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Dáil Éireann debate -
Tuesday, 9 May 1989

Vol. 389 No. 7

Finance Bill, 1989: Committee Stage (Resumed).

Amendments Nos. 25 and 26 not moved.

(Limerick East): I move amendment No. 27:

In page 13, paragraph (b), line 28, to delete "£2,500,000" and substitute "£5,000,000".

Amendment No.28 in the name of the same Deputy is consequential and I, therefore, suggest that we debate amendments Nos. 27 and 28 together. Is that agreed? Agreed.

(Limerick East): The Minister, in introducing safeguards to the business expansion scheme, introduced a series of amendments. My amendments would restrict a company to a share capital issue of £2.5 million if it is to be eligible for business expansion scheme investment. While I fully agree with the Minister in his attempt to redirect the business expansion scheme back to its original intent the cut-off point is too low. As I understand it, where any company issues qualifying shares after 12 April 1989 no relief shall be given for any excess over £2.5 million. In arriving at that figure all qualifying shares issued by the company, since the advent of the scheme, are taken into account. Consequently, no account is taken of shares issued which do not qualify for the relief because the person to whom they were issued did not qualify for relief or, alternatively, the individual lost part of the relief by reason of the restriction of £25,000 on any individual taxpayer. In those circumstances, we are not talking about a business expansion scheme investment which amounts to £2.5 million but about one which would amount to £2.5 million if all shares qualified. Of course, they will not, so the section does not allow a business expansin investment of £2.5 million because some of the shares — to reach the total of £2.5 million — would not qualify for the scheme. Therefore, the ceiling should be raised.

The sum of £2.5 million in a trading house scheme — which is a legitimate one — is very low. When I first read the section I understood that there could be an issue of £2.5 million each year but the Minister clarified this on Second Stage and said that the totality of shares issued in any company to be eligible for the business expansion scheme would be £2.5 million. I put down an amendment to raise this sum to £5 million although there is nothing magical about that figure. I ask the Minister to reconsider the ceiling and to raise it to what his officials and the House regard as an appropriate figure.

The sum of £2.5 million includes only companies which qualify for relief. If shares are issued which do not qualify they do not form part of the £2.5 million.

(Limerick East): That clarifies one part of it. Regardless of the amount of shares issued in any company, up to £2.5 million will be eligible for the business expansion scheme——

For relief.

(Limerick East): In any company up to £2.5 million will be eligible for the business expansion scheme?

Precisely.

(Limerick East): A company, say, with a share capital of £10 million can keep issuing up to the £2.5 million limit and be eligible for the business expansion scheme?

(Limerick East): That is not the way I read it. I would still like the Minister to take another look at it to see if the ceiling could be raised because the sum of £2.5 million is low on the type of company that would be trying to fund substantially from the business expansion scheme.

This was a good scheme when it was introduced but it went off the rails in recent times. It was open to all sorts of abuses; whether by options or guarantees, the risk was taken out of it and banks started to use it as a substitute for traditional lending. That is not the purpose of the business expansion scheme. It was intended to get small to medium size companies off the ground. These were firms in a high risk area and no other area of traditional lending was open to them. An analysis of the scheme up to October 1988 showed that only 12 out of the 300 companies raised amounts of over £500 million under the scheme. The £2.5 million ceiling does not, of course, prevent companies from raising non-business expansion capital above that limit from the Stock Exchange or by other means. In addition, there is nothing to stop companies from coming together in partnership in a joint venture — or with other companies — with a view to undertaking projects which would require larger funding. In other words, if there was a joint venture each company would be entitled to £2.5 million. In view of the fact that only 12 out of the 300 companies raised over £500 million I am being generous in relation to a joint venture.

(Limerick East): I will withdraw my amendment but I ask the Minister to reconsider the matter between now and Report Stage.

Amendment, by leave, withdrawn.
Amendment No. 28 not moved.

I move amendment No. 29:

In page 15, paragraph (c), line 12, to delete "1983" and substitute "1987".

This is a drafting amendment to correct a reference in paragraph (c) to the Tourist Traffic Act. The correct citation is the Tourist Traffic Acts, 1939 to 1987 and not, as stated in the Bill as published, the Tourist Traffic Acts, 1939 to 1983. Accordingly, the amendment removes "1983" from the citation and substitutes "1987".

Amendment agreed to.
Question proposed: "That section 7, as amended, stand part of the Bill".

(Limerick East): I should like to get clarification of some of the provisions in the section. Will the Minister comment on the scope of the restriction on leasing and financial activities. The leasing of plant and equipment, other than the chartering of ships, would not be regarded as qualifying trade. The leasing of land and buildings and the carrying on of financial activities is also mentioned. I should like to know what is the scope of the “financial activities” definition. It would be of help to us if the Minister read his briefing note into the record.

The business expansion scheme was introduced to help generate equity capital for high-risk companies in certain sectors of the economy which would otherwise have difficulty in raising such capital but which offer substantial potential for increasing employment and output. Leasing, and other similar financing operations, which are now being excluded generally from the scheme — the International Financial Services Centre has always been excluded — are not the sort of activity which falls into this category. Because one can often look to a tangible asset for security, it is not high risk in nature and the employment potential is limited relative to the resources employed. In addition, because of the circumstances in which such activity can qualify for the BES, that is, only if it is an export service, the benefits derived by financing companies through the BES would largely flow abroad to the non-resident clients of the companies in question. Tax relief funded by the Exchequer — that is, by the general body of taxpayers — would, in effect, flow to foreign residents without substantive benefit to the Irish economy. In the circumstances, it was decided to exclude leasing and other similar financing operations from the ambit of the business expansion scheme.

(Limerick East): The carrying on of financial activities will be restricted and I am wondering if the Minister has something in his brief which will define “financial activities”. Are we talking about loans, mortgages, leasing, lease rental, hire purchase, and all similar arrangements, equity investment, the factoring of debts and the discounting of bills, invoices and promissory notes, and all similar instruments, the underwriting of debt instruments and all other kinds of financial securities and the purchase or sale of financial assets? Is the provision all embracing or are there exceptions?

