a reference to a loan being made by a person includes a reference to a person assuming the rights and liabilities of the person who originally made the loan and to a person arranging, guaranteeing or in any way facilitating a loan or the continuation of a loan already in existence.

(2) Where, for any year of assessment, being the year 1979-80 or any subsequent year of assessment, relief is claimed by an individual by virtue of one or more of the following provisions, that is to say, section 496 of the Income Tax Act, 1967, section 76 (1) (c) of the said Act or paragraph 1 (2) of Part III of Schedule 6 to that Act, relief shall not be given for that year of assessment in respect of the part, if any, of the aggregate amount of interest in respect of which relief is so claimed on a preferential loan or loans that exceeds the amount determined by the formula—


A is £2,400,

B is the aggregate amount of interest, other than interest on a preferential loan or loans, in respect of which the individual is entitled to relief for the year of assessment under any one or more of the aforementioned provisions,

C is the aggregate amount of interest on a preferential loan or loans in respect of which relief is claimed by the individual for the year of assessment under any one or more of the aforementioned provisions,

D is the amount of the interest which would have been payable on the preferential loan or loans for the period or periods for which the interest included in C was paid or payable, as the case may be, if for any rate or rates at which interest was paid or payable as the case may be for the said period or periods there were substituted the specified rate, and

E is the amount of interest which would have been payable for the year of assessment on any preferential loan or loans in respect of which no interest is payable if interest were payable on the said loan or loans at the specified rate.".

Section 9 gives effect to the proposal that the maximum amount of interest which ordinarily qualifies for income tax relief would be scaled down in cases where employees and certain directors enjoy the benefits of loans made at preferential rates of interest. Examination of the section, as originally drafted, indicated that it would be possible for certain employees, particularly directors and senior executives of a company, to get around the provisions of the section and, accordingly, the first five subsections are being rewritten to close possible loopholes.

A number of ploys could have been adopted which have too easily circumvented the provisions of the section. For example, a director or senior executive of a company could arrange with his company to have a substantial preferential loan divided into two parts. One part would constitute an interest-free loan and the second part would consist of a loan on which he could claim he was paying interest at 12 per cent. Under the section as it stands his interest relief would not be restricted because the interest-free loan would not be affected and the full amount of the interest on the other loan at the 12 per cent rate would be allowable. The interest in question will now be restricted in accordance with the formula set out in the amendment.

In regard to the section——

We are just dealing with the amendment in the Minister's name and amendment No. 19 which is being discussed with it. We must dispose of the amendments before we deal with the section. Is amendment No. 18a agreed?

Yes, but I must say I am not happy with the kind of Big Brother attitude that runs through the amendments, the section and the Bill.

The Deputy is aware that amendment No. 19 is being taken with amendment No. 18a.

Amendment No. 19 is in my name. I thought the House was dealing only with amendment No. 18a.

Amendments Nos. 18a and 19 are related and we are taking them together.

I do not see how my amendment could be related. The purpose of my amendment is to ensure that people who had the benefit of loans or who based their standard of living on such loans before the date of the budget, namely, 7 February, should not be caught by this provision. The people who are now negotiating terms of employment of which a preferential loan is part should be caught. My amendment is to ensure that people are not caught retrospectively.

Amendment No. 18a is very technical. Its purpose is to close loopholes that will probably come to light in any event. There are a few points I wish to raise with regard to the amendment. The word "employer" is defined in the Minister's amendment. In the case of a group of companies a loan for a senior executive could be obtained from a banking company within that group. That person would not be an employee of the company that gave the loan. Will he be caught by this provision? In the amendment there is the phrase, "...a person shall be regarded as connected..." but there is no reference to a connected company. Perhaps the Minister will clarify that point?

I appreciate the Deputy drawing this matter to my attention——

Perhaps I should not have done so.

The Deputy was quite right to do so. We think we have it covered by the use of the phrase "connected person".

It was a point that came to mind and the Minister might bear it in mind. With regard to preferential loans, is it the case that any loans made before 6 April 1979 on a preferential basis are all right?

It does not matter when the loan was made. The effect of that saver with regard to 6 April 1979 is to ensure that there will be no retrospective taxation. It will only apply in the current year but it will apply to a loan whenever it was taken out.

There is a complicated formula in paragraph (2). Perhaps the Minister will give an outline of how it will work?

Perhaps it would help the Deputy if I gave an example. If an employee has a preferential loan of £20,000 at 3 per cent and pays annual interest of £600 the calculation—I am saying this subject to correction—would be £2,400. This is A minus 0 which is B, multiplied by £600 which is C, over £2,400 which is D plus 0 which is E and that would be equal to £600. Incidentally, it is true that all preferential loans of £20,000 or less will remain unaffected by the changes being made. I do not know if that helps the Deputy.

Yes, it does. As I see it, the new calculation procedure is to take account of a case where a person might have a preferential loan and also other kinds of interest to claim. Is that the purpose of B and E which is 0 in the example given by the Minister?

As the Deputy knows, a person is entitled to claim interest anyway on any kind of loan up to the limit. The fact that he has a loan at a non-preferential rate is taken account of in the formula.

Amendment agreed to.

I move amendment No. 19:

In page 12, after line 43, to insert the following new subsection:

"( ) This section shall apply only to loans made after the 7 February 1979.".

We may just comment on the amendment although it was taken with 18a.

Deputy Barry did raise a point on it which I did not advert to. The basic point made by Deputy Barry, which is covered in amendment No. 19, is that he suggests that to apply this section to a loan which was negotiated prior to 7 February 1979 is in effect to apply retrospection. I do not accept that, because all that is being done here is to change the taxation method and the amount of tax being collected, but it is only being changed retrospectively in respect of previous tax years. The fact that the loan was negotiated in some previous year is, I suggest irrelevant as regards retrospection. To accept the proposition that this cannot or should not be done is in effect to say that one cannot change the tax structure in so far as it relates to existing remuneration. When I put it that way I am sure Deputy Barry will agree that that is not an acceptable proposition; otherwise you could never change, say, income tax rates except in respect of new income. Obviously that is not an acceptable proposition. The principle behind this is not one I could accept but in practice any change being made applies only to the current tax year and subsequent years, not to any previous tax year.

I accept what the Minister says. I should not have used the word retrospective in that way and I suppose I should correct it. What I was trying to do was to safeguard people who took up jobs where part of the benefit—not the direct salary but the perquisites—was that they would have a loan at a preferential rate. Since 7 February they will not have loans at those preferential rates as a portion at least will be taxed. It is a bit unfair to tax such people for that benefit when they could not have known when getting the loan that they would be taxed. They had no guarantee it would not be taxed but I think that since 7 February anybody in those circumstances is entitled to be taxed because they would negotiate the loan on the basis that it would be taxed. I shall not press the point.

I assume the Deputy will accept that similarly anybody who took a job on a particular salary when there was a particular rate of income tax in force could not and would not attempt to claim that if there was a change in the income tax rate it was something that would have induced him not to take the job and therefore it should not be done.

Yes, but I think he would seek to reimburse himself from his employer by the amount which the Government was taking which is what normally happens, whereas this might not necessarily be possible in the case of a loan and his standard of living would be reduced by that amount.

Why was it never possible to tax the preferential rate under the benefit in kind legislation which is in all Finance Acts, since it is a benefit in kind for people who have a preferential rate? Why is it necessary now to introduce a new section?

It is not included in the definition of benefit in kind in this country. That is why it was not affected previously.

Amendment, 19 by leave, withdrawn.
Section 9, as amended, agreed to.

I move amendment No. 20:

In page 13, after line 9, to insert the following:

"Provided that this section shall not operate to increase the tax payable by a married person where that person's spouse becomes entitled to unemployment benefit".

This is a new section and I think it is a totally new concept in Irish taxation whereby the following benefits under the Social Welfare Acts 1952-79, disability benefit, unemployment benefit, maternity allowance comprised in maternity benefit, pay-related benefit, deserted wife's benefit and injury benefit will all be taxed from 5 April next year. This is a point I was making earlier this morning about insurance companies covering sickness, that if the benefit is taxed the subscriber should be allowed against tax the amount of his contribution towards the insurance. The Minister will argue that in arriving at the figure of 4.4, allowance was made against the tax. There had been a tax allowance the previous year—this is an awkward way of saying it but I think the Minister understands what I mean. I believe that to tax these allowances would make people worse off again.

My amendment is to ensure that people would not be worse off when this Bill is passed. Some of these provisions appear to be fairly innocent and just when put into a Finance Bill. Many people might argue that no matter what the source of the income it should be taxed. Possibly it would be hard to argue against that except for the fact that there are cases where one or other of the partners in a marriage had been working, was now sick and on disability benefit. They might have used up their tax allowance if the other spouse was working at this stage and the couple would certainly be worse off next April compared with next March, when the new section comes into operation.

I should like the Minister to say what income will be got from this section. I have asked some people who might be able to guess and while none could estimate exactly what the figure might be, they reckoned that the total of benefits paid out would be about £150 million in 1981. If these benefits were taxed at the average rate of, say, 30 per cent the Minister could get between £40 million and £50 million in tax. That is the amount of the tax which the Minister said, in relation to section 8, it would cost him if he were to accept the amendment which I put forward at that stage to allow people to claim their rents against tax.

Before we could agree to this provision we want to ensure that people would not be worse off and that, as the amendment says, the effect of the section would not be to increase the tax payable by a married person where that person's spouse becomes entitled to unemployment benefit. That would ensure, where one partner is on benefit and the other working, they would not have to pay more tax when this section is operating than they would have to pay previously. I also want to know how much this will mean to the Exchequer in increased taxation.

The Deputy's question now is one that he put earlier and I can answer it but I fear I missed the other question he put. To deal with the first one, it is estimated that the yield in the income tax year 1980-81 would be of the order of £13 million, not £50 million or £40 million. I know it was suggested by some commentators that the figure might be in the region of £50 million but the best estimate we can get is of the order of £13 million.

Will that figure be identifiable at the end of the tax year to test the accuracy of the Minister's estimations?

I am not sure whether the records will show it in that way. We might not have an absolutely precise figure, but we will have a reasonably accurate one.

The other point I want to make is on my own amendment. I am not sure whether the Minister has this in front of him——

Amendment No. 20?

On that amendment, this proposal runs counter to the intention behind section 10, which is that social welfare benefits be treated as income for income tax purposes. If by treating unemployment benefit as income for income tax purposes the taxpayer's taxable income is increased so as to make him liable to tax, it is only right that he should pay the tax. When a person's spouse becomes unemployed the spouse's income is reduced by the difference between the spouse's wages and the unemployment benefit and the income tax will be correspondingly reduced. The amendment proposed by Deputy Barry will have the effect of exempting unemployment benefit in cases where it is paid to a person's spouse.

With effect from 6 April 1980 it is proposed that unemployment benefit will be treated as income for tax purposes in the same way as income arising from any other source such as investment income and so on. There would be no more grounds in equity for granting a tax exemption in respect of unemployment benefit payable to a married person than there would be for exempting the benefit when it is payable to a single person. For that reason I cannot accept the amendment but intend, on the section, to elaborate on the reasoning behind the whole section.

Amendment put and declared lost.

I move amendment No. 21:

In page 13, after line 9, to insert the following subsection:

"(4) (a) The Revenue Commissioners may make regulations modifying the Income Tax (Employment) Regulations, 1960 (S.I. No. 28 of 1960), in their application to the benefits mentioned in Parts I and II of the Table to this section and the benefits mentioned in section 224 (2) of the Income Tax Act, 1967.

