Finance Bill, 1990: Committee Stage (Resumed).

Amendments Nos. 70 to 73, inclusive, not moved.

Question proposed: "That section 32 stand part of the Bill."

Mr. Noonan

(Limerick East): Will the Minister explain section 32 to us to allow us to draw our breath and settle into the Committee Stage debate?

Minister for Finance (Mr. A. Reynolds)

Before I deal with this matter I would like to draw the attention of the House to a small typing error in the table to the proposed new section 34, to be inserted by amendment No. 79 in my name. As reference in paragraph (d) of the definition of "qualifying shipping activities" says:

"the subjecting a fish rdquo;

should read

"the subjecting of fish."

Mr. Rabbitte

Is this on the original list?

An Ceann Comhairle

It is on the original list.

Mr. Taylor

Why are we dealing with the matter on section 34 when section 32 has been called?

An Ceann Comhairle

I called section 32 and the Minister, before replying to that section, is seeking to clarify a matter. The Minister will clarify it himself.

Mr. Taylor

Would it not be the time to clarify it when we come to section 34.

An Ceann Comhairle

In respect to the submission of an amendment, it should be corrected at the earliest opportunity.

Mr. A. Reynolds

I am giving the Deputies time to have a look at it.

Mr. O'Dea

I welcome the Minister's initiative in reducing the rate of corporation tax. This must not be seen in isolation. As well as reducing the rate of corporation tax the Minister is phasing out accelerated capital allowances. That means the incentive in the corporation tax system is being moved away from the more capital intensive industries. Of course, the reduction in the rate of corporation tax means that both labour intensive industries and capital intensive industries will benefit equally from the reduction.

Deputy Taylor quoted the maxim that the poor must wait. The poor will be waiting a lot longer unless rates of taxation in business are brought down to levels which will encourage business people, entrepreneurs and investors to go out and invest, to put their money where there mouth is, to set up businesses and create jobs in Ireland. That is what it is all about.

Mr. Rabbitte

I concur with the remarks made by Deputy Taylor on the Order of Business this morning that the time to cope with this legislation is short enough without getting an additional sheaf of amendments — some of which were further rowing back by the Minister — at 9.45 this morning. It is pertinent to record at this stage that more and more the philosophy and measures announced by the Minister on budget day are becoming no more than bargaining counters. Apparently it is now accepted practice that what the Minister announces on budget day will not necessarily be enacted in the Finance Bill, that it is merely an invitation to the various professional lobbyists to seek changes favourable to their particular lobby group. That is what we are looking at in terms of section 32, having spent a good deal of yesterday dealing with the personal taxation area.

Section 84 is a long way off.

Mr. Rabbitte

It is very difficult to separate them. I was about to make the point that very few companies effectively pay 43 per cent at all. Most chartered accountants would laugh at you if you said you were paying tax at 43 per cent. Not even the banks with £400 million profit in a year, which in the Irish context is a significant, handsome profit by any standards, pay it. They avail of the various mechanisms Deputy Taylor referred to in order to minimise their tax liabilities. The section 84 clawback is a very good example of that. Therefore, 43 per cent, 40 per cent, whatever, is not really a matter of great moment, but it shows the way things are going.

For that reason I regret my own amendment, which sought to introduce something like the American ACT system, was ruled out of order. It would have provided an alternative minimum tax irrespective of the allowances, that there would be a level at which if you were making profits you could not fail to pay tax. That idea ought to be taken on board here.

On Second Stage I argued in any event for an effective tax rate of 10 per cent on the manufacturing sector and 20 per cent on the rest. I would be quite happy if that was applied rigidly without availing of all the allowances that are there to minimise it.

For the record, the amendment I sought to introduce related to section 1 of the Corporation Tax Act, 1976, and reads:

In page 39, between lines 11 and 12, to insert the following subsection:

"(3) Section 1 of the Corporation Tax Act, 1976 is hereby amended by the addition of the following subsections:

(Limerick East): Yes. They are at the behest of some particular lobby and we do not know who benefits.

Mr. A. Reynolds

There has not been one word about the requests I received from Opposition Members at the last minute to have a look at this and that provision and to see what I can do with them. There is no appreciation or acknowledgment of that. We have had the old ritual of turning on statements like I should not do this or I should not do that or that the notice given to the House is short. I would not attempt for one moment to say that the way the business of the House is conducted is perfect, or anything like it; it certainly is not, but to cry crocodile tears about this is another matter. I was on the Opposition benches for four years as spokesman on Finance. Deputy Kennedy was Opposition spokesman for four years and we saw between 70 and 100 amendments being produced each year after five minutes' notice. I could go back over the records to prove my point but I am not interested in doing that.

I did not interrupt the Deputy when he was making his contribution.

Mr. A. Reynolds

The Deputy suggested that I introduced alterations since budget day. I did and I do not make any apology for doing so and I shall give the reasons later. However, I should point out that if those changes were not made there would have been a serious impact on jobs and investment. If we are interested in jobs we will have to play by the rules of the game. We should not make cheap, political capital out of matters like this. I do not do anything under pressure; I do it for a good reason and I can defend my actions. The reduction in the standard rate of tax to 40 per cent will be beneficial because in future jobs will come from the service industry, which includes a wide range of projects. This is part of a package that takes away accelerated capital allowances and gets rid of section 84 loans reliefs. Part of that increased yield will be used to reduce corporate tax in an area in which jobs will be provided in future and will be partly applied to the reduction of personal tax. That is the philosophy behind the measure and I do not understand why people cannot see it.

The ending of export sales relief on 1 April this year is a further mechanism to increase the yield from corporate tax in line with international and European trends. This will, as I said, benefit the service industry in which in future jobs will be provided. Most people would go along with the philosophy, thinking and policy behind it. I have dealt with all the matters which have been raised.

Mr. Taylor

Perhaps I was somewhat hasty in suggesting that the Minister was personally manipulating the Finance Bill. I withdraw that suggestion.

Mr. A. Reynolds

Thank you.

Mr. Taylor

At the same time, the Minister made the suggestion that I had not properly studied the effects or implications of the Finance Bill. I spent many long hours researching and preparing a fairly substantial number of amendments to a very complex area of the law — finance and tax legislation — which I had to do without any Civil Service back-up. It is slightly irritating, to say the least, to find that researched and carefully thought out amendments — many of them intended to be helpful and to improve the legislation — are not even discussed in the House.

It is not appropriate now to discuss the new block of amendments. Some Members have been debating them but I will make certain submissions when we come to them as to whether they are properly before the House. Let us look at corporation tax and its relationship to section 84 loans. We are not abolishing capital allowances, let us not get carried away in this regard. Capital allowances will still be there and corporations will still be getting their full write-offs. I know that the tax will not be accelerated, it will be spread over a period of three, five or seven years depending on the circumstances, but they will still get the full allowances. This is not a major giveaway; to hear some of the talk in the House one would think capital allowances were being abolished.

Mr. O'Dea

Does Deputy Taylor think that they should be abolished?

Mr. Taylor

All we are doing — and it is welcome as far as it goes — is abolishing the accelerated element and ensuring that the capital value of the investment of these items will be written off over a number of years. However, they will still get the full value and allowances.

The impact of section 84 loans is being reduced somewhat although the reduction is not as great as we were led to believe in the budget. It is welcome but the section 84 loan concept was a scam in the first place. It was an unacceptable tax avoidance device and that is why the Minister is getting rid of it on a gradual basis. We recognise that it should not have been there in the first place and that is why we are getting rid of it, not because it is a major imposition on the corporate sector. They have made millions out of it over the years while people have been struggling on PAYE and social welfare payments. We are just making a start at getting rid of something which should not have been there in the first place. I am not detracting from the Minister's actions but, relatively speaking, the tax take from the corporate sector, even at 43 per cent, is still unsatisfactory. There certainly is no basis for reducing it to 40 per cent; if that was the case corporations and companies would be laughing their heads off and their profits would escalate.

I am not impressed by all this talk about jobs. As the Minister said yesterday, if the money and the profits are there companies should pay the relevant tax. If companies see that there is business to be done and money to be made the tax rate will not deter them. If they see that they can make £1 million on a certain project they will certainly not step back from it because of the tax rate. The corporations have done very well in this country compared to the PAYE sector who carried the can all along. This is a regressive measure although I support what the Minister is doing in relation to section 84 loans. I also support the reduction of accelerated capital allowances. However, this section dealing with the reduction from 43 per cent to 40 per cent is not acceptable and we oppose it.

Mr. O'Dea

I thought Deputy Taylor intended to shift his ground but he did not. As somebody who, like Deputy Taylor, also studied the legislation without the benefit of advisers, I share his sense of frustration that certain sections have not been dealt with. This is not the first occasion that that has happened; it happened every year since I became a Deputy and I am sure it happened before that. The Minister's reference to accelerated capital allowances in section 84 arises from the fact that there is a clear indication in Deputy Taylor's initial remarks — and what he said just now — that the Bill represents a bonanza for the corporate sector. Clearly, that is not the case. The Minister made the point — and I agree with him — that the yield from the corporate sector will be significantly increased as a result of the provisions in this Bill.

I cannot understand Deputy Taylor's reference to capital allowances. We should not imagine it is some sort of big deal to abolish accelerated capital allowances. The abolition of accelerated capital allowances means that, in each year, the write-off will be less because the asset will be written off over a longer period. I thought I detected an implication in Deputy Taylor's statement that the Minister should have gone further and abolished capital allowances altogether.