It is all embracing. I should like to give an example. A leasing company in the finance world that raised money under the BES — we read of some of them in recent times — could use that money, and more than likely would use it to a large extent, if not entirely, for asset financing or leasing activities in the UK or elsewhere. In that kind of situation the benefit would flow outside the State but would be paid for by the Irish taxpayer. The Deputy may have an idea of the type of company I am talking about; there is one not too far from where the Deputy resides.

(Limerick East): I do not wish to discommode the Minister, but rather than having a long intervention I will go through some of the subsections. With regard to tourist accommodation, self-catering accommodation such as holiday villages and holiday apartments will no longer qualify if they are situated in the County Borough of Dublin, the County Borough of Cork, the County Borough of Limerick, the County Borough of Galway, the County Borough of Waterford and the administrative county of Dublin. Does the Minister believe that that provision is extensive enough or should some of the urban areas which are under the remit of county councils, rather than borough councils, be included? I am thinking in particular of parts of Waterford, Limerick, Cork and Galway which run into the county. Has the Minister looked at that provision? Is he happy that the provision will catch all areas of potential abuse?

I understand that self-catering schemes are also being stimulated by another tax driven mechanism in that 75 per cent of the capital cost can be written off over a number of years. Will the Minister clarify the present position of that scheme? Has the Minister any figures to suggest whether writing off the capital cost of a holiday village or the use of the BES scheme had a higher frequency when it came to erecting holiday villages? Both schemes have been used and I wonder if the Minister has information on the other scheme. We always talk about locking the door when the horse has bolted, but I wonder if we are locking the right door in this case. Should we be locking a different door?

Would it be possible, in circumstances where a large complex is being built under the tourist provisions of the business expansion scheme, where a health centre including tennis courts, squash courts, restaurants and bars and so on was being constructed and added to it was some self-catering accommodation, to give an exception to that self-catering accommodation? Has the Minister thought of making an exception of self-catering in those areas where it does not amount to more than 25 per cent or 30 per cent of a total project rather than having a blanket exclusion where there is a large project? If such a project was on the lines I am suggesting, and if the capital cost of the self-catering element did not exceed one-third or one-quarter, that would seem to be a legitimate exception, but it would be caught under the total exclusion. Has the Minister had such a case brought to his notice? It has been brought to my notice and I am sure it has been brought to the notice of other spokespersons. Will the Minister consider this matter with a view to moving an amendment on Report Stage which would allow for that exception which seems to me to be genuine?

The latter comes under the areas excluded such as the County Borough of Dublin. In the definition we have tried to tighten things up. I do not know if a better definition exists. Nobody would disagee that the business expansion scheme in Dublin city, and other urban areas, was being used to erect town houses, blocks of apartments and so on. It became a total tax gamble. We wanted them excluded in the definition. Such developments are very desirable for tourism in other parts of the country, but I do not think the exemption is desirable for parts of Dublin 4. I do not think anybody would argue with that.

The Minister should leave my constituency out of this.

Donnybrook Manor is a beautiful scheme. I accept, as the Deputy said, that in some areas such developments would be an asset but we considered it necessary to insert this definition. However, I will have a look at the provision between now and Report Stage to see if there is any other way of phrasing it. To be honest, I do not see how we can.

(Limerick East): The mechanism by which the Minister proposes to exclude self-catering schemes is by strictly defining the areas where they will be excluded but he does not attempt to define the activity. I am not pressing this very strongly but I would like the Minister to consider a slight modification of the type of project. I suggest to him that where not more than one-third of the capital cost of the project was involved in providing self-catering accommodation it would be included, even in the excluded areas, but where more than two-thirds of the capital cost was for self-catering it would not be included.

I will have a look at this matter but I am sure the Deputy will appreciate that such a provision would be extremely difficult to police.

(Limerick East): I understand that holiday villages and seaside resorts are being encouraged, not by this scheme, but by the ability of investors to write off up to 75 per cent of the capital cost of the investment against the rental income deriving from the cottages, or alternatively against any other income which they may have, to get involved in development projects.

A section 23 relief.

(Limerick East): No, it is not.

They are capital allowances.

(Limerick East): They are capital allowances for tourist related activities——

Deemed to be industrial buildings.

(Limerick East):——deemed to be industrial buildings. Perhaps the Minister might give me a briefing note on that either tonight or on Tuesday to throw some light on it. The Minister's officials might have information to suggest whether it is the business expansion scheme or the alternative scheme which is more frequently used and whether it is possible to use the two together outside of the excluded areas.

With regard to the 75 per cent write-off the Deputy is talking about, if there is further information on that we will give it to the Deputy.

(Limerick East): I want to move on to the other restriction which the Minister proposes to introduce. A very large number of schemes were being offered before the end of the tax year which involved guarantees of one kind or another to people who invested in the business expansion scheme. With regard to subsection (2A) of section 7, I think the Minister's intent is that no relief will be available on any shares which are the subject of either a put or a call option at a price other than their market value at the date on which the option is exercised. I do not understand subsection (2A) and I should like the Minister to clarify it. It seems that the intent of the subsection (2A) is that there would be no guarantees. If one puts £25,000 into a business expansion scheme — and one is eligible and is a taxpayer at the higher marginal rates — it would cost about £10,500 or £10,600, whichever is the accurate figure. The schemes I saw on offer were by finance houses who said: “If you leave your money in for five years it will cost you £10,500 nett but we guarantee that we will buy your shares from you at £18,750”.

Is it at £18,750 or £10,500?

(Limerick East): One would be issued with £25,000 worth of shares but because of the tax break the cost of that to a high marginal taxpayer, if you change the rates, would be roughly £10,500. I know of schemes where there was a commitment to purchase all those shares at £18,750, and I saw another scheme which suggested that the shares would be purchased at £25,000. I presume the intent of subsection (2A) of section 7 is to remove the guarantees so that at the end of five years the value of the shares would be the market value——

That is right.

(Limerick East):——but because of the way the subsection is drafted, it seems that the only market value a share has on the day it is bought is its nominal value. Effectively, the Minister is saying in subsection (2A) that somebody cannot buy a £1 share for less than £1, and therefore cannot buy 25,000 £1 shares for less than £25,000. So far as I can see, the section which purports to take out the guarantee, copperfastens the guarantee. I should like the Minister to look at that.