(b) Every regulation made under this section shall be laid before Dáil Eireann as soon as may be after it is made and, if a resolution annulling the regulation is passed by Dáil Eireann within the next twenty-one days on which Dáil Éireann has sat after the regulation is laid before it, the regulation shall be annulled accordingly, but without prejudice to the validity of anything previously done thereunder.".

Section 10 provides that certain social welfare benefits are to be taken into account for tax purposes. This is being done by fitting them into the PAYE machinery. The purposes of this amendment are to enable any modifications necessary to be made in the PAYE system so as not to hinder the smooth operation of the social welfare code or make difficulties for those who are entitled to benefit.

The amendment refers to the Income Tax (Employment) Regulations, 1960. These are the regulations made under section 127 of the Income Tax Act, 1927, which governs the PAYE system. The benefits which are mentioned in section 224 (2) of the Income Tax Act, 1967, are widows contributory pension, orphans contributory allowance, retirement pension, and old age contributory pension. Under section 224 (4) of the Income Tax Act, 1967, these benefits are deemed to be emoluments to which Chapter 4 of Part V of the Act applies. They are liable to income tax and are subject to the PAYE regulations. It is appropriate that they be included in the present amendment.

Amendment agreed to.
Question proposed: "That section 10, as amended, stand part of the Bill."

This section gives effect to the proposal contained in the White Paper Programme for National Development, 1978-1981. In paragraphs 622 and 623, income from short-term social welfare benefits should be taken into account in assessing a person's tax liability. As from 6 April 1980 the benefits listed in the section will be taken into account for tax purposes. I have already indicated to the House the expected yield on this.

The White Paper gave the background to this but serious anomalies had resulted from the practice of disregarding for tax purposes certain short-term welfare benefits. These anomalies are likely to be exacerbated following on the introduction of the pay-related social welfare scheme. For example, maximum rates of unemployment and disability benefits, that is, flat plus pay-related rates, would now amount to almost £55 a week for a single male and £65 a week for a married man. As matters stand at present these payments are not regarded as income for income tax purposes and no tax will be payable, whereas a single person on this level of income from any other source, wages, pension or investment income, could be paying £10 a week in tax. A married man whose wife was not working and who had no children with an income similar to his social welfare recipient counterpart could be paying almost £6 a week in tax. It is difficult to justify, in a situation in which a person is working and earning the same kind of money that would now be available under the pay-related social welfare system to a recipient, that one would be paying £10 a week in tax and another £6 a week.

The House will be aware that a suggestion has been made on a number of occasions in recent years that absenteeism has been encouraged by the fact that many employees receive almost as much in take home pay from unemployment and disability benefits, flat and pay-related rates, as are obtained in wages when working. This question was examined by an interdepartmental working party which reported in January 1976. As a result of these deliberations a scheme was adopted which, by and large, ensured that the maximum income of an unemployed person would not exceed 85 per cent of the after tax income he enjoyed in the period immediately prior to unemployment. This scheme applied only to unemployment benefit at flat and pay-related rates.

It has been claimed that a large element of disincentive on the part of many people to work is attributable to the problems caused by the payment of tax rebates in periods of unemployment allied with relatively high pay-related benefits. These problems would be eased to a considerable extent if the relevant social welfare benefits were taken into account for tax purposes, which is what this section proposes. There will be no liability to tax unless the recipient is in receipt of income or benefit exceeding the effective exemption limits for tax purposes. These are: for a single person, £1,115 a year or £21.44 per week; for a widowed person, £1,185 a year or £22.79 a week; and for a married person, £2,230 a year or £42.88 a week. As indicated, it is proposed to collect the tax through the PAYE system. The commencement of the scheme has been deferred to the tax year 1980-81 to enable the necessary arrangements to be made by the Revenue Commissioners and the Department of Social Welfare.

The primary point that people have to grasp is that, without this section, you could have people who are working—with the same income as people who are in receipt of these benefits—paying, in the type of case I have mentioned, almost £10 a week in tax, or if a single person £6 a week in tax, and their opposite number in receipt of social welfare benefits with the same income and paying no tax. As I said earlier, it is difficult to justify that situation.

I agree with what the Minister has said regarding the purpose in bringing in section 10 which deals with the case of an unemployed person being better off tax-wise than a person working all the time. We need this section. Perhaps in 1980-81, by the time this section comes into effect, as the Minister pointed out earlier, he could allow the total social welfare contribution as a fully allowable tax benefit against a person's gross income. What I want to ask the Minister——

Sorry, may I interrupt the Deputy before he gets away from this point, and point out that, if that were to be done, it would mean a fairly substantial increase in the social welfare contribution, which has already been reduced.

We shall discuss the matter in another way. At the moment, when a person becomes unemployed, he gets his form P45 from his employer which shows his gross pay and his tax deductions up to that date. Usually, after four weeks he applies to the tax office for a refund of tax by completing Form P50 as the allowance would have accumulated for the four weeks, so he would be due a certain amount of tax and that keeps going on to 5 April in the tax year. Under the present system, if he gets a tax rebate for the time when he is unemployed he is reissued with a new P45 which is usually amended by the Tax Office, in most cases. What now will be the position? How will the system operate? How will his employer know whether to aggregate the allowances forward? I have another question, but I would like an answer to that one.

As indicated, the system will not operate until the next tax year. One of the reasons for that is that arrangements for its administration by the Revenue Commissioners and the Department of Social Welfare, and between these two are being worked out. When these arrangements have been completed, they will be communicated to employers, instructing them how to administer the system.

I can foresee difficulties as regards the operation of the system, but I am sure the Minister will be able to arrive at the right system.

The second question revolves around section 10 (2):

Amounts falling to be paid on foot of the benefits mentioned in Part 1 of the Table to this section shall be deemed to be profits or gains arising or accruing from an employment and, accordingly—

(a) tax under Schedule E shall be charged on every person...

Take the case of a married man with a business the profits from which are taxable under Schedule D. His wife as a Schedule E taxpayer, would pay tax under PAYE. If the wife, halfway through the year, becomes unemployed and is entitled to unemployment benefit, or disability benefit, or whatever, on my reading of this section, if she went back to work during that year she would be caught. If she did not go back to work until the new tax year, as their incomes are added together, Schedule D for the husband and Schedule E for the wife, she would avoid paying tax, whereas a married man on Schedule E, paying PAYE, whose wife is working and paying PAYE as well, would be caught under this section.

I do not think that a wife, under such circumstances, would escape. The fact is that, if she is in receipt of these benefits, they will be deemed to be part of her income and will be deemed to be part of the husband's income in the normal way. They will be assessed as such. I am not quite sure if I understand the Deputy's point, but I think he means that because the wife is out for the rest of the tax year she will be, in effect, out of the PAYE system. Perhaps I have not understood?

Yes. That is correct.

I am assured that because that happens, it does not mean the emoluments the wife receives will thereby avoid tax.

Question put and agreed to.

I move amendment No. 22:

In page 14, to delete lines 2 to 7 and to substitute the following:


(i) under an assessment which had become final and conclusive, or

(ii) under the provisions relating to the specified amount of tax within the meaning of section 30 of the Finance Act, 1976, and".

This is a drafting amendment which rewrites the latter part of the section in a more precise form. The amendment makes no change of substance in the section.

Amendment agreed to.
Question proposed: "That section 11, as amended, stand part of the Bill."

For the purpose of section 11, why is it deemed necessary for the certificate to be signed by the inspector? Were there some cases where it was found that people were slipping through under the section?

Section 488 (3) of the Income Tax Act 1967 has machinery with provision to facilitate proceedings in the High Court for recovery of income tax which is due for payment. The section, as it stands, provides that a certificate by an inspector of taxes, stating that a particular amount of tax is due under an assessment which has become final and conclusive, is to be taken as evidence of that fact until the contrary is proved.

The section, however, does not cover the situation where an assessment is under appeal. Where a taxpayer appeals against an assessment, he is required to specify the amount of tax which, in his opinion, is due, that specified amount then becomes the amount due for payment, pending determination of the appeal. The amendment effected by the present section will enable an inspector of taxes to give a certificate that the amount so specified is due and payable. Basically the position is that when the provision was made in the 1967 Act there was not the machinery that exists now under the appeal whereby one specified the amount thought to be due. Technically section 488 does not cover the present machinery.

Therefore, the only difference will be when the taxpayer puts on the specified amount when he is appealing the assessment. Will that become the amount——


——rather than the amount in the assessment?

So does this section benefit the taxpayer?

It could, but I am not claiming that.

Question put and agreed to.

I move amendment No. 23:

In page 14, after line 36, to insert a new subsection as follows:

"(2) Notwithstanding anything contained in any other enactment, the provisions of this section shall not operate so as to deprive any individual whose total rateable valuation in respect of all farm land occupied by him is between £50 and £60, of allowances in respect of the payment of rates which he enjoyed prior to the enactment of this Act."

The Government are proposing to reduce the valuation threshold for income tax, and farmers who previously were exempt from income tax because they have not valuations in excess of £60 are now going to be liable for income tax if they have valuations in excess of £50. We are not objecting to the principle of this, although obviously there will be problems in relation to some farmers who may not have incomes of that scale.

What is objectionable about the procedure being adopted here is that automatically once the valuation threshold is reduced the farmers in the area in question between £60 and £50 will lose their allowances against rates as well. That is not contained in this Finance Bill but it was contained in a rather disingenously described Bill which was concerned with relief of rates and called the Relief of Rates Bill. It was a Bill which said that as soon as the valuation threshold for income tax was reduced from £60 to £50—as in this case, and it could be reduced to nought next year—automatically all farmers in that category lost their allowances against rates as well, the primary allowance and the secondary allowance which they had. This is very bad legislation. If the Minister wanted to reduce allowances against rates he should have brought in a Bill to do it and justified it here in this House instead of using this back-door method contained in the Relief of Rates Bill whereby, simply by making the change in the Finance Bill for income tax purposes, automatically the farmers lose the allowances for rates as well without any separate or special enactment. That is the reason I put forward this amendment, in order to stop the Minister from doing that.

Deputy Bruton's amendment is not valid. He is forgetting that under the 1978 Finance Act rates are allowed as a payment against income tax. A person's threshold now drops from £60 to £50 and he loses the rates allowances if he is in a position of paying income tax but the full rates he is paying are allowed as payment of tax and effectively are regarded as income tax. Therefore, it is not valid in all cases to say that he loses out.

It is if he makes a loss.

That is true. A person who would not be paying income tax would lose out.

Hear, hear.

I suggested in the debate on last year's Finance Bill that if a person does not have the full credit for his rates at that time the surplus should be carried forward to a future year.

I had that amendment down in last year's Finance Bill. I am sorry that Deputy McCreevy did not support me in that.

I did not know that Deputy Bruton had that amendment down then. It is only people who do not have a taxable income who will be affected by having to lose the rates relief. Anyone paying income tax is not affected at all. My solution for getting over the other problem is, as Deputy Bruton suggested in his amendment last year, to allow it to be carried on to future years. I cannot support Deputy Bruton's amendment.

By definition people not paying tax are worse off.


Deputy McCreevy was right to draw attention to the fact that farmers are entitled to set off their rates bill against their tax bill and not merely as an expense. That is a special and unique dispensation. Secondly, in so far as there is a liability on people to pay rates when they make a loss or when they have not a taxable income, whatever view one may take of that, that is not now. That has always been so with regard to rates and this Bill is not changing the fundamental position in regard to rates. That is another issue altogether. This is merely dealing with the income tax aspect of it.

