With your permission, sir, I will move them individually so that before sitting down, I shall have moved both.
Financial Resolutions, 1987. - Financial Resolution No. 1: Income Tax and Corporation Tax.
Would the Minister please formally move Financial Resolution No. 1.
I move:
THAT — income tax and corporation tax shall be varied as follows—
(1) THAT—
(a) in this Resolution—
"accountable person" has the meaning assigned to it by paragraph (2) of this Resolution;
"appropriate tax", in relation to a relevant payment, means—
(i) where such payment does not include value-added tax, a sum representing income tax on the amount of that payment at the standard rate in force at the time of payment, and
(ii) where such payment includes value-added tax, a sum representing income tax at the standard rate in force at the time of payment on the amount of that payment exclusive of the value-added tax;
"basis period for a year of assessment", in relation to a specified person, means—
(i) where a relevant payment is to be included in a computation of profits or gains of the said person for the purposes of Case I or II of Schedule D, the period on the profits or gains of which income tax for that year falls to be finally computed for the purposes of the said Case I or II:
Provided that—
(I) where two basis periods overlap, the period common to both shall be deemed, for the purposes of this Resolution, to fall in the second basis period only,
(II) where there is an interval between the end of the basis period for one year of assessment and the basis period for the next year of assessment, then, the interval shall be deemed to be part of the second basis period,
(III) the reference in subparagraph (I) to the overlapping of two periods shall be construed as including a reference to the coincidence of two periods or to the inclusion of one period in another, and the reference to the period common to both shall be construed accordingly, and
(ii) in any other case, the year of assessment;
"income tax month" means a month beginning on the 6th day of any of the months of April to March in any year;
"professional services" includes—
(i) services of a medical, dental, pharmaceutical, optical, aural or veterinary nature,
(ii) services of an architectural, engineering, quantity surveying or surveying nature, and related services,
(iii) services of accountancy or auditing and services of financial, economic, marketing or other consultancies,
(iv) services of a solicitor or barrister and other legal services,
(v) geological services, and
(vi) training services provided on behalf of An Comhairle Oiliúna;
"relevant payment" means a payment in respect of professional services made on or after the 6th day of June, 1987, whether or not such services are provided to the accountable person making the payment, but excludes—
(i) emoluments within the scope of Chapter IV of Part V of the Income Tax Act, 1967 (No. 6 of 1967), to which that Chapter applies, and
(ii) payments under a construction contract within the meaning of section 17 of the Finance Act, 1970 (No. 14 of 1970), from which tax has been deducted in accordance with the provisions of subsection (2) of that section, or would have been so deducted but for the provisions of subsection (8) of that section;
"specified person" means, in relation to a relevant payment, the person to whom that payment is made;
"tax" means income tax or corporation tax, as the context may require;
(b) for the purposes of this Resolution any reference in this Resolution to the amount of a relevant payment shall be construed as a reference to the amount which would be the amount of that payment if no appropriate tax were to be deducted therefrom, and
(c) for the purposes of this Resolution, in relation to a specified person, appropriate tax referable to an accounting period or to a basis period for a year of assessment means the appropriate tax deducted from a relevant payment which is taken into account in computing the specified person's profits or gains for the said period and where there is more than one such relevant payment in the said period the aggregate of the appropriate tax deducted from such payments.
(2) THAT, in this Resolution, "accountable person" means—
(i) a Minister of the Government,
(ii) a local authority within the meaning of section 2(2) of the Local Government Act, 1941 (No. 23 of 1941), and includes a body established under the Local Government Services (Corporate Bodies) Act, 1971 (No. 6 of 1971),
(iii) a health board,
(iv) the General Medical Services (Payments) Board established under the General Medical Services (Payments) Board (Establishment) Order, 1972 (S.I. No. 184 of 1972),
(v) the Attorney General,
(vi) the Director of Public Prosecutions,
(vii) the Revenue Commissioners,
(viii) the Commissioners of Public Works in Ireland,
(ix) the Legal Aid Board,
(x) a vocational education committee or a regional technical college established under the Vocational Education Act, 1930 (No. 29 of 1930),
(xi) An Comhairle Oiliúna established under the Industrial Training Act, 1967 (No. 5 of 1967),
(xii) a harbour authority established under the Harbours Act, 1946 (No. 9 of 1946),
(xiii) An Comhairle Oiliúna Talmhaíochta established under the Agriculture (An Comhairle Oiliúna Talmhaíochta) Act, 1979 (No. 9 of 1979),
(xiv) An Foras Talúntais established under the Agriculture (An Foras Talúntais) Act, 1958 (No. 1 of 1958),
(xv) Údarás na Gaeltachta established under the Údarás na Gaeltachta Act, 1979 (No. 5 of 1979),
(xvi) The Industrial Development Authority established under the Industrial Development Act, 1950 (No. 29 of 1950), and continued in being by the Industrial Development Act, 1986 (No. 9 of 1986),
(xvii) Córas Tráchtála established under the Export Promotion Act, 1959 (No. 20 of 1959),
(xviii) Shannon Free Airport Development Company Limited being the company referred to in the Shannon Free Airport Development Acts, 1959 to 1986,
(xix) Bord Fáilte Éireann established under the Tourist Traffic Act, 1939 (No. 24 of 1939), or
(xx) an institution of higher education within the meaning of the Higher Education Authority Act, 1971 (No. 22 of 1971).
(3) THAT an accountable person making a relevant payment shall deduct out of the amount of the payment the appropriate tax in relation to the payment. The specified person to whom such payment is made shall allow such deduction upon receipt of the residue of the payment, and the accountable person making such deduction shall be acquitted and discharged of so much money as is represented by the deduction, as if that sum had been actually paid.
(4) THAT—
(a) the specified person shall furnish to the accountable person concerned—
(i) in the case of a specified person resident in the State or a person having a permanent establishment or fixed base in the State, details of his income tax or corporation tax number, as may be appropriate, and
(ii) in the case of a specified person, other than a person mentioned in clause (i) of this subparagraph, details of his country of residence and his tax reference in that country,
(b) where the specified person has complied with subparagraph (a) of this paragraph, the accountable person, on making a relevant payment, shall give to such person, in a form to be prescribed by the Revenue Commissioners, particulars of—
(i) the name and address of the specified person,
(ii) the person's tax reference as furnished in accordance with subparagraph (a) of this paragraph.
(iii) the amount of the relevant payment,
(iv) the amount of the appropriate tax deducted from that payment, and
(v) the date on which the payment is made.
(5) THAT—
(a) within ten days from the end of every income tax month, the accountable person shall remit to the Collector all amounts of appropriate tax which he is liable under this Resolution to deduct from relevant payments made by him during that income tax month,
(b) each remittance under subparagraph (a) of this paragraph shall be accompanied by a return containing, in relation to each specified person to whom a relevant payment has been made in the income tax month concerned, the particulars required by the return,
(c) every return shall be in a form prescribed by the Revenue Commissioners and shall include a declaration to the effect that the return is correct and complete,
(d) the Collector shall give the accountable person a receipt for the total amount so remitted.
(6) THAT all the provisions of the Income Tax Acts relating to the collection and recovery of income tax shall, so far as they are applicable, apply to the collection and recovery of appropriate tax.
(7) THAT the provisions of the Tax Acts in relation to the computation of profits or gains shall not be affected by the deduction of appropriate tax from relevant payments in accordance with the provisions of paragraph (3) of this Resolution and, accordingly, the amount of such relevant payments shall be taken into account in computing the profits or gains of the specified person for tax purposes.
(8) THAT—
(a) where, in relation to an accounting period, a specified person is within the charge to corporation tax and has borne appropriate tax referable to that accounting period he may, subject to the provisions of paragraph (11) of this Resolution, claim to have the amount of appropriate tax specified in subparagraph (d) of this paragraph set against corporation tax chargeable for that accounting period and, where such appropriate tax exceeds such corporation tax, to have the excess refunded to him,
(b) where, in relation to a year of assessment, a specified person is within the charge to income tax and has borne appropriate tax referable to the basis period for that year of assessment he may, subject to the provisions of paragraph (11) of this Resolution, claim to have the amount of appropriate tax specified in subparagraph (d) of this paragraph set against the income tax chargeable for that year of assessment and, where such appropriate tax exceeds such income tax, to have the excess refunded to him,
(c) the specified person shall, in respect of each claim under subparagraph (a) or (b) of this paragraph, furnish, in respect of each amount of appropriate tax included in the claim, the form given to him by an accountable person in accordance with the provisions of paragraph (4) (b) of this Resolution,
(d) the amount of the appropriate tax to be set against corporation tax for an accounting period or income tax for a year of assessment in accordance with subparagraph (a) or (b) of this paragraph shall be the total of the appropriate tax referable to the accounting period or to the basis period for the year of assessment, as the case may be, which is included in the forms furnished in accordance with subparagraph (c) of this paragraph and not repaid under any of the provisions of this Resolution.