Mr. Taylor

I did not say that.

Mr. O'Dea

Of course, that is a farcical argument. I am glad that Deputy Taylor did not mean to imply that because one can tax people only on their profit. People have to purchase capital equipment to put into their businesses to earn profits in the first place. If one lengthens the period over which one can write off that investment one increases the yield from the corporate sector; that is simple arithmetic.

I agree with Deputy Taylor that the provisions of section 84 were used as a tax avoidance device. Because the loophole is being closed by the Minister the yield from the corporate tax sector will increase. What the Minister is doing — and I agree with his strategy — is shifting the incentive element within the corporation tax system away from more capital-intensive industry to labour-intensive industry where we want to create jobs and encourage investment.

An Leas-Cheann Comhairle

Could we hope to move away from section 32?

Mr. Garland

I will be very brief. I should like to congratulate the Minister on closing the loophole on the manufacturing side. This has been a scam of scandalous proportions. It should have been closed long ago but at least a start has been made. I should also say I approve of his——

An Leas-Cheann Comhairle

Deputy Garland, we now have to apply ourselves more rigorously to what is required of us on Committee Stage. Therefore, may I ask you to address section 32.

Mr. Garland

I am coming to that and will not detain the House. The abolition of accelerated capital allowances is a move in the right direction. As Deputy O'Dea said, hopefully it will result in more labour-intensive, less capital-intensive industries.

I should like to see the section 84 relief abolished. I had an amendment tabled to that effect which was disallowed. However, I oppose the reduction in corporation profits tax from 43 per cent to 40 per cent. I contend there is no need to do so.

Mr. Rabbitte

I want to check my ground on the debate that has taken place on accelerated capital allowances. Deputy Taylor has already drawn the distinction between the accelerated element in the capital allowances remaining. The accelerated capital allowances themselves are not abolished in respect of urban renewal areas, the Custom House Docks site, the Shannon Free Airport development, or whatever; they remain in respect of those sites; is that not correct?

Mr. A. Reynolds

Yes.

An Leas-Cheann Comhairle

Might I suggest to the House that we move away from section 32; indeed, if I might presume to say — including the Chair — move away from the uncharacteristic mood that has surrounded the debate on section 32.

Mr. Taylor

We have to vote on it before moving away from it.

Question put.

The Committee divided: Tá, 116; Níl, 18.

Tá

Ahearn, Therese.
Ahern, Bertie.
Ahern, Michael.
Aylward, Liam.
Barrett, Michael.
Barry, Peter.
Belton, Louis J.
Boylan, Andrew.
Bradford, Paul.
Brady, Gerard.
Brady, Vincent.
Brennan, Mattie.
Brennan, Séamus.
Briscoe, Ben.
Browne, John (Carlow-Kilkenny).
Browne, John (Wexford).
Bruton, John.
Bruton, Richard.
Burke, Raphael P.
Calleary, Seán.
Callely, Ivor.
Carey, Donal.
Clohessy, Peadar.
Finucane, Michael.
Fitzgerald, Liam Joseph.
Fitzpatrick, Dermot.
Flanagan, Charles.
Flood, Chris.
Flynn, Pádraig.
Gallagher, Pat the Cope.
Harney, Mary.
Haughey, Charles J.
Higgins, Jim.
Hillery, Brian.
Hilliard, Colm.
Hogan, Philip.
Hyland, Liam.
Jacob, Joe.
Kelly, Laurence.
Kenneally, Brendan.
Kenny, Enda.
Kirk, Séamus.
Kitt, Michael P.
Kitt, Tom.
Lawlor, Liam.
Lenihan, Brian.
Leonard, Jimmy.
Leyden, Terry.
Lowry, Michael.
Lyons, Denis.
McCreevy, Charlie.
McDaid, Jim.
McEllistrim, Tom.
McGahon, Brendan.
McGinley, Dinny.
McGrath, Paul.
Mitchell, Gay.
Mitchell, Jim.
Molloy, Robert.
Connaughton, Paul.
Connor, John.
Cosgrave, Michael Joe.
Coughlan, Mary Theresa.
Cowen, Brian.
Creed, Michael.
Crowley, Frank.
Cullimore, Séamus.
Currie, Austin.
Daly, Brendan.
D'Arcy, Michael.
Davern, Noel.
Deasy, Austin.
Deenihan, Jimmy.
Dempsey, Noel.
Dennehy, John.
de Valera, Síle.
Doyle, Joe.
Durkan, Bernard.
Ellis, John.
Fahey, Jackie.
Farrelly, John V.
Fennell, Nuala.
Morley, P. J.
Nealon, Ted.
Nolan, M. J.
Noonan, Michael. (Limerick East).
Noonan, Michael J. (Limerick West).
O'Brien, Fergus.
O'Connell, John.
O'Dea, Willie.
O'Donoghue, John.
O'Keeffe, Jim.
O'Keeffe, Ned.
O'Kennedy, Michael.
O'Leary, John.
O'Rourke, Mary.
O'Toole, Martin Joe.
Owen, Nora.
Power, Seán.
Quill, Máirín.
Reynolds, Albert.
Reynolds, Gerry.
Roche, Dick.
Shatter, Alan.
Sheehan, Patrick J.
Smith, Michael.
Stafford, John.
Taylor-Quinn, Madeleine.
Timmins, Godfrey.
Tunney, Jim.
Wallace, Dan.
Wallace, Mary.
Wilson, John P.
Woods, Michael.
Wyse, Pearse.
Yates, Ivan.

Níl

Byrne, Eric.
Ferris, Michael.
Garland, Roger.
Gilmore, Eamon.
Higgins, Michael D.
Howlin, Brendan.
Kavanagh, Liam.
Kemmy, Jim.
McCartan, Pat.
Mac Giolla, Tomás.
Moynihan, Michael.
O'Shea, Brian.
O'Sullivan, Gerry.
Quinn, Ruairí.
Rabbitte, Pat.
Ryan, Seán.
Stagg, Emmet.
Taylor, Mervyn.

Tellers: Tá, Deputies V. Brady and Clohessy; Níl, Deputies Howlin and Ferris.

Question declared carried.

NEW SECTIONS.

Mr. Taylor

On a point of order, I submit, in all seriousness, that amendment No. 73a and all the other amendments on this green sheet headed Additional Amendments are out of order because the time for filing amendments to the Finance Bill closed on Monday night; I was in the Bill's Office with an additional amendment at about 9 o'clock on Monday night and they refused to accept it saying it was too late and that the time for amendments to the Finance Bill had passed.

I move amendment No. 73b:

In page 39, before section 33, to insert the following new section:

"34.—As respects expenditure incurred on or after the 1st day of April, 1990, the Finance (Taxation of Profits of Certain Mines) Act, 1974, is hereby amended—

(a) by the deletion of the proviso to subsection (1) of section 2,

(b) by the deletion, in subsection (2) of section 3, of "but was incurred within a period of ten years prior to the date on which he commences to carry on the said trade",

(c) by the insertion in subsection (1) of section 4 of "or section 2 as applied by section 7A," after "section 2 or 3,", and

(d) by the insertion after section 7 of the following section:

"7A.—(1) For the purposes of this section—

"exploration company" means a company, the business of which for the time being consists primarily of exploring for scheduled minerals;

"exploring for scheduled minerals" means searching in the State for deposits of scheduled minerals or testing such deposits or winning access thereto, and includes the systematic searching for areas containing scheduled minerals and searching by drilling or other means for scheduled minerals within those areas but does not include operations which are operations in the course of developing or working a qualifying mine.

(2) Subject to subsections (3) to (5), for as long as a company—

(a) is an exploration company,

(b) does not carry on a trade of working a qualifying mine, and

(c) incurs capital expenditure (including such expenditure incurred on the provision of plant and machinery) for the purposes of exploring for scheduled minerals,

it shall be deemed for the purposes of sections 2, 3 (4), 6 and 7 and the other provisions of the Tax Acts, except the other provisions of this Act—

(i) to be carrying on a trade of working a qualifying mine,

(ii) to come within the charge to corporation tax in respect of that trade when it first incurs the said capital expenditure, and

(iii) to incur for the purposes of that trade the said expenditure incurred on the provision of plant and machinery,

so that all allowances or charges which fall to be made for an accounting period by virtue of this subsection and section 2, 6 or 7 shall be given effect by treating the amount of any allowance as a trading expense of that trade in the period and by treating the amount on which any such charge is to be made as a trading receipt of that trade in the period.

(3) Where, by virtue of subsection (2), a company is to be treated as incurring a loss in a trade in an accounting period, the company—

(a) shall be entitled to relief in respect of the loss under subsections (1) to (3) of section 16, subsection (1) and (2) of section 18 and section 25 of the Corporation Tax Act, 1976, as if for the term "trading income from the trade" or "trading income", wherever occurring in sections 16 and 18, there were substituted "profits (of whatever description)", and

(b) subject to subsection (4) (b) (ii), shall not otherwise be entitled to relief in respect of the loss or to surrender relief under subsection (1) of section 116 of the Corporation Tax Act, 1976, in respect of the loss.

(4) (a) Any asset representing exploration expenditure, in respect of which an allowance or deduction has been made, by virtue of subsection (2) and section 2, to a company shall, for the purposes of section 245 (11) of the Income Tax Act, 1967, be treated as an asset representing capital expenditure incurred in connection with the mine which the company is deemed to be working by virtue of subsection (2), and the company shall not cease to be deemed to be carrying on the trade of working that mine, so as to be within the charge to corporation tax in respect of that trade, before any sale of such an asset in the event of such a sale.