The present position is that the link between the Rates on Agricultural Land (Relief) Act and the Finance Act is as follows: the 1978 Rates Relief Act, which covers rates relief for the years 1978 and 1979, provided that rates relief shall not be available to those whose total valuation equals or exceeds the tax threshold for farm taxation. The relevant threshold is the one applicable at 1 January in any year. For example, the rates relief for 1979 cut-off point is £60 rateable valuation. Section 12 of this Bill does not deprive anybody of any rates relief to which he might otherwise be entitled.

What did the Minister say?

Section 12 of this Bill does not deprive anybody of any rates relief to which he might otherwise be entitled.

It will, because under the provisions of the Relief of Rates Bill——

The existing Relief of Rates Act covers 1978 and 1979.

(Cavan-Monaghan): The Minister has his colleague to do that. There is difficult work on that.

Therefore, the Deputy is making an assumption if he is saying that this section deprives anybody of rates relief to which that person would otherwise be entitled. It is not doing so. There is a separate corpus of legislation dealing with rates relief on agricultural land. The current legislation is the Rates on Agricultural Land (Relief) Acts, 1939 to 1978. It would not be right that the Finance Bill should be used to effect or prevent changes which should more properly be made through the medium of the Rates Relief Act. The Government have already decided that the cut-off point for rates relief by way of the agricultural grant will be reduced to £40 rateable valuation from 1 January 1980. This was announced on 24 April 1979 as part of a package of taxation measures designed to bring in a yield from farmers in line with the yield from other sectors of the community. A Rates Relief Bill which will provide reliefs for those whose total agricultural land valuation does not exceed £40 will be introduced in due course. If the cut-off point——

(Cavan-Monaghan): Will that be effected from 1 January 1980?

Yes, from 1 January 1980. If the cut-off point for rates relief were left at £60 rateable valuation for 1980, which seemed to be the aim of this amendment, rates payments by farmers in 1980 would be £40 million rather than £46 million and this would have the effect of reducing the overall tax payments by farmers in 1980 from the planned £100 million to £94 million. I do not propose to accept the amendment, which would have that effect. The yield has already been indicated as has the method by which it will be achieved and I do not propose to interfere with that as it is designed to bring the yield from farmers into line with that of other sections of the community.

In this as in other matters, the Minister is following the entirely wrong line relation to farmer taxation. We on this side of the House support strongly the principle that farmers who make an income should pay a tax on it. But this section will impose a very significant increase on farmers in the amount of rates they pay and that will have to be paid whether they make an income or not. The Minister's attitude in this is in line with his attitude on other taxes, the levy and the resource tax, both of which have also to be paid whether the farmer makes an income or not. No section of the community should accept a system of taxation based on paying a share of income received. This measure and the other measures introduced by the Government will be levied whether or not a farmer makes an income. As such they are objectionable to the Fine Gael Party.

I must repeat that this section deals with income tax. Deputy Bruton's complaint that people will have to pay tax whether or not they make an income relates to rates. Deputy Bruton has lived with that situation for a long time, including the period during which he was a junior member of the Coalition Government.

The rates were dramatically increased by Fianna Fáil.

The Deputy is aware that rates were reduced for every farmer with a house or outbuilding. We have tried to get a yield from farmers that is in line with the yield from other sections of the community. We consulted with the farming organisations in regard to the methods of doing this. It is now an open secret that the farming organisations were unable to agree on the method by which this might be done. That is their business. However, it is the business of the Government to devise a system which will produce the necessary yield. We have not said that this is the end of the road. On the contrary, we have indicated that we visualise changes which would relate more to payment of income tax in line with income.

That is a good idea.

Does the Deputy wish me to disregard rates as a form of tax for farmers? Does he want us to collect £100 million directly in income tax from farmers? The Deputy does not know what he wants.

There is a case for rates.

We are dealing with amendment No. 23. The Minister should be allowed to continue.

It should be made clear to everybody concerned that this amendment is designed to reduce the yield from farmers, which the Government has set for next year at £100 million. If Deputy Bruton thinks that the target is wrong and that farmers should not pay a yield in line with the yield from other sections of the community, that is his business. It is not my view and I suggest that it is not the view of farmers.

They should pay on incomes.

If we had one speaker at a time we would get on much better.

I do not want to wander over the field of farmer taxation.

Not at this stage, Minister.

Deputy Bruton ought to face the realities of the situation. If he or anybody else says that the system of farmer taxation should be income tax on the income of farmers and only that, it implies certain things. First, it implies all farmers being liable for income tax on all their income. Second, it implies no special arrangements for agriculture. These arrangements are important because agriculture is different from other sections of the economy. The taxation system should reflect that difference. If the Deputy thinks that farmers should be treated the same as everybody else then he must take the good with the bad.

That was what I said.

That they should be treated the same as everybody else?

We may now take it that Fine Gael are advocating that rates should not be allowed as a deduction from tax. Deputy Bruton is advocating that farmers should not pay rates. Furthermore, I take it that the Deputy is not in favour of the other special provisions in the income tax code in relation to farming taxation. He thinks they should be abolished and that the system applied to other tax payers should be applied to farmers. Is that the position?

I am in favour of farmers paying income tax on accounts as they do in the North.

Is the Deputy in favour of farmers paying tax on the same basis as everybody else?

It should be the same as in the North.

There should only be one speaker at a time on any question. The Minister should be allowed to conclude. We are dealing with amendment No. 23 only.

The Minister should be curtailed by the Chair.

It is very hard to curtail the Deputy.

I can understand Deputy Bruton's discomfiture——

It does not match the discomfiture of the Minister.

——at the disclosure of the fact that what he and his colleagues are advocating is that the principle of a yield from farmers in line with that from other sections of the community is not one to which they subscribe. That fact is evidenced by this amendment by which he is trying to reduce the yield from £100 million to £94 million. That may be a popular thing to do in County Meath, but the Fine Gael Party ought to decide whether they are in favour of a yield from farming in line with the yield from other sections of the community. If they are in favour of the proposal they should say so and not seek to undermine the efforts to achieve that situation.

There is no point in Deputy Bruton talking about the rates system, with which he has lived for a long time. He did nothing about it when he was in a position to do something. There is no point in interjecting about the levy——

The levy is not under consideration.

The subject was dragged in by the other side of the House.

It will not be debated on this amendment or on the Bill.

I do not propose to debate the levy, but since it was mentioned I should like to point out that there was an option whereby it would not have operated. The amendment is designed to change the income tax arrangements in relation to rates on agricultural land, not the rates arrangements which are the subject of a separate code. As far as the income tax arrangements are concerned, this amendment was designed to raise the threshold for income tax purposes to £60 valuation when in fact the Government have announced that it will be £40 as from 1 January next. I do not subscribe to the object of this amendment nor do I subscribe to the theories put forward by Deputy Bruton in support of it. I find that theory lacking in credibility since Deputy Bruton, when he was in a position to do so, did nothing about trying to remedy the matter about which he now complains.

I should like to point out that we are dealing with amendment No. 23 and not with the section.

(Cavan-Monaghan): The Minister asked a number of questions and it is my intention to reply to them. The spirit of Deputy Bruton's amendment is to maintain the agricultural relief grant at £60, it having been reduced from 1 January 1978 to £75 and as from 1 January 1979 to £60. The Minister has told us that it will be reduced as from 1 January 1980 to £40. Several times the Minister posed a question to Deputy Bruton as to how he thought farmers should be taxed. I should like to tell the Minister that farmers expect to be taxed in accordance with the promises made by the canvassers sent out by the Taoiseach, the Tánaiste and Fianna Fáil before the last general election. Those canvassers told farmers that they were being bled white by the National Coalition, that they were grossly overtaxed and that if they elected Fianna Fáil to power the taxation imposed on them would be reduced. Those statements were not repudiated by the Taoiseach or the Minister for Finance. Is it any wonder that farmers are up in arms when they find that they will now be subject to a resource tax of £70, must pay full rates and a levy of 2 per cent, regardless of income, another levy of .5 per cent in regard to the eradication of disease and their agricultural relief grant brought down to £40. Is it any wonder that the Government are not being taken seriously or that they stand discredited in the eyes of our people?

It is a pity that Deputy Mitchell is not here to listen to the Deputy's contribution.

(Cavan-Monaghan): The whole thing has snow-balled and not alone are the farmers on the Minister's back but the PAYE sector are also after him. He has the country in chaos.

The Deputy should return to the amendment. There is nothing before the House but amendment No. 23.

(Cavan-Monaghan): The Minister asked us to state how we felt farmers should be taxed.

I did not ask that. I asked how Fine Gael thought they should be taxed.

I told the Minister how.

The Deputy shifted his feet fast.

I did not. I suggested the same system as exists in Northern Ireland.

The Chair should be permitted to dispose of amendment No. 23. Other matters might then be raised.

The Minister got an answer to his question but he did not know what it meant.

(Cavan-Monaghan): It was wrong of the Minister to direct that question at Deputy Bruton. He should have directed it at the farmers he misled, conned and succeeded in getting votes from in the last election. This is the best time to do that because the Minister's lads are on the road again visiting farmers. They should ask the farmers what they think of the treatment being meted out to them by the Government in relation to the promises made by Fianna Fáil prior to the last election. It is no wonder that Fianna Fáil canvassers are leaving like scalded cats.

It is my intention to put the amendment now because there is nobody anxious to speak on it.

(Cavan-Monaghan): Deputy Bruton is anxious to get the Minister to live up to promises made by Fianna Fáil prior to the election. It is opportune to be discussing this matter two years after Fianna Fáil canvassers were on the road and at a time when those canvassers are again campaigning.

It is a pity the Deputy did not quote them.

I cannot allow the Minister get away with the statements he has made. The Minister has told us that £100 million must be collected in taxation from farmers and he has tried to devise a system to collect that amount. I should like to know on what he bases that £100 million. It appears that he is basing that figure on his own ignorance of the agricultural industry. In 1978 the Minister gave a commitment to the agricultural community that they could have the notional system for a three year period but he wants to change that now. Where is the Minister's credibility and that of his Government? That is a question the farming community are asking.

I should like to know how the Minister stands legally in this regard having made such a commitment to the farming community. Farmers engaged in developing their land on the basis that the notional system would operate for a three year period. I should like to put the following example to the Minister: a farmer with a valuation of £60 on his 75 acres is now liable for income tax, for full rates, which he can charge against income tax, and the 2 per cent levy. The levy will amount to £255, rates, £660, tax, £420, a total of £1,335 while his income would be approximately £6,400. A man in the PAYE sector on a similar income will pay approximately £1,080 in income tax while the farmer would pay approximately £1,335. Why is the Minister treating farmers as a separate category and subjecting them to a penal tax? The Minister is putting farmers out of line with other sections of the community.

As there is no Deputy speaking to the amendment before the House, I must put the question. Members will have ample opportunities of dealing with other matters when we come to discuss the section.

On a point of order, I should like to point out that Deputies Fitzpatrick and D'Arcy spoke in response to the contribution of the Minister on the amendment.

I am endeavouring to get everybody to speak to the amendment.

On a point of order, is it not true that whatever I said was in response to the case put for the amendment by Deputy Bruton?

The Minister put questions to this side of the House and they have been answered.


Deputy McCreevy on the amendment.

I want to get back to the amendment put down by Deputies P. Barry and Bruton, which relates to rates. We can go into all of the other matters when we are dealing with sections 12, 13, 14 and 15. In answer to Deputy D'Arcy's question about the notional system, if he reads section 14 he will find the answer, because there the position is restored. But everybody is forgetting about the rates. Deputy Bruton's amendment overlooks them, but I have no doubt he knows the position quite well.