(9) THAT—
(a) a specified person may make a claim for an interim refund of the whole or part of the appropriate tax referable to an accounting period or to a basis period for a year of assessment, as the case may be (in this paragraph referred to as "the first-mentioned period"), and the inspector shall, if he is satisfied that the specified person making the claim has complied with the requirements of subparagraph (b) of this paragraph, make such refund as is specified in subparagraph (c) of this paragraph and, subject to the said requirements as modified in subparagraph (d) (i), make such refund as is specified in that subparagraph,
(b) the requirements of this subparagraph are that—
(i) the major portion of the income of the specified person for the first-mentioned period is derived from relevant payments, the major portion of such income is laid out or expended wholly and exclusively for the purposes of a trade or profession and the inspector is satisfied that hardship would arise if a refund were not made as provided for in this paragraph,
(ii) the profits or gains for the accounting period or for the basis period for the year of assessment, as the case may be, immediately preceding the first-mentioned period have been finally determined for tax purposes and the amount of tax which was payable thereon has been paid, and
(iii) the specified person shall, in respect of each relevant payment included in the claim, furnish to the inspector the form given to him by an accountable person in accordance with the provisions of paragraph (4) (b) of this Resolution,
(c) the amount of the tax to be refunded shall be the excess of the total of the appropriate tax included in the forms furnished in accordance with the provisions of subparagraph (b) (iii) of this paragraph (and not already repaid under the provisions of this paragraph) over the amount of tax referred to in subparagraph (b) (ii) of this paragraph less the amount which he is liable to pay or remit—
(i) under the Value-Added Tax Act, 1972 (No. 22 of 1972), and the regulations made thereunder,
(ii) under Chapter IV of Part V of the Income Tax Act, 1967, and the regulations made thereunder, and
(iii) in respect of employment contributions under the Social Welfare (Consolidation) Act, 1981 (No. 1 of 1981), and the regulations made thereunder,
(d) (i) where the first-mentioned period is the period in which the trade or profession of the specified person has been set up and commenced, the provisions of subparagraph (b) (ii) of this paragraph shall not apply and the inspector shall, in accordance with the following provisions of this subparagraph, make an interim refund to the specified person in respect of appropriate tax deducted from relevant payments taken, or to be taken, into account in computing the profits or gains of the said trade or profession,
(ii) for the purposes of determining the amount of the said interim refund the inspector shall determine—
(I) an amount equal to the amount of tax at the standard rate on an amount determined by the formula:
E×A/B×C/P
where—
Ais the estimated total amount of the relevant payments to be taken into account as income for the purposes of computing for tax purposes the profits or gains of the first-mentioned period,
Bis the estimated total sum of all amounts to be taken into account as income for the purposes of computing the said profits or gains,
Cis the estimated number of months or fractions of months comprised in the period in respect of which the claim to the refund is made,
Eis the estimated amount to be laid out or expended wholly and exclusively by the specified person in the first-mentioned period for the purposes of the trade or profession,
and
Pis the estimated number of months or fractions of months comprised in the first-mentioned period,
and the inspector shall make the estimates referred to in this formula to the best of his knowledge and belief and in accordance with the information available to him, and
(II) the amount of appropriate tax deducted from the relevant payments in respect of which forms have been submitted in accordance with the provisions of subparagraph (b) (iii) of this paragraph after deducting therefrom any amount of such tax already refunded for the period in respect of which the claim to a refund is made,
(iii) the inspector shall refund an amount of appropriate tax equal to the lesser of the amounts determined at subclauses (I) and (II) of clause (ii) of this subparagraph,
(e) in circumstances where the specified person claims and proves the presence of particular hardship, the Revenue Commissioners may waive (in whole or in part) one or more of the conditions for the making of a refund specified in this paragraph and, where the Revenue Commissioners so waive such condition or conditions, they shall determine, having regard to all the circumstances and taking into account the objects and intentions of the previous provisions of this paragraph, an amount of a refund or a further refund which they consider to be just and reasonable and they shall authorise the inspector to make such refund or such further refund, as the case may be, accordingly,
(f) for the purposes of this paragraph, the income of a specified person for an accounting period or a basis period for a year of assessment shall be the total of all amounts received or receivable by him which are taken into account in computing the profits or gains of his trade or profession for that period.
(10) THAT, where the form referred to in either paragraph (8) (c) or paragraph (9) (b) (iii) relates to two or more specified persons, any necessary apportionment shall be made for the purposes of giving effect to paragraphs (8) and (9) of this Resolution.
(11) THAT no amount of appropriate tax shall be set off or refunded more than once under the provisions of this Resolution and any amount of appropriate tax refunded in accordance with the provisions of paragraph (9) of this Resolution shall not be available for set off under the provisions of paragraph (8) of this Resolution.
(12) THAT this Resolution (so far as relating to income tax) shall be construed together with the Income Tax Acts and (so far as relating to corporation tax) shall be construed together with the Corporation Tax Acts.
(13) IT is hereby declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act, 1927 (No. 7 of 1927).
This resolution provides, with effect from 6 June 1987 for the deduction, at source, of tax at the rate of 35 per cent from payments for professional services made to individuals and companies by Government Departments, local authorities, health boards, the major noncommercial semi-State bodies and the other bodies listed in the Resolution.
The amounts deducted will be allowable against the tax chargeable on such payments and when there is an excess it will be refunded. Provision is included for interim refunds to alleviate hardship in cases where a substantial proportion of the fees in question are expended to meet the expenses of the business.
A considerable group of persons — corporate and non-corporate — are engaged in the provision of professional services on a regular basis for various agencies which are paid for, directly or indirectly, from the public purse. It is, therefore, only equitable that such persons should make their contributions to the Exchequer in a correspondingly regular manner. The new scheme being introduced by this resolution will go some way to ensuring that this position will be reached. It will be followed by appropriate legislation in the forthcoming Finance Bill.
I will now outline the main elements of the new arrangements. The tax will apply generally to fees and similar payments made by the bodies listed in the resolution described as accountable persons. All professional services are included and many of these are specified in the resolution. These include professional services in the medical, veterinary, financial, legal, and engineering fields and some training services.
The deduction at source system will not, however, apply when the payments are subject to PAYE or come within the terms of the construction industry scheme, that is, the C2 scheme.
The deduction system will only be operated by the bodies listed in the resolution. It thus extends to payments by Government Departments, the Revenue Commissioners, the Office of the Public Works, the Attorney-General's Office and the Director of Public Prosecutions. It also applies to payments by local authorities, health boards, and harbour authorities. It applies in the educational area to vocational education committees, regional technical colleges and most institutions of higher education. It applies to payments to doctors and pharmacists under the general medical services scheme. It applies to payments for such services by such semi-State bodies as AnCO, the IDA and CTT. Therefore coverage is very wide.
Any person, including a company, receiving a payment from an accountable person in respect of professional services will be liable to the tax. Non-residents will come within the ambit of the scheme but they will be entitled to receive a full refund if the income is not chargeable to Irish tax.
The rate at which tax will be deducted will be 35 per cent, which is the rate that already applies in the case of the retention tax deductible from deposit interest, subcontractors' payments and emergency basis PAYE in the initial weeks. The tax will be deducted from payments made on or after 6 June, 1987 in respect of professional services and will be charged on payments net of value-added tax.
Notwithstanding the deduction of tax at the standard rate any fees represented by the payments will still have to be taken into account in calculating the profits or gains of the recipient for tax purposes. The tax deducted will, however, be available for set-off against the tax chargeable on those profits or gains.
The resolution makes provision for interim refunds to alleviate hardship in cases where a substantial proportion of the fees in question are paid out to meet the expenses of the business. Generally, in order to qualify for an interim refund, the person will have to establish that, first, his accounts for the year prior to the year in which the deductions are made have been agreed, and the tax has been paid on the agreed profits, and, second, that the tax deductions from fees exceed the amount of such agreed and paid tax.
In such circumstances, the amount of the refund would be the excess of the deductions over the sum of the agreed tax, any unremitted PAYE and VAT, and any outstanding direct tax liability on foot of earlier years.
A special measure to provide relief for a person who is setting up a trade or profession is also included in the resolution while, in circumstances of particular hardship, the Revenue Commissioners may authorise an interim refund of tax notwithstanding that all the conditions necessary for granting such a refund may not be complied with.
I should emphasise that the deduction at source does not alter the person's tax liability for a year of assessment or accounting period. The measure is not a new tax. It is a variation of existing taxes, that is income tax and corporation tax. The time and method of their payment are being altered. Deduction at source is on account of liability for income tax and corporation tax. When the amount of such liability is determined, the amount withheld is credited and any excess refunded. There will be an initial cash flow of £25 million to the Exchequer from the charge for 1987. However, the conditions to be met to secure a refund of the tax are likely to result in an improvement in compliance generally. This is an important aspect of the new arrangement. Would it be in order for me to move Resolution No. 2 now?
It may be discussed with Resolution No. 1.
Could I have some clarification from the Minister? The tax being proposed by the Minister is something with which I am in favour. Will the Minister explain if he and the Department of Finance have been able to distinguish between turnover and profit, if that is the intention, or is that why we have the mitigation which the Minister spoke about which strikes me as yet again starting up another process when we are already setting out a process within a process? Will the Minister give the House some idea of the basis of the calculation of the £25 million which this is meant to bring into the Exchequer in 1987? Will there be any distinction between profit and turnover, because obviously we should be getting income tax on the profit? I assume that many businesses may have a large turnover but also large expenses. I would like a breakdown of how the figure of £25 million was arrived at.
(Limerick East): Initially I will ask a few questions and I will come in again when the Minister informs the House why he thought it necessary to introduce such a tax. The professional services which are listed in the resolution, with the exception of the medical profession, would be subject to VAT. Would it not be possible, from VAT returns, to establish absolutely what was due, certainly on the portion of the company's or the individual's income which would be paid by the accountable person listed on pages 2 and 3 of the resolution? Is this merely a method of bringing forward £25 million of revenue due from 1988 to 1987, or is there an anti-evasion element involved? If there is an anti-evasion element involved, could the Minister deal with the point I raised about VAT?
I would like further clarification on the basis of the £25 million inclusion. Is this 35 per cent of the total of professional fees paid by all the persons and agencies defined as accountable people? The Minister also says there would be an added module of bouyancy because it would encourage people to make their returns quicker, I presume on the basis that they could avail of the interim refund. That will multiply the difficulties because if somebody has not got his tax agreed for 1986, by 6 June 1987, if he claims under the hardship clause that the 35 per cent demanded is in excess of what he would rightfully have to pay, the only way he can avail of the alleviating measures is to submit his returns for 1986, get agreement with a tax inspector, and then claim a remission on the grounds of hardship, on the basis that the 35 per cent which has already been taken would affect his cash flow adversely.
When I was speaking today I thought it was simply a matter of an architect's firm, an accountant's firm, or a consultant engineer's firm having to pay on turnover rather than on income, with all the adverse consequences that will arise, but now it seems that the alleviation of hardship clause makes it worse rather than better because he would have to pay twice in the current year to prove the hardship in the first place. I would like clarification on that.
On the list of accountable persons, most of it is reasonably clear and it seems to include everybody who works for any agency in the State but I would question the position of the VHI. Are the VHI in, paying medical bills, especially doctors bills, included here or are they exempt? As I remarked already today, the cheque in these cases is paid to the patient or the former patient and not to the medical practitioner. I presume they are excluded but I would like confirmation of that. What is the position of people brought in on emergency service of any sort for any of the agencies? Will this also apply, or is it somebody who is on the approved list, whether it is in the Attorney General's office of legal representatives or in the Department of Finance, as architects, engineers and consultants? How does that work out?
I will deal first with the two points raised by Deputy Spring. It is not to be distinguished on the basis of turnover and profit; it will be on the gross payments. I will give the details of the way figures are made up to give the £25 million for 1987. The amounts of money paid out by Government Departments are, for example, the Department of Agriculture payments to veterinary surgeons, £17 million, Department of Social Welfare payments to dentists and opticians, £18 million, legal services for Departments, £4.5 million, general consultancy services, £3 million, fees element of the public capital programme, £35 million, general medical services payment board, payment to doctors and pharmacists, £44 million, payments to external trainers by AnCO, approximately £10 million and other detailed smaller ones, amounting to £10 million, giving a total of £141.5 million. Witholding tax of 35 per cent in a full year would be approximately £50 million and for six months it would be £25 million as is in the budget figures today.
