I move that the Bill be now read a Second Time."
This Bill is being introduced at short notice because it is felt necessary to clarify the position in relation to the definition of income in computing tax liability. In recent days a succession of claims have been submitted to the Revenue Commissioners to the effect that health contributions, the youth employment levy and the income levy are deductible in computing income for the purposes of determining tax liability on that income. This is not the case and never has been the case and to put the issue beyond any doubt, it is considered desirable to introduce legislation at this point.
To put the matter in perspective, if the claims being made were allowed in respect of all taxpayers, the potential revenue loss to the Exchequer, to the country, could be of the order of £360 million. This, of course, is out of the question. As I mentioned earlier, a large number of claims were submitted in recent days. Given this volume of activity and the general uncertainty that has arisen, it was considered appropriate on this occasion to remove quickly any doubts about the legal position at this point. I do not know why the matter should have gathered such momentum in such a short period. There were rumours, apparently, that legislation was being prepared. There was, presumably, a widespread and mistaken belief that somehow claims made in advance of the legislation might be allowable. There is no basis whatever for this belief.
The technical background to the Bill is as follows. Section 110 of the Income Tax Act, 1967, provides that duties or other sums payable or chargeable by virtue of any statute on income which is assessed to tax under Schedule E shall be deductable for income tax purposes. The effect of this was to allow, up to 1973, the deduction for income tax purposes of contributions made under certain statutory pension schemes. The law relating to pension schemes was comprehensively revised in the Finance Act of 1972 and by virtue of section 17 of that Act the contributions under all statutory pension schemes are deductable from income for tax purposes. The present legislation, therefore, does not in any way affect the deductibility of pension contributions for tax purposes. I want to emphasise this.
The 1967 provision which I have just mentioned became redundant following the introduction of the 1972 legislation. The claims to which I have referred, however, attempt to use this 1967 legislation to support a case for allowing against income tax the health contribution and other levies introduced afterwards. There was clearly never any such intention by previous Dála and the intention of previous Dála is what the Bill confirms by removing the relevant part of section 110, with effect from 1973, which was the understanding, in any event in 1972 of what was happening. It has no other effect.
Since the introduction of the health contribution and the levies, the clear and unequivocal understanding has been that these charges fall directly on income. They have been so applied in all instances and taxation policy has been framed on this basis. I am satisfied that all sides of the House are in entire agreement about this and share my view that, in the event of doubt about such a critical issue, it is totally appropriate to confirm the position in legislation, as we are doing today. This legislation will remove any doubt or confusion that has arisen.
I should mention, of course, that the income levy has been terminated in any event with effect from 5 April 1986. The claims being submitted, however, attempt to open the issue of deductibility for income tax purposes for a number of years past. Potentially, several hundred thousand taxpayers are involved. The health contribution and the levies have made a big contribution to the State revenues since their introduction. The health contribution was introduced under the Health Contributions Act of 1979, the youth employment levy is yielding revenue since 1982 and the income levy operated in the period 1983 to April 1986. Over these periods the total revenue yield from these various sources was up to £950 million. Were deductibility to be allowed, it is clear that the revenue loss would be of such an order as to require some fundamental changes in taxation policy. At the end of the day, the average taxpayer would be no better off and in the meantime considerable confusion and difficulty for the continued operation of the many services that depend on the revenue from these levies would be generated.
It is important to recognise that the Government can spend only what they receive on their capacity to spend on various services such as education, youth employment and so forth, depends, among other things, on the amount received from these levies. In this case dealing with levies collected in the past, the money has already been spent on those schemes. There would be great difficulty for everybody if action were not taken in order to clarify the position. That is being done here this morning. On that basis I ask the support of the House for this Bill.