The position now is that, if people have to pay income tax on their farming, their rates are allowable as a payment against that tax. That is a far better position than obtained when farming tax was introduced in 1974. From 1974 until the passage of the 1978 Finance Act a farmer who had to pay income tax had to pay rates also. Let me give the example of the farmer with a valuation of £200. He paid approximately £2,000 in rates and his income amounted to £3,500. Therefore in total he paid £5,500. Now, as a result of the provisions of the 1978 Finance Act, that farmer's rates are allowable as a payment against tax. Therefore he pays only £1,500 in income tax because £1,000 is subtracted from his income tax liability, leaving him that much better off. Prior to the implementation of the 1978 Finance Act rates were not allowable as a payment against tax. Part of the IFA's cry against farming taxation in the period of the last Government was that rates should be regarded as a payment of tax. We restored that position. That was spelled out in the 1977 Fianna Fáil election manifesto and that is what we did in last year's Finance Act.

Deputy Bruton well knows that farmers who have a taxable profit are, as a result of the Minister's amendment of the 1978 Finance Act allowing rates as a payment of tax, far better off, as my example illustrated and every Deputy on that side of the House knows. Had the Minister's amendment of the 1978 Finance Act not been agreed then we would still have rates and income tax as they had obtained. The only person who loses out now in having rates regarded as a payment against tax is a person who does not have a taxable income. Therefore I am opposed to the amendment because there is no justification for it.

Deputy McCreevy is interested in a farmer with a valuation of £200. I am interested in the man between £60 and £75 valuation. How many of those farmers will be taxable—they will not have the income— but still they will be liable for the full rate of £660, because rates are approximately £11 in the £ in most counties? Such a farmer has no income under Fianna Fáil because they have reduced his income by 14 per cent in that there was a 14 per cent increase this year in the actual costs of agricultural production. Therefore that man will not have any taxable income. What does one do with him?

That was the position all the time the Deputy's party were in Government.

It was not the position all the time because then the rates threshold was £75 upwards. Deputy McCreevy's party have brought it down from £75 to £50, when the big farmer is better off but the smaller one is being starved.


We cannot have Deputies addressing one another across the House. That cannot be allowed.

(Cavan-Monaghan): I agree with Deputy McCreevy that this amendment deals with rates. As from next year a farmer with a £40 valuation, who is a small farmer unless he is engaged in intensive agriculture, if he is married and has a few children will not be in the income tax net. The Minister may take that as a fact. Of course, if he was in intensive agriculture he could be in the net. Let us suppose he is in cattle, milk or something like that, that he is a married man with three or four children and he had a poor law valuation of £40. He is not in the income tax net. But next year if rates are £12 in the £ he will be asked to pay £480 by the Minister for the Environment at the behest of the Minister for Finance.

That is not fair. I cannot give the exact rate that man would be paying at present, but with all the agricultural relief available to him he will be paying very little. But in future he will be paying three times as much, because if the rate is £12 in the £, as it is in some counties, he will be paying £12 in the £ from £1 up to £40. That means be will be paying to £480. How can the Minister justify that? That is doing what the Minister and the Government said they would not do; it is passing over the rates on private houses to agricultural land. The Taoiseach gave a solemn undertaking before the last election that that would not be done. That is indefensible. It is a tax imposed on a person who is not in the income tax net; it is taxing a man who would not be liable to it, and I bitterly resent it.

I do not wish to delay this but I do not want Deputy D'Arcy to pretend afterwards that he asked questions and that I did not answer them or was unable to answer them. He wanted to know where will we get the £100 million. He should know by now that there are a number of ways of arriving at the figure. Basically it is on the assumption of what is paid by other sectors of the community and then calculating what should be a comparable yield from the farming sector. That is the proposition put forward by the Government, one which I think most people accept is a fair one—that the yield from farming and other sectors should be in line. Perhaps Deputy D'Arcy does not accept that, I do not know.

It should be based on profit.

Whatever is the profit the yield from it should be in line with that of other people. If one takes the profit from farming and from other sectors——

Even if there is no profit?

——and compares the yields from those sectors, they should be in line. Otherwise the system is unfair.

(Cavan-Monaghan): The Minister is proceeding as if all the farmers in the country were in a limited company or in partnership and they are not.

The proposition is quite clear; that different sectors of the community, calculating on the basis of their profits, should pay a yield in line with other sectors of the community; that it should be in line from each sector. That is the proposition I thought would commend itself to any fair-minded person. It is quite clear it does not commend itself at least to the rural elements in the Fine Gael Party. That is their business. That is the proposition the Government have put forward, the one with which most people agree. The calculation of how it has been arrived at has been explained on a few occasions and it would not be appropriate to do so here. If Deputy D'Arcy has trouble about it, I will try to assist him at a later stage.

Deputy D'Arcy asked about the notional system. As Deputy McCreevy pointed out to him, a later section deals with that. But, as far as the three year commitment on that was concerned, a later section does away with it. As far as the retention of the notional system on a permanent basis is concerned, I do not think the Deputy knows this—and, if he does not, he may be interested—the fact is that the farming organisations having accepted the idea that the yield had to be in line with other sectors of the community accepted that there were various ways of doing that. They indicated—I have to say, in fairness to them, without commitment—that among the methods by which this could be achieved was the dropping of the notional system.

On a point of order, do I take it then that the farming organisations recommended the dropping of the notional system?

That is not a point of order, Deputy.

It is a point of clarification.

There is no such thing as a point of clarification. The Minister is in possession. Deputy D'Arcy can ask questions later.

It is neither a point of order nor an accurate representation of what I said.

Would the Minister repeat what he said?

What I said is on the record of the House and if the Deputy found it difficult to follow I suggest he looks at the record when he will find it quite easy.

It will be difficult to explain that down the country in about a fortnight's time.

Does the Deputy think so?

Sorry, Minister and Deputy, we are not going down the country at this stage. We are on the amendment.


Apart from Deputy Barry the other Deputies over there are rural Deputies. I wonder how Deputy Barry and people like Deputy Mitchell feel about this carry-on? It is very interesting to see the reaction over there.


The Minister is in possession.

We are told by Deputy Fitzpatrick that people in the £60 to £70 rateable valuation level would be adversely affected. No farmer is liable for income tax who is not entitled to set up his rates bill against his tax bill. That is the first thing. That was not so when the Deputies opposite were in Government. Do the Deputies remember that they did not provide for that? Do they remember, when they are shedding all those crocodile tears about the unfortunate farmer in the £60 to £70 valuation, who has no income so that he cannot pay his rates, that they did not do anything about him when they were in Government? We are providing that no farmer is liable for both rates and income tax under this Government.

(Cavan-Monaghan): I did not say it.

I am saying it.

(Cavan-Monaghan): I am talking about the £40 farmer.

The Minister is in possession. We would get along much better if we had one speaker at a time.

Deputies opposite do not like to be reminded of what they did not do when they could have done it nor do they like to be reminded that they are trying to ride a few horses. Quite apart from the view that might be taken by urban dwellers, it is my belief that farmers in general accept the proposition that there ought to be a fair share paid by them and that to achieve that the yield from farming taxation should be in line with the yield from other sectors of the community. They know also that the ideal system which will produce that yield will not be produced overnight. They know there were opportunities available to have a system which might have been, perhaps, somewhat better than the one which is coming in and that those opportunities were not availed of. What is being done under this section and what is sought to be set aside by this amendment is to produce a yield from the farming taxation in line with that of other sectors of the community. I must repeat that our objective is to have a yield from the farming sector in line with that of other sectors. I believe that is a fair objective and I believe that most people, including farmers, subscribe to it. I cannot and will not accept an amendment from the Fine Gael Party which is designed to ensure that we do not get a yield from the farming sector in line with that of other sectors of the community.

Amendment put.
The Committee divided: Tá, 34; Níl, 58.

  • Barry, Peter.
  • Barry, Richard.
  • Belton, Luke.
  • Bermingham, Joseph.
  • Boland, John.
  • Bruton, John.
  • Burke, Joan.
  • Byrne, Hugh.
  • Cluskey, Frank.
  • Collins, Edward.
  • Conlan, John F.
  • Cosgrave, Liam.
  • Creed, Donal.
  • Crotty, Kieran.
  • D'Arcy, Michael J.
  • Donnellan, John F.
  • Enright, Thomas W.
  • Fitzpatrick, Tom. (Cavan-Monaghan).
  • Flanagan, Oliver J.
  • Gilhawley, Eugene.
  • Griffin, Brendan.
  • Horgan, John.
  • Kenny, Enda.
  • L'Estrange, Gerry.
  • McMahon, Larry.
  • O'Brien, Fergus.
  • O'Brien, William.
  • O'Donnell, Tom.
  • O'Toole, Paddy.
  • Taylor, Frank.
  • Timmins, Godfrey.
  • Treacy, Seán.
  • Tully, James.
  • White, James.


  • Ahern, Kit.
  • Allen, Lorcan.
  • Andrews, David.
  • Andrews, Niall.
  • Aylward, Liam.
  • Barrett, Sylvester.
  • Briscoe, Ben.
  • Browne, Seán.
  • Burke, Raphael P.
  • Callanan, John.
  • Calleary, Seán.
  • Cogan, Barry.
  • Colley, George.
  • Collins, Gerard.
  • Conaghan, Hugh.
  • Cowen, Bernard.
  • Daly, Brendan.
  • Davern, Noel.
  • de Valera, Vivion.
  • Doherty, Seán.
  • Farrell, Joe.
  • Filgate, Eddie.
  • Fitzpatrick, Tom. (Dublin South-Central).
  • Fitzsimons, James N.
  • Flynn, Pádraig.
  • Gibbons, Jim.
  • Haughey, Charles J.
  • Hussey, Thomas.
  • Keegan, Seán.
  • Kenneally, William.
  • Killeen, Tim.
  • Lalor, Patrick J.
  • Lawlor, Liam.
  • Lemass, Eileen.
  • Lenihan, Brian.
  • Leonard, Jimmy.
  • Leonard, Tom.
  • Leyden, Terry.
  • Lynch, Jack.
  • McCreevy, Charlie.
  • MacSharry, Ray.
  • Meaney, Tom.
  • Moore, Seán.
  • Morley, P.J.
  • Murphy, Ciarán P.
  • Noonan, Michael.
  • O'Donoghue, Martin.
  • O'Hanlon, Rory.
  • O'Leary, John.
  • O'Malley, Desmond.
  • Reynolds, Albert.
  • Smith, Michael.
  • Tunney, Jim.
  • Walsh, Joe.
  • Walsh, Seán.
  • Wilson, John P.
  • Woods, Michael J.
  • Wyse, Pearse.
Tellers: Tá, Deputies Creed and Horgan; Níl, Deputies P. Lalor and Briscoe.
Amendment declared lost.
Section agreed to.

On a point of order, may I ask a question in regard to the Dáil voting paper? It has been brought to my attention that my name has been withdrawn, removed from the voting paper. I think that is unconstitutional and therefore that this vote is invalid.

I am sure the Deputy's name is on the list. I am inspecting it. Yes, and the Deputy has voted. Everything is in order.

I think it is unconstitutional that it should have been written in. It should be on the voting paper the same as that of any other Member of the House.

I will see about that.

Section 13 agreed to.

I move amendment No. 24:

In page 16, line 6, after "is" to insert "or are".

This is purely a drafting amendment.

Amendment agreed to.
Section 14, as amended, agreed to.
Section 15 agreed to.
Amendment No. 25 not moved.
Section agreed to.
Sections 17 to 20, inclusive, agreed to.