Deputy Noonan asked why we introduced this. There is nothing new in it. It has already been done under PAYE, the retention tax introduced by Fine Gael last year and so on. It is mainly done for reasons of equity in the tax system as a whole. The Deputy also asked about VAT arrangements that are made and asked could it not be done in that way. It is a separate situation. I have outlined that payments are made on this basis as a percentage of the payments outlined in the various figures I have just given. The main reason is to have compliance with proper and suitable timing for the payment of tax due, and of course, it can, and probably will show that there has been some evasion in that period.
The VHI, not being a State company, are not included in the scheme. The Deputy raised points about hardship cases and I referred to that in my initial remarks. The Deputy appeared to be asking about somebody who might have to pay on the double in one particular year, but that would not arise because if the tax deducted in a year happens to be more than his profits then he would get a reduction and a refund from Revenue.
The Minister said that this would be a tax on gross payments of the kind set out here by the bodies listed. He has also said there is an element of equity involved, that part of the reason for making this imposition is in the interests of equity and to encourage compliance in time on the part of taxable persons. Could he indicate what, if any, portion of the £25 million expected revenue this year, and £50 million in a full year, is attributable to better collection or to improved compliance? The Minister gave a list of the various payments made by the accountable persons, 35 per cent of which gives roughly £25 million in a half year and £50 million in a full year. There may be an expectation of a more rapid payment but there is no evidence of an expectation of any more complete payment unless the Minister is keeping some expectation of revenue up his sleeve.
There is provision for interim refunds which, unless I am mistaken, is a separate matter from the payment for hardship. I wonder why the Minister feels it necessary to provide both for interim refunds and for hardship, particularly if the intention is to improve compliance and speed up payments. Why provide for interim refunds if the result is, as the Minister seems to suggest, that the total amount of tax paid is unchanged? On the provision for hardship, on a quick reading of this provision, it seems that that is provided for in paragraph (9) (e) which provides:
in circumstances where the specified person claims and proves the presence of particular hardship, the Revenue Commissioners may waive (in whole or in part) one or more of the conditions for the making of a refund specified in this paragraph and, where the Revenue Commissioners so waive such condition or conditions, they shall determine, having regard to all the circumstances and taking into account the objects and intentions of the previous provisions of this paragraph, an amount of a refund or a further refund which they consider to be just and reasonable and they shall authorise the inspector to make such refund or such further refund, as the case may be, accordingly.
I know from experience of presenting matters of this kind from the other side of the House that none of that appears without a particular reason, although I am bound to say that that particular provision is very hard to get to grips with. There is very little in it that is definite or that the taxpayer can seize upon as being a guide for the conditions under which he can either apply or make an assessment as to the possibility of his success in making an application. First, there is no definition of hardship. What is hardship? I suppose every taxpayer would regard the payment of taxes either on time or before he has to as hardship, but I do not think that can be the definition intended here.
The text, as drafted, gives a very wide discretion to the Revenue Commissioners and, let me hasten to add, very little guidance as to what they should do.
.... they shall determine, having regard to all the circumstances and taking into account the objects and intentions of the previous provisions of this paragraph, ...
What exactly does that mean? What kinds of criteria will they bear in mind? Will they have to be satisfied that there is hardship or will they simply take the taxpayer's word that he finds himself in hardship? What basis will they have for deciding that a particular refund would be just and reasonable? In whose eyes should it be just and reasonable? Should it be just and reasonable in the taxpayer's eyes or in the view of the Revenue Commissioners? I think the Minister will agree, and even if he does not it is my belief that the opinion of the Revenue Commissioners as to what is just and reasonable is more than likely to diverge from the opinion of the taxpayer. There is a degree of impression about this convoluted text which I think could do with some light being cast upon it.
In paragraph (1) (a) (i) the definition of "appropriate tax" is given:
where such payment does not include value-added tax, a sum representing income tax on the amount of that payment at the standard rate in force at the time of payment, and
The standard rate at the moment is 35 per cent. I take it that it would be intended that the rate of tax would vary in the event that the standard rate of income tax varied. What proposition of the payments we are talking about does not include value-added tax, because a specific provision is made here to cover the cases where the payments do not include value-added tax?
In paragraph (1) (c) reference is made to the appropriate tax referable to an accounting period. This seems to suggest that it is possible that there may be some payments which would be made by accountable persons that would not be included in the assessment of this tax. What kinds of payments by the accountable persons are envisaged here?
In relation to paragraph (2) (xx), what payments made by an institution of higher education within the meaning of the Higher Education Act, 1971, are included here? Is it the case that institutes of higher education pay substantial sums directly out of their own budgets to persons who would be liable to this tax? Paragraph (5) says that remittances shall be paid to the collector within ten days from the end of every income tax month. Can I take it that that is the same period as it provided for the making of remittances in relation to income tax and PRSI contributions?
Paragraph (6) provides that all provisions of the Income Tax Acts relating to the collection and recovery of income tax shall apply to the collection and recovery of appropriate income tax. Does that mean that if remittances are not made within the period provided for in paragraph (5) (a) the amounts outstanding begin to attract interest and other penalties in the same way as overdue amounts of income tax?
If we had some details on those questions we might get down to discuss the meat of the resolutions.
A number of Deputies have offered; Deputy McCreevy, Deputy G. Mitchell and Deputy McCartan. If the questions they are about to raise are of a similar nature, perhaps we could take them now and the Minister could reply.
Let me reply very briefly. A number of points were made and perhaps a summary reply can deal with some of them. On the final point raised by Deputy Dukes the ten days provision is the same as in the construction industry. The tax we are now talking about is the same and the same conditions apply. Deputy Dukes also asked about the definition of "just and reasonable". This definition has already been specified in section 76 (5) of the Income Tax Act, 1967. That Act already provides that the revenue can make adjustments where it is just and reasonable to do so.
Deputy Dukes also raised the point about the ratio of VAT. Medical fees do not qualify for VAT. There is VAT on legal and architect fees. But that is a technicality which will be worked out with the Revenue. Thirty-five per cent will be deducted from the gross amounts I have read out.
Turning to the question on paragraph (9) and what is meant by hardship, the object of the paragraph is to refund on an ongoing basis deductions at source which exceed or seem likely to exceed the probable tax liability arising. It is not intended that interim refunds will be made where the amounts deducted represent a fair payment on account of the taxpayer's liability. Hardship could arise only if the deductions exceed that fair payment on account. Those were some of the points raised. It is very difficult to pick up all of the details but if there are more we will do our utmost to reply to them.
First of all, I agree with a few of the points made by Deputy Dukes but I would argue against his interpretation of paragraph (9) in that it is left open to the Revenue Commissioners to decide what is just and reasonable. In case the impression is given that this tax is similar to existing ones in the construction industry and that we are only extending it now to cover professional fees I would like to point out that this is a very different tax. It may look the same but it is not. It may look on all fours to be the same idea but it is fundamentally different from the system which operates in the construction industry. It is a follow on to the type of thinking which we have been witnessing in the Revenue Commission since we had the 1970 Finance Act as amended by subsequent Acts. Those Acts have tightened up that area to a great extent. At present it is practically impossible to get what is known as a C2 subcontractor certificate of authorisation.
Under the system that operates under the 1970 Act, as amended, the position is that anyone who is not on PAYE on a construction contract must be either a registered or unregistered contractor. If he qualifies as a registered contractor and gets a C2 he will be allowed to receive payment from the principal contractor of the gross amount without deduction of 35 per cent tax. If he is not a registered contractor, and most people with labour only contracts are not, tax will be deducted at 35 per cent. At the end of the year the person works out his tax.
Everyone in the House seems to be under the impression, apart from Deputy Gay Mitchell and me, that this is the same type of tax but it is not because tax is going to be deducted at 35 per cent right across the board whether a professional person has his tax affairs up-to-date or not. If it was similar to what operates in the construction industry presumably a person would have to apply for an exemption certificate when he would be paid gross payments. This is a totally different idea and it would be wrong to give the impression that it is similar to the one which operates in the construction industry or is similar to the one which was announced last year regarding adjustments in local authority payments.
Everyone who is providing a professional service to any of the bodies mentioned in paragraph (2) will be liable to tax at 35 per cent irrespective of whether they have a taxable income for that year or whether their tax affairs are up-to-date or not. I can see the sense in the proposals put forward by the Minister for Finance. I am sure various Ministers for Finance had the same idea in the past but did not get around to doing it. This tax will have two effects. It will be an anti-evasion measure. The inspector of taxes will always get a list from local authorities or Government Departments of professional persons who have carried out work for them. If a doctor deals with a local authority he will make sure to return the gross fees from the local authority. Whether he would do so for private patients is another matter. As this will be an anti-evasion measure some tax will be saved.
The greatest effect this tax will have is that it will bring tax into the Exchequer at a quicker rate. It will be a once off measure. Extra tax will be collected this year and for part of next year when it will peter out as people will be allowed to claim against this tax. This is not similar to a previous tax; it is a fundamental change. The resolution is very technical but the basic principle can be readily understood. If this is to be the case I can see great difficulties for certain groups of professional people who supply services to local authorities.
In large professional bodies it must be remembered that 90 per cent of their costs go on salaries. In contrast, in the construction industry most of the costs are for materials which can be credited. In professional bodies 90 per cent of the costs relate to salaries which must be paid out at the end of the week or the month. They cannot say at the end of each month that they do not have the money to pay them because they got only so much from the local authorities. For such firms this tax will create enormous problems.
If 35 per cent of fees is to be stopped it will create enormous cash flow difficulties. I am too long in the accountancy profession to accept from a Minister for Finance at face value that the Revenue Commissioners will take undue hardship into account. Their definition of hardship and the taxpayers' definition do not always agree. This tax will cause grave problems in particular for large professional practices most of whose costs relate to salaries. It will create enormous cash flow problems. It will have the benefit of bringing in extra tax this year and next year and more speedily than it would come in before the tax liability was agreed. There may be a saving on the evasion element but there are provisions in the resolution I should like explained to me. This may appear similar to the legislation dealing with subcontractors but it is not and I can see it presenting enormous difficulties for a number of professional practices.
Deputy McCreevy has put his point in regard to this very well. I do not think these tax proposals can in any way be compared with the construction industry division retentions or the practice followed by the inspector of taxes in the CID division of the Revenue Commissioners. The idea of retaining fees is not necessarily a bad one. Indeed, where the State is paying out huge fees to those engaged in tribunals and so on, such a provision should be considered. Members of the Public Accounts Committee have often expressed the view that this should be looked into but the effect of this provision will be that the State will be getting a £25 million positive cash flow once-off without taking into account the ability of the taxpayer to pay. For example, I should like to consider the position of a person who receives fees from the State in the month of April or May and whose tax year ends on 31 May 1987. That falls in the tax year 1987-88 and could form the basis of assessment for 1988-89 but if in the year 1988-89, following on the assessment, it is found that there is a nil liability and a refund is due it will take from 1987 to 1990, or longer, for a person to prove that there is no tax liability in the first instance. The person concerned may be happy to produce all the evidence required but on the basis of the accounts a person with a nil assessment and no liability to tax may have to wait for three years for that refund. Presumably a person with a nil assessment of tax does not have any income and we are, therefore, asking people without any income to make a loan to the State interest free.
