I welcome the opportunity to make a contribution on the Finance Bill. Finance Bills are probably the most technical Bills that come before the House on an annual basis. Since they are so technical I regret that the Minister for Finance has not seen fit to take up the promise made to me in the House by his predecessor, former Deputy MacSharry, of introducing a consolidated income tax Act. For those who have not read my quiz book on Irish politics, I should like to state that the longest piece of legislation passed by Dáil Éireann is the Income Tax Act, 1967. That is a very detailed Act and has been updated annually by Finance Acts, sometimes twice yearly. If one was to lie that Act on its side and place each Finance Act since 1967 on top of it we would be talking about a 4 ft. high mound of technical legislation that has not been consolidated for 22 years. The consolidation of those Acts is overdue and the promise I was given in that regard 18 months ago has not been fulfilled. I recommend to the Minister, and his advisers, that they attend to this matter as soon as possible.
I welcome the production of the charter of taxpayers' rights by the Revenue Commissioners, something that the Committee of Public Accounts suggested, but there is little point in having that if taxpayers have to wade through 4 ft. of highly technical legislation to find their entitlements. I regret that the Bill does not include the extension of the PAYE allowance to the children of spouses of self-employed persons or persons who are the sole or main directors of private limited companies.
In a small engineering firm, for example, a fitter who succeeds in winning a small contract or securing some maintenance or service work may want to take on his son as an apprentice. Indeed, that person's wife may be involved in running the business but the apprentice or his wife are treated differently from any other taxpayer in that they are not given the PAYE allowance even though their income is taxed under the PAYE system.
That seems to be very unfair because the whole idea of the allowance was to give some improvements to the PAYE taxpayer compared to the self-employed Schedule D, cases 1 and 2, taxpayers who pay on accounts one year in arrears. I fail to understand why it is not possible to extend that allowance to the children or the spouses of a taxpayer in the circumstances I have outlined.
Another matter I might draw to the attention of the House, as somebody who at one stage was involved in the tax area as a result of which many constituents come to me about relatively minor tax problems, is that, very often, senior citizens are not aware of the exemption provisions of the Income Tax Acts. Many of them continue on single or married allowances or others, whereas in most cases probably they would be better off coming within the exemption provisions.
Even if their income exceeds the exemption provisions there is marginal relief which would be to their benefit.
I regret very much the publicity given to what I consider to be an intemperate comment by a leader of one of the taxpayers' unions recently in relation to representations by Deputies. I do not use parliamentary questions in this House for answering tax queries. I do not want to have to resort to that practice. In my dealings with inspectors of taxes I have found that when I write in with queries usually within a reasonable period I receive a fair, adequate reply even though I know that the lack of consolidation of the Income Tax Acts presents problems for them. It makes it difficult for them to keep abreast of that legislation. However, despite that type of pressure, usually they have been able to furnish reasonably efficient replies to queries. I hope we will not experience any change in that procedure. I do not want to have to resort to taking up the time of this House by way of parliamentary questions, diverting the time of people all over the place to answering them within three days.
However, the exemption provisions have not been adequately explained to those taxpayers who are entitled to them.
That gives rise to many of the letters I write to inspectors of taxes. If I may use the term, the success rate in relation to representations of that kind is quite high.
A special effort should be made to have these examption provisions more widely publicised, whether by way of advertising, perhaps better still, at centres for senior citizens, so that they are properly acquainted with them.
Before turning to some of the recommendations of the Committee of Public Accounts recently in relation to the Revenue Commissioners I should like to deal with some of the provisions of the Finance Bill before us. It appears that, in the Bill as drafted, undoubtedly there is a high degree of retrospection, or a retrospective element, in the section dealing with tax avoidance. I am very much in favour of everybody paying their taxes as they become due. I am opposed to any easy ride for people who want to evade paying taxes or who want to bring the wrath of this House and of the Revenue Commissioners on themselves by engaging in rather fanciful avoidance procedures.Nonetheless we should not throw out the baby with the bath water.
It is going somewhat too far to give retrospective effect to anti-avoidance provisions.It should be remembered that people will have entered into commitments, will have made plans, perhaps five years ago, which is often the case with regard to capital acquisitions tax when one happens to have reached a certain stage in one's life and wants to leave one's property or assets.