I move amendment No. 26:

In page 19, before section 21, but in Chapter IV, to insert the following section—

"21.—Chapter IV of Part I of the Finance Act, 1977, is hereby amended by the insertion after section 25 of the following section:

25A. (1) For the purposes of this Chapter the number of employment contributions payable in respect of an employed contributor in a relevant period, or part of a relevant period, falling wholly after the 5th day of April, 1979, shall be equal to the number of contribution weeks in that period, or part of a period, for which the appropriate employment contribution or contributions in respect of that employed contributor was or were paid or would have been paid but for section 6 (1) (c) (inserted by the Social Welfare (Amendment) Act, 1978) of the Social Welfare Act, 1952.

(2) In this section "contribution week" has the same meaning as in the Social Welfare Act, 1952.'.".

This amendment by inserting a new section 21 in the Bill provides for the insertion of an additional section 25A in Chapter IV of Part I of the Finance Act, 1977. That chapter contains the legislation governing the special 25 per cent rate of corporation tax for manufacturing companies which achieve a specified increase in employment. The appropriate increase falls to be determined by making a comparison between the number of employment contributions payable in respect of a company's employees in a particular period and the number of such contributions payable in an earlier period of the same length. This formula avoids distortions arising from part-time working, retirements and recruitments during the two periods.

The introduction as from 6 April 1979 in the Social Welfare (Amendment) Act, 1978, of the new system of fully pay-related social insurance contributions necessitates a technical amendment of Chapter IV of Part I of the Finance Act, 1977. Under the previous flat rate contributions system, a contribution was due each week during the whole or part of which there was insurable employment. As from 6 April 1979, contributions will no longer necessarily be made weekly, but will be made each time there is a payment of reckonable earnings.

Thus, in respect of a person paid monthly, there will be only 12 contributions in a full year from 6 April 1979, instead of 52 contributions in weekly stamps in the previous year. In addition, contributions in respect of an employee will henceforth cease when his reckonable earnings in a contribution year have exceeded the ceiling of £5,500. In order to compare like with like, the new section 25A provides that contributions payable on or after 6 April 1979, or which would be payable but for the ceiling of £5,500, are to be matched with the number of contribution weeks covered by the payments.

Without this amendment a company which had achieved a 3 per cent increase in employment might not qualify for the 25 per cent rate of corporation tax for the 1979 period because the number of employment contributions payable in that period was not 3 per cent greater than the number of stamps in a preceding period. It is largely a technical amendment arising out of the chargeover to pay-related social welfare.

The change over from stamps to pay-related necessitates this amendment?

Amendment agreed to.

I move amendment No. 27:

In page 19, before section 21, but in Chapter IV, to insert a new section as follows:

"21.—(1) The provisions of Chapter IV of Part I of the Finance Act 1977, relating to reductions in corporation tax for certain manufacturing companies carrying on a trade on 31st December, 1976 or commencing to trade in 1977 or 1978 shall continue to apply in relation to a 1980 period, with the necessary modifications in accordance with subsection (2), and shall apply also in respect of manufacturing companies commencing to trade in 1979.

(2) Section 24 of the Finance Act, 1977, is hereby amended—

(a) by the substitution of the following subsection for subsection (3):

‘(3) The Provisions of subsection (2), except paragraph (c) thereof, shall apply, subject to the provisions of subsections (4), (5), (6) and (7) in relation to a 1978 period, a 1979 period and a 1980 period as they apply in relation to a 1977 period;'

(b) by the insertion after paragraph (b) of subsection (4) of the following paragraph:

‘(c) In relation to a 1980 period—

(i) each reference in subsection (2) to 1977 shall be construed as a reference to 1980, and

(ii) the reference in subsection (2) (d) to 103 per cent, shall be construed as a reference to 112 per cent,' and

(c) by the insertion after subsection (6) of the following subsection:

‘(7) In relation to a 1980 period, a company may elect either—

(a) to have the financial year 1977 treated as the standard year for the purposes of subsection (2) (d) in relation to the specified trade carried on by it, and where such election is made, the provisions of subsection (4) (c) (ii) shall apply to the company as if the reference to 112 per cent. Were a reference to 109 per cent., or

(b) to have the financial year 1978 treated as the standard year for the purposes of subsection (2) (d) in relation to the specified trade carried on by it, and where such election is made the provisions of subsection (4) (c) (ii) shall apply to the company as if the reference to 112 per cent. were a reference to 106 per cent., or

(c) to have the financial year 1979 treated as the standard year for the purposes of subsection (2) (d) in relation to the specified trade carried on by it, and where such election is made, the provisions of subsection (4) (c) (ii) shall not apply to the company.'".

In the Finance Bill of 1977 or 1976 a provision was introduced allowing people to have a preferential rate of corporation tax if they increased their employment and their turnover by certain percentages which the Minister has outlined. The Minister amended it last year, or the year before, to delete the provision dealing with the increase in the turnover, but to maintain the increase in the employment to qualify for the preferential rate of corporation profits tax.

Since then, the Minister announced that from 1981 onwards the new rate of corporation profits tax will be 10 per cent. To bridge the gap between the running out of this financial year, which will be 6 April 1980, and the commencement of the new preferential rate of 10 per cent in 1981, I am seeking to have the preferential rate extended until the new 10 per cent rate will become effective.

It would be exceedingly helpful to business people who are trying to plan much further ahead than 1 January 1981 if they knew the precise details of how the 10 per cent will operate. How will they qualify for it? Will there be conditions attached to it such as are attached to the preferential rate of 25 per cent? How will it relate to companies at present enjoying tax-free exemption for their exports? How will they be treated? Apart from the bold announcement by the Minister that such a rate will apply in two years' time, no details have been available to the business community. It would be helpful to the business community if they could have details of the new scheme as quickly as possible.

I am trying to ensure in this amendment that the preferential rate of corporation profits tax introduced in 1977 will extended to the time when the new preferential rate comes into effect.

The point raised by Deputy Barry in relation to the new 10 per cent does not arise directly on this section. Some details have been announced, but the full and precise details have not yet been announced. There are good reasons for that. The Deputy may take it they will be announced in sufficient time for people to plan ahead.

The amendment proposed by Deputy Barry is designed to extend for a further year the application of the 25 per cent rate of corporation tax which applies to the income of certain manufacturing companies which achieve an increase of 3 per cent, broadly, per annum in their employment levels. The first year of application of this relief was 1977 and relief in respect of any accounting period, or part of an accounting period, falling within 1977, was provided for in the Finance Act 1977. The 1978 Act extended the application of the 25 per cent rate for two years, 1978 and 1979. Therefore, no provision is required for 1979 in this year's Finance Bill.

In regard to the point put forward by Deputy Barry that this would facilitate planning by industry, that may be true up to a point but I have to point out also that there are certain constraining effects in that as regards future budgetary flexibility. The decision whether or not to extend the relief for a further year will be taken in 1980 in the light of budgetary conditions and other relevant conditions then prevailing, such as the level of employment, the effectiveness of this inducement as then assessed in increasing employment in manufacturing industry and any other relevant factors.

In so far as it may be shown that this inducement has operated effectively to increase employment, I can say that obviously there would be a predisposition on the part of the Government to extend it in so far as that can be done. I acknowledge there are difficulties in measuring the effect, but so far as it can be done it is better that it be done towards the end of the existing period so that an up-to-date assessment can be made by the Government of its effect. Subject to budgetary constraints, if such an examination were to reveal that this has been effective in increasing employment, there would be a prodisposition on the part of the Government to extend it. I cannot agree that that decision should be taken now rather than in 1980.

Amendment, by leave, withdrawn.

Amendment No. 27a in the name of Deputy O'Leary has been ruled out of order.

On a point of order, why was it ruled out of order?

It involves a charge on the people.

The alternative involves a much greater charge on the people.

Amendment No. 28 is in the name of Deputy Barry. Amendment No. 29 is related to it and they may be discussed together.

I move amendment No. 28:

In page 19, subsection (1), lines 30 to 36, to delete paragraph (iii).

I am sure the Minister has had many representations about this matter from manufacturing industry. I do not think I need to enlarge on the matter except to say the relief was of benefit to the IDA in attracting industry. It should be left at the full 100 per cent rate.

As the Deputy has indicated, the purpose of this amendment, with amendment No. 29, would be to provide for the extension of stock relief in full for a further year; in other words, that the restriction announced in the budget and provided for in section 21 would not apply for the year.

I have to remind the House that stock relief was a temporary measure. It was introduced in 1975 to take account of the then existing rate of inflation. At that time the rate of inflation was, no doubt, creating very serious anomalies. The continuance of stock relief when inflation has dropped considerably must be seriously questioned.

The whole justification for stock relief relates to the totally distorting effect of the inflation experienced at that time. In this connection I will point out that the increase in the CPI from February 1974 to February 1975 was almost 24 per cent and that from February 1975 to February 1976 it was 16.08 per cent. The latest year—February 1978 to February 1979—shows an increase of 10.83 per cent. Under the provisions which these amendments seek to remove from section 21, the amount of stock relief would be three-quarters of the amount that would be available if the relief were continued, subject only to existing rules and restrictions. For example, if a taxpayer will otherwise qualify for a deduction amounting to £100 he will receive a deduction of £75 only.

I should also point out that wideranging reliefs are available to industry in the form of tax relief on export profits and manufacturing profits and accelerated capital allowances. The proposed introduction from 1 January 1981 of a 10 per cent rate for manufacturing industry will provide further extensive relief. In these circumstances the extension of stock relief on the lines proposed in section 21 is, I suggest, a generous measure having regard to the other demands on the Exchequer at the present time.

In these circumstances I am afraid I cannot accept the amendments. Having regard to the other benefits available to industry, to the various demands on the Exchequer and the fact that stock relief was introduced to meet a particular situation that does not obtain to anything like the same degree now, a reduction of one-quarter in the relief is not an unfair or ungenerous approach to this matter now. Furthermore, it should be borne in mind that, although other factors enter into it, the fact that there was a reduction in the food subsidies which were also introduced at a time of raging inflation is a corollary to this measure. If the action taken with regard to food subsidies is to operate I do not think it would be justifiable to adopt this attitude in regard to stock relief in relation to companies.

If the Minister had made the same argument last year in relation to stock relief it would have carried more weight than it does at the moment with so many people worried about the inflation rate in the current year. We will know more about that in the middle of next month. Many companies and business people are very worried about inflation in 1979 and in 1980. One of their worries is buying in goods at a higher price than the goods they have disposed of and this was the basis of the section that gives stock relief to companies. They do not know that if they are in that situation at least when they come to balance the books they will not have to pay tax on what they would consider as inflation profits. They would be better able to see into what for all of us is a rather uncertain future and at least they would have that one worry off their minds when considering investing in further stock, which in turn has the effect of keeping the economy going and has an effect on employment.

I take the Minister's point that this was introduced when inflation was at a very high level here, as in the rest of the world. This is one of the measures that were taken at that stage; food subsidies was another and many other measures were taken then which had the effect of allowing this country to come out of the recession induced by the OPEC prices, the oil shortage of 1973-4, very quickly and surely. We came out to such an extent that virtually alone, with the exception of Japan, of the countries of the world we were moving into a growth position as early as the second quarter of 1976. It was the sane and steady hand at the tiller during that difficult period that allowed the growth in 1977 and 1978 that the present Government are now claiming credit for. They know in their hearts that the present economic growth has been built on policies adopted by the previous administration in 1975 and 1976. It would be of some comfort—if no more—to some members of the business community if they could be assured that such inflation will not go beyond its present level in the coming 12 months and at least that companies will not be asked to pay tax on that portion of their profits which is due to inflated prices. For that reason I recommend the Minister to think again about these amendments and to adopt them.