What will be the implications for a person whose tax year ends on 31 May 1987 and who receives fees during April and May of this year? How long will that person have to wait for a refund if his tax liability at the end of the assessment is nil? How long will a person whose tax year ends at the end of June or July 1987 have to wait for a refund if that person is found to have a nil liability? This is a further widening in the tax treatment of people who conduct their affairs with the State vis-á-vis those who conduct their affairs in the private sector and I do not think there is any precedent for it in our tax laws. Even if one goes back to the days of poll taxes I do not think one will find any precedent for treating people's tax affairs quite so differently when they are dealing with the public sector as against the private sector. It does not have any foundation in equity although there may be some justification for it. I am not suggesting that this is all bad but the faults need to be teased out. The Minister should give consideration to any amendments proposed to the Finance Bill.
One of the reasons we constantly run off in directions which tend to grab taxes from sections of the community that are not always in a position to pay them is that we sometimes get carried away with the type of emotional arguments put forward by Members like Deputy Mac Giolla. In the course of his contribution this evening he said that outstanding taxes are assessed as legally due. That is a very valid statement but the important word there is "assessed". In the final analysis it may be that nothing like the amount of taxes outstanding, as shown in the report of the Comptroller and Auditor General, will be due. The practice is that what is outstanding for the year is only a small proportion of the assessments. We should try to state annually not just what is outstanding according to those inflated estimates issued by the Revenue Commissioners in order to make people prove what they owe but the proportion of that that is likely to be collectable. Those figures give rise to divisions in the community and to the belief that those who work for themselves are creaming it off and making a fortune. That is not the case and many self-employed people suffer losses and experience great difficulties.
I note in Financial Resolution No. 1 the list of State bodies defined as "accountable persons" but I wonder why the Minister has included the IDA while CIE, RTE, the ESB and other State agencies are not included. There may be a good reason for excluding them. Another provision in that resolution states:
(6) That all the provisions of the income tax Acts relating to the collection and recovery of income tax shall, so far as they are applicable, apply to the collection and recovery of appropriate tax.
I should like to know if that includes interest on late payments. Will the Revenue pay interest to a taxpayer who is due a refund of tax which he was not liable to pay three or four years previously? If a person pays tax at present when that liability is not due he will, when getting a refund, be paid interest on the refund. I should like to know in the case of the retention tax where it is subsequently found by the Revenue Commissioners that the money should not have been retained because there was no liability if interest will be paid. On the other side of the coin, a person late in making a payment will have to pay interest but if the State retains funds belonging to a taxpayer who is not liable to pay tax will that individual be entitled to interest under the provision I quoted?
Will the Minister tell the House the guidelines he will use to assess hardship? What guidelines have been set down? Will it depend on individual inspectors of taxes? In some towns people will know the inspector of taxes but in Dublin such an official may be a junior. Will it depend on an inspector of taxes making a subjective judgment on the day, perhaps through a hatch in one of the tax offices?
Another provision in the resolution states:
(9) (c) The amount of the tax to be refunded shall be the excess of the total of the appropriate tax included in the forms furnished in accordance with the provisions ... (i) under the Value Added Tax Act, 1972... (ii) under Chapter IV of Part V of the Income Tax Act, 1967 ... (iii) in respect of employment contributions under the Social Welfare (Consolidation) Act, 1981 ...
How long will it take to cross-check those records before a refund is made? Will it be necessary for an individual to provide all the information to the State in order to get from the State what is his or her due? I agree entirely with the principle of everybody paying what is due to the State but I do not think that at this stage one should throw out the baby with the bathwater. We are in danger of departing from the rules of equity if we put undue liability on an individual to prove to the State that the State should not take portion of his income as tax. That is not fair or equitable. A poor, badly off taxpayer could be funding the State by way of interest-free loans and all sorts of obstacles could be put in the way of that taxpayer in seeking to justify a refund. I hope the Minister will deal with that. Will the Minister tell us what the situation would be with regard to a person whose tax year ends on 31 May and who receives fees in April and May? When will that person be able to get a refund? Will it be 1989 or 1990 or will there be some provision whereby that person can get a refund this year?
I want to correct something I might have said wrongly in replying to Deputy Dukes regarding the ten day delay and the possibility of charges. We are dealing in the main with public bodies and we would expect that they would pass over the money immediately, so there should not be any question of having to impose interest charges for delays. Deputy Mitchell has raised a number of points. When he talks about a person's tax year ending in a particular month, it could be any month in the year. This matter will come into operation in June, therefore payments will begin over the following 12 month period. The deductions will be made on the basis of those payments. They will not all be paid out on 1 July if the tax year ends on 30 June. No matter which month is taken, the same sort of situation could emerge. I will come to this matter in a few minutes when speaking about reliefs for any hardships that might be involved. Commercial State bodies are excluded but non-commercial State bodies are included and specified. The restrictions in this proposal are exactly the same as those in the proposal affecting the construction industry. There is nothing new there.
Would C2 forms apply?
That will come under the other question on hardship. Deputy McCreevy made some very important points and described it as an anti-evasion measure. It may turn out to be so and in certain respects would that not be a good thing? The main thing is to get earlier compliance with the tax which is due. It will encourage all the professionals involved to get their accounts in order more quickly than heretofore so that they can make settlements on a per annum basis with the Revenue. That is what it can and will do.
The question of relief for hardship has been raised in the course of this discussion and it is best to give information in relation to that relief. The resolution makes provision for interim refunds to alleviate hardship in cases where a substantial proportion of the fees in question are paid out to meet the expenses of the business. Generally in order to qualify for an interim refund the person will have to establish that the accounts for the year prior to the year in which the deductions are made have been agreed, that tax has been paid on the agreed profits and the tax deduction from fees exceeds the amount of such agreed and paid tax. In such circumstances the amount of the refund would be the excess of the deductions over the sum of the agreed tax, any unremitted PAYE and VAT and any outstanding tax liability on foot of earlier years. A special measure to provide relief for a person setting up a trade or profession is also included in the resolution. In circumstances of particular hardship, the Revenue Commissioners will authorise an interim refund of tax notwithstanding that all the conditions necessary for granting such a refund may not be complied with. I know it is very hard for us to take in all the details, but I think the House can accept in all fairness that there will be due recognition given under these clauses to each individual who may be affected. These interim and hardship clauses will take due account of those.
Did the Minister reply to the question I raised about someone getting fees in April or May whose tax year ends on 31 May 1987? When will the person in that category receive a refund if there is no liability? How soon will it be?
Subject to the hardship provisions which the Minister has outlined, anybody in that position will receive any refund that might be due as soon as they submit their accounts, the accounts are agreed and the tax calculated on the basis of those accounts compared with the tax deducted. If a refund is appropriate then it will be made.
It could be two or three years.
I should like to welcome the proposals contained in the resolution before the House in respect of the levy now being introduced. In doing so we agree with the Minister that the proposals are good in principle in that they attempt to move towards an element of equity within the tax system. We wonder why the Government might not have called it what it is called when imposed on the greater proportion of taxpayers, namely Pay As You Earn. It is not a new tax but a new method of collecting tax that would otherwise be due. For the greater proportion of the taxpaying community it is already imposed and known as PAYE. It is the method by which tax is taken from working people on a weekly basis and I do not see how anyone can voice a reservation when the Government turn in a small way to impose it on the private professional group who are now to be drawn into the PAYE net. Having said that it is good in principle in the small step it takes, we want to emphasise that it is a very small step indeed. The envisaged take is in the order of £25 million this year and a sum approaching £50 million in a full year. If one compares that against the currently outstanding sum of £700 million in properly levied and assessed tax, one begins to appreciate just how small a step it is in drawing into the tax net the private professional people and the business community who for so long have been avoiding the payment of just taxes.
It is to be asked of the Fine Gael Party whether they support this method of collection in principle. There have been immense tears shed, even on the back-benches of Fianna Fáil, for those persons who might be considered for a refund for hardship reasons. When does a PAYE working man or woman get a refund for reasons of hardship? Never. They must pay on a weekly basis directly from their income without any hope of being heard at any level within the tax appeals system on their right to be refunded. We would call on the Government to look very carefully at the principal structure they have introduced in this new scheme. We hope that in coming years they will extend it. The Workers' Party have made the point time and again that the ingenuity employed in devising the PAYE scheme should be extended to cover the private sector, businessmen, professionals and farmers, so that they too could be expected to pay as they earn.
My initial reaction to this proposal when I heard it mentioned in the budget today was that I could not see any great objection to it in principle or in equity. When I saw, subsequent to the speech, the Financial Resolution we are debating and which runs to no less than seven pages to achieve what we are told is very simple and equitable, I began to wonder and I tried to read the seven pages. I am not unfamiliar with some of the contents but it was not easy, between about 5.30 p.m. when we got the resolution and now, for me to say that I understand it and all its implications. I dare say that the same is true of any other Member of the House, we simply do not understand it properly, we could not in a few hours without access to considerable advice.
On first hearing the proposal I immediately thought of someone like a barrister and I felt it not inequitable that the State should deduct 35 per cent tax from the payments they make to him because he is the sole proprietor. Normally he does not employ staff, except perhaps a secretary, and he does not have any significant overheads and so on. That is all very well until you look at the list of people included, in particular those who come under the heading of purveyors of services of an architectural, engineering, quantity surveying or surveying nature and related services and ask yourself what is the position of those people. Particularly, and in a sense paradoxically, one must ask what is the position of the larger firms in those businesses? One must also ask where are so many of those people today who were in the country five or six years ago. The truth is that firms who employed over 100 people in those types of businesses today often employ 20 and fewer. More of them who enjoyed substantial practices in this country now enjoy substantial practices in the United States or in Britain. I doubt if there is an architectural firm in this country who employ anything like the number of people they employed five years ago. To suggest, therefore, that the gross fees they get from State Departments represent income or profit and that they can be precisely paralleled with the wages someone gets on a weekly or monthly basis, as Deputy McCartan sought to do now, is totally untrue because the profit element in those fees may be as low as 1 per cent or 2 per cent. Only the profit element of a practice can be subject to tax or could equitably be subject to tax. One is not yet charged income tax, thank God, in any country on turnover, one is charged income tax on profit if running a business in which a number of people are employed, where they must be paid and where there are other expenses and overheads. If the profit element in fees is as low as 1 per cent or 2 per cent — which is regularly the case nowadays for many of these firms — it does not seem to be equitable to deduct 35 per cent of their gross fees which may be very substantially more than their ultimate profit.