If you buy a share at a nominal value of £1 it could well be worth £1.50 at the end of five years; that will be the market value then.

(Limerick East): That is right. It is a protection for somebody who has shares valued at £37,500 and would not be required to sell them for £25,000.

That is right.

(Limerick East): What the Minister is proposing works fine there, but on the other side, we have a scheme which encourages people to put their savings into risky ventures, which might be good for the country and for employment, and where the exposure is about £10,500 for a £25,000 investment, any agreement to purchase shares back after five years for more than £10,500 will take the risk out of it, especially the nearer one moves to £25,000. As the section is drafted, an investment bank organising a scheme would be required to pay £25,000 for the shares after five years if the value of the shares was less than £25,000. If that is the case, the Minister is giving a guaranteed return of over 19 per cent to an investor at the highest marginal rate of tax, but I do not think that was his intent when the section was drafted.

The Deputy is right. We will go back and have a look at the drafting. I do not think the section could be interpreted in that way. It certainly was not the intent and my view is that it cannot be interpreted in that way.

(Limerick East): I want to clarify the matters and be specific about it. I am referring to lines 40 to 45 of subsection (2A) of section 7 on page 15 of the Bill which states:

to purchase, or otherwise acquire, any eligible shares for a price which, having regard to the terms of the option or the terms of such arrangement or understanding and the net effect of those terms considered as a whole, is other than the market value of the eligible shares at the time the purchase or acquisition is made....

It seems that the market value of the shares at the time the acquisition is made will be the nominal value of the shares; it cannot be anything else unless they are publicly quoted, and they would not be in business expansion schemes. The Minister seems to be saying, in circumstances where the value of the shares drop, the only kind of guarantee which would be permissible would be one that they would be bought back at par. Of course, if the shares were bought back at par this would give somebody a return of 19 per cent compound interest over five years. It works perfectly the other way: if the value of the shares goes up, the Minister is cutting off the guarantees and protecting the investor who will have to get the full value of his investment after five years, but not in circumstances where the value of the shares decline.

The market value is what can reasonably be got at the getting out point at the end of five years.

(Limerick East): That is not what subsection (2A) says. It says “the market value of the eligible shares at the time of purchase”, and not at the getting out point.

I agree with Deputy Noonan's views, on subsection (2A).

Subsection (2A) deals with buying back the shares after five years, and not at the time of purchase.

Looking at the phraseology of subsection (2A) the Minister is effectively saying that if somebody enters into a certain class of agreement to do a certain thing within the qualifying period, or the "relevant period" as the subsection says, he will not be entitled to any relief in respect of the shares to which the agreement relates. The agreement, which is effectively outlawed, so to speak, is an agreement "to purchase, or otherwise acquire, any eligible shares for a price which, having regard to the terms of the option or the terms of such arrangement or understanding and the net effect of those terms considered as a whole, is other than the market value of the eligible shares at the time the purchase or acquisition is made".

I agree with Deputy Noonan, that if on day one I buy £25,000 worth of shares and hand over a cheque for £25,000 to somebody, that is the market value of the eligible shares at the time if, on the same day, I make an agreement for a put option, a call option or whatever. That seems to me to be the market value on that day in so far as market value is ascertainable. If somebody guarantees to buy back those shares at par at any stage — as I understand it it does not have to be at the end of five years but at any stage — then that operation is not outlawed by the provisions of that section. As Deputy Noonan pointed out, these people may be laughing all the way to the bank because, for a lot of these schemes to work all they are concerned with is guaranteeing a par buy-out at the end of the scheme. Am I correct? The Minister may have been too generous. The whole idea of a guarantee is at variance with the concept of the business expansion scheme. There was supposed to be equity capital; there was supposed to be risk involved; that was why the tax concession was given. If the provision is to be amended to take account of what Deputy Noonan is saying the appropriate thing to do is simply say that any kind of put or call option agreement disqualifies the shares from relief and does not have anything to do with market value or anything else. Rather let people lie with their investment and incur its inherent risk. It seems to me that the whole raison d'etre of the scheme was that people were to take risks.

When Deputy Bruton introduced this scheme he was talking about making entrepreneurs of a whole class of society. This is a wheelchair form of entrepreneuralism if one can actually hand out one's money and guarantee that the shares will be bought back at par value after a certain period. I think Deputy Noonan is right, that the Minister may have created a loophole there.

Deputies should not confuse the issue of the shares on day one with the issue after five years. One must hold one's shares for five years. I might recommend that they go back and read the relevant subsection (2A) (a) (i) (I) which reads:

acquires an option, where the exercise of it, ...

that is the exercise of the option at the end of the five year period:

either under the terms of the option or under the terms of any arrangement or understanding subject to which or otherwise in connection with which the option is acquired, ...

Therefore two operations take place: (1) shares are issued on day one for five years; then (2) the exercise of the option is after the five years. It is not at the start; it is at the end, and one has to hold them for five years. The determinant is the purchase price on the exercise of the option after five years.

I thought it was originally day one.

No, one exercises the option at the end of the five years, the purchase price then.

Section 7, as amended, agreed to.
Amendment No. 30 not moved.
NEW SECTION

I move amendment No. 30a:

In page 17, before section 8, to insert the following new section:

"8.—The following Statutory Instrument is hereby revoked: Income Tax (Employments) Regulations, 1989 (S.I. No. 58 of 1989).".

In section 8 there is a reference to the provisions of Regulation 31A (inserted by the Income Tax (Employments) Regulations, 1989 (S.I. No. 58 of 1989) of the Income Tax (Employments) Regulations 1960. It was rather difficult to figure out what that was all about. Therefore my amendment proposes the insertion of a new section.

In accordance with the budget the Statutory Instrument was issued — Income Tax (Employments) Regulations 1989 — which implemented the intent of the Minister's statement in the course of his budgetary remarks that it was intended to extend the period during which employers could pay over to the Minister, the Government, the Revenue Commissioners, the amounts deducted from their employees from one month to a year. I objected to the proposal in the budget and I am objecting to it now.