Tempting as it is, I shall not pursue the Deputy down some of the lanes he has opened up in what he has said except to say that every independent economic commentator I know of added 1 per cent to the expected growth rate in the middle of 1977 as result of the measures taken by the new Government which took over at that time. Deputy Barry might like to think about the implications of that.

I can think about it very easily in terms of removal of car tax and so on.

I do not think the Deputy will find that would be a justification for a 1 per cent increase in growth rate.

I would advise the Minister to read the Taoiseach's speech in the Adjournment Debate in December. I have quoted it a few times and he knows it practically by heart.

Yes, but the Deputy cannot deny the facts I have stated. However, I shall not pursue that matter on this occasion. I shall do so on another occasion, but I do not think it relevant now. What is relevant is that stock relief is being extended to accounting periods which ended in the year from 6 April 1978 to 5 April 1979. The rate of inflation for that year was 10.83 per cent, from February 1978 to February 1979, which was less than half the rate which applied in 1974-75 when this provision was introduced. Deputies will recall that at that time the rate was almost 24 per cent. Whatever may happen with this year's inflation rate it is not relevant to this section, which applies to the extension of stock relief to accounting periods ending in the year from April 1978 to April 1979.

Is the amendment withdrawn?

Question: "That the words proposed to be deleted stand" put and declared carried.
Amendment declared lost.
Amendment No. 29 not moved.
Section 21, as amended, agreed to.
Section 22 to 26, inclusive, agreed to.

I move amendment No. 30:

In page 23, before section 27, to insert the following:

"Chapter VI


27.—The Tax Acts are hereby amended in relation to offences committed after the passing of this Act—

(a) by the deletion in section 517 of the Income Tax Act, 1967, of ‘, 413', and

(b) by the substitution of ‘10 years' for ‘three years' in the said section 517 and in section 148 of the Corporation Tax Act, 1976,

and the said sections 517 and 148, as so amended, are set out in the Table to this section.


517. Notwithstanding subsection (4) of section 10 of the Petty Sessions (Ireland) Act, 1851, summary proceedings under section 128, 173 or 516 may be instituted within 10 years from the date of the committing of the offence or incurring of the penalty (as the case may be).

148. Notwithstanding section 10 (4) of the Petty Sessions (Ireland) Act, 1851, summary proceedings under section 516 of the Income Tax Act, 1967 (false statements), as applied in relation to corporation tax or under section 63 (production of books and documents: export sales relief) may be instituted within 10 years from the date of offence or incurring of the penalty (as the case may be)."

This section provides for the extension from three to ten years of the time limit for the taking of summary proceedings under certain sections of the Income Tax and Corporation Tax Acts. The most important of these sections are concerned with proceedings for the lodgment of incorrect or false returns or the submission of fraudulent statements and accounts. In the nature of things, it is likely to be a matter of some years before evidence becomes available to the Revenue indicating that returns or documents which have been lodged are false. The time limit of three years is quite inadequate in this context and it is now being extended to ten years. The new provisions will apply only to offences committed after the passing of the Finance Bill.

Perhaps I should add that a time limit of ten years applies in relation to the making of assessments and the lodging of claims for repayment, but where there is fraud or negligence there is no time limit for the making of assessments. Perhaps it could be argued that likewise there should be no time limit for the taking of proceedings for the lodgment of false returns or fraudulent accounts. In practice a time limit of ten years is likely to be sufficient particularly for cases where summary proceedings are being taken, but if it is found not to be so the question of removing the time limit altogether would have to be considered at a later date.

The most important of the provisions affected by the extension of the time limit is section 516 of the Income Tax Act, 1967, which reproduces a provision contained in the 1918 Act. This section imposes a penalty of imprisonment —there is no provision for a monetary penalty—for a term not exceeding six months for (a) knowingly making false statements or false representation for the purpose of obtaining any allowance, reduction, rebate or repayment of tax either for the person himself or for any other person and (b) knowingly and wilfully aiding, abetting, assisting or inciting another person to make or deliver a false or fraudulent account with reference to tax.

In a recent case in which Revenue took proceedings in relation to the submission of a false document and the lodgment of false returns the summons relating to the returns had to be dropped since the returns had been lodged more than three years previously. Although a time limit of three years applies in relation to proceedings under the sections I listed in the proposed new section, it would be open to the Revenue to take proceedings under other sections, for example, sections 501, 503 and 505 for monetary penalties. Proceedings for the recovery of such fines or penalties may be taken within six years of the offence under section 511. Proceedings for penalties under section 501 for fraudulently or negligently making incorrect returns are excluded from the time limit.

This provision is part of the necessary steps to be taken in the drive against tax evasion. Further steps will be necessary. It cannot be regarded as a major step although it is an important one. It is part of an overall programme I am pursuing to tackle tax evasion.

Section 27, amendment No. 31a, is that correct?

Section 27, amendment No. 30.

Is amendment No. 31a also——

Amendment No. 31a has not been reached.

Since the Revenue Commissioners already have powers to make an assessment at any time where there has been a fraudulent return, what extra powers is this section giving them? The Minister referred to various sections. Perhaps he could tell us what he means by proceedings. Does he mean proceedings through the courts?

Proceedings in the courts.

Proceedings through the income tax courts?

No. I am talking about court proceedings.

Could the Minister indicate on how many occasions taxpayers were pursued through the courts? Have there been any?

There have only been two cases under section 516. One was the recent one to which I referred.

That was a failure.

There was only one instance where a case was pursued through the ordinary courts?

Yes, but it is probable that there will be more cases than that now.

It has not been the practice of the Revenue Commissioners to do so. I am sure that they had powers under the relevant sections to go to the ordinary courts but they did not do so. I understand from what the Minister said in recent statements that it will be the practice to pursue tax evasion through the ordinary courts. In that case taxpayers will no longer have their cases heard in camera. The cases can be reported in the newspapers. Have any guidelines been laid down for the Revenue Commissioners as to what kind of cases they will pursue? Will we have ordinary cases like bicycle fines, no car tax and so on coming up? I should like to know what kind of case the Revenue Commissioners will pursue and whether they will pursue everybody who sends in an incorrect return.

I hope the situation will not be that we would have a series of cases like no lights on bicycles and so on. The principal cases I expect to be coming to the courts would be where there have been false statements or false returns made. There has been a practice heretofore whereby in cases of this kind normally the Revenue Commissioners would settle the case with the offending taxpayer on payment of the outstanding tax and interest and a penalty. It is important that we should go further than that and, where appropriate, cases should be brought to court. In cases of false statements and false returns, it is the intention that in the normal way such cases will be brought to court and will not be settled by the Revenue Commissioners quietly. There are two reasons for that. One is that it is important that the public should be aware that the Revenue Commissioners do take action and do recover not only the tax and interest but penalties in cases where this happens. There are a number of cases where this has been happening but the public are not aware that wrongdoers of this kind are pursued and are obliged to pay penalties. The public should have knowledge of what is happening.

Secondly, publicity given to cases of this kind will act as a deterrent to people who might not be deterred if they felt it was a question of taking a chance and if they were caught out they could eventually, although it might hurt, pay the penalty but nobody would know about it. The public disclosure of wrongdoers of this kind—I cannot use any lesser term for this kind of activity—will have a deterrent effect and help to reduce tax evasion. I do not say that in any punitive sense but in the sense that the public and the public interest require to be assured that steps are being taken to tackle these kinds of offences, particularly in relation to false statements and false returns.

I have tried to outline the general thinking behind the approach involved and to indicate that people should recognise the fact that, in future, cases of false returns and false statements to the Revenue Commissioners are likely to lead not only to severe penalties but to prosecution and publicity in relation to the offence committed.

Under the 1976 Finance Act, periodically about every ten years, there has been the practice of the Minister for Finance announcing an amnesty. The last was in the tax year 1976. Taxpayers who had been evading paying their tax were allowed to make a clean breast of it and proceedings were not instituted, but they would have to pay the interest accruing from the tax that should have been paid.

Is it now the intention under this section no longer to have an amnesty announced by the Minister for Finance? Further, if proceedings are to be instituted in the courts against people found to be evading tax or making false statements and so forth, will the practice now prevalent be discontinued? The practice is as follows: There is a very effective Investigation Branch of the Revenue Commissioners. They catch the taxpayer about 60 per cent of the time. In a lot of other cases, the taxpayers who have been evading the payment of tax give themselves up, if I may use that phrase, to their local inspector of taxes and say that they have undisclosed assets or were making false statements and wish to settle their debt. In the cases referred to the Investigation Branch, it may take months or years before the exact amount is worked out and interest on the tax is paid.

If this section is in the Finance Act and proceedings are instituted and the cases come before the courts, we will definitely not have taxpayers giving themselves up. That would rule out, effectively, any amnesty which might possibly be introduced. If the Minister goes ahead with this section, he should introduce an amnesty as outlined in the 1976 Finance Act, a further amnesty for a period of, say, three months, which defaulting taxpayers could avail of. If the intention is to bring people to the courts, it would be only fair, if they wish to consider their position that they should have the opportunity of coming clean. I would be afraid of throwing out the baby with the bathwater. If in these back duty cases, as they are referred to, it is the intention that they be worked out in court, this will take perhaps five or six years and the detailed financial transactions and personal and business transactions will be named in court. I would not be happy that we are proceeding on the right lines. I am not in favour of pursuing taxpayers into the courts at every possible opportunity. The more lenient system of the Irish Revenue Commissioners, if I may pay them a tribute, catches the evader far more quickly than under the UK system. People are less likely to get away with tax evasion for years. In the UK if people are found to have been evading their tax for a number of years, say ten to 15 years, the book is thrown at them and they are thrown into gaol. The Irish system is far more effective and is quicker. They get the tax and everyone is better off. The threat of court proceedings may, as the Minister said, lead people to be more careful. I think the present Revenue Commissioners' system should continue.

First of all, I have no plans, at present, for an amnesty of the kind referred to by the Deputy. I am not leaving out the possibility, but no plans for such an amnesty exist at the moment. Secondly, it has always been the practice of the Revenue Commissioners to treat more leniently the case where the taxpayer himself voluntarily discloses his offence, rather than that they detect it. That practice will continue. I did indicate that, in the normal way, cases of the kind I have been describing would be brought to court, but the fact that there was a voluntary disclosure by the taxpayer of his offence would be a factor that would weigh in the decision as to whether the case should be brought to court or not.

Could the Minister write that into the section, that if there were a voluntary admission——

No. I must leave the Revenue Commissioners the discretion. However, I can say that a case where such an offence is not voluntarily disclosed will almost positively end up in court. In case anybody is interested, the message should be clear. It would be better to make a voluntary disclosure rather than wait to be found out. Thirdly, the Deputy seems to envisage the possibility of the courts, in effect, being clogged up with a whole lot of cases where all the minute details of accounts of the taxpayer, and so on, would be examined. That is not what I envisage. The most important of the sections of the 1967 Income Tax Act that we are dealing with here are concerned with court proceedings relating to the lodgment of incorrect or false returns or the submission of fraudulent statements and accounts. I am talking about prosecutions in respect of these, as distinct from going into the details of the taxpayer's accounts, which is a separate item. We need not worry, on foot of this amendment anyway, over the prospect of the courts being drowned in the detail of the various taxpayers' accounts.

How can you avoid it?

Because we are talking primarily here about prosecution for the lodgment of false returns. That does not necessarily mean that you have to go through all the taxpayers' accounts in order to establish that.

How else?

You may only have to establish a case in relation to one portion of his account. Furthermore, to some extent it depends on whether the taxpayer is going to deny the whole thing. In many cases he will not do that because he knows he would be dragging out the proceedings and making his situation worse. I do not think we need assume that every case in which there is a prosecution will involve going into all the details of the taxpayer's accounts in the courts.