There are elaborate provisions here about getting interim payments by way of refunds and so on but we all know that many people are owed money who just wait and wait and who may be paid six months later with the greatest difficulty or indeed who are never paid. The principle sounds grand but people should think about it and realise that a substantial number of firms of this kind have closed down in this country over the last five years or have reduced their operations enormously. Will this be the straw that breaks the camel's back for the survivors? It could well be because their margins are minute.
It is interesting to note that this also applies to people abroad who provide these services to State Departments. I wonder if they will be prepared to provide services on this basis. I do not understand the distinction between the long list set out in paragraph (2) of this resolution and all State bodies. Why is it confined to this list, even though it is a long one comprising 20 different types of State institutions? However, it does not apply to all of them and I wonder why. In the cases of the type of firms where clearly their profitability would only be a very small fraction of their gross fees, I cannot see any equity in such a provision. It is different for a barrister on his own or a solicitor in a small practice without substantial overheads. The same would apply to an engineer working on his own who also has small overheads but this could be the means of putting large firms out of business.
The other point is that in so far as there is liability to tax on these payments — presumably there is liability for some tax on the profit that arises from these payments — it is payable in the following year anyway and this is simply accelerating the payments by one year. The danger in that is that it is simply bringing forward certain payments for next year to this year. I was accused during the latter part of last year and the beginning of this year of doing that and indeed the Government of which I was a Member about five years ago were also accused of doing it in relation to VAT at point of entry. There may have been validity in that criticism because it did bring forward payments but it did not mean that you would get the same payments every year after that on a current basis. If there was validity in the criticism of VAT at point of entry, the same criticism would be valid in relation to this because the principle is the same.
The Minister for Finance gave some figures a short time ago in relation to this. He said that the State paid out £151 million last year in fees of this kind, that a 35 per cent tax on those would amount to approximately £50 million and that the half year, which will operate this year from June, will amount to approximately £25 million which was the figure shown in the budget statement. Mathematically, it is approximately correct. I wish to remind the Minister that that £151 million represents gross fees. It presupposes they are direct profit to those in receipt of them but they are not. The firms or partnerships to whom they are paid have to turn around and meet all their expenses and pay all their staff, and the profit on growth fees of £151 million may well be as low as £10 million nowadays. That is conceivable with the times that are in it. Therefore, the tax on that £10 million, applying the standard rate is £3.5 million or, assuming that some of the firms would pay a higher tax or pay corporation tax at 45 or 50 per cent, the tax at the outside could not be more in those circumstances than £5 million. Yet here we have in a half year £5 million deducted and in a full year £10 million. Refunds would have to be made on the difference between that and the real tax due which it seems is being collected from people some of whom are liable but many of whom are not and could not be liable. Is it equitable?
Because of a genuine concern for people from whom tax was collected on a PAYE basis, are we going too far in trying to collect tax from others who are not on a PAYE basis, to tax them not on their profits, not on what they made, but on their gross turnover? If you tried to apply that to industry or ordinary commercial business there would be an outcry. It would not last at all. The House should think about this. While on the surface it seems all right, it may well be very inequitable and may deserve deeper consideration.
I would like to ask the Taoiseach — and I think I am right in surmising that this is the case but it is better to check it — if this measure is going to be written into the Finance Bill and the Finance Act when it is subsequently passed; in other words, that the whole matter will come up again for consideration at the time we discuss the Finance Bill.
It will.
The Taoiseach nods agreement, so there is at least the possibility that we can examine this matter in a good deal more detail than will be possible this evening. One question the Minister for Finance did not answer — I understand he is a little pressed at the moment — is the question I put to him about just what is what I might call the evasion component in this. The Minister indicated that the figures are roughly £150 million worth of payments. During the course of one year 35 per cent retention of that would give £50 million. That is broadly what has been put forward. If no evasion component is involved and if the Government expect no evasion component, then one wonders if there is any point in this other than the transfer of revenue from one year to the previous year. If the main intention is to transfer revenue, for example from 1988 to 1987, would it, at least on the surface, be as valid an approach simply to look at the kinds of provision involved to see if there is not a case for shortening the delays within which returns have to be made or shortening the time scale within which payments have to be made? The House will remember we did a considerable amount of that kind of thing with regard to corporation tax in the past four years. This measure, for all the sophistication and complication of the language, is a very blunt instrument. Unless the Taoiseach can tell me otherwise, I have to conclude there is no real evasion component in this unless, as I said, the Minister for Finance believes there is something he can keep up his sleeve in the operation of a measure of this kind. I regret to say it but I warn the Minister against feeling rather too comfortably that because they are public bodies who will be paying over this money they will be diverting 35 per cent of the payments they make to the concerned persons away from those same persons and directly to the Exchequer. He should not think that simply because they are public bodies who are paying the money there will be no delay in payment. I can think of at least one example of one of the kinds of bodies referred to here where there was quite a problem with delays in the remittance of PAYE and PRSI——
You dealt with that.
I dealt with it very well indeed — not to speak of any other payments that might be made back to the State. I am not talking about the one the Taoiseach has in mind; as my colleague, Deputy Noonan, said earlier this evening, it was very well set up for him indeed. Probably this should be a technical discussion but I cannot resist the temptation of taking Deputy McCartan at his word — of course, we all take one another at our word in this House — to welcome him into the PAYE net and remind him that had we been talking about this in a recent year some £35,000 would have been diverted away from payments made to him which would have taken some of the shine off the Royal Saint George Yacht Club.
Or £45,000.
In the interests of tranquillity I remind the Deputy that it might be better, in accordance with the spirit of this discussion, if he directs questions to the Minister for elucidation rather than making comments of that kind when he may be inclined to make some uncomplimentary remark that would not help.
I assure you, Sir, that that remark was made with the utmost tranquillity on my part. I would not make it in any other way. I come back to the question of interim refunds and the making of hardship payments. It seems that if there is a strong case for having a measure of this kind, then the strength of the case for making it, if it is a compelling case, almost by definition rules out the requirement for interim refunds. If there are sums payable, and the whole intention of the measure is to speed up the payments, I cannot see the logic of having interim refunds. On the other hand, if there is a strong case for making interim refunds, then surely there must be a case for wondering whether the reduction should be made at all in the first place. Unless the Government can say there is a strong anti-evasion component in this which has not yet appeared, then I wonder what the purpose of the operation is other than simple concern with bringing forward to 1987 revenue that would otherwise accrue in 1988.
Let me make a few points at this stage. The House should stick to first principles in regard to this matter because it is important that we tease out the technical aspects but, at the same time, it is important to keep in mind exactly what we are doing here. There is a movement in the whole taxation system to get on to a current basis. The classic example is, of course, the PAYE sector who pay on a current basis, month in month out. Deputy O'Malley mentioned that we went on to a current basis in respect of VAT at point of entry. We went on to current basis in a number of other areas. The Commission on Taxation report is to the effect that we should get on to a current basis on the basis of self-assessment. The whole movement, and rightly so, is towards getting on to a current basis. It is not basically fair that the PAYE sector should pay week after week, month after month on a current basis when other sections of the community through the assessment process can pay 18 months, two years or three years later. That in itself would justify the introduction of this mechanism, but Deputy Dukes, Leader of the Opposition, makes a point about the evasion component. I am satisfied there is an evasion component here. We are saying in the figures we give that this year we expect this mechanism will bring £25 million into the Exchequer. There is a great deal to be said for taking money directly into the Exchequer at any time you can do so rather than going through the whole rigmarole of assessment and appeal.
It is not what the Deputy has been telling me for the past four years.
The Coalation did it last year with regard to the DIRT tax and did it much more savagely because the DIRT tax is a retention tax. This is only a withholding tax.
The Taoiseach complained about that.
No, I did not. I never complained about the principle of the DIRT tax.
The Taoiseach complained about it two months ago.
I never complained about the principle of the DIRT tax. What I complained about was that certain sections of the community were having tax retained when they were not liable for it. That is all we ever complained about.
The Taoiseach complained about the principle of it.
This is a withholding tax. Is Deputy Mervyn Taylor against this tax?
No, not at all.
Let us be clear about that. This tax has an evasion component in it. We expect that it will bring in £25 million this year and £50 million in a full year but we do not know to what extent the normal tax assessment process for the self-employed is bringing in the full amount of £25 million with regard to these fees. I am certain it is not coming in through the normal tax assessment process. There is an evasion component in it but even if there was not it is still totally justifiable on the basis that all sectors of the community pay on the same basis, namely a current basis.
Deputy O'Malley complained about the length of the Financial Resolution and the complex nature of the wording. By far the greatest proportion of that Financial Resolution and that wording deals with the hardship clauses. What is proposed in the hardship clause takes care of the point the Deputy made about a lot of fees not being all profit, that a professional firm has to pay out expenses and salaries before they can decide how much of the amount in gross fees paid to them is profit. The hardship clause, and I make this point to Deputy Dukes, is not a hardship clause in the normal sense of that phrase because it is not related to the condition of the taxpayer from the point of view of his social situation, his income and so on. It is related to whether the amount we are deducting by way of withholding tax is far greater than it should be. That is what the mechanism is all about. That takes care of Deputy O'Malley's point. If a firm can show that their profit in the previous year, allowing for all the outgoings they have to incur, is far below the withholding tax they get interim refunds. That is based on their profit and not on their gross earnings from the previous year. If the taxpayer, a professional person, can show that, allowing for all the outgoings and payments to staff, the profits he made in the previous year are far lower than the amount of withholding tax he will get an interim refund. That is what the hardship clause is about, to relate the withholding tax to more or less what the profit was in the year before.
May I ask Deputy O'Malley to contemplate this situation? In regard to one of the architect's practices about which he has spoken we find there are two people, the proprietor, a professional person, and an architect working for the proprietor. The architect is paid a salary and he pays PAYE on that salary every month. The proprietor, who presumably in the normal course of events gets far more out of the practice than the employee, does not have to pay income tax on what he gets out of the partnership until 12 months, 18 months or two years later. If Deputy O'Malley is concerned about equity in this matter he should accept this mechanism we are now proposing.
The proprietor may make no profit at all.
If he does not he should not be in business and certainly the State should not employ him if that is the sort of person he is. Even if he makes no profit the hardship clause will take care of him.
That is why so many of them have gone.