(b) Where a company begins at any time (in this paragraph referred to as the relevant time) to carry on a trade of working a qualifying mine and, accordingly, ceases to be deemed to carry on such a trade, it shall be treated as carrying on the same trade before and after that time for the purposes of—

(i) any allowance, charge or trade receipt treated as arising by reference to any capital expenditure incurred before the relevant time, and

(ii) relief, other than by virtue of subsection (3), under section 16 (1), of the Corporation Tax Act, 1976, for any losses arising before the relevant time, in so far as relief has not already been given for those losses by virtue of this section:

Provided that the provisions of this paragraph shall not apply where there is a change in the ownership of the company within a period of—

(I) twelve months ending at the relevant time, or

(II) twenty-four months beginning at the relevant time.

(c) The provisions of the Fifth Schedule to the Finance Act, 1973, other than paragraphs 8 and 10 of Part I thereof, shall have effect for the purposes of supplementing this subsection as if the references therein to section 39 of that Act were references to this subsection.

(5) (a) Notwithstanding any other provision of the Tax Acts, if an allowance or deduction has been given by virtue of this section in respect of any expenditure, then no other allowance or deduction shall be given by virtue of any provision of the Tax Acts, including this section, in respect of that expenditure.

(b) Paragraph (b) of subsection (1) of section 35 of the Finance Act, 1986, shall apply to a company for as long as it is deemed by virtue of subsection (2) to be carrying on a trade of working a qualifying mine, as if "who is not a company within the charge to corporation tax in respect of the payment" were deleted from that paragraph.', and the said subsection (2) of section 3 and subsection (1) of section 4 (other than the proviso), as so amended, are set out in the Table to this section.

TABLE

(2) Where a person who commences to carry on a trade of working a qualifying mine after the 6th day of April, 1974, incurred exploration expenditure on or after the 6th day of April, 1967, and that expenditure was not incurred in connection with the said qualifying mine, then in taxing the said trade for the chargeable period in which he commenced to carry on the said trade, there shall be made an allowance of an amount equal to the amount of that expenditure.

(1) Where exploration expenditure, in respect of which an allowance may be claimed by virtue of section 2 or 3, or section 2 as applied by section 7A, is or has been incurred by a body corporate (hereinafter in this section referred to as the exploration company) and—

(a) another body corporate is, or is deemed to be, a wholly-owned subsidiary of the exploration company, or

(b) the exploration company is, or is deemed to be, a wholly-owned subsidiary of another body corporate,

the expenditure or so much of it as the exploration company specifies—

(i) in the case referred to in paragraph (a) may, at the election of the exploration company, be deemed to have been incurred by such other body corporate (being a body corporate which is, or is deemed to be, a wholly-owned subsidiary of the exploration company) as the exploration company specifies,

(ii) in the case referred to in paragraph (b) may, at the election of the exploration company, be deemed to have been incurred by the body corporate (hereinafter referred to as the parent body) of which the exploration company was, at the time the expenditure was incurred, a wholly-owned subsidiary or by such other body corporate (being a body corporate which is, or is deemed to be, a wholly-owned subsidiary of the parent body) as the exploration company specifies,

and in a case where the said expenditure was incurred on a date prior to the incorporation of the body corporate so specified, the provisions of this Act shall apply, in relation to the granting of any allowance in respect of such expenditure, as if the said body corporate had been in existence at the time the expenditure was incurred and had incurred the expenditure at that time:".

This amendment gives effect to the Government decision to encourage exploration activity by: (1) rendering exploration expenditure of prospecting companies deductible from any income or gains of such companies; and (2) abolishing the ten-year time limit on set-off of abortive exploration expenditure. No repayment of DIRT will be made to exploration companies. To qualify for relief the business of a company will have to consist primarily of exploring for scheduled minerals in the State.

The minerals exploration industry is in a healthy condition at present — a number of prospects with possible development potential have recently been identified.

A welcome feature of this upsurge in activity has been the appearance of a number of small new Irish exploration companies. These have helped boost the native side of the industry by providing work for Irish geologists and those Irish laboratories and drilling companies which service the industry. The mining industry currently gives direct employment to about 1,500 people, and this rises to about 3,000 if indirect employment is taken into account.

Under existing law because exploration companies are not carrying on a trade for tax purposes, they get no relief for exploration expenditure against income arising on the investment of the funds financing their exploration. Exploration companies are essentially involved in expenditure and it is inappropriate to consider the income of such companies in isolation. This amendment will allow the set-off for tax purposes of the exploration expenditure of such companies against their income.

It also abolishes the ten-year time limit on set-off of abortive expenditure. Whether or not exploration expenditure yields a viable mineral deposit, it is a real expense of such companies and should not be eventually ignored if exploration companies are prepared to take a long view and persist in their exploration.

I am satisfied that these changes are justified. I am confident that they will reinforce current interest in exploration leading to increased employment in that activity and ultimately further employment and revenue from the development and working of new ore bodies.

The provision will apply to small indigenous Irish companies. Deputy Taylor and I know from our membership of the Public Accounts Committee that, in a case where there were major lead and zinc ore finds in this country, the companies proved very adroit at writing off their expenses to the extent that they virtually made no return to the Exchequer over a period of 17 or 18 years.

May I now refer to that part of the amendment which reads:

(2) subject to subsections (3) to (5) ...

Some of this is very complex. Subsection (4) (c) states: "The provisions of the Fifth Schedule to the Finance Act, 1973, other than paragraphs 8 and 10 of Part I thereof, shall have effect for the purposes of supplementing this subsection as if the references therein to section 39 of that Act were references to this subsection". Could the Minister tell me what that means? I would have researched it myself if I had the time.

Mr. A. Reynolds

We are including the share ownership provisions of an earlier Act rather than incorporating a new section to do the same job. It is anti-avoidance.

Amendment agreed to

Acting Chairman (Mr. Doyle)

Amendments Nos. 73c and 73f form a composite proposal and amendment No. 90 is an alternative. Therefore, I suggest that we discuss amendments Nos. 73c, 73f and 90 together, by agreement. Is that satisfactory? Agreed.

Mr. A. Reynolds

I move amendment No. 73c:

In page 39, before section 33, to insert the following new section:

"35.—Section 38 (as amended by section 22 of the Finance Act, 1989) of the Finance Act, 1980, is hereby amended by the substitution for the definition of "relevant accounting period" of the following definition:

"relevant accounting period" means an accounting period or part of an accounting period of a company falling within the period from——

(a) where section 39 (1CC) as inserted by section 45 of the Finance Act, 1984, applies, the 13th day of April, 1984,

(b) where section 39 (1CC) as so inserted and as amended by section 33 of the Finance Act, 1990, applies, the 1st day of January, 1988,

(c) where section 39 (1CC) as so inserted and as amended by section 22 of the Finance Act, 1989, applies, the 6th day of April, 1989, or

(d) in any other case, the 1st day of January, 1981,

to the 31st day of December, 2000;.".

I have already explained at length in the course of Second Stage the approach which has been adopted in narrowing the definition of manufacturing in this section. I have assured the House that the vast bulk of activities which now qualify for the 10 per cent rate for manufacturing will not be affected. Action had to be taken, however, to confine the 10 per cent rate to the activities for which it was intended.

In view of the representations and discussions which have taken place since the Bill was published, I have now decided to introduce a number of drafting amendments to the section. These give greater clarity without undermining the objectives of the section. The amendments I have put forward fall into four main groups: Firstly, I am amending the section so as to extend the 10 per cent rate to data-processing and software development projects which are grant assisted by SFADCo and Údarás na Gaeltachta. This removes an anomaly vis-à-vis similar IDA grant-assisted companies who already have the 10 per cent rate. I note that Deputy Noonan had also put down an amendment to this effect; secondly, there are a number of activities which are specifically mentioned in the section as qualifying for the 10 per cent rate. They have, in fact, always had that rate. The listing is done for technical drafting reasons so as to avoid any doubt about their status in the new situation and does not prejudice the position of the generality of manufacturing activities which may qualify for the 10 per cent rate. I am extending the list so as to include fish processing, certain computer equipment activities and to clarify the coverage of film-making and of aircraft repair and maintenance, two areas which in more recent times have developed fairly extensively and are continuing to develop; thirdly, there is a group of amendments clarifying the new provisions which exclude certain activities from the 10 per cent rate. The amendments make clear the intention that, for an activity to be excluded, it must primarily fall into one of the five excluded categories at (5) (a) (i) to (v). The amendments also tighten up the wording of the first category dealing with products, produce and material acquired in bulk for sale or distribution, and remove the industrial buildings clause which had caused considerable uncertainities for certain genuine manufacturing operations and was not, in any event, a key clause in the section; fourthly, the transitional arrangements for companies which may lose the 10 per cent rate are extended to cover any section 84 loans and leasing arrangements at present enjoyed by those companies. Finally, there is an amendment extending the 10 per cent rate for manufacturing to the year 2010 in accordance with the announcement which I made on Second Stage.

Mr. Noonan

(Limerick East): These sections which the Minister is now amending have aroused a lot of interest. I received more representations on this section than on any other sections of the Bill. Great uncertainty has been created by the Minister's budgetary announcement and subsequently by the sections of the Finance Bill which seek to confine the 10 per cent rate. It is fairly clear that activities which would involve dividing, cutting, purifying, drying, mixing, sorting, packaging, branding, testing or applying any other similar process to any product, produce or material that is acquired in bulk to prepare the goods for sale or distribution, or any combination of such processes, are ruled out in general terms. When it comes down to the specifics, there is great uncertainty felt by people in different activities in that they do not know whether they are included or not.