The current position is that deductions from employees' wages — the PAYE tax paid by employees, not to their employer but to the State or the Revenue Commissioners, their income tax to the State for the various social services provided by the State, the upkeep of the health service, the educational services, social welfare services, local authority services and so on — are paid over by employers on a monthly basis. Under the regulations the Minister has issued — it is not a free for all — he can decide that an employer can retain amounts deducted from employees by way of PAYE for up to one year. This gives employers a free loan of deductions from employees' wages for a year.

My first objection is to its whole constitutionality aspect. The PAYE system is open to question constitutionally. Luckily for the State it has not been questioned because it would be a disaster for the State if it were found to be unconstitutional. But, on the basis of the property clauses in the Constitution, an employee has no property other than the wage he earns at the end of a week for his labour. However, under the PAYE system he never gets that entitlement to payment for his week's labour into his hand; the deduction is made by the State from his wages before ever he receives them. The whole constitutionality of that exercise is open to question. The man does not get what he earns for his labour at the end of the week. After all, the only thing he has is his labour and the payment he receives therefor.

Having accepted that position for the past 30 odd years the employee is now told that his boss can withhold these deductions from his wages, not the Government, the State, but his boss. That really stands the whole aspect of the constitutional rights of the citizen on its head. What rights has the citizen? Can be refuse to pay his tax over to his employer? Has he the right to say: no, I will not have that deducted from my wages and held by you; I will take it myself and hand it over to the Revenue Commissioners rather than have you hold on to it for 12 months? On the Revenue Commissioners side I am amazed at the introduction of this new regulation. An article appeared in The Irish Times of 28 April 1989 entitled “Massive increase in Revenue's tax write-offs”. It was a report to the effect that the Public Accounts Committee of the Dáil had been told by the Comptroller and Auditor General of the amounts of tax written off. It had risen from £1.7 million in 1985 to £11.5 million in 1986, and to £20.7 million in 1987. Of that £20.7 million the Chairman of the Revenue Commissioners, Mr. Philip Curran said:

Over £20 million of the write-off in 1987 was due to defaulters leaving the jurisdiction; ceasing trading and leaving no assets, or being in liquidation, receivership or bankruptcy.

A sum of £20 million was due as a result of defaulters walking off and leaving the jurisdiction or ceasing trading and leaving assets, an activity open to any company under the company laws here and which occurs frequently by setting up a new company and moving to it the assets of the other company. But you have another company under which you can proceed to trade. We are dealing with a lot of gangsters — I suppose that is the best way to put it — who set up fly-by-night companies. Many people who do not pay over the money deducted from their employees in PAYE and PRSI do not pay their trading debts or whatever and use various activities for avoiding payment.

The Revenue Commissioners said they had instituted a new tier system for pursuing arrears at an early stage. In other words, for larger remitters a special team would be assigned as soon as the computer threw up a slippage problem with payments. The slippage problem used to be detected over a month, two months, three months or four months. Now one, two, three or even four years may elapse before the slippage problem is noticed. A second programme was being devised for the early identification of arrears among smaller remitters. I do not know what that programme was.

As I see it, the Minister is encouraging slippage and creating difficulties for smaller employers by telling them they can hold on to their deductions for a year. If there is a small employer who pays over £1,000 per month or so, that is all right for a month or two but when it comes to the end of six months it would be £6,000 or at the end of the year, £12,000 which would be a very big sum for a smaller trader and for many others who would be paying out £20,000, £50,000 or more and who could thereby be in serious difficulties at the end of the year. Rather than assisting employers this would create difficulties for the many who employ half a dozen, a dozen or two employees. On both counts from the point of view of the employee and from the point of view of the employer I fail to see the reasoning of the Minister in introducing this new regulation. It does not appear in the Bill exactly what he is doing but it appears in this regulation, which was issued by the Minister that he is informing employers that the remittances of PAYE deducted from their employees can exceed a month, or longer intervals, but not more than a year. One can say that one does not have to pay over the deductions until the end of a year. I would ask the Minister to explain the reasoning behind this regulation. He said it was for the purpose of assisting small employers who have difficulties in their accounting procedures or whatever and to simplify matters for them. I do not think that is a sufficient explanation and I would like to hear the Minister give the detailed reasons for this regulation.

I have misgivings about this because part of me — I suppose it is the right of centre element of me — would say that anything that makes it easier from the point of view of the employer and takes away bureaucracy and paperwork and an extra load off the Revenue Commissioners is perfectly sensible. It seems to me that that is a justifiable aim to pursue. I look to the other side of the coin and wonder whether we are getting a proper explanation as to the circumstances in which these new dispensations with prompt accounting will be allowed to employers and small traders. From my own experience with the VAT system — and that is a personal one — it strikes me that many people who are sole practitioners and liable for value-added tax would be, to put it mildly, tempted to use their VAT as working capital if they were given a year's use of it. Inevitably that will carry with it implications in terms of cash flow for the State. Even on the most mathematical basis, if you do not look at it from Deputy Mac Giolla's point of view, that is, workers' PAYE, but from the other point of view and even if you mentally categorise it, which I agree is not strictly right to do, as the employer's money and the employer's pay roll taxes, there is a loss to the State if you annualise what was previously a monthly or bi-monthly payment. The loss to the State is clearly a cash flow loss because interest is notionally lost in these circumstances. By the usual mathematical formula a half of the annual interest rate is lost if you postpone payments to a one-off payment at the end of a year.

I would like the Minister to indicate generally, and not simply in relation to PAYE, what the effect of his proposals to relax the accounting periods for taxation by employers and sole traders is likely to be. How much money does he think will be lost to the Exchequer as a consequence on one front, where people do a flit — as Deputy Mac Giolla said — with the money, where other people become insolvent and where other people simply use the interest on the money for the purpose of their business? There must be a cost to the Exchequer in collecting tax in an inefficient manner. I accept that must be an additional cost but also there is a definite provable loss if you only have to pay once a year as opposed to every two months because there must be some interest payable on the moneys. At present many people who are in default on their VAT are actually charged interest when they are late. Apart from that kind of penalty interest, there is the opportunity cost interest, that they have to either borrow the money and pay interest on it to a bank or, alternatively, that they can, if given the run of the money for a year or whatever, use the interest themselves. The Minister indicated at the time of the budget that he would do this. I did not object then and I have not objected publicly to it since, but there is a very substantial danger that it will significantly increase the level of default. It certainly will affect Exchequer cash flow. I have never seen any figures in an Estimate under either of those headings, no matter what way you look at it.