Deputy McCreevy raised a point which was not answered by the Minister. How would the Revenue Commissioners decide whether to proceed in open court, or to proceed through the appeal commissioners, which is in camera? There is a very important difference between these two proceedings in terms of penalty, because the penalty of having one's tax affairs discussed in public, in open court is probably, for many, a greater penalty than any monetary penalty they might suffer.

I am not opposed to what the Minister is proposing to do, and one must recognise that it is a major step which is going to create much greater pressure than has existed in the past on people who have been doing this sort of thing. However, I am a bit worried about how the Revenue Commissioners will decide whom to proceed against. The difference is very great in the case of a taxpayer. If he is going to be proceeded against under the Appeals Commissioner mechanism he is maybe not getting such a bad deal in some ways. If he is going to be proceeded against under the other method, even though the amount of money taken from him might not be very much greater, he is getting it in the neck. I am worried that there would not be any fair criteria for discriminating in one case as against another. In making that decision the Revenue Commissioners will be going almost as far as administering justice themselves and also deciding whether a case should be pursued in one way or the other. I am against people who are responsible for the enforcement of justice also having the responsibility of administering it and deciding whether a particular penalty should be imposed.

It would have been better had the Minister been more specific in the provisions of the amendment as to the type of case in which this should be used. It could be used, theoretically at least, for fiddling little cases in a vindictive fashion because a commissioner from the Revenue did not like the colour of the eyes of a taxpayer and so decided to throw the book at him and bring him to court as well because the fellow may have been abusive or something like that in an interview. That is not likely, but it is theoretically possible, under the provisions of the Bill that this vindictive approach could be adopted in one case and a more lenient approach in another. People should not be put in the position of having to make a decision whether to throw the book at a particular fellow and not at another without guidelines in the Bill. form of something written in the Bill. Does the Minister feel that there is a lack there?

This is a difficult section to discuss. We are all in favour of what the Minister is trying to do and we all feel that, if those who are not paying their fair share did pay their fair share, then those of us who have halos would not have to pay as much. However, in all this Finance Bill, particularly in this section, in the amendment we are now discussing, amendment 31a which comes next and the amendment to section 6 which we discussed earlier, there seems to be an over-enthusiasm for chasing people, who of course are doing wrong. We are all obliged to pay taxes in spite of the fact that you can go into any public house in Ireland to find all kinds of bar lawyers there advising one that the Jesuits said—even though I am sure they never did—that it was no sin to do the Government as long as——

As long as you did not vote for them.

——you gave to God what was God's and to Caesar what was Caesar's. I agree with Deputy Boland when he said that they are going to start going down through the lists and, no doubt, the first case that appears in court and the publicity that will be attendant on it will frighten a lot of other people into declaring voluntarily to the Revenue Commissioners that they have been bad boys. If they proceed alphabetically then obviously I will be in court, being a Barry, and Deputy Taylor will contribute voluntarily because he is a Taylor and he will not have the attendant bad publicity, whereas I will and everybody's finger will be pointed at me.

I am not sure about the system which Deputy McCreevy has said is adopted by the Revenue Commissioners. How much evasion is there of a small kind? There are matters like charging up to business expenses that should be borne by the person as an individual out of his individual tax. I do not know whether these provisions can deal with that. There is the falsifying of accounts. Any business of a reasonable size and making reasonable profits is going to employ an accountant. I am sure there is not an accountant in the country who would sign a set of accounts which contain false figures. He might do it unwittingly, but if he is worth his while as an accountant or auditor, for the sake of his own profession and of the man whose books he is auditing he is going to go very thoroughly into the whole situation. If he is going to produce a set of accounts and sign them they are going to be able to stand up to scrutiny. For that reason I do not know whom we are talking about in this regard. We are talking about quite small people.

In the last 12 months I had a case of a man who was a publican in a small way. He was over 80 years of age and he had got an account for an amount of tax going back maybe four or five years, and he did not agree with it. He said he had given this matter to his accountants who had not gone in front of all the courts in which they were asked to appear. The man himself paid no more attention to the matter and eventually he discovered that it was an assessment for tax for £9,000 that he had received. I know that his turnover would be hardly £9,000 in a year, never mind having £9,000 profit. The accountants did nothing about it and eventually, because of the accountant's negligence, the man was caught and there was no appeal against the amount of money for which the Revenue Commissioners said he was due to pay, even though it was only an assessment, because his accountants did not present the books.

Of course the accountants are to blame for that. If accountants were equally negligent under this section, who would go to prison? Who would appear in the courts? Would it be the accountant or the publican, as in my example? It would, of course, be the publican. It is he who would be exposed as being antisocial, whereas the accountant should be exposed for being unprofessional. I hope this firm of accountants in this case will be exposed. I am advising the publican strongly to do that but, like all very old men in a small line of business, he is not prepared to take on the professional classes as he sees them. He feels that if he goes anywhere near a court he is going to lose because he will not be competent to deal with the position.

I can see what the Minister is trying to do. Anything that will cut off the fringes of the benefits enjoyed by those people who sail close to the wind regarding taxation should be done. However, against that I am a little worried about all these extra powers being given to the Revenue Commissioners, particularly in this Finance Bill.

I am not sure about other finance legislation, but since this Bill was published just prior to Easter, about five weeks ago, there has been a whole group of amendments, two in particular—this and the one following—which were not included in the original publication and which evidently have been thought out since by somebody as being desirable measures. Perhaps Deputy McCreevy is the only person in this House at the moment who can tell us from his experience whether these are justified. If I understood him correctly, he seems to consider that there is not such a great amount of avoidance in this country as people think and that, where there is, the Revenue Commissioners are extremely good at catching up very quickly with it and getting a result that is of benefit to the Exchequer as well as to the non-taxpayer. I agree with him that because of the size of the country we all know one another's business. Of course I take the Minister's word that he has been advised by the Revenue Commissioners that something like this is necessary and must be included in this year's Finance Bill. But I beg leave to keep at least a question mark in my mind as to whether or not we are not using a very large hammer to crack what may be a very small nut. We are giving powers to people, but I will come to that under another amendment.

I want to remind the House that I specifically referred to tax evasion in my budget speech and outlined the approach we would take in the matter. I said that there was evidence that some self-employed persons such as traders, landlords of residential premises and professionals were not making returns. In some cases where accounts were being furnished there were indications of evasion. Among other things I said that, apart from strengthening the staff of the Revenue Commissioners, the anti-evasion campaign would include the examination in depth of particular accounts and that, in future, more emphasis would be placed on legal proceedings than on compromise action where the making of false returns was uncovered.

What we are dealing with in this amendment is primarily the extension of the time limit from three to ten years for the taking of summary proceedings under certain sections of the Income Tax and Corporation Tax Acts. We are not adding to the powers already vested in the Revenue Commissioners except in so far as it is proposed to extend the time limit from three to ten years. I have already explained to the House why the extension of the time limit is necessary. The three-year time limit is not practical in a number of cases. With the powers already existing, the only other difference involved is that I have given public notice of the fact in the budget and since of an intention on the part of the Revenue Commissioners to bring cases to public hearing in court.

What criterion will they use?

I have already indicated that the primary cases that would merit this kind of treatment would be submissions of fraudulent statements and accounts and the lodgment of incorrect and false returns.

Would they have to be knowingly incorrect?

The various sections provide for this matter. It is generally true that mens rea is required in most prosecutions. The Deputy may be under a misapprehension in so far as he was referring to appeals to the Appeal Commissioners. That does not arise in this case. He is thinking on an appeal to the Appeal Commissioners on the amount of tax. We are talking about prosecutions. There is no question of the Appeal Commissioners deciding to prosecute. As regards hearings in camera, the only such cases that exist at present is where there is an appeal on a point of law to the High Court in relation to a taxpayer's assessment.

It is not open to an official of the Revenue Commissioners to decide that somebody is going to be prosecuted, whether for what appeared to him to be good reasons or even in the kind of case that Deputy Bruton referred to, which was an extreme example, where somebody spoke in a way that the official concerned did not like. The decision to bring a prosecution is one that can only be made by the Revenue Commissioners. They have had extensive powers for many years and they have exercised their powers reasonably. We have no reason to anticipate from past experience that the Revenue Commissioners would engage in a vendetta against a taxpayer or use their powers unfairly. My experience as a Minister and as a Deputy is that they are reasonable in dealing with persons who are in difficulty, particularly in dealing with the kind of case with which Deputy Barry may have been concerned—the relatively small taxpayer who, through ignorance, gets into difficulty with the Revenue Commissioners. My experience is that they deal sympathetically and helpfully with such people.

If I said anything to give the opposite impression——

I do not mean that the Deputy gave that impression. The report of the Revenue Commissioners for the year ended 31 December 1977 refers to a number of cases. To give the House an idea of the kind of thing they are faced with, I will read a few details from the report. In paragraph 126 they give details of cases settled in 1977 in which the amount involved was £20,000 or more. In some of the cases the settlements included current liabilities. They list people under different categories of occupation and give the amounts. Leaving out the amount of the settlement, which included interest and presumably penalties, the following estimated amounts of tax were underpaid: £59,644; £44,771; £40,000; £35,000; £30,000; £27,000 and so on. It cannot be said that the persons involved in those cases were innocent offenders. We must take into account that such people are operating and that we are only dealing with the ones who have been detected.

The reference made by Deputy Barry to a firm of accountants raised an interesting question. I am sure that as an accountant Deputy McCreevy is conscious of what I am about to say. I understand that in the USA the accountant is equally liable with his client for any false, misleading or inaccurate statements. I understand that accountants here and in Britain do not favour the introduction of such a system.

I would think not.

Reasonable account is taken of the situation in which the taxpayer was genuinely misled by his accountant. If there is a prosecution it is for the court to decide whether the person was misled or whether he deliberately made fraudulent statements.

The change made in the amendment is primarily to extend the time limit. There is no change in substance other than that except the change I have outlined in the approach to cases of this kind. The powers are there but it is a question of the way powers would be exercised in the future.

I cannot say positively that there are certain guidelines that will be rigid and will apply to the Revenue Commissioners in their approach to these cases. If I were to do that I would tie their hands too much. On the other hand, I tried to outline the kinds of cases where people can expect in future to be prosecuted and I have also indicated that the chances of prosecution are very much greater if one waits to be found out as distinct from a person who voluntarily discloses his past offences. Our experience of the way the Revenue Commissioners have operated over the years should reassure us that there is no reason to believe that they would act either in a prejudiced or in an unprincipled way in the exercise of these powers. I believe that it is necessary and that the public requires that we take more effective steps to tackle tax evasion.

The Minister told us of the amount of under-assessed tax which the Revenue Commissioners collected in 1978. I understand that in 1977 in one case they collected £1,500,000 from a manufacturer. In my view it was better to collect that money independently than to have a public court hearing which might have resulted in that person being put out of business. I am aware of two cases where proceedings were instituted in court. The amount involved in one of those cases was very small and it was not a question of evasion. In fact, the amount has been declared but the person concerned omitted to state that on the form. It was the case of a medical doctor and in my view it was ridiculous to bring it to court because evasion was not involved. I understand that the amount involved was £1,000 in director's fees. Such cases should not be brought to court and I was glad that one was thrown out. I should like to know if increasing the time limit from three to ten years will mean more of those cases. The Minister should lay down criteria under which people will be brought before the courts.