The assurances given by the Minister, both in his introduction and his reply to Second Stage, do not match the layman's interpretation of the sections. The sections are not very complex. The meaning jumps from the page. You do not need to be a tax expert to realise where the cuts are being made, or at least that is how it appears. Yet the Minister's assurances would suggest that the effect is much narrower than the normal interpretation of the sections by the ordinary reader.

One of the other difficulties is that the Minister approaches this matter in two ways. He makes the exclusion in general terms but clarifies the inclusions in very specific terms. He says this is for technical reasons but, of course, that is not the case. We know what hinges on the maintenance of aircraft and so on. Aer Lingus have a project for Dublin Airport and Shannon Aerospace have just announced one for Shannon. Not alone is it not technical but we can name the principals involved in these companies. When it comes to meat processing, the same applies. This is not being included for technical reasons.

Mr. A. Reynolds

It is for technical reasons.

Mr. Noonan

(Limerick East): They qualify for the 10 per cent already. It appears that one group of people involved in a set of activities are having their position put beyond doubt by law while another group are still in an area of doubt because the exclusions are set out in a general rather than in a specific way. We know quite clearly that if one is involved in maintenance of aircraft or other ancillary activity, in meat processing, or in film making, especially on the creative and the non-advertising side, one will qualify for the 10 per cent. As a result of the Minister's statement, if one is involved in fish processing one will also qualify for the 10 per cent. We know that light assembly work in the computer industry, such as repair of computers or other repair process, is specifically included within the remit of the 10 per cent, as a result of the Minister's amendment this morning, even though there was a serious doubt about any repair activity. The general sections excluded all repair activity but now the repair of computer systems is included again.

What about the whole area of processing? We will start with the breaking down of bulk. Since the sections where the specific inclusions are made are clearly related to certain companies which we could name, we will have to go very close to naming companies. Would the Minister consider the taking of water out of the ground and putting it into bottles as the breaking down of bulk?

Would branding and marketing of that bulk in smaller quantities be included? That seems to be a normal interpretation of the activity? If that is so the whole bottling water business which now enjoys the 10 per cent regime will go back up to 40 per cent.

What is the position in relation to grain drying? There is a fairly strong lobby from the cereal growers. It seems to me that grain drying and similar type activities will be ruled out. What about vegetable processing? What happens in the case of a company that has a contract with farmers to produce peas, asparagus or cauliflower? Obviously, at the farming end those products have to be grown, produced and saved. When they are supplied to the factory they have to be graded and sorted, foreign bodies have to be taken out, pebbles, bits of earth etc. They have to be washed and, perhaps, frozen or dried. Finally they are broken down from the bulk product, packaged and sold. It appears to me that that activity is excluded for the purposes of the 10 per cent under the Minister's definitions. It is very hard to justify or to explain on grounds of equity as between sections why one particular activity is included and another excluded.

What is the situation regarding milk production? One of the court cases which expanded the definition of the 10 per cent was the Strand Dairies case. The finding was that pasteurising and bottling milk would be a 10 per cent activity. I understand from the definitions now that the pasteurising and the bottling of milk is excluded and will be rated at 40 per cent on profits in the future. On the other hand it is also correct to say that the co-ops are free from tax. Will we now have a situation where a company which is instituted as a plc — again we can name names — Food Industries or Kerry, Kerry; if they are a plc they are excluded, if they are a co-op, notionally they will not receive the 10 per cent any longer, they will get the 40 per cent rate, but since they do not pay tax in any event it is irrelevant. What will happen to the people supplying the liquid milk market in Dublin? Will it now be the case that if a dairy delivering milk to the supermarkets and shops in Dublin is organised as a plc they will have to pay 40 per cent tax, but that if they are organised as a co-op they will have to pay no tax? There is no clarity on the scope of these sections. I could not say where the line will ultimately be drawn. There seems to be no good reason for one particular activity being included and another excluded.

The processing of fish was included this morning as a 10 per cent activity. Meat is also a 10 per cent activity. What happens if one processes peas or beans or if one is involved in any other kind of food process? Where will the line be drawn?

Regarding sand and gravel what will happen to the fellow we know in every parish in the country who extracts gravel and turns it into readymix concrete or concrete blocks? Will he be involved in a 10 per cent activity from now on, or is he simply breaking down bulk into more saleable commodities? Is adding water and cement in that context regarded as a manufacturing process?

In relation to the sawmilling industry, if one brings trees from the wood in trunk form, runs them through a circular saw and sells the wood in rough planks or in more refined planks this is only breaking down bulk, but breaking down bulk and putting it into more marketable commodities is now excluded. I am extremely unhappy about this section, not with the intent of the Minister. We know the background, that this was brought in as an incentive to manufacturing industry. We know it was extended by court decisions and by decisions of the Revenue Commissioners based on previous decisions of the courts. It has gone further than the policy intent of the Government who introduced it in the first place or the policy intent of subsequent Governments. It creates a major problem now. My difficulty is not with the principle of what the Minister is doing but with the practical effect of what he is doing. I could not, with any degree of confidence, tell a business acquaintance in all that area of breaking down of bulk and food processing whether he is included or excluded.

Mr. A. Reynolds

The Revenue will tell him.

Mr. Noonan

(Limerick East): The Revenue will tell him after we put the Bill through the House and turn it into an Act blindfolded.

Mr. O'Dea

There is an appeal procedure.

Mr. Noonan

(Limerick East): I know there is an appeal procedure. The intent of the Minister and his assurances on the record of the House have no weight when it comes to an evaluation by the Revenue Commissioners. They will look only at the text of the Bill. The assurances given by the Minister do not match the normal man's interpretation of the Bill. I do not know where it will go.

(Limerick East): So there are various forms of blending.

A Deputy

Be careful so far as the mad cow disease is concerned.

Mr. A. Reynolds

That is no help for the customers.

Mr. Noonan

(Limerick East): Deputy Barry who has been involved in the tea blending business for a long time assured me that tea blending was always considered to be a 10 per cent activity and that the benefit of the 10 per cent manufacturing relief did not derive from either court cases or interpretations by the Revenue Commissioners based on court cases.

What about the blending of whiskey? There is a theory coming from primary school geography books that distillers get tonnes of barely, that they are involved from the primary production of alcohol to the production of the bottle of Bush-mills or Paddy or Powers. Most of the time they are buying in bulk alcohol. They are not producing alcohol. Effectively what they are doing is blending. Will all the activities of Irish Distillers be ruled out? There is no clarity about this.

The Minister is very specific when he is putting beyond doubt what is to be included and that is fair enough but, in the exclusions, he makes no attempt to define "manufacturing". His advice from the Revenue Commissioners and his officials was to avoid that like the plague——

Mr. A. Reynolds

(Limerick East): Therefore, the other matter is left in the air. Yesterday, we had a good debate on different themes of taxation. They were hanging on the first amendment to the Bill but, effectively, we debated personal taxation fully. The Minister made a major contribution to that debate and provided a lot of new information, particularly about the difficulties of introducing tax credits and so on. However, a number of Deputies, including myself, pointed out that finally this all came down to choices. If we want to take low paid workers out of the tax net we must ask ourselves where we will get the money to do so. If we want to give extra benefit to farmers we must ask ourselves where will we get the money. If we want to bring down corporate taxation, and that means a loss to the Exchequer, where will we get the money? Where will we get the money to transfer wealth either between one set of taxpayers and another or from those who are well off to those who are poor? Where do we get the resources to keep the State running? Where will we get the money for our health boards, the education system and so on that cost so much?

We are all tricking around the margins of where we will get the money but, the corporate side pay little enough if one is to go on the evidence produced by the Minister and the speeches of Members yesterday. The statistics produced by the Department of Finance indicate that 88.5 per cent of everything is paid for by the PAYE sector. Now, in an unconsidered way outside the context of the budget, and the publication of the Finance Bill, a huge area of potential revenue is preempted right up to the first decade of the next century with not so much as a debate on the issue.

The amendment was produced last night and manufacturing industry, as redefined by the Minister in the Bill, will pay tax at a maximum of 10 per cent until 2010. That will be on the Statute Book and, more than that, every contract signed by the agencies, such as the IDA, SFADCo and Údarás, from now on will include that condition. There will be a contractual position between the State, the IDA as its agent, and any concern setting up a plant in the country between now and 2010. All Members, and those elected in the next six or seven elections, will have one source of possible revenue excluded.

That maybe the right thing to do. The 10 per cent policy worked fairly well at the end of the seventies and into the eighties. There is a fair level of interest in the pipeline and it is a good idea to have tax-driven industrial policy rather than grant-driven industrial policy. However, I object to the casual manner in which such an important decision was made. We have had a few moments this morning to debate a package which, once it leaves the House, will run quickly into a myriad of contractual arrangements between investors and the agencies. It will be out of our hands.

There has been another example of making choices when we should ask where the priority should lie. A group has been appointed to look into the reform of local government but the one thing they cannot do is consider how we should finance local authorities. There has been a lot of talk about making choices but how can one make choices if the areas that could finance the choices are precluded, in this case, precluded for the next 20 years?