This clause is there to preserve the preferential status of the Revenue Commissioners as creditors in insolvencies. I do not agree with that at all. It is wrong that the Revenue Commissioners, who have all these draconian powers of collection and penalty to extract money from employers or sole traders or whoever, should, in the event of a company going bust, get their payments out of the wreckage whereas sole traders who have sent reminder after reminder and been down on their knees to these people and have no power to get the money out of them, go without any remedy whatsoever and lose their money.

It is not fair that the State should have this preferential creditor status. It leads to people regarding the State as a kind of bank which will be all right if things go wrong. It leads to a laziness of mind on the part of the Revenue Commissioners that they do not chase up money when it is due. It means injustice for unsecured creditors, such as ordinary trade creditors, who will find themselves out of pocket. Would the Minister address some of those questions in reply? I am genuinely perplexed as to how it came about that a Minister for Finance who claims to be financially strapped for cash could suggest giving up a cash flow benefit of this kind in circumstances which, as Deputy Mac Giolla pointed out, are likely to lead to an increased rate of default.

I have no intention of creating a cash flow loss; it is a cash flow gain that I am looking for.

I would like the Minister to explain that to me again.

To put the matter in perspective, figures from the Revenue Commissioners show that the largest number, or one per cent of cases, contribute 80 per cent of the PAYE revenue. The smallest, 70 per cent, contribute less than one per cent. In relation to small traders and small businesses, I am dealing with a minute part of that 70 per cent which in total contribute less than one per cent. That puts it in perspective, even if one were to lose it all and get nothing, but that is not the position. What is important to realise is that the regulations set out the considerations which the Collector-General may take into account when authorising an employer to pay over his PAYE and PRSI payments on an annual basis. These include his belief that first, the authorisation will not result in a loss of tax; secondly, the employer concerned will meet his obligations under the authorisation; thirdly, the employer has been a registered employer for at least one year; and fourthly, all P.35 returns which establish employees' entitlements to pay related benefits have been received from the employer in time. This is not an absolute right for everybody but an option that the Collector-General has, when looking at the track record of small businesses.

A privilege.

If he sees that they have been bad boys, he just does not give that option to them. It helps to relieve the administrative burden on small business on the one hand, and on the other, it releases management time to go after the big areas of tax which, if any one of them fell behind, would more than wipe out the whole advantage of this proposal to get a straightforward business decision to get more cash flow in rather than cash flow loss.

The question of constitutionality was raised by Deputy Mac Giolla. At the moment PAYE and PRSI payments are held on a monthly or bi-monthly basis. That question has never been raised good, bad or indifferent. With regard to the present matter, the same applies. If it is wrong for a month then it is wrong for two months or 12 months. I do not see the logic of questioning it now if it was not questioned before.

That is a bit of a joke.

I believe that there is no difference. It is a simplistic approach, applying commonsense logic. The trade union movement——

There are not many people who are paid annually, apart from TDs. Most people are paid by the week or by the month.

At the moment the payment is not sent in for a month, or two months if the payment is on a bi-monthly basis.

That is why they would not object to a bi-monthly collection.

Is the Deputy objecting to the PAYE itself or what?

A yearly basis is a different scene.

Is the Deputy interested in cash flow gain to the Exchequer, which would reduce the burden on it, or is he just arguing a very narrow point? It does not add up in cash terms. Would he like me to repeat the figures?

Listen carefully. The figures show that the biggest, one per cent of cases, contribute 80 per cent of the total PAYE revenue.

The smallest, which is 70 per cent, contribute less than one per cent of the total PAYE revenue and of the 70 per cent, what I am taking out in reducing the burden is such a minute part that we would need a calculator to get the percentage——

(Limerick East): How many millions?

——of what Revenue is expected. If you took the worst situation that nobody paid at all——

(Limerick East): How much?

——you would have a cash flow advantage to the Exchequer.

(Limerick East): Of how many millions?

It was a straightforward business decision and I agree totally with the Revenue Commissioners. You release management time to go after the areas of real money; you take away the administrative burden. Small people can get on with their businesses. At any stage the Collector-General has the choice of not giving the option in the first instance, or taking it away at any given stage.

Would the Minister have the actual figures?

There is no point in talking about a company wind-up of £20 million because we are talking about small people with small turnovers. The Deputy likes to talk about £20 million but that has no bearing on the size of the business, or the turnover about which we are talking here.

In relation to Deputy McDowell's question about Revenue preference with which he does not agree, all I am doing here is protecting the status quo.

I know that.

The question of Revenue preference comes up on a big scale with the Companies (No. 2) Bill when it finds its way in here. In Part IX of the Bill the preference will go — I am not pre-empting what the Dáil may or may not do. The Revenue Commissioners will be on the same playing pitch as any other creditor under the protection of the court if they appoint an examiner. We are taking away the administrative burden from small businesses which contribute such a small amount. Even if we got a fraction of the big businesses, it would release a plus cash flow to the Exchequer which is all it is about, getting a better tax collection system and reducing the burden all around.

(Limerick East): Whatever about the Companies (No. 2) Bill, Part IX, the Minister will have to amend the Bankruptcy Bill for the sake of consistency——

Hear, hear.

(Limerick East): ——when that comes around. We cannot have preference in one and not in the other.

That is not finished yet.

(Limerick East): The thinking at the time when the Bankruptcy Bill was gestated and drafted was that Revenue should maintain the preference. On this section I agree with the Minister. The Revenue Commissioners are entitled from time to time to look at the way their people are employed. If there is to be a better administration of Revenue and if greater use is made of what are now depleted staff numbers by reallocating staff into an area where there is likely to be a bigger return of taxation from another area where there is now only a trickle, that makes a lot of sense.