Indeed with present property valuation rates in Dublin, owning a house and holding an insurance policy on one's life, one could very quickly exceed the exemption limits for capital acquisitions tax purposes through leaving even those assets to, say, a son or daughter, because the thresholds in respect of capital acquisitions tax have not been reviewed for almost 13 years. It seems to me that somebody making plans to avoid having their home and perhaps relatively minor insurance policy income — which they might want to leave to a son or daughter — exempt from taxation is a reasonable objective if one happens to be about to depart this world and wants to ensure that one's children can stand on their own feet. It is not unreasonable that somebody should want to transfer a reasonable proportion of their assets to a child so that that child would be able to provide for himself or herself. People will have made plans accordingly, particularly because the thresholds have not been increased since 1976. Having made those plans, perhaps having saved money over many years, they now find there is a certain retrospective element in the provisions of section 76 of this Bill.
Whatever about applying this anti-avoidance provision henceforth — which in itself will present certain problems to which I will refer in a moment; I am not opposed to the idea but rather to the section as drafted — it is unreasonable to pass legislation with a retrospective effect. That is the effect the provisions of section 76 would have, particularly with regard to certain capital acquisitions tax cases. I would suggest to the Minister that the best way to deal with this problem would be to confine the new rules to transactions taking place after 25 January when he introduced this Bill.
Section 76 (2) refers to the Revenue Commissioners having the right, in reasonable circumstances, to form an opinion that a transaction is a tax avoidance one. I am advised this gives the Revenue Commissioners very wide powers. The whole area of what constitutes reasonable opinion is very subjective.Case law in the United States, Canada, New Zealand and the United Kingdom will bear that out. There, the courts interpret what is an abuse or a misuse; it is not the Revenue authorities who do so. It has led to some uncertainty which has been commented on particularly by United States judges. For example, the Revenue authorities in the United States, Canada, New Zealand and the United Kingdom have quite an elaborate system of advance rulings, the aim of which is to reduce that uncertainty.
Heretofore the law in this country in that respect was quite clear. But this elaborate anti-avoidance section introduces a certain amount of subjectivity into judgement on the part of the Revenue Commissioners on transactions engaged in by certain taxpayers. Since it is subjective their judgement can vary from time to time or perhaps even change when somebody retires in the Office of the Revenue Commissioners and is replaced. For that reason I would urge that the Minister and the Revenue Commissioners take on themselves the practice prevalent in the United States, Canada, New Zealand and the United Kingdom of giving advance rulings on certain transactions so that taxpayers would know where they stood.
Where it really bites is in the case of foreign companies wanting to invest here. They should know for certain what are the tax consequences of their investing here. It often happens that American companies wanting to set up here approach a firm of accountants seeking advice on what will be the tax rate applicable to them, what tax breaks are available and how provisions here might minimise their tax bill compared with, say, setting up in the Bronx or elsewhere.
By and large those questions can be answered but under section 76 of this Bill they cannot be explained because there is a certain amount of subjectivity in regard to what is considered to be reasonable in the eyes of the Revenue Commissioners. If the Revenue Commissioners take on this new role they should adopt the practice of the Revenue authorities in the other countries I have mentioned and give advance rulings.Then if someone asked them what the tax consequences will be of setting up a company in this country to do X, they should say that their attitude would be Y, and that the company would have the following tax liability. At present there is no provision for advance ruling.
I want to repeat that in principle, I am not opposed to removing these elaborate schemes of anti-avoidance and I hold no brief for them, but I do not think we should throw the baby out with the bath water and create problems for ourselves. If we give the Revenue Commissioners these subjective powers at the same time, we should require them to explain in advance how they will interpret certain situations and give advance rulings accordingly, which is the common practice in other countries.
I want to turn to certain recommendations recently made by the Committee of Public Accounts. I note that Deputy Foley is anxiously waiting to get in and as the Minister is closing the debate at 4.30 p.m. I will try to be brief to allow Deputy Foley time to contribute. I suggest that the Minister should look at the summary of the recommendations made by the committee because they are made with a view to, firstly improving the relationship between the taxpayer and the Revenue officials. If taxpayers think they are participating in a fair system where all their entitlements are explained to them and they are presumed to be honest — unless there is some reason to presume otherwise — they will be more inclined to join the system. I have been suggesting that if everybody knew exactly where they stood and knew their entitlements, it would probably improve the inflow of revenue to the State because people could not then claim they did not understand what their entitlements were. Secondly, I believe it would improve the situation in relation to tax evasion. There are many allowances which people do not claim but if they knew they could claim them and everything was explained to them I believe they would feel part of the system and would not feel justified in evading tax.