Mr. A. Reynolds

The Deputy should have debated that issue on Second Stage. The Minister for Industry and Commerce made an extensive statement on Second Stage.

Mr. Noonan

(Limerick East): The announcement was contained in the middle of the Minister's press statement but it was not in his budget speech or in the Finance Bill. The Minister has a fairly good record as Minister for Finance but he should not defend the indefensible.

Mr. A. Reynolds

I am only making a statement.

Mr. Noonan

(Limerick East): The Minister will spoil his good image by trying to defend this process because it is not the way in which to legislate for important parts of industrial policy. I should like the Minister to address the specific question of exemptions because the Bill will shortly be guillotined and we will not be any the wiser. Constituents will telephone Members asking if their food plant or other industry will attract a rate of 10 per cent or 40 per cent and they will have to tell them that the Minister said they will be all right but that, as the Bill has been passed, only the Revenue Commissioners can decide. We should have an enabling section which would permit the Revenue Commissioners to make up their minds on a case-by-case basis because it would be as precise as what is before us at present. It is extremely disturbing and we will return to it on Report Stage.

Mr. Taylor

If Deputy Noonan thinks that the Minister will be able to enlighten us in this regard——

Mr. Noonan

(Limerick East): He is making the proposal.

Mr. Taylor

Deputy Noonan has got it wrong because it is quite clear that this is a licence for litigation. This whole hotchpotch in the 10 per cent area will be a free-for-all in litigation and I hazard a guess that the volume of litigation on this issue up to now will be nothing compared to what it will be in future. Constitutional questions will arise as to why one facility is included while another, with basic similarities, is not.

I have grave reservations about the 10 per cent. I agree with a great deal of what Deputy Noonan said, but I am doubtful about his remark that the 10 per cent tax has done wonders. Has it? Our employment record over the years has not been very good and it is not good at present. Unemployment is at an incredibly high rate and the same applies to emigration. Neither of those phenomena is new: going back to the foundation of the State our unemployment rate has been appallingly high. After all the 10 per cent manipulation, all the inducements and the employment it is supposed to provide, Ireland is at the top of the unemployment league in the EC. Where is the great success? What has it done for us? It is not providing employment for our young people, they have to go abroad. After all the mollycoddling of private industry over the decades our young people are still going abroad in massive numbers to find employment. I mentioned that we were at the top of the unemployment league in the EC and that also applies to OECD countries. Where is the employment bonanza that all this was supposed to have produced? It may have produced a bonanza for many of the firms who operate it but, as a policy, it has been an abject failure. The unemployment figures over the years speak for themselves. The 10 per cent was not a panacea in regard to unemployment. I wonder why certain select industries are put in the special position of having their profits reduced to the artificially low rate of 10 per cent.

In the course of a debate on a different section the Minister said — and I agree with him — that the basic principle of taxation is that when you make profits you pay tax on them and if you do not make profits you do not pay tax. The Minister has gone out of his way, for what he calls a technical reason — about which I am puzzled — to write into the Bill confirmation that the meat processing industry — and we know, as Deputy Noonan said, to whom this refers — have the benefit of a 10 per cent rate. This is an industry that makes millions in profits each year and I fail to understand the rationale behind taxing profits of that kind at only 10 per cent instead of the normal rate of 40 per cent as it is now, or 43 per cent as it was until recently. What is the thinking behind that? It may be necessary to bring in regulations to control the meat industry, but to say that such a lucrative industry should have the bonanza of a 10 per cent tax rate, in contrast to other service industries, is puzzling.

The whole area of the tax regime is lobby-ridden. The lobbyists exercise a greater pull, push and input to what eventually emerges in the Finance Bill than we do. As backbenchers in Opposition we are lobbied and the mind boggles at the level of lobbying to which Ministers and Government backbenchers are subjected to secure benefits.

Has the 10 per cent had its day? Should the whole matter be re-examined? There must be a better way because the system up to now has failed. There is no point in saying we have had good results, because the whole thing has been an abject failure looked at in terms of employment provided for our people in industry and in terms of those who have had to emigrate.

Do not let anybody say that things are going well and that if they are not they will be better next year. There is no point in spending our time just talking about it. The reality is that it has been a failure. We ought face that fact and accept it. If that is the principle on which we have been operating all these years is it not time for us to sit up with a jerk and say: "We have to think up something new here. There must be some other way". What is so special about this country that we have to top the league of unemployment within the OECD countries? Is there some strange facet about our characters that we must have the dubious honour and privilege of being at the top of that league? I do not think so. The policies we have been operating just have not worked. Private industry here has let us down over the decades notwithstanding the grants and tax concessions — be they grant-led or tax-induced, as Deputy Noonan put it. They have had all of those concessions in a generous mixture. Yet the end result for us has been an abject failure. It is time to examine it; there must be some other way of doing it.

I thank the Deputy. I shall not detain the House very long because I subscribe to a great deal of what has been said by Deputies Noonan and Taylor.

The point is that, if we agree there is a need to examine the whole question of tax reform, then there are a limited number of areas only in which one can raise additional tax. If one is going to shift the burden of tax from one set of taxpayers to another then the area we can explore is limited. I suggest that one of them is the corporate area. I might refer the Minister to his remarks on budget day when he drew our attention to the fact that the total yield from corporation profits tax for 1989 was £303 million, or 4 per cent of the total tax yield. He went on to make the qualitative judgment, with which I agree, saying:

This yield is still very low by international standards. It is not necessary to go back over the debate on that; that statement stands as a matter of fact, that the yield from corporation profits tax in this country is low by comparison with any of our counterparts within the OECD group or whatever.

When the Minister then moves to effect some changes, as he does here, hopefully not only will that put an end to some of the outrageous scams that have been taking place but will raise some additional taxation. Then those of us who have been calling for that find ourselves in circumstances in which we must be disposed to support it.

As Deputy Noonan said, it is very difficult — I do not want to retrace the ground on this because he dealt with it in some considerable detail — for any Member of this House to hazard a guess at precisely what is now excluded as compared with what was the position prior to the introduction of this Bill. I must admit I find it very difficult. Like other Members, I have received many representations. For example, I know that Deputy Taylor has had representations, like myself, from a particular company in our constituency involved in the tea business. Recently they made a not insignificant investment in the Tallaght area, employing quite a number of people. They have advised us that they would not have made that investment had this restriction been operable at the time of that investment decision and so on. That is always a dilemma when one is faced with that kind of position.

I wonder whether people are not making a case in the hope that some concession will be forthcoming. After all, as has been said, one is liable to corporation profits tax only if one is making a profit. That is the fundamental point. In that respect I should like clarification from the Minister. Do I understand that the position with regard to tea blending, as compared with putting tea into tea-bags, is different, that there is a distinction? Is that the case? Deputy Noonan dealt with a whole range of processes to which I do not think we will be able to get answers. Nevertheless, I look forward to the Minister's clarification when replying.

It is hard to argue for a greater yield from the corporate sector and then when the Minister tries to bring about that greater yield as a result of the restrictions being implemented here, it is difficult to argue logically against it. I tend to support the thrust of it. It may well cause some difficulties. I have instanced a case in my constituency. Nonetheless I contend this advantageous rate of 10 per cent should never have applied to some of the companies who have been availing of it. It is not merely the area selected by Deputy Noonan as being particularly transparent, in terms of the abuse being perpetrated in the fast food area; there are other areas that not by the wildest stroke of the imagination could be called or described as manufacturing areas.

On an earlier section the Minister referred to the fact that the structure of our economy was changing, that more and more emphasis was being placed now on the services sector, as distinct from manufacturing and so on, that we ought to have regard to that. That is true to a growing extent but the facts of the matter are that it is still the traditional manufacturing sector that creates wealth in this economy. Hence the importance of the. IDA programme; hence the importance of trying to develop an indigenous manufacturing base. In the heel of the reel it is the manufacturing sector that generates the wealth off which the services feed. I know that in recent years the nature of the services sector itself has changed inasmuch as there is beginning to be an element of the services sector that is also creating wealth. But, in the heel of the reel, the manufacturing sector is the important one in terms of the generation of wealth. Therefore I contend it is proper that it ought to have an advantageous tax rate as compared with other sectors.

That raises something I want to retrace briefly — Deputy Noonan referred to this — concerning the question of the extension of this advantageous rate to the year 2010. I, too, am surprised it has been announced in this cavalier fashion. I am not certain of the eventual view my party will take of it. I recognise the necessity, not to mention the desirability, of attracting foot-loose international capital here, especially since we have failed to develop an indigenous sector ourselves. But it is extraordinary, when the dogs in the street know that there is a major review of industrial policy going on, the Minister should have jumped the gun in this fashion. It is not merely the triennial report to which Deputy Noonan referred that is due for publication. The Minister knows from his days as Minister for Industry and Commerce that he himself commissioned a special report on industrial policy, which I do not think has been published. I have been fortunate enough to be able to read it. It was prepared by Mr. Frank Roche of UCD.

All parties in this House are now agreed that there is no element of partisan politics in this statement — that our industrial policy has been an expensive failure. We simply must look at value for money and the questions posed by Deputy Noonan, whether the advantage should go to tax-driven policy as compared with grant aid and so on. These are questions central to the whole issue which will have to be examined. While that examination is taking place I contend it was wrong for the Minister to presume the conclusion — as he has done — in making this announcement.