There is a cash flow argument on the other side, that is, the small trader. My doubt is that, with the best will in the world, many small people will get into frightful difficulties. They will no longer have the discipline of regular payments. At the end of 12 months the cash flow will have been fairly good, but they will have spent it. I agree with the Minister that there will be a better cash flow for Revenue, by re-allocating resources within Revenue, but I would be very worried if I were an accountant looking after the interests of the small business person. I would tell him not to opt for this, because it could lead to difficulties.

He does not have to take it. It is not obligatory.

The Minister gave percentage figures, but I would like to hear something in money terms. He claims he will be dealing with about 70 per cent of the people the Revenue Commissioners deal with, but that they bring in only 1 per cent of the revenue or something like that. Is that the point he made?

How much money is that?

For clarification, I said 1 per cent brings in 80 per cent, 70 per cent brings in 1 per cent, but here I am talking about a minute part of the 70 per cent that brings in the 1 per cent. If the Deputy wants it put in even better perspective, in PAYE terms it represents 0.1 per cent.

That is grand. I am not very good at percentages. I liked pounds, shillings and pence in the old days, or even pounds and pence will do me today. How many pounds does the Minister think will be outstanding for a year taking into account the amount that would have been brought in monthly during the same year? Surely somebody has done some calculations on that, and even if it is a minute part of 0.1 of a per cent of something or other, what is the something or other, and how much money are we talking about? Secondly, the argument at the time of the budget was that this was to assist the small traders.

The Minister never mentioned that. He said it was to assist the administration of the Revenue Commission, a totally different story.

That is what I said tonight, two burdens.

At the time of the budget the Minister said it would remove the administrative burden from the small traders who have all the difficulty, etc.

Did I not repeat that tonight?

Now he says it is to take the administrative burden from the Revenue Commissioners. As I understand it, paying income tax from the company's profits is totally different from paying over money deducted from their employees. Money deducted from the employees' wage packet weekly should be available to that company weekly. There is no problem at all. There are all ing it in the bank and transferring it. There is no problems at all. There are all sorts of methods of transferring money like that.

Did the Deputy ever run a small business?

There are no administrative problems whatever. If you are taking the money from the employees, you can send it in weekly or monthly will do. In that case, I do not see where the administrative burden is on a company. There is none whatever.

If you never ran a business——

They still have to deduct it, they still have to make out the pay packets, they still have to do all the work and the money is just there. As far as the Revenue Commissioners are concerned, where is the administrative burden in receiving this money on a monthly basis? You have your small percentage of this 70 per cent. I do not know how many people or how much are involved, but the Minister might be able to tell us. You have this small number of people paying in this money every month, and it is a terrible administrative burden on the Revenue Commissioners. I cannot see where the terrible administrative burden is. We are not talking about these companies paying their taxes on their own profit; we are talking about them paying over the money deducted from their employees. It is just a question of sending the money in. The Minister's only argument is that he will be taking the administrative burden from the Revenue Commissioners and letting a whole stream of people free. How many will he free?

Let us have some figures. How many will he free to go after this great 1 per cent who produce 80 per cent of the revenue? These are the ones we want to get. Why must this handful of people be let free? Why has the Minister cut down on the staff of the Revenue Commissioners? Every member of staff of the Revenue Commissioners more than pays his or her way.

Now we are getting the true reason. Pay £1,000 to get £1.

The Minister is not giving the real reason he is doing this. That is why I am asking him. I would love to know what is at the back of this.

(Limerick East): It is ideological.

I never heard of any difficulty experienced by those who run a regular business paying over the money they deduct from their employees except that they do not want to do it. That is not their problem. Their problem with the Revenue Commissioners is assessing what their profits are and all that hassle and administrative work that entails. That is their administrative problem and that is the administrative problem with the Revenue Commissioners. Are we going to allow them off that as well?

Do not bother them about whether they are making any profit for a year, two years, or five years. What about that? The Revenue Commissioners will waste a great deal of their time focusing on this small number of people who are going to bring in only 1 per cent. I do not know whether 70 per cent of the companies are contributing a total of 1 per cent of revenue to the Revenue Commissioners. Is that their own or their employees' contributions? All these percentages are open to question and I would love to have some table or figures showing exactly what the Minister is talking about.

The last point is in regard to preferential treatment. I did not oppose this section because it gave preferential treatment to the Revenue Commissioners. Deputy McDowell made a very emotional speech about giving these terrible Revenue Commissioners preferential treatment over the poor small traders who are working hard for a few bob to keep their families together, but he never mentioned the banks getting preferential treatment. He does not object to the banks getting preferential treatment over the poor small traders, the Revenue Commissioners or anybody else. That is perfectly all right. Why should the Revenue Commissioners not have preferential treatment? I think they should have preferential treatment over the banks or anybody else and that is why I agree with the section giving preferential treatment.

I am opposing the statutory instrument. This is going to creat hassle on the job for small companies and it will take 12 months — it might take two years — before the employees realise this is happening, but I will try to let as many of them as possible know about it. Money will be deducted weekly from the employees wage packet and they will think it is being paid to Revenue but next year or the year after they will discover it is not. This will create industrial problems in small companies which they do not need because they have enough problems of their own already. When employees discover the money is being held and not paid over, they will be very mad, I assure the Minister. I have not yet heard one good reason for doing this. I have heard two contradictory reasons, one during the budget debate that it will be a great help to the small traders and now that it will be a great help to the Revenue Commissioners.

We still do not have one figure for the amount of money that will be left outstanding for 12 months, the number of people in the Revenue Commission who will be released to go after the big fish, or any such reasoned arguments that we would like to hear. Perhaps the Minister could tell us the amount of money involved, the number of people involved and what is going to happen.

I am convinced now about the practical aspect of what the Minister said. It is wrong to be theoretical about this, but a thought occurs to me. If we are interested in cash flow and the Exchequer, surely, we should consider charging the employer and the sole trader interest for the privilege of hanging on to the money for a year.

