Vol. 418 No. 6
15 Mr. Cotter asked the Minister for Finance if he has satisfied himself that the number of tax returns being fully audited by the Revenue Commissioners is sufficient to eliminate tax evasion by those taxpayers subject to self-assessment.
26 Mrs. Barnes asked the Minister for Finance if he has been advised by the Revenue Commissioners that the number of tax returns subject to audit by the Revenue Commissioners, in respect of taxpayers liable to self-assessment, is insufficient to deter tax evasion; and if he will make a statement on the matter.
29 Mr. Currie asked the Minister for Finance if he has satisfied himself that full audit of less than 1 per cent of all income tax payers liable to self-assessment is sufficient to discourage tax evasion; if he will confirm that over 80 per cent of those taxpayers subject to audit were found to have understated their tax liability by an average of £11,143 per case; if he will introduce a random audit on a sizeable sample to act as a deterrent to evasion; and if he will make a statement on the matter.
38 Mr. Rabbitte asked the Minister for Finance if, in view of the findings of the recent report of the Comptroller and Auditor General that four out of every five taxpayers, audited under the self-assessment system, had underpaid tax and that only 1 per cent of cases had been subject to a full audit, he intends to provide additional staff or resources to ensure fuller auditing of self-assessed returns; and if he will make a statement on the matter.
70 Mr. D'Arcy asked the Minister for Finance the percentage of returns from taxpayers subject to self-assessment which were fully audited in each year since self-assessment commenced.
79 Mr. Doyle asked the Minister for Finance the changes he plans in the audit arrangements, applicable to taxpayers on self assessment, to eliminate tax evasion.
I propose to take questions Nos. 15, 26, 29, 38, 70 and 79 together.
Deputies will appreciate that the self-assessment system for self-employed individuals and companies is being implemented on a phased basis. The initial phase involved the encouragement, by publicity and other means, of voluntary compliance by taxpayers. This has been very successful with returns now being filed by some 94 per cent of taxpayers compared with 60 per cent during the pre-self-assessment era.
Audits have an essential part to play in the policing of the new system. In line with this objective the audit programme is being progressively expanded. The programme got under way in 1990 when some 35 inspectors were assigned to self-assessment audit work following special training. This number increased to 75 at end 1991 and further increases are proposed in 1992.
Almost 3,500 self assessment audits have been carried out to date. This represents about 1½ per cent of the self-assessment audit taxpayer base, including companies. The percentage coverage in each calendar year since the programme got under way was as follows: 1990, 0.56 per cent; and 1991, 0.9 per cent.
The level of audit which is envisaged as the programme builds up will compare favourably to that in other self-assessment jurisdictions. For instance, the audit rate in the US and Canada is below 1 per cent of the total of individual taxpayer returns. In addition, there will be extensive screening of taxpayers' returns as a basis for selection for audit. This screening, which is carried out by trained inspectors of taxes, is pursued to different depths and culminates ultimately in a number of cases being selected for audit. Ultimately it is not the percentage of return audited which will underpin compliance but the perception among taxpayers of the professionalism and effectiveness of the selection of cases for audit where there are indications of tax evasion.
The self-assessment audits are, of course, only one dimension of the total Revenue compliance programme which includes large numbers of other inspections and visits to traders' premises.
It will be clear from what I have said that the Revenue Commissioners and the Government are committed to providing a level of auditing which will underpin compliance without detracting from the advantages of self-assessment for the vast majority of taxpayers who meet their obligations. The whole point of self-assessment is to free staff resources from the old unproduction work generated by the old system so as to enable them to focus on tax evasion and avoidance.
These resources are now becoming available. In addition, arising from impending changes related to the EC Internal Market, Customs and Excise staff are also becoming available for other work. As I indicated in my budget speech, it is essential that these staff resources are used to the maximum in the continued drive for better collection and enforcement of taxes and detection of evasion and avoidance.
This is why I have asked the Revenue Commissioners to put together new initiatives in these areas for 1992. Assuming that staff co-operation is forthcoming, the initiatives will provide, inter alia, for a further increase in the sources devoted to auditing over and above what was already planned. The initiatives are under negotiation at present between the Revenue Commissioners and the trade unions and I trust that they will be brought to an early conclusion so that we can intensify the drive against tax evasion and further improve the efficiency of our collection system. In the recent budget I have provided an additional amount of £750,000 to the Revenue Commissioners to help to implement the new collection and enforcement initiatives.
Apart from the switch of additional resources to audit work, the Revenue Commissioners also plan to strengthen the audit capacity of specialist districts dealing with particular sectors. This will enable the Commissioners to build up the information bases and expertise that will make early detection of evasion more effective and will also help in tackling schemes of avoidance.
For the most part, audits are not initiated at random but rather are targeted on the basis of perceived defects in tax returns or supporting accounts. However, the method of selection is being expanded in 1992 to include the selection of about 5 per cent on a random basis. It is recognised that random audits under which every taxpayer has the possibility of being selected for audit are essential because such audits encourage compliance by increasing the perceived possibility of an audit.
In relation to the results of the audits to date, less than 9 per cent of returns filed in 1990, and which were subject to audit, we accepted without adjustment. This has now risen to in excess of 25 per cent in 1991. The remaining 75 per cent have yielded an average of approximately £10,000. Because cases are selected for audit on the basis of some perceived shortcoming in the return, this figure cannot be taken as a reliable indicator of the general level of compliance in the self-employed community at large.
While good progress has been made to date in implementing self-assessment, the momentum must be maintained. I would stress that the intensification of the audit programme and the improvement of the collection and enforcement system generally require the active