I understand, and the Minister may wish to comment on this, that the report on triennial policy is ready for publication and may even be published this week. I also understand there is a difference of opinion in Cabinet about it and that it contains some radical proposals for change. I further understand that positions are being taken on this. To go ahead at the behest of the IDA, or whoever and grant an extension to the year 2010 at a time when something fundamental to the lifeblood of this economy's industrial policy is being debated and reviewed in a major way for the first time in a great many years, is to cut off some of the options we might have had. Like Deputy Noonan, I am not saying that following this debate I will necessarily conclude that the extension of this tax advantage might not have to stay — it might.

We need to look at the total amount of money being spent on industry in terms of tax foregone and grant aid to see if we are getting the best return for it. I sometimes think the relationship between the IDA and the Government or between the IDA and the Minister for Industry and Commerce is a bit like the relationship between Opus Dei and the Vatican — they are a bit too pure for us, but nonetheless, in the heel of the reel they dictate policy and we must go along with it. For example, one can see the hand of the IDA in the rowing back of the section 84 facility. I have made critical remarks about the banks availing of the section 84 facility but, as I understand it, it is the IDA who have campaigned most aggressively for this. In relation to the rowing back which the Minister has explained in his usual very persuasive style —"is anybody saying that the contract which has been entered into should not be honoured and does the State not have to keep its word?"——

Mr. A. Reynolds

That is the question.

Mr. Rabbitte

——I agree with that but I understand and again, the dogs in the street are barking and the Minister knows this better than I do, that there are backdated letters like confetti, all over the place with offers, which were not in the pipeline or which had not reached the stage where a binding contract was about to be drawn up.

Mr. A. Reynolds

If the Deputy has copies of some of the letters perhaps he might let me look at one of them.

Mr. Noonan

(Limerick East): He is not so far of the mark.

Mr. Rabbitte

I cannot find the relevant section but the Minister is well aware that I am referring to the provision on binding contracts entered into before budget day; it refers to binding contracts in writing in respect of which negotiations were in progress between the borrower and the company before 31 January 1990. I can inform the Minister for sure that a great many contracts were precipitated by his announcement. I only hope those contracts come to fruition and that jobs are eventually created.

Mr. A. Reynolds

If not, we will lose nothing; nothing ventured, nothing gained.

Mr. Rabbitte

That does not undermine the point being made. The sections we are discussing raised the question of what is the best approach to industrial policy. I do not wish to prolong the debate but, seeing that this provision was to run out in 1999, the Minister should have permitted us the time to sit down and discuss it. I do not think there is a more important subject than this. The House should have been given the opportunity to debate it in great detail before we find ourselves, as a result of the Finance Bill, 1990, in a position in which a great deal of leeway which we may choose to exercise has already been shut off.

I have some reservations about supporting the position of Deputy Taylor in respect of the meat processing industry. Admittedly, it is hard to see why it is necessary to write into the Bill that this industry will be able to avail of the 10 per cent rate. I am confused about this.

Mr. A. Reynolds

If I have the time I will tell the Deputy.

Mr. Rabbitte

The meat processing industry touches on an area of the economy in which, if we do not develop it to our advantage, there is very little hope of creating jobs. It is a matter of great concern, having regard to our natural advantages in terms of natural resources in the agricultural-agri business area, that we have not managed to exploit its industrialisation potential.

Mr. Taylor

That is even with the 10 per cent rate.

Mr. Rabbitte

Without committing myself to the terms of the Government-Goodman deal I regret very much that it collapsed. Unless somebody goes in to develop a major indigenous food industry in this country I fail to see how we can depend on footloose multinationals who may pull up stakes when it suits them and leave. I have reservations about being critical of safeguarding the meat processing industry——

Mr. A. Reynolds

This deals with a secified area only. It has nothing to do with the broader beef and food industry.

Mr. Rabbitte

In conclusion, just like everybody else here, I do not have a crystal ball but I anticipate that there will be difficulties as a result of the restrictions. I do not think one can argue for a greater yield from the corporate sector on the one hand and oppose it on the other. I would like to see us minimise the employment given to chartered accountants to discover new loopholes, exploit old loopholes and use all the tax avoidance measures that are there. For example, last night, while the President of the ICMSA watched the Fine Gael beckbenchers from the gallery, I should have quoted his predecessor who made a remark which has always stuck with me, that in a particular year in the eighties chartered accountants were paid £40 million by the farming community to teach them how to avoid paying tax and in the same year they paid £32 million to the Exchequer. This is crazy and is something which ought to be terminated.

Mr. O'Dea

Let me answer Deputy Rabbitte's last question first. The meat industry is included in the Bill because it may be excluded under the new definition of manufacturing. The Government have decided that it should be able to avail of the 10 per cent rate and this is why it has been included. With regard to aircraft and other items specifically excluded and which do not fall within the legislative definition, the Government have made a decision that the 10 per cent rate of tax should be applied.

Deputy Noonan looks for certainty but, as we are all aware, it is impossible to achieve this in legislation. If we were to try to achieve this in all legislation enacted by this House there would be no need for the courts. Deputy Noonan went into great detail and asked if various processes are in or out. Not only could one enumerate the processes we are talking about but we could also enumerate an infinite number of different ways in which those processes could be conducted. For instance, Deputy Noonan asked if one put in a pinch of salt or changed the mix would they change the form. If we were to try to outline what is to be included we would never be able to write an Act long enough to cover it. I suggest that the Minister ask the Revenue Commissioners to set out broad guidelines and indicate what they think should be in and what should be out. Those guidelines would not have force in law but they certainly would have more force than a Minister's parliamentary reply in this House. The people who will be affected by the legislation will then have an indication of what the Revenue Commissioners are or are not prepared to accept. It will not have the force of law but will certainly give clear guidance and direction to the people who will be affected.

We must look briefly at the history of this. The Government decided that a special low 10 per cent rate of tax should apply to manufacturing industry. It was decided not to go ahead and define manufacturing because that might create uncertainties and ambiguities. The word "manufacturing" is in common usage. Everybody has some idea of what we are talking about when we use it. The matter was left to the courts to interpret. I am not saying the courts got it wrong but they certainly came up with an interpretation which included items which were not intended to be included by Parliament and which could not, by the wildest stretch of the imagination, be described as manufacturing. Consequently the Government were in a dilemma and were forced to write in a definition of manufacturing in order to ensure that what came within the 10 per cent tax rate was what was intended by Parliament.

In addition to that the Minister has used the opportunity to include a number of other activities which the Government have decided should be within the 10 per cent rate. Deputy Taylor said that the section would be a licence for litigation. I have no doubt that it will give rise to a certain amount of litigation, perhaps not as much as Deputy Taylor fears. I do not think, however, that is necessarily a reason to object to this legislation. Deputy Taylor also spoke about employment. The reality is that taxation is a tool of economic management. The level of employment for industrial development does not depend solely on the taxation system which is but one element. The Minister should take up my suggestion that the Revenue Commissioners should be asked to issue broad guidelines of what can and cannot be included. I think that is the best way around this problem.

An Leas-Cheann Comhairle

Let me remind the House that at 1.45 p.m. I am obliged to put the question.

I agree. The House will know that we are robbing Peter to pay Paul. I do not want anybody complaining later that we have no time. If the House agrees we may give the Minister eight minutes to reply and the Minister will conclude at 1.50 p.m. Is that agreed? Agreed.

Mr. A. Reynolds

Of course there would be litigation. There was litigation in relation to the last legislation in this area. No matter which way we turn on this there would be litigation because the courts have said that whether a process is manufacturing is a question of degree. As Deputy O'Dea rightly says, it has to be interpreted by somebody. As Deputy Noonan said, the McDermot case in Northern Ireland in 1951 was really the basis of all the trouble in this area in that they set out to define manufacturing and it went on from there. Many processors have, over the years, got in under the 10 per cent either by going through the courts, by appeal to the Supreme Court or by going through the Revenue Commissioners' appeals mechanism. I cannot be the interpreter. It is not my job. Our job is to legislate. The Revenue Commissioners will interpret it as an appeals mechanism and the courts are always there.

I can tell the House, in response to the argument Deputy O'Dea put forward, that the Revenue Commissioners propose to issue a statement of practice on the provisions of section 33. The issue of a statement of practice will provide further reassurance for genuine manufacturing companies and will also clarify the position for companies which may consider themselves marginal cases. The Revenue Commissioners have administered the scheme since 1980 in a responsible and reasonable way. The cases which qualified for the 10 per cent rate as a result of court decisions are evidence of that approach. Activities such as the ripening of fruit and the bagging of coal would hardly be classified as activities which should be given the reduced rate without challenge. The commissioners will continue to administer the scheme in a reasonable manner. It is proposed that the administration of section 33 would be monitored centrally by senior officials of the Revenue Commissioners. This will ensure consistency of application to all companies.

In regard to uncertainty, section 33 in itself does not cause uncertainty. The real uncertainty has been caused by the speculation about the provision in this House and elsewhere. Every effort has been made to avoid uncertainty. An alternative approach to that adopted might have been to introduce a comprehensive test in the form of a general definition of manufacture. This would have caused a great deal of uncertainty as all processes, not just those marginal cases, would have to examine their entitlement to the 10 per cent rate.

The approach adopted in section 33 was intended to cause the least amount of uncertainty. In my reply to the Second Stage debate I assured the House that genuine manufacturing, that is a company which makes a product, will not be affected by this provision. I now repeat that assurance. In a further effort to avoid uncertainty, the Revenue Commissioners intend to issue a statement of practice. This will reassure all genuine cases and will help the marginal cases to determine whether they continue to qualify for relief.