I sympathise with the Revenue Commissioners, and the Minister, who are anxious to prepare sections to catch tax evaders, but we must be careful about the amount of power we give to the Revenue Commissioners. We should not give them the power to do what they like. I accept that they should bring people to court who abuse the tax system. In such cases it will be the commissioners who will be making the recommendation but in the cases of small amounts the recommendations will be made by junior officials. The Minister should consider announcing criteria on Report Stage.

Up to now the Revenue Commissioners have done good work in getting money without having to go to court and I do not think this section will improve that situation. It is possible that the Minister is correct in saying that the publicity given to court cases will make people more aware of the danger of tax evasion. In that connection the Minister should consider granting an amnesty, as occurred in the past, to those who now come clean. For months we have been reading about tax evaders and it is my belief that it would be fair to give people a final opportunity to come clean before deciding to bring them to court.

I should like to know what the situation would be in relation to a person who is incapacitated and whose work is carried on by book-keepers and accountants. I am aware of a case where a person was not in touch with his business because of incapacity and during that period he had to depend on others. Such a person should be excluded from this section because he could not be held culpable or responsible during that period. The Revenue Commissioners should give sympathetic consideration to such a person before bringing him to court.

A person who was clearly not culpable can rest assured that the Revenue Commissioners would take account of it and not prosecute. If they did not believe him and prosecuted him it would be for the courts then to determine whether or not he was culpable. The Deputy can rest assured that where such a situation arises it is unlikely that a person who is not culpable would suffer the penalty envisaged in the section. I stated earlier that only two such cases were brought before the courts, but I was referring to cases where imprisonment was the penalty. There have been a number of cases where there was a monetary penalty but only in two cases could imprisonment have been imposed.

I do not wish to go into the details of an individual case but in regard to the one I touched on earlier, and which was referred to by Deputy McCreevy, I must state that from what Deputy McCreevy said he appears to be relying on certain necessarily abbreviated accounts published perhaps in the newspapers. From what I am told the sum involved was by no means insubstantial. There was the question of deliberate false statements arising and the minutes of meetings alleged to have been held and which were not held. I do not wish to go into the details of that case. We are talking about extending the time limit in regard to the possibility of imprisonment as distinct from monetary penalties arising.

I think we should not discuss individual cases.

I asked the Minister a question about an amnesty.

I have indicated already that I do not plan one at present. I would draw the Deputy's attention to the fact that the provisions of this new section, being imported by the amendment, apply only to offences committed after the passage of this Bill. Therefore nothing that is being done here will affect any past sin in the life of the taxpayer; it will not make his position any worse, but I take Deputy McCreevy's point.

Amendment agreed to.

I move amendment No. 31:

In page 23, before section 27, but in Chapter VI, to insert the following section:

"28.—Section 70 of the Income Tax Act, 1967, is hereby amended by the insertion after subsection (3) of the following subsections:

‘(3A) The precedent partner of any partnership, when required to do so by a notice given to him by an inspector, shall, within the time limited by such notice, prepare and deliver to the inspector a statement in writing, signed by him, stating the amount of the profits or gains arising to the partnership from each and every source chargeable according to the respective schedules, estimated for the period specified in the notice and according to the provisions of this Act and there shall be added to the statement a declaration that such amounts are estimated in respect of all the sources of income mentioned in this Act, describing the same, after deducting only such sums as are allowed.

(3B) Section 174 shall have effect in relation to a partnership carrying on a trade or profession as if in that section—

(a) ‘precedent partner' were submitted for ‘person' wherever it occurs,

(b) ‘a partnership' were substituted for ‘him' where it firstly occurs, and

(c) ‘or in the possession or power of the partnership' were inserted after ‘power"'.

Section 174 of the Income Tax Act, 1967, deals with the situation where a person carrying on a trade or profession either fails to furnish an inspector with a statement of his profits or furnishes a statement with which the inspector is dissatisfied. In that situation an authorised officer is entitled, under the section, to call for the production of accounts, books and records which will enable him to test the validity of the amount of profits returned. Because section 174 speaks of "a person" it can be argued that it does not extend to partnerships. The present section is designed to remedy this. In 1965 special provisions dealing with the taxation of partnerships were introduced. These are contained in Chapter III of Part IV of the Income Tax Act, 1967. Section 70, which is in that Chapter, imposes on the precedent partner of a partnership the obligation of furnishing the return of income on behalf of the partnership. It is proposed to amend that section by inserting two new subsections, the first of which deals with the statements to be delivered by the precedent partner, the second of which imposes on him the obligation of furnishing the accounts and records when so required under section 174 of the 1967 Act.

This does not include any new provision; it is only to cover the point of a partnership being required to give the same information?

As "a person".

What happened in the meantime if a partnership was involved? Is it because of the fear that somebody might challenge it that this amendment has been introduced, or has it actually been challenged?

It has not in fact been challenged at present but it might be.

Amendment agreed to.

I move amendment No. 31a:

In page 23, before section 27, but in Chapter VI, to insert the following section:

29.—(1) (a) In this section—

‘an authorised officer' means an inspector authorised by the Revenue Commissioners to exercise the powers conferred by this section; ‘business' means any trade, profession or business (other than banking business within the meaning of the Central Bank Act, 1971);

‘documents' includes books, accounts and records;

‘tax' means income tax or corporation tax.

(b) The persons who may be treated as ‘the taxpayer' under this section include a company which has ceased to exist and an individual who has died; and, in relation to such an individual, the reference in subsection (2) to the spouse is then instead to the widow or widower (the circumstance that she or he may have re-married being immaterial for the purposes of that subsection). (2) Where a person (in this section referred to as ‘the taxpayer') delivers to an inspector a statement of the income, profits or gains arising to him from—

(a) any business (past or present) carried on by him or his spouse, or

(b) any business (past or present) with whose management either of them was concerned at a material time.

and the inspector is not satisfied with the statement, the inspector may serve on the taxpayer a notice in writing stating—

(i) that he is not satisfied with the statement delivered to him, and

(ii) that he has requested an authorised officer to serve notice under this section on persons who, in relation to the taxpayer, are subject to this section.

(3) Where a notice under subsection (2) has been served on the taxpayer, an authorised officer may, for the purpose of inquiring into the tax liability of the taxpayer, by notice in writing served on any person who, in relation to the taxpayer, is subject to this section require him, within the period stated in the notice, or within such further period as the authorised officer may allow—

(a) to furnish him with particulars of any business transactions which that person had with the taxpayer during a stated period, and

(b) to deliver to him or, if the person to whom the notice is given so elects, to make available for inspection by an authorised officer such documents specified or described in the notice as are in his possession or power and as, in the first-mentioned officer's opinion, contain, or may contain, information relevant to any tax liability to which the taxpayer is or may be or may have been subject, or to the amount of any such tax liability.

(4) Nothing in this section shall be construed as requiring a person who is carrying on a profession, and on whom a notice under subsection (3) has been served, to furnish any particulars relating to a client to an authorised officer, or to deliver to, or make available for inspection by, an authorised officer any documents relating to a client, other than such particulars or documents—

(a) as pertain to the payment of fees or to other financial transactions, or

(b) as are otherwise material to the tax liability of the client.

and, in particular, he shall not be required to disclose any information or professional advice of a confidential nature given to a client.

(5) Where a person fails to comply with a requirement duly made on the person under subsection (3) within the period stated in the notice containing the requirement or such further period as may be allowed by the authorised officer concerned, the person shall be liable to a penalty of £500.

(6) The person who, in relation to a taxpayer, are subject to this section are any person who is carrying on a business, or was doing so at a material time, and any company whether carrying on a business or not.

(7) For the purposes of subsection (2), every director of a company is to be taken as being concerned with the management of any business carried on by the company, and a material time is any time which, in the authorised officer's opinion, is, or may have been, material in the ascertainment of any past or present tax liability of the taxpayer.

(8) Where documents are to be delivered to an authorised officer pursuant to a requirement duly made under subsection (3), copies of such documents may be delivered instead of the originals; but—

(a) the copies must be photographic or otherwise by way of facsimile; and

(b) if so required by the authorised officer, the originals must be made available for inspection by an authorised officer, failure to comply with this provision being treated as failure to comply with the requirement.

(9) An authorised officer may examine any documents furnished or made available for inspection under this section and may take copies of, or extracts from, them.

(10) When exercising any powers conferred by this section, an authorised officer shall, if so requested by any person affected, produce to that person a certificate of the Revenue Commissioners authorising him to exercise the powers conferred by this section.".

This new section authorises the Revenue, in cases where they are dissatisfied with the accounts lodged by a person carrying on a trade, profession or business other than banking business, to seek information from his business suppliers or customers so as to check the accuracy of the accounts submitted. Experience has shown that the absence of information from independent sources encourages tax evaders to understate their profits and also the extent of their business transactions. These evaders proceed on the basis that the Revenue will be unable to check the accuracy of their statements or accounts. Of course Deputies are aware that in the case of employees full information as to their earnings is supplied to the Revenue by their employers. There is no reason why the self-employed should be left in the position that there is to be no independent check of their accounts or returns of profits, particularly in cases where there is reason to be dissatisfied with the returns being made.

The section will be applied only where (a) the person carrying on the trade, and so on has lodged accounts with which the inspector is dissatisfied and acceptable reasons for the apparent deficiencies in the accounts have not been supplied; and (b) the specially authorised officer has reviewed the case and the inspector's reasons for being dissatisfied and decides that, in order to determine the proper tax liability of the person concerned, independent information as to his business transactions is required.

It is not intended that the section will be used in a great percentage of cases: it would be used only where a case is referred for special examination. Indeed the existence of the section is expected to have a salutary effect on the quality and accuracy of accounts being lodged in cases where taxpayers are at present understating their profits.

Banking business is excluded from the scope of the section since banks are subject to supervision by the Central Bank to which detailed returns of the profits and banking transactions are made.

Does that mean that they are available to the Revenue?

No, except in so far as they are returned for income tax purposes.

Why are the banks being excluded? They are always getting exclusions.

I am dealing with that. As I said, they are subject to supervision by the Central Bank to which they have to make detailed returns of the profits and banking transactions. Apart from that it is necessary to ensure that nothing be done which might lead to an outflow of funds from the banks or to a fear that the traditional confidentiality between banker and customer would disappear.

The House will note that a special provision, in subsection (4), has been inserted to protect professional relationships between solicitor and client and doctor and patient. Only such information and documents as pertain to the payment of fees or as is material to the tax liability of the professional person may be sought. Indeed the section limits the classes of persons from whom information may be asked to (1) any person carrying on a trade, profession or business and (2) any company, whether carrying on a business or not—subsection (6). This means that a doctor or dentist's private patients would not be subject to the provisions of the section and a doctor or dentist is likely to be called on to provide information about business transactions which they had with other persons carrying on a trade, profession or business.

If required, I can demonstrate to the House that there is a considerable need for this. I do not propose to do that unless Deputies want me to do so. Otherwise they can take my word for it. I would hope that the outline I have given would be sufficient to indicate to Deputies what we have in mind. But if any Deputies have any queries on it, I will endeavour to answer them.

The Minister certainly has not relieved my mind. I am disturbed about the enthusiasm with which at present alleged tax evaders are being gone after. If there are tax evaders, of course they should be brought to court. But this amendment has been introduced only in the last 24 hours even though the Bill was published the first week in April. This amendment has been thought up now and, I think, was in our post yesterday morning. It has all sorts of possible consequences for small shopkeepers, small traders and business people all over the country.

May I interrupt the Deputy for a moment to say I think the amendment was circulated last week. In fairness I should say it was put before me some time before that. I was not quite satisfied with certain aspects of it and I wanted certain improvements made which the Deputy will appreciate took a little time to draft.

I did not get it until yesterday morning.

Progress reported; Committee to sit again.