It would be a huge advantage to me in my other capacity as a barrister to be able to hang on to VAT for a whole year. I would have no incentive to pay it at more frequent periods. I do not see why I should be left with that advantage. Nobody has knocked down the Minister's door demanding this from him. They have all been trained into the two-monthly discipline and some of them have behaved better than others. If this advantage is to be given to employers and sole traders, I do not see why they should not be charged for that benefit. This is a point for the Minister's consideration. The principle of the whole thing leaves me with one misgiving. A big, important employer will be got at every two months and the Minister for Finance will send his hounds after that employer if he is a week late and interest will be charged. If the employer is not so big and important, the Minister is saying he does not care any more. The bigger and more important the trader becomes, the more savage the treatment he receives.

Small is beautiful.

If the ESB or Dunne's Stores are to be told that if they are a week late they will have to pay interest, I do not see why the other people should not be charged for the privilege they are being given in exchange.

(Limerick East): I agree with the Minister. It is self-evident that one should not spend £100 to go after £1. It is clear from the explanation that this is a section in ease of the Revenue Commissioners, not in ease of small traders. Small traders may get into difficulty. If I may be permitted an aside, the notes of clarification are intensely interesting. It appears that 1 per cent of the big players are contributing 80 per cent of the income and 70 per cent of the small players are contributing 1 per cent of the income. No wonder we are a bit confused. If that is clarification I would hate to be provided with a note which would attempt to muddle us. It reminds me of the arithmetical conundrums we had when we were kids — the flock of geese are flying over the Shannon and the gander below asks the gander above if there are 100 of them there; there would be, he says, if we doubled our number and doubled it again, then halved the number, with you thrown in. The Minister's note of clarification is about as clear as that. I am not surprised that Deputy Mac Giolla came back for more. The Minister has totally confused everybody with his explanation. However, he made the case when he said that it does not make sense to spend £1,000 to go after £1. I accept that.

Deputy Mac Giolla's arguments are totally contradictory. If I did not bring in the regulations there would be no need for his amendment to remove the regulations. He went on to say that he agrees with giving the Revenue Commissioners preferences. What is the point in continuing the argument? That is what I am trying to do. At the same time Deputy Mac Giolla has an amendment to remove the regulations. I cannot get that clear in my mind.

It has nothing to do with preferential treatment.

Do we spend £1,000 to go after £1? Let us not talk about "biggies" getting away. The Government last year introduced self-assessment for the self-employed, as a result of which £70 million more came in during 1988 than was estimated. Later this year self-assessment is being extended to companies. It is all about improving the system and getting in more tax, which will reduce the burden on every taxpayer. If Deputy Mac Giolla cannot understand the problems that arise for a one-man or one-woman business in making out VAT returns every month or every two months when they cannot afford somebody to do it for them, it is quite clear that he has not had this experience. There is a lot of bureaucracy involved for somebody who is not trained in it. This provision provides relief in that regard. The Deputy should ask any small business person who is honestly trying to run his business. Not only will there not be a loss to the Exchequer but there will be a gain in terms of cash flow. That is good business.

We are not talking about companies paying their own taxes and all the administrative problems that go with it. We are talking about paying over other people's taxes. That is precisely the point I am trying to make. Other people think they have paid their tax but at the end of the year they find it has not been paid over. I am not talking about a company's own tax or VAT problems. I am well aware that these are severe problems to small traders. My point relates to the paying over of other people's taxes.

The facility is there for the Collector General to extend it to somebody if he believes he should do so. If he believes there is any possibility of a loss he will not do it. It is not obligatory on the small trader to opt for it. If he wants to continue his way of doing business, he can do so.

Will they be charged?

Do we want to introduce another layer of bureaucracy and start to calculate on a monthly basis how much interest would be due? Let us be sensible.

That is confirming it. They will not be charged.

Amendment, by leave, withdrawn.

I direct the attention of Deputies to the order which requires of us to deal with Part I, Chapter 1, sections 7 to 8, inclusive. Deputy Michael Noonan has an amendment which relates to Chapter 1. It is proposed to take that before 10 o'clock.

Section 8 agreed to.
NEW SECTION.

(Limerick East): I move amendment No. 31:

In page 17, before section 9, but in Chapter I, to insert the following new section:

"9.——Section 2 of the Finance Act, 1969, is hereby amended by the addition after subsection (7) of the following subsections:

`(8) Any individual who is aggrieved by a refusal by the Revenue Commissioners to make a determination under this section may, by notice in writing to that effect given to the Revenue Commissioners 30 days from the date on which such refusal is given him, make an application to have his claim for a determination heard and determined by the Appeal Commissioners.

(9) The Appeal Commissioners shall hear and determine an appeal made to them under subsection (8) as if it were an appeal against an assessment to income tax and all the provisions of the Income Tax Act, 1967 relating to such an appeal (including the provisions relating to the rehearing of an appeal and to the statement of a case for the opinion of the High Court on a point of law) shall apply accordingly with any necessary modifications.'.”.

This is an amendment to section 2 of the Finance Act, 1969. It is to do with the relief from income tax on qualifying work by artists. A claim for exemption from income tax on the profits of the artists' qualifying work can be made only where the individual is determined by the Revenue Commissioners to have produced original and creative work of cultural or artistic merit. The purpose of this amendment is to provide a right of appeal against the Revenue Commissioners' refusal to grant the determination that the claimant's work meets the requirements of the section, that is, that it is original and creative as well as having cultural or artistic merit.

The procedure at the moment is that people who believe they have produced work of cultural or artistic merit apply to the Revenue Commissioners for an exemption from income tax on foot of any profits arising from that particular work. The Revenue Commissioners, on receipt of this preliminary claim, consider the evidence provided and can consult with such person or body or persons as in their opinion may be of assistance to them. The Revenue Commissioners then either grant a determination or refuse it. Where the determination is refused there is no right or appeal. This amendment seeks to grant such a right of appeal to the appeal commissioners with provision for rehearing by a circuit judge and the statement of a case for the opinion of the High Court on a point of law.