I do not think anybody in this House can argue the case that a salaried employee in an architect's office will pay PAYE month by month as it falls due while his boss, the professional owner of the business, will only pay 18 months or two years later, if at all. It would not make sense. This is a reasonable proposal. These fees are paid out by the State, from taxpayers' money, to professional people. In the normal course of events the State will be lucky if it gets income tax on these fees in 18 months, two years or three years, if it gets it at all. Surely it is fair, equitable, practical and realistic to apply this mechanism to these fees particularly when we have the hardship clause. If the deduction mechanism results in an excessive deduction the person involved can get interim payments and have his situation put right.
I welcome the support from The Workers' Party for this proposal but I am very disappointed that they, who have continually complained about arrears of tax, attack our very sensible and practical proposal to allocate a task force to help the Revenue Commissioners collect arrears of tax. There may be some ideological reason for opposing this task force but I cannot see it.
The point is that they are on the wrong job.
All the other mechanisms will still exist, the sheriffs, the legal system and so on. The task force will help at an administrative level to follow up the arrears. Regardless of whether it is the most efficient way, it is an extra collecting mechanism which we are putting at the disposal of the Revenue Commissioners and I cannot see why any one in this House should oppose it.
We are to some extent, though not to as great an extent as some Deputies would suggest, bringing forward revenue. Any time you make this sort of change in the revenue laws you get that windfall. It happened when PAYE was introduced. I remember very well the negotiations that went on about the introduction of PAYE. It brought in for the Government in a particular year a windfall of revenue brought forward. The same happened when we introduced VAT at the point of entry. I am not too sure to what extent it happened when the certificates in the construction industry were introduced but it had some effect there. Any time you move on to a current basis, apart from the equity of that movement you also get a windfall of bringing forward revenue to some extent from one year to another. This year we are getting the benefit of revenue brought forward. Even if we were not, this move is still justified on the basis of getting ever nearer to a situation where everybody paying taxes pays on a current basis, as the PAYE sector are already doing.
I am calling Deputy Proinsias De Rossa. In doing so I am reminding him of the spirit of the debate here, that it is a quasi Committee Stage debate. I am hoping that he rises merely to ask questions with a view to getting information and that all speakers will retain general comment for the debate which will follow when we will be implementing the terms of the resolution. I call Deputy De Rossa.
I thank you for calling me. However, I have been under a misapprehension for a short number of years in this House that the debate following the budget statement, on the night of the budget, should generally range over one's position in relation to the budget in general, while obviously speaking specifically to the resolutions before us. I hope that spirit will be maintained.
I am reminding the Deputy not of the spirit of the debate but of the requirement of Standing Orders. This debate is solely for elucidation in the matter of what is proposed in the resolution. The debate that will follow tomorrow gives the Deputy the freedom that he speaks about.
I am not arguing with your interpretation at all, a Leas-Cheann Comhairle, but just expressing what I understood to be the position for the past four to five years in these debates as I watched them taking place.
It strikes me that the two resolutions which we are discussing here tonight are both resolutions to which, in general, there would be virtually no opposition. Perhaps it is a bit of clever footwork on the part of the Fianna Fáil Chief Whip to have these motions debated rather than other financial motions on which a division might have been called. Perhaps the Taoiseach's luck is holding out on this occasion as it has in the past.
In brief, as a way of leading into my remarks on the resolution before us, it is remarkable that we are discussing non-contentious resolutions in relation to taxation of professional people who offer their services to State agencies and in relation to a reduction in the VAT which is reclaimable by unregistered farmers. At the same time we have a budget which is fairly swingeing in relation to other aspects of taxation. As mentioned already, more than £300 million extra will be taken from the PAYE sector over the coming year. People on social welfare certainly cannot look forward to a life of high style on the basis of 20p to 30p extra per child and perhaps £1 to £1.40 for adults from July. There are very serious elements in the budget which we will not be discussing tonight. It seems that what has been achieved in this House is something which many outside this House have been attempting to achieve for some time, that is, an alliance of Fianna Fáil, Fine Gael and newly emerged PDs — a consensus approach to the economy. This is a consensus which, incidentally, was never demanded — in relation to how it is being implemented, at any rate — by the Irish Congress of Trade Unions, or any of the trade unions, or the working class, whether on social welfare or getting a week's wages. Certainly, it has not been demanded by The Workers' Party or the Labour Party. It is worthy of note that this alliance is obvious here tonight on this budget.
I shall address myself to a number of points in relation to the resolution before us. The question of hardship has been raised regarding professional people who are paid by State agencies. First, we are talking only about practices which are being paid money by State agencies. This does not take into account at all the fees which the professional people will collect from the private sector. Has the Taoiseach or the Minister a figure available on the precise "take" in fees by the professionals covered in this resolution? I must try to work it out some time. It should not be too difficult to do, certainly with regard to doctors, architects and so on, on the basis of the fees they charge. I would hazard a guess that the £150 million gross which the State pays out is a very small proportion of the total fees which accountants, solicitors, architects, doctors, dentists, chemists and so on actually take from the population of the State. To argue that in some way all these good professional people will be put to the pin of their collar to fork out, or fail to receive, 35 per cent of the fees they get from the State is not realistic.
As has already been pointed out by Deputy McCartan, the PAYE sector already pay out their share on a week to week or month to month basis. Deputy O'Malley attempted to say that on that basis Deputy McCartan was trying to equate the PAYE sector with the self employed or professional sector. Clearly he was not. He stated that the PAYE sector were not in a position to claim hardship, and that is a fact. If a man or woman is having £20 to £30 a week taken out of his or her wage packet every week, there is no point in telling the tax man that school fees have to be met next week or the week after, which will cost £30 to £60, but that is a hardship to the person involved. Presumably, the professional people who will have this 35 per cent deducted can claim hardship on the basis of extraordinary expenses and so on. That is where the difference lies.
There is also a significant difference between the PAYE sector and self-employed and professional sector in that there are far more allowances which the latter can claim in relation to their running expenses. There is no point in people on PAYE, who may have to travel 20 to 40 miles a day to work, trying to claim petrol expenses, or wear and tear on a car, or for the cost of providing themselves with a car in order to get to work. That just will not be listened to. On the other hand, professional or self-employed people can claim for the car and the petrol or, if they are wise, they will get a diesel-run car and be able to claim back VAT on the diesel as well as claiming for expenses on the car and running costs.
There is no comparison between the self-employed and professional on the one hand and the PAYE sector on the other in that regard. The first category virtually write their own tax bills. That is what is done with regard to many who operate exclusively in the private sector. I should think that any professional or self-employed persons who can avoid taking work with the State would probably be advised to avoid it in that they can write their own tax bill and decide how much income they declare.
I hope what the Taoiseach said about this being a first step is true, that in the not too distant future a similar situation will apply to the private sector as well, where they also get fees and income from sectors other than the State sector. There are a number of matters which should be pointed out in comparison with the socalled hardship which the professional people may suffer as a result of having this 35 per cent deduction applied to them. The PAYE element has been referred to already. There is another sector with very little capacity or power with which to withstand deductions from their incomes. I refer to tenants of local authority houses. If any part of their income is deemed to be derived from self-employment the local authority will impose the maximum rent on them. It is then up to such tenants to prove they are not earning what the local authority maintain. I know from experience that it is extremely difficult for such tenants to prove that the amount the local authority maintain they were earning does not represent their earnings.
There is one point at which this proposal may fall down, that is with regard to the question of hardship referred to already. Perhaps the Taoiseach could clarify this matter for us. Is it not a fact that the resolution before us is too loose in terms of definition of hardship, or leaves it too much to the discretion of the tax office to decide whether a person or company has suffered hardship? I appreciate that VAT is not deducted at source by the tax man, that the company or whoever must furnish appropriate returns. There are vast amounts of VAT remaining uncollected from companies, some of which have gone into liquidation owing vast sums of money. It appears to me that there has been a fairly lenient approach on the part of the taxman or woman — I am not sure how many females act as tax inspectors — to claims by companies that they were experiencing trouble of some kind or another which, in turn, allowed these vast sums to accumulate. I wonder whether it would be better to have a tighter definition of what constituted hardship and the criteria therefore in this resolution. I wonder why commercial semi-State companies have been excluded. They, too, must engage a wide range of professional services. It would appear to me, given the number of such semi-State companies, many providing excellent services, that there must be a significant amount of professinal services provided to them.
The Taoiseach raised a point in relation to the task force to be put at the disposal of the Revenue Commissioners. He must have misunderstood the point we were attempting to make in relation thereto, that is, that we have argued for a long time — as the Taoiseach will be aware — for a more effective and better staffed office of the Revenue Commissioners so that tax, properly assessed and due, is collectable, indeed to ensure that all taxes are properly assessed and collected on time. We are not opposed to the strengthening of the office of the Revenue Commissioners. It seems to us odd that a task force of 25 people, drawn from another Government Department altogether, should be given the task of pursuing tax already assessed. It would appear to us to be preferable to restore the staff of the Revenue Commissioners to full strength in order to pursue arrears of tax in a professional and coherent way.
Let me remind the House again that it has already been agreed to take Financial Resolutions Nos. 1 and 2 and have business concluded by 11 p.m. I am appealing to each speaker to bear in mind that there are at least half a dozen other speakers who are anxious, I presume, to get information and that they should avoid general comment which will come at a later stage. I am now calling on Deputy Mervyn Taylor. I have in mind then to call on Deputies McCreevy, Yates, Spring and Sherlock. I would ask Deputies to bear in mind that other Members are anxious to obtain information and perhaps not to listen to general comment.
May I remind you, Sir, that two of those people you mentioned have already spoken?
Apart from Deputy Spring the people I have mentioned have not spoken.
Deputy McCreevy has spoken.
If the Deputy wants to ask a question he is entitled to do so again.
The substance of Financial Resolution No. 1 must be welcome. That is not to be taken in any way as approval of any other measure in this budget, much of which is reprehensible and will be contested in every way possible by the Labour Party. This measure is broadly to be welcomed. Virtually all of the arguments in its favour are identical with those put forward in support of the deposit interest retention tax, when introduced but which was opposed by the present Taoiseach and his party consistently until quite recently. The first argument in favour of this resolution is that it contains an anti-evasion element. I do not know to what extent that may apply. The same argument applied on the imposition of the deposit interest retention tax. In favour of the present proposal is the fact that it introduces a current liability element, as did the deposit interest retention tax, as a withholding tax. For those reasons it introduces some small measure of equity into the system.
As the Taoiseach has said, its main attraction is that it constitutes a windfall or once-off benefit. Going back over a number of years the Taoiseach analysed previous windfall arrangements introduced by successive Governments. That is all right as far as it goes. But it is high time in this country that we stopped organising our financial and tax affairs, as it were, on a basis of lurching from one windfall to another. That is not the way in which to organise an overall equitable taxation system. It must be remembered that we do have to tackle the overall taxation system and not deal with it by picking up a specific amount of money from this windfall one year and from another the next year because eventually those windfall arrangements will expire, if they have not already expired.