Last year's Finance Act contained general anti-avoidance legislation. It was claimed somewhat emotively at that time that business would suffer seriously from those provisions and that they would cause great uncertainty. Neither has happened. The Revenue Commissioners have taken a reasonable and responsible approach to that legislation and the initial fears have proved ill-founded. I have no doubt that section 33 will be administered in the same reasonable manner.

Why meat processing is included seems to be on some Deputies' minds. The whole approach to section 33 was one of minimising uncertainty as far as possible. Meat processing was specifically included in the section to allay any fears that it might be treated as a produce acquired in bulk and divided and packaged to prepare it for sale.

Meat processing as a term has a very wide meaning and can include a wide range of activities. Some of these may constitute manufacture while others may not. It is clear that the activities carried out in a building approved under the regulations constitute manufacture. There are certain aspects of this area that any reasonable person would agree were never manufacturing, could never be considered to be manufacturing and consequently should never have been left in. For example, subparagraph (a) (i) rules out everything. Subparagraph (i) must be read in the context of a product, produce or material acquired in bulk to prepare it for sale or distribution.

All of the words — dividing, purifying, drying, mixing, sorting, packaging, branding, testing or other processing — are in the context of a material acquired in bulk to prepare it for sale or distribution. If the product which is acquired is merely broken down into smaller quantities of the same product, the company would not qualify for the 10 per cent scheme. If, on the other hand, the product which is sold is a product which has resulted from the process carried out by the company and is a different product from that which was acquired in bulk, then clearly a manufacturing process has taken place and subparagraph (a) (i) would not apply. Very few processes of dividing bulk would consist of one only of the processes involved in subparagraph (a) (i). If "any combination" were not included, the subparagraph would have no effect. For example, very few traders would divide bulk material without packaging it.

I should point out that the phrase "or any combination" is included in each separate subparagraph. It does not govern the processes in all subparagraphs. Accordingly, it is not possible to combine processes from different subparagraphs.

Many other questions were raised on specific areas but I know the statement of practice will allay a lot of uncertainty. However, there is another aspect I wish to refer to, which is very important, and that is the question of including an amendment on the 10 per cent corporation tax. I do not have time to deal with this in detail except to say the following. It was signalled at the time of the Second Stage debate and was dealt with by the Minister for Industry and Commerce on Second Stage. I have not read the Second Stage debate. Perhaps Members did contribute. The case was studied for quite a considerable time and international consultants studied Ireland in relation to centres abroad and everybody will agree that we need to watch our position as a peripheral State as we approach the Single Market. The study was not completed at the time the budget was being discussed in this House. As a consequence, it was subsequently decided by the Government and announced in this House. As I have said, Deputies had the opportunity to discuss it on Second Stage and they will again have the opportunity during the debate on industrial policy. I have plenty of arguments that I could put forward in relation to other aspects but I do not have the time to discuss them in detail at present.

I hope I have allayed some of the fears and uncertainties that have been raised. I predict this will not give rise to the uncertainty that people expect. It is the process of manufacturing that is important and that is what the issue will be for anybody arguing the case against the Revenue Commissioners. The fact that this legislation will be passed does not automatically disqualify anybody from applying for the 10 per cent rate of tax. If they are not allowed this concession by the Revenue Commissioners they can go before the appeals process and can go to the courts as well. It is they who will interpret the law and not the legislators. We produce the legislation and provide the best guidelines we can to the Revenue Commissioners and the courts but it is up to them to interpret it.

Before I conclude I wish to draw the attention of the House to amendment No. 73f, which contains a reference to Údarás na Gaeltachta Act, 1970. This of course should be a reference to the Údarás na Gaeltachta Act, 1979. I would request that the amendment be debated as if the reference in the amendment were a reference to the Act of 1979. This is the same point that arose last night.

An Leas-Cheann Comhairle

We have already agreed to that and a note has been taken. Is that agreed? Agreed.

Question put: "That the amendments set down by the Minister for Finance to Chapters IV to VII, inclusive, of Part I of the Bill and not disposed of are hereby made to the Bill, and in respect of each of the sections undisposed of in the said Chapters and the section or as appropriate the section, as amended, is hereby agreed to".

The Committee divided: Tá, 68; Níl, 57.

Tá

Ahern, Bertie.
Ahern, Dermot.
Aylward, Liam.
Barrett, Michael.
Brady, Gerard.
Brady, Vincent.
Clohessy, Peadar.
Coughlan, Mary Theresa.
Cowen, Brian.
Cullimore, Séamus.
Davern, Noel.
Dempsey, Noel.
Dennehy, John.
de Valera, Síle.
Ellis, John.
Fahey, Jackie.
Fitzgerald, Liam Joseph.
Fitzpatrick, Dermot.
Flood, Chris.
Flynn, Pádraig.
Gallagher, Pat the Cope.
Harney, Mary.
Haughey, Charles J.
Hillery, Brian.
Hilliard, Colm.
Hyland, Liam.
Jacob, Joe.
Kelly, Laurence.
Kenneally, Brendan.
Kirk, Séamus.
Kitt, Michael P.
Kitt, Tom.
Lawlor, Liam.
Leonard, Jimmy.
Brennan, Mattie.
Brennan, Séamus.
Briscoe, Ben.
Browne, John (Wexford).
Calleary, Seán.
Callely, Ivor.
Leyden, Terry.
Lyons, Denis.
McCreevy, Charlie.
McDaid, Jim.
McEllistrim, Tom.
Molloy, Robert.
Morley, P.J.
Nolan, M.J.
Noonan, Michael J. (Limerick West)
O'Connell, John.
O'Dea, Willie.
O'Donoghue, John.
O'Keeffe, Ned.
O'Kennedy, Michael.
O'Leary, John.
O'Rourke, Mary.
O'Toole, Martin Joe.
Power, Seán.
Quill, Máirín.
Reynolds, Albert.
Roche, Dick.
Smith, Michael.
Stafford, John.
Tunney, Jim.
Wallace, Mary.
Wilson, John P.
Woods, Michael.
Wyse, Pearse.

Níl

Ahearn, Therese.
Barry, Peter.
Belton, Louis J.
Boylan, Andrew.
Bradford, Paul.
Browne, John (Carlow-Kilkenny).
Bruton, Richard.
Byrne, Eric.
Carey, Donal.
Connaughton, Paul.
Connor, John.
Cosgrave, Michael Joe.
Crowley, Frank.
Currie, Austin.
D'Arcy, Michael.
Deasy, Austin.
Doyle, Joe.
Durkan, Bernard.
Farrelly, John V.
Fennell, Nuala.
Ferris, Michael.
Finucane, Michael.
Flanagan, Charles.
Gilmore, Eamon.
Higgins, Jim.
Higgins, Michael D.
Hogan, Philip.
Howlin, Brendan.
Kavanagh, Liam.
Kemmy, Jim.
Lee, Pat.
Lowry, Michael.
McCartan, Pat.
McCormack, Pádraic.
McGahon, Brendan.
McGinley, Dinny.
Mac Giolla, Tomás.
McGrath, Paul.
Mitchell, Gay.
Mitchell, Jim.
Moynihan, Michael.
Nealon, Ted.
Noonan, Michael. (Limerick East).
O'Brien, Fergus.
O'Shea, Brian.
O'Sullivan, Gerry.
Owen, Nora.
Pattison, Séamus.
Rabbitte, Pat.
Reynolds, Albert.
Ryan, Seán.
Shatter, Alan.
Sheehan, Patrick J.
Stagg, Emmet.
Taylor, Mervyn.
Taylor-Quinn, Madeleine.
Timmins, Godfrey.

Tellers: Tá, Deputies V. Brady and Clohessy; Níl, Deputies J. Higgins and Howlin.

Question declared carried.

NEW SECTION.

An Leas-Cheann Comhairle

Amendments Nos. 91 and 93 are related and therefore it is proposed to take them together for discussion purposes. Is that satisfactory? Agreed.

Mr. Noonan

(Limerick East): I move amendment No. 91:

In page 62, before section 59, but in Chapter VIII, to insert the following new section:

"59.— The provisions of sections 59 to section 68 inclusive shall not apply to persons whose tax liability arises under case I or case II of Schedule D.".

There is general agreement in the House with the Minister's proposal to remove accelerated depreciation for capital allowances. The initial decision was taken by his predecessor, Mr. MacSharry. Until this year one could depreciate 50 per cent. Now the Minister is proceeding to bring that rate down to zero. That set of policy proposals has general acceptance because it derives from a belief in the House that there should be a bigger contribution from the corporate sector. We discussed those arguments yesterday and today and we are generally in favour of them. Something that is not generally realised is that accelerated depreciation also applies to income tax payers. It applies to case I and case II of Schedule D; in other words, all small traders, farmers and professional people, and they too are losing their accelerated depreciation.

The firm of solicitors that installs a computer system and a lot of expensive software will be able to write it off over the next five years if we accept the provisions of section 59, but they will no longer be able to accelerate the depreciation, or 50 per cent of it, in the first year. In the case of small traders, that can give rise to serious cash flow problems because one of the methods of reducing the outlay of funds for the sole trader or for the professional person is to be able to get 50 per cent of the amount invested back in the first year against tax. It would apply also to engineers, doctors, barristers to a lesser extent, solicitors and any of the professions who would be involved in computerising their systems. It also applies to farmers, for example, a farmer buying machinery or a new tractor. He will no longer be able to depreciate 50 per cent of the cost once the Minister's proposal becomes law. It applies to all sole traders as well.