I do not think the section is being operated as originally intended in particular cases that have been brought to my attention. It seems to me to be a catch 22 situation. If the Revenue Commissioners find against one, one can appeal to the appeals commissioner and subsequently to the Circuit Court. If the Revenue Commissioners refuse to adjudicate, there is no right of appeal. There are circumstances where if somebody submits a work which he believes is creative or of cultural or artistic merit and the Revenue Commissioners refuse to adjudicate on it there is no right of appeal, whereas if they adjudicate in the negative there is a right of appeal. The purpose of this amendment is to require the Revenue Commissioners to grant a determination. Then if it is in the negative the appeal mechanism is in place.

I proposed this in a different way before, that if somebody was deemed to be refused after a certain time he could appeal. They should be entitled to have the issue determined. The Revenue Commissioners should not be entitled to leave somebody in limbo wondering whether or not they are entitled to a determination. I know the Revenue Commissioners are busy but it would be better if their minds were concentrated on the issue.

(Limerick East): I am not talking about a situation where there is a delay or where because it is not very important work it is not dealt with and other work is taking priority. I am talking about a situation where it is policy not to adjudicate because adjudication in the negative allows an appeal to the appeals commissioners and then to the Circuit Court. I know that there have been decisions in the Circuit Court with which the Revenue Commissioners did not agree and which they considered not to be in accordance with the strict interpretation of the Act. Arising from these decisions it is practice now in certain circumstances not to give the determination. Consequently one cannot appeal. It is the classic catch 22 of the novel where the only way one can get out of the Army on health grounds is to prove one is insane, but one had to be insane to be there in the first place, so one could not get out. This is the same situation. One has an appeal if the Revenue Commissioners decide against one; but if they refuse to adjudicate against one, one cannot appeal. It was not the intention of the Taoiseach when, as Minister for Finance in 1969, he introduced this section. It is a minor enough point. It does not arise very often but it should be corrected.

Listening to the case made by Deputy Noonan it seems he is trying to imply that the Revenue Commissioners set themselves up as an authority on what has or has not artistic merit. From where I sit I do not see that as being the case, although the Deputy talks about certain evidence that he has.

Section 2 of the Finance Act, 1969, recognises the reality of the situation by making specific provisions to enable the Revenue Commissioners to consult with such person or bodies of persons as, in the Commissioners' opinion, may be of assistance to them in dealing with claims for relief under the section. The Commissioners seek advice from these authoritative and reputable sources in the case o† every claim to exemption made under section 2, and the Commissioners follow the advice offered in considering whether a determination in favour of the claimant should be made. Where the Commissioners are unable to make a determination in favour of an individual it is always open to the individual to submit further evidence in support of his or her claim and the Commissioners will have regard to such further information in every case.

If they refuse to adjudicate I do not see any problem about going back again with different information. I do not have a feel for the problems. The Revenue Commissioners consult in every case with the people who should know, who are best qualified to know. That is the position under the Act.

(Limerick East): The difficulty arises in that a claim for exemption from income tax on the profits of artists' qualifying work can be made only where the individual is determined by the Revenue Commissioners to have produced original and creative work of cultural and artistic merit. If they go through the procedure and the Revenue Commissioners determine that it qualifies, it qualifies. If they go through the procedure and it is determined that it does not qualify then there is an appeal mechanism, but in cases where the Revenue Commissioners refuse to give a determination——

Having consulted.

(Limerick East): Having done nothing. If they just allow the situation to hang there, which has been done in certain cases, then the rights of appeal which have been enshrined in the original section 2 become inoperable. That is what I am trying to get at. There should be a right of appeal. I am not trying to take away from the Revenue Commissioners the power to adjudicate when they consult. I am worried about the circumstances where they just do not make the first decision.

They take advice in every single case from persons or bodies qualified in this area. They do not stand aloof and say that what they believe is right. They take all the advice they require, which is what they are enabled to do under the section.

(Limerick East): What is at issue is where they stand aloof either before or after the advice and simply do nothing.

If they fail to make a determination one is not entitled to the relief. If they just sit and do nothing they can effectively frustrate one and prevent one from getting to the Circuit Court because there is nothing against which to appeal. All there is is a failure to determine. I proposed this a year ago in a different form. What Deputy Noonan is now proposing is that one has a right of appeal against a refusal to make a determination just as one has the right to appeal against a negative determination. In other words, there should be some obligation on the Revenue Commissioners to arrive at some determination so that the taxpayer is put in a position such that he can appeal a failure to make a determination just as he can appeal against a determination which is made against him.

I will never have the opportunity of applying anyway because I am not so qualified, but if I make an application to the Revenue Commissioners and they do not make any determination my instinctive response to that would be to put in further evidence and keep applying until they made a determination. Is the Deputy saying that he has evidence to show that the Revenue Commissioners have stood off and made no determination although the applicant had applied once, twice or three times putting forward different information?

(Limerick East): I have.

Maybe I will have a look at it. For the moment we will leave this stand.

(Limerick East): To be precise about it, and I am sure the Minister can get the information if I am precise about it, textbooks have been normally ruled out as not being original and creative or having cultural or artistic merit. In at least one case, or possibly two, an appeal went before a Circuit Court judge and he found in favour of the author of the textbook. Since then when textbooks go to the Revenue Commissioners on these grounds they refuse determinations because they do not want the appeal considered in the Circuit Court and they are frustrating the intent of the section in that area. I am not arguing that textbooks should be in or out; I am arguing that the procedure should be available to people and if the Revenue Commissioners say there is no artistic merit in a textbook the person should have the right to appeal. At present there is no right of appeal against a failure to give a determination and that is the issue.

I take the point the Deputy is making and I will certainly look at it between now and Report Stage. I am not taking away from the competence of the courts. They, too, would have to consult with an outside body as to the artistic value or otherwise of any particular works.

(Limerick East): The provision for appeal to the court is in the section.

I know that. The courts have to consult in the determination. I am sure a judge would not take it on himself to make the determination. He would seek outside advice just as the Revenue Commissioners do. However, I take the point made by the Deputy and I will look at it between now and Report Stage.

Amendment, by leave, withdrawn.
Progress reported; Committee to sit again.
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