The moneys involved in this taxation system have been given at approximately £151 million. By any reckoning that consititutes a substantial amount. I do not know whether the number of firms involved is available — probably it is not that great — but the amount of money is substantial. It is fair to say that the overwhelming majority, if not all of the firms that reap the benefit of that £150 million, are strong, substantial firms. I suppose the irony of it is that those firms that are weak and small, that might be taken to be suffering from hardship, for some strange reason are not the ones that are given Government contracts. The Government contracts go to the biggest and strongest rather than to the smallest and weakest firms. There has been much talk about those who might be affected by hardship arising out of the imposition of this measure. The hardship falls on those firms who are unfortunate enough not to get the benefit of those Government contracts and of that £151 million coming in, in their fees, emoluments and charges. Many of those firms have gone to the wall, perhaps because they did not get their fair share of those Government contracts. It is a major plus for any professional firm to be in that league. It gives them the same kind of advantage talked about earlier by the Minister for Finance, of being employed in the public service. There are great advantages. There is the security that one's money will come in, and one does not have to worry that the firm for which one is working might go into liquidation or whatever, as would apply to many workers working in the private sector. The money is safe, secure and substantial. I see no reason why they should not make a contribution on a current year basis. The bulk of those firms are big firms, doing a lot of work other than in the private sector. This is not their only income. The PAYE sector make their contribution on a current year basis.
There are one or two points on the technicalities I want to query. A list of bodies is given here setting out accountable persons. The National Building Agency are possibly included under paragraph (2) but I would like a clarification on that. If they are not they should be because they would be involved to quite a degree in professional employment, particularly in the field of architecture, quantity surveying, engineering and so on. A further point on which I want clarification is whether there is any opening here for avoidance of this tax on the basis of hiving off one of these substantial contracts that would involve these professional services. It appears to be drawn on the basis that it is only when the actual accountable person is making the payment that the deduction applies. If the placement of a contract is handed over to an agent and that agent is making those payments, does that mean that because the accountable person is not making the payment the deductions would not arise? How would this operate in the case of sub-payments? It could apply in any of the professional service categories. To illustrate my point I will relate it to the item dealing with solicitors, barristers and other legal services. When a solicitor submits his bill for having conducted a case, for instance on behalf of the Legal Aid Board, he will include in his bill the barrister's fees. Let us say the barrister's fees are £1,000. The accountable body, in this case The Legal Aid Board or the DPP, makes the payment to the solicitor and deducts the tax on the solicitor's fee and on the barrister's fee. When the solicitor goes to pay the barrister, presumably he seeks to make the deduction but the solicitor is not an accountable person and the barrister may say to him, "you may have your own arrangement with the accountable person. You are paying me. You are not an accountable person; my fee is £1,000 and you must pay me in full". This may be covered in the resolution. It could apply in other circumstances with an architect paying a quantity surveyor in like manner. I would like some clarification on it.
I have already expressed my general views on the resolution but I would like the Minister to clarify a few points. Is it intended that a new tax district will be set up to deal with these payments? In the construction framework there is a special tax district which deals with construction tax and so on. Will there be a new tax district through which all this will be channelled? If we are going to have tax inspectors throughout the country trying to deal with these issues it will lead to mass confusion and inconsistencies. If anyone is under the impression he will get his money back when his income tax is cleared up under paragraph 9 (d), he will have to make sure that his VAT, PAYE, PRSI and the interest on same is paid. If this comes within all the income tax Acts, is it intended that interest will be paid to the taxpayer on excess tax deducted? It is not paid in the construction area. The delays in dealing with tax in the construction industry are inordinate. By the time a person fixes up his income tax affairs and then goes to another district and to the collector general to sort out the VAT, PAYE and everything else, it will be years before he will get a refund. Nobody should think that he will get a refund overnight when this provision comes in.
In relation to the last point Deputy Taylor made, a strange situation could arise with regard to the type of third party payments to which he referred. In the construction industry when the principal contractor pays the sub-contractor he must deduct tax at 35 per cent. If the second person pays to a third party involved in that contract the same principle applies. The third person is a sub-contractor to the second contractor, so the 35 per cent is deducted. It is not clear in this resolution that that is the case. For instance, a large firm of solicitors acting for a local authority would send in the bill at the end of the month. Made up in that bill would be barristers' fees or other third parties' fees. The main firm of solicitors will have 35 per cent deducted on the total fee but the sub-agent will have got away with a gross payment. In the construction industry it is not possible to do that.
Under this resolution there is an opportunity for avoiding tax. Many of the payments being made by architects' firms, engineering firms and so on would be made to third parties. They might have to commission reports from the IIRS, consultant engineers or whatever. It would be grossly unfair that when they send their final bill to the local authority they would deduct 35 per cent tax on the whole fee. From my reading of the resolution it would be possible for that to happen. I presume we will have another opportunity to discuss this on the Finance Bill as I presume this resolution will be incorporated in some section of the Finance Bill and perhaps the matter can be clarified then. Paragraph (4) reads:
(a) the specified person shall furnish to the accountable person concerned——
(i) in the case of a specified person resident in the State or a person having a permanent establishment or fixed base in the State, details of his income tax or corporation tax number, as may be appropriate, and
(ii) in the case of a specified person, other than a person mentioned in clause (i) of this subparagraph, details of his country of residence and his tax reference in that country.
What happens if a payment is to be made to a person who does not have a tax number? Does he get off scot-free? I am sure that is not the intention. A person must provide his tax number but the simplest way out for him is to say he does not have a tax number. Perhaps this provision is mentioned elsewhere, but I cannot find it. As regards payments to third party agents, I cannot see a Department sending them bills for, say, £50,000 because the agent might claim his fee was £1,000 and the balance of £49,000 had been paid to other firms. This would mean that the 35 per cent tax would be charged only on £1,000 rather than £50,000. This point needs to be clarified.
I was amazed at some of the points made in this debate because the reality seems to be obscured. To say this proposal bears any relation to the retention tax or VAT at point of entry is not true, because those taxes are clearly a liability which was being brought forward. In this case we are talking about a straightforward confiscation for one year of a little more than one-third of the turnover of a business which provides a service to the State. I do not see how this could be said to be fair when this proposal bears no relation to the ultimate tax liability of the consultant or the person providing those services.
The impression in this House tonight is that we are dealing with very wealthy solicitors, very well heeled doctors and so on, but the reality is we are dealing with people who are providing milk for school children, people who provide basic services such as hedge cutting for local authorities and very small businesses which cannot afford to have one-third of their turnover from State business deferred for one year. Many small businesses will not be able to absorb the effects of this decision. I should like the Taoiseach to confess that this is a confiscation of a proportion of turnover.
As Bord Fáilte and Córas Tráchtála are included in this provision, there might be consultancy contracts involved providing services which are needed to promote marketing efforts abroad. These people would not be interested in getting involved in this bureaucratic nightmare of trying to get one-third of their fees paid one year later. Would the Taoiseach consider exempting any such payments to overseas consultants? I greatly fear that a step such as this, which on the surface seems to be an effort to put everyone on the same tax paying level, is closing the door to an option which up to now was open to the State. I have in mind a number of services evolving with the local authorities moving away from direct labour and having contractors do the job, having debt collection of taxes computerised and so on. In many of these areas companies could provide these services much cheaper than the State bodies. I fear that this opportunity could be lost at this stage and that the end result will be increased fees because we are dealing with restrictive practices in some cases. The professionals will very quickly revise their scales of fees so that any benefit to the Exchequer will be shortlived and a future Government may find that this measure cost more than it was worth.
A Cheann Comhairle—
I am calling Deputy Spring and then Deputy Dukes, and, time permitting, Deputy Sherlock.
I offered before Deputy Dukes who has spoken three times already.
I am calling Deputy Spring.
There is one point on Resolution No. 1 which perhaps the Taoiseach would clarify. Why have the semi-State bodies been excluded from the prescribed list of bodies? They pay very large fees to professional and other consultants. I assume it is appropriate for us to discuss Resolution No. 2 as well.
Yes. Resolutions Nos. 1 and 2 are being discussed together.
As Financial Resolution No. 2 is a direct consequence of the policy decision made by the Government to abolish the farm tax, the Labour Party will be opposing this resolution this evening. It is ironic that on a day when we have had what is being described as one of the most severe budgets in the history of the State we are discussing resolutions which are relatively inconsequential on their own when we should really be discussing the guts of the budget. I believe the acceptance of the resolutions this evening is a test of whether the House is in favour of the budget in toto. I find it hard to take, at a time when the total tax take, for example, from property taxes has decreased from 15.1 per cent of total tax in 1965 to 3.9 per cent, and when corporation tax has decreased from 9.1 per cent of total tax to 3.9 per cent that the Government today abolish what in my opinion was a very modest tax on farm land. Despite the generous statement by the Taoiseach earlier that we were trying to evolve a current tax system to bring everyone in line with the PAYE sector, who are carrying more than their fair share of the tax bill, we are not bringing forward any indexation or any relief for the PAYE sector. In fact, the contrary is true.
I do not believe the 80 per cent plus of the taxpayers who have been watching the proceedings of this House will be fully aware of the severe impositions being made on their take home pay by the measures introduced today — the increase in the PRSI ceiling, the increase in the PRSI contribution, the increase in the health contribution coupled with the outpatient charges and the public ward charges.
I am afraid the Deputy is straying from Resolutions Nos. 1 and 2.
We are all tempted to stray occasionally but——
It is the duty of the Chair to call the Deputy to order.
I shall respect the Chair. I crave the indulgence of the Chair to accept that this resolution, which is a direct consequence of the proposed abolition of the land tax, is very much part and parcel of the budget, and the overall drift of the budget, which includes severe cuts in the areas of the environment and severe impositions on the PAYE sector who are trying to put homes together, applying for home improvement and other grants such as the £5,000 to local authority tenants — most of whom are in the PAYE sector — and who are trying to better themselves. Likewise, education charges and cutbarks to the educational institutions can only result in a diminution of services or increased charges mainly to the PAYE sector and their children.
It seems as if the Deputy is embarking on a budget speech.
I am directly addressing the question of the value-added tax and the proposal on Resolution No. 2. Perhaps, the Taoiseach or the Minister for Finance would clarify, for us how many farmers are at this point registered for VAT. I suspect that many of the smaller farmers are not registered for VAT and as of now, because of having to register for VAT, they will have to undertake once more the expense of hiring accountants; because of the meagre incomes they have been earning during the past number of years the expenses they are going to incur will be far greater than any tax they would have paid under the land tax or under any other system of farm taxation.