Amendment No. 91 seeks to exclude from the restrictions on accelerated depreciation people who pay income tax under case I and case II of Schedule D. I accept the Minister's proposal that these restrictions should apply to corporation tax but I do not think it was ever the policy position of people in the House that it should apply to income tax. It has been almost an accidental cross-over. I recall that, when the former Minister, Mr. MacSharry, brought in the proposals initially, there was surprise in the House when, in the middle of Committee Stage, Deputies realised that the proposals also impacted on income taxpayers because there was the perception that we were doing something to get a bigger take from the corporate sector.

From the figures given this morning I accept that, if the Minister is to accept this amendment, a reasonably large chunk of tax would be foregone in the next year or two. Perhaps the Minister can give us those figures now. Quite a lot of tax is foregone in providing this relief to Schedule D taxpayers. If the Minister thinks he cannot go as far as I am suggesting on amendment No. 91, I would like to recommend amendment No. 93 to him.

Amendment No. 93 has the same intent but would confine the benefit to investment on pollution control by a person whose liability arises. The House is aware that over the last 18 months or so, and continuing over the next 12 months, farmers will be incurring expenses in controlling pollution. They will be involved in investment in plant and machinery and upgrading of buildings to control, in particular, flows of effluent from their yards. If, by coincidence, the ability to depreciate up to 50 per cent of the investment is taken from them this year, that will impact very seriously on the programmes now in place, which are proceeding well, to control farm yard pollution. I need not remind the House of the problems of pollution. There is the public perception that pollution has all to do with Sellafield and dirty industry. An enormous amount of pollution is caused by neighbours in the countryside whose farmyards, for one reason or another, either through lack of awareness or through lack of investment, are not fitted out properly to prevent silage effluent flowing into the neighbourhood stream and down into the river. We had numerous instances, particularly last year, with the very fine summer, of fish kills all over the country. The photographs in the newspapers, or if one walks along the river bank and sees thousands of dead fish in the local clear stream, are a clear reminder to everybody of the impact of pollution on the quality of life. What I am suggesting here would cost very little under amendment No. 93.

If investment on the control of pollution could be exempted for the time being; if the full depreciation could be allowed in the same manner as he is allowing the Custom House Docks site, or certain Shannon activities, and so on — I am not arguing that the amendment I have put down is drafted sufficiently tightly to ring fence the activity I have in mind — I would accept any amendment which the Minister would come back with on Report Stage to fulfil this intent. It is a very good amendment and involves very little cost. Even if the Minister ties it in to allowing it to people who qualify for the appropriate grants from the Department of Agriculture and Food, that would not be a problem and would tie it in very tightly. Then only legitimate schemes sanctioned by the Department for farmyard activities to control pollution would be caught within the exemption I am advocating. If I could get an indication from the Minister that he would proceed along these lines on Report Stage I would withdraw the two amendments.

I appreciate that amendment No. 91 involves a serious cost element but there is hardly any cost involved in amendment No. 93. This is a provision which we need not have in the legislation for all time. If it was suggested that it be removed in four or five years there would be no problem because the bulk of the pollution work would be done in the farmyards of Ireland. The proposal happens to coincide with the time when about half the work is done and is well under way to put the remainder of it right. There is now a great awareness among farmers and the farming organisations that farmyards must be put in order. There is an acceptance now that fish have been killed by farm pollution. There is a willingness to make the investment. The State has backed it fully and there are now grant provisions available from the Department of Agriculture and Food. I would ask the Minister to amend the section in the manner I suggest so that the good work done by his colleague in the Department of Agriculture and Food and the concerns of all of us who have become increasingly aware of environmental issues are not set at naught by this provision.

Mr. Connaughton

I want to add to what my colleague, Deputy Noonan, has said in relation to amendment No. 91. I would ask the Minister to take note of how Deputy Noonan put that amendment. It is very important at this stage not to impede the progress of controlling pollution. I would say it was an inspired decision in the Department of Agriculture and Food to make grants available for pollution control. A problem arises where 10 per cent, 20 per cent or 30 per cent of top-class farmers, because they are the better off farmers, have decided on the investment because it needed to be done.

Another category are applying on the second division and they are not nearly so well off. First, they do not have the financial resources. If we do not look closely at the depreciation aspect many of those people will be unable to avail of the pollution control package Deputy Noonan spoke about. The Minister for Finance could put several controls on that scheme which would be quite acceptable to all farmers. Nobody expects a blank cheque on an occasion like this. The controls could be tied to the Farm Development Service and approval for grant aid as Deputy Noonan suggested. That approval could be limited, if so desired, to a certain investment per farm to make sure it would not be open-ended. Above all else it must be absolutely controllable and workable and it must be possible to police it without employing an extra civil servant, perhaps by means of one extra page only on the approval document from the Department of Agriculture and Food.

Against that background I ask the Minister to take note of this provision. I do not know whether he can quantify the cost, but I assume it will be very little, though there is a huge investment in all that area. From an investment point of view no doubt it is quite costly and that is why a great number of farmers are unable to proceed with the pollution control measures despite the fact that a very reasonable grant is provided at the moment. I put it to the Minister that he might decide on this aspect and, if he cannot decide on it today, he might give some idea next week of what he can do.

Mr. Taylor

At the risk of antagonising not only Deputy Noonan but many of my colleagues in the legal profession, I have to say I cannot support his amendment No. 91. In all fairness and equity I see no reason for people carrying on trades or in professions, making substantial investments in plant, being singled out to receive the accelerated capital allowances. It is acceptable that they receive capital allowances and are in a position to write off the cost of the equipment they obtain in the normal manner at whatever percentage it is per year. As I said this morning, capital allowances are not being abandoned or disposed of in this legislation; it is accelerated capital allowances that are being disposed of. It is progressive that we revert in this Bill to a position that applied for many years under which a percentage of the cost of investment in new plant was written off. That could affect me and my colleagues personally adversely but, in the overall context of tax equity, it is not an unreasonable provision.

I am afraid I cannot support the Deputy either on amendment No. 93. Of course pollution control is extremely important. I understand grants are available from the Department of Agriculture and Food, generous grants at that, as Deputy Connaughton indicated. I do not know whether it is suggested that people who are running dirty industries of one form or another and have to control them from the pollution point of view should have it both ways, on the one hand by getting grants from the Department of Agriculture and Food and, on the other, getting tax concessions from the Department of Finance. A person who runs a dirty industry or who, in the farming sector, produces pollution of one form or another is obligated as part and parcel of his task to control that and must control it to preserve the environment. There is no inherent base for saying taxpayers generally have to supplement a proper and normal running cost of such business or farm. To say otherwise would be to open the floodgates, and where safety measures of a different kind are needed, such as provision of fire escapes or alterations for fire safety purposes, the same argument could be put, that the cost of doing that would entitle one to the accelerated capital allowances provision. That is not reasonable. I see no substantial argument or basis for supporting either of these amendments.

An Leas-Cheann Comhairle

Let me delay the proceedings for a second while I report to the House and Deputy Taylor that, following his intervention this morning when it appeared to me there may have been an insinuation that the Deputy sensed he had suffered in respect of the submission of amendments vis-à-vis the Minister or any other Member, I want to assure him, having examined the matter, that there is absolutely no basis for what he suggests. The Deputy's amendment was submitted late on Monday evening at which stage I understand he was advised that one way or another one half was out of order. As an indication of the common sense that operates, it was indicated to him that, even though it was late, in so far as the other half corresponded with amendments already in, his name would be added thereto. In respect of that amendment the Deputy can be quite sure no amendment was accepted at a later date than the date on which his was rejected. I know Deputy Taylor will accept that as a statement of the position.

Mr. Rabbitte

It is proving very difficult, although we have managed to pack quite a bit into the short time available to us, to discuss this important Bill; to debate one section in isolation from another. It all has to do with the total tax take at the end of the day, and on this section on capital allowances I find it difficult to reconcile the discussion and the rhetoric, if that is not an unkind word, that we have had about tax equity with some of the amendments that have gone forward. At the heel of the reel amendment No. 91 proposes that people who are called professionals should be excluded from the restriction on accelerated capital allowances.

I dealt on Second Stage at some length with the question of anti-evasion measures and the necessity for them to be tightened up and policed more rigorously by the Revenue Commissioners. If I have an image of one section of the community who do most — to put it kindly — to limit their tax liability it is the professionals, doctors, barristers, solicitors, accountants and all the rest. They would regard one as mentally deficient if one was to suggest that they should pay tax as the rest of us. They do not believe in doing that and they do not do it. How Deputy Noonan can recommend that not only should they get the benefit of capital allowances, which they receive and continue to receive, but that they should do so on the accelerated basis I do not understand. I do not think that can be reconciled with the Deputy's earlier remarks on the need for tax equity.

Mr. A. Reynolds

Before we adjourn the debate I should like to bring to the notice of the House a small typing error in the table to the proposed new section 34, a section which we did not reach. I am referring to amendment No. 79 in my name. The reference in paragraph (d) of the definition qualifying shipping activities to "subjecting a fish" should be a reference to "subjecting of fish". That relates to an explanatory table.

Progress reported, Committee to sit again.

Dáil Éireann debate - Thursday, 17 May 1990

Finance Bill, 1990: Committee Stage (Resumed).

Tá

Níl

Dáil Éireann debate -
Thursday, 17 May 1990