I have already gone into the exemption provisions for senior citizens but another area which is in need of thorough explanation to taxpayers is offsetting medical expenses against tax liabilities. Taxpayers are entitled to do this provided they do not claim them from some other source as well, such as a health board or the VHI. The first £50 for an individual and the first £100 for a family is not allowed but any amount after that is allowed in a year, including doctor's expenses and medicines. All one has to do is get a medical Form 1 and make an application, but how many people do this? Very few apply because they do not know their entitlements. Those are two areas I wanted to bring to the attention of the House.
It is very important that this chapter of taxpayers' rights which we have called for and which has been launched by the Revenue Commissioners be applied fully so that people are informed precisely where they stand. It would help if simplified forms were used and taxpayers were asked to fill out forms which they could read. Very often people come to see me with a Form 11 or Form 12 — I think Form 11 opens into eight pages, which contain a lot of questions — and sometimes quite literate people who might be well qualified to do so, simply cannot make out how to fill in the forms. I believe that if the forms were simplified it would be a help.
I want to see the taxpayers' charter implemented and not just announced. It is reasonable that we should have a review of the success of the implementation of the charter in about six months time. I also believe strongly — and this has been recommended by the Committee of Public Accounts — that the Revenue Commissioners should divert resources, which they are using at present to chase compliant taxpayers, to chasing non-compliant taxpayers. At a meeting of the Committee of Public Accounts we were told that something like 10,000 profile forms — I am choosing an arbitrary figure because I cannot remember the exact number — were issued to farmers in the southern part of the country but only about 3,000 bothered to reply. Instead of chasing the 7,000 farmers or two-thirds who did not reply the Revenue Commissioners chased the one-third who had replied to get more details, more information, etc. It seems quite reasonable to suggest that the resources which are available for administering the taxes and ensuring that people meet their tax liability should be targeted at those people who are not complying with their tax liabilities and in many cases — and perhaps they do it more now — do not even bother to reply to inquiries from the Revenue authorities.
I want to refer to the recommendation of the committee with regard to the setting up of a technical advisory committee. This advisory committee would comprise tax practitioners and representatives of the general public who would advise not just the Revenue Commissioners but the Minister for Finance, the Department of Finance and the Committee of Public Accounts, on behalf of this House, on how the very technical detailed data we annually pass through this House affects taxpayers. Many people are working with taxpayers and these people could contribute, and are prepared to contribute, advice and assistance which would make the revenue system work much more smoothly, resulting in a greater inflow of taxes and greater happiness on the part of taxpayers that the system is fair and running smoothly. I believe the offer from outside groups to participate in such a technical advisory committee, which would be available to the three bodies I have mentioned, should be taken up and proceeded with without delay.
I have no wish to cast any doubts on the integrity or expertise of the Revenue Commissioners. By and large they do a very difficult job very well. No organisation of the size of the Revenue Commissioners could be without fault, but it is wise for the Minister, this House and the Revenue Commissioners to have outside advice and information available to them which would allow them to hear at first hand the problems faced by taxpayers and be influenced along the lines of that advice to try to make the legislation serve the people and not the people serve the legislation or the system.
There are many items I should like to have raised here today but I have only touched on some of them in my brief contribution. I will return to some of these items on Committee Stage. But I wanted to put down some markers. I want to state for the record that just because I have not touched on all the recommendations of the Committee of Public Accounts does not mean any of them are of any less importance than others. In the short time available to me I wanted to highlight certain points. I hope the Minister will look at all of the recommendations of the Committee of Public Accounts and at the problems I have outlined in a non-controversial way, in particular section 76 and the extension of the PAYE allowance to children and spouses of taxpayers. These are very important points. I will end my contribution at this stage in order to facilitate Deputy Foley but I will take the opportunity on Committee Stage to return to certain points I have raised.