I feel very strongly that the abolition of the land tax is a retrograde step and a step in the wrong direction but I believe also that it is a sure sign of the unwillingness of Fianna Fáil and other parties in this House to tax vested interests. Until we are prepared to do so we will not bring about any relief to the PAYE sector.
So far as Resolution No. 1 is concerned, I described the measure earlier this evening as a blunt instrument. The Taoiseach's explanation of interim payments has confirmed that belief. The Taoiseach explained the matter of interim refunds and I think I am doing justice to the resolution and to the Taoiseach's explanation when I put it this way: he said that where the amount of the deduction to be made on foot of this measure was disproportionate to the tax liability of the professional service concerned in the previous year, interim payments would be made. In other words, if the amount which fell to be paid on a monthly basis was going to be substantially in excess of the net tax liability on the profits of the previous year interim refunds would be made so that the amount of the deduction would be brought down.
That is the general drift of it.
If that is the case, it casts a lot of doubt, to say the least, on of the prospect of getting £50 million a year out of this measure because it is very clear that a great proportion of the people concerned will be applying for interim refunds.
The Minister for Finance said earlier that roughly £150 million worth of business comes within the orbit of this measure. If you examine the list of the services covered by the measure you will see very quickly that in a number of these groups of services the State is actually a very large customer, if not the largest customer. I take the case of the veterinary practitioners, for example, where the State is by far the largest customer through the disease eradication scheme. If large numbers of these people are entitled to interim refunds on very large proportions of their business, there must be a serious doubt as to whether the revenue to be raised would match up to the kinds of figures the Minister and the Taoiseach are talking about unless it is also claimed that there is a massive evasion by those people in relation to their potential tax liabilities on that part of their business which does not originate with the State.
If there is that kind of massive evasion it is not a measure of this kind, which deals with only part of their business, that is required, but a completely different approach. Given that large numbers, in fact almost by definition the vast majority of these people, are registered for VAT and income tax and that many of them are also registered as employers, I conclude that there can only be the most serious doubt as to whether the measure is going to raise revenue on anything like the scale the Government suggest.
I want to turn to Resolution No. 2 which deals with value-added tax. This resolution goes hand in hand with the Government's proposal in the budget to abolish farm tax. The proposal to abolish farm tax sits very ill with what the Taoiseach said earlier in regard to his concern to bring all taxation onto a current basis. In fact, the farm tax, whatever else one might say about it, did bring farm taxation onto a current basis. The intention was further reinforced this year by the proposals my colleagues and I brought forward in January to move over to a system of self assessment as the basis of the farm tax. The Taoiseach now is going back from what was a measure of a directely current nature in relation to farm taxation to a system which under the present rules and on the basis the Minister set out this afternoon will not be to the same extent a current type of taxation.
I hesitate to interrupt Deputy Dukes but I must advise the House that I shall be putting the questions at 11 p.m. I was hoping to get in one or two more Deputies and I think the House will agree that a Government spokesman should be allowed time to reply.
I agree and it is for that reason——
We have very little time at our disposal.
——that I have about one and a half minutes left to speak on Resolution No. 2. Resolution No. 2 is designed to replace the revenue that the Government are going to lose this year by abolishing the farm tax, by making an adjustment to value added tax. I do not think that is the proper way of going about it. If there is a change in one kind of tax measure that is going to lose revenue and the Government wish, there is an argument for doing this, to recoup that loss of revenue from the same people, they should look at a similar type of taxation system. They should look to income taxation in order to recoup it.
It is totally inappropriate to turn to the value added tax system to make up a shortfall on the income taxation side. It is like saying, for example — I do not think the Government would say this — that in a given year corporation tax is not yielding enough revenue so the Government are to undermine the basis of the value added tax system in order to recoup the loss. Value-added tax is a consumer tax. The basis of the tax is that it accumulates in stages and is paid, by the final consumer. It is not a tax on production. The proposal before us makes value-added tax under the flat rate refund system a tax on production because it is designed to leave a part of the burden of the value-added tax on the producer.
Contrary to what Deputy Spring seems to think, I do not expect that even this measure will cause a huge rush of farmers into registration. In fact, it will not, but that is not the point. We decided back in 1972 that we would opt for the flat rate refund system in relation to VAT on farmers for reasons which had just as much to do with the convenience of the State and of the Revenue Commissioners as the farmers. I know that, having been rather intimately involved on the other side of the fence at the time. It is not a valid procedure to go messing about with the type of tax in order to make up for what the Government have deliberately decided to do in moving away from that current base of taxation which the farm tax gave to us.
I am calling on Deputy Sherlock and I ask him to appreciate the necessity to afford the Taoiseach, or the Minister for Finance, an opportunity to reply.
My name is on the list before the Chair. I have not had an opportunity to contribute to the debate tonight.
I will be happy to fit in Deputy O'Keeffe also if time permits. The purpose of this debate is mainly for elucidation. Many questions have been asked and I am sure the House will agree that the Taoiseach, or the Minister for Finance, should be allowed an opportunity to reply. Deputy O'Keeffe should not waste the time of the House.
I have not spoken tonight and it was my understanding that my name was on the list before the Chair. I understood that my name was put in by the Leas-Cheann Comhairle prior to that of Deputy Sherlock.
I have called Deputy Sherlock.
I am aware of that but I must protest on the basis that half an hour ago my name was on the list to be taken before Deputy Sherlock and now the Chair is not allowing me to speak before him.
The Deputy is wasting precious time.
It is not my intention to waste any time but I must point out that I am being denied my right to speak.
While we welcome this resolution we do not agree that it will rid the tax system of the inequities and anomalies that exist. I have heard reference to taxes on profits but we know that those in the PAYE sector when making application for education grants cannot take into account the amount of tax paid to the State. However, it is my understanding that the tax on profits will be of benefit to the professionals and those in the private sector. I find it surprising that the House has devoted so much time to a debate on this resolution. Why is the House spending so much time considering whether to bring professional people into the tax net when it is agreed by all and sundry that there is wholesale evasion and avoidance here? That has resulted in the House having to consider a budget that will cause untold hardship to many people.
The Taoiseach agrees that there is tax evasion but he is not sure where it occurs. He made a statement to that effect in reply to a question about the proposed task force. In 1981 a census was conducted in the State and the information obtained was computerised. Therefore, the State has on computer information about the professional and private sector, the work they are engaged in and so on. I suggest that that information should be used to ascertain the amount of tax they have paid in the past four or five years. If that is done, the State will be able to identify if there has been tax evasion or avoidance by those people.
I must call on the Taoiseach.
I will give Deputy O'Keeffe an opportunity to make a short contribution.
I must advise Deputy O'Keeffe about the desirability of giving the Taoiseach, or the Minister for Finance, an opportunity to reply to the questions raised.
The Taoiseach will have to accept that the result of Resolution No. 1 will be that there will be an increase in the cost of services to the State. I have no doubt that those affected by the measure are planning ways and means of alleviating what will be seen by them as a very unjust provision. With regard to Resolution No. 2 — I will not have an opportunity to go into detail about that resolution — it is my view that the direct impact of it will mean an increase in the price of a gallon of milk of 7 per cent from 1 May and an increase in the price of animals. More important it will impact on those who can least afford to pay because those who are unregistered will be small farmers who own 14 or 15 cows. Most of those farmers were never involved in farm tax and those who were involved were at a nominal level. Those people will be expected to contribute towards the £9 million shortfall which the Exchequer will experience as a result of the abolition of the farm tax.
I should like to deal with the question of farm tax first. I am very surprised that the socialist party, the Labour Party, are objecting to what we are doing because for as long as I have been a Member of the House it has been a simple elementary principle of socialist doctrine that everybody here should pay income tax, that everybody should pay tax on the basis of their income. That is what I have always understood to be the approach of the Labour Party. What we are doing is totally right. We are putting farmers, finally, on the same basis as everybody else in the community, paying on the basis of their income. This should mean the end of this argument once and for all. Farmers will be in the income tax net paying on the basis of their income the same as any other single sector of the community. I cannot understand why the Labour Party, as socialists, object to that. The land tax or farm tax was a joke. It brought in £400,000 in 1986.
This is why the Taoiseach abolished the wealth tax; the same principle.
It was proposed to spend £6 million of taxpayers' money in 1987 to set up some structure which in the end would probably not work or bring in any more than was brought in in 1986.
Why is the Taoiseach saying the Government will be losing £9 million by abolishing the land tax?
The land tax was a political device brought in to try to meet a temporary difficulty in the Coalition.
The Minister for Finance said the Government will be losing £9 million by abolishing the land tax.
I do not think anybody could object to what we are doing here. From this point on everybody in the farming community will pay income tax and in order that there should not be any inequity we are making up the £9 million that the Exchequer will lose by this change by a change in VAT. The number of people registered for VAT is 1,300. We are putting the position right for the future and the Labour Party are adopting a wrong stance on this.
The Taoiseach said the same about the wealth tax.
The farm tax was a device to stop the farming community paying their fair share.
This proposal means that they will not be paying anything.
In order to ensure that the farming community do not get away with anything this year we are making this change in VAT. That will ensure that the Exchequer gets its £9 million.
Even if it gets at the very small farmers?
(Limerick East): It is £14 million.
The calculations have been made exactly by the Revenue of Commissioners and the Department of Finance and we are getting exactly what is necessary from the farming community so that there will not be any loss to the Exchequer as a result.
Small farmers will be asked to pay the same amount as the big farmers.
For the benefit of Deputy McCreevy I should like to state that the NBA are not included — it may have been Deputy Taylor who put this question — on the principle that no commercial semi-State sectors are included because they are in competition with each other, with the private sector and so on. However it is something we can look at. It should not be forgotten that we brought this forward in three weeks; we have had three weeks to create this whole structure. The only reason we are dealing with this now by way of financial resolution is in case the Finance Bill has not come into operation by 6 June. These matters will be dealt with again when we come to the Finance Bill and any mistakes that appear to have been made or anomalies that may arise can be discussed in the course of that debate. The principle of introducing this withholding tax on professional fees is impeccable.
There will not be any interest involved on refunds or anything else; it will be the same as in the case of the PAYE sector. The accountable person or State body paying out the money will deduct from the solicitor and it is up to him to make his own arrangements with the barrister. The State will just collect its 35 per cent on the fees and that will be that. Regarding an agent paying out fees, it will not matter to the accountable person, namely the State body, whether or not the services are given directly to that State body. The fees will still be deducted by the accountable person even though the services may not have been rendered to them.
It being 11 o'clock, in accordance with the Order of the House I am putting the question; "That Financial Resolution No. 1 be agreed."
Question put and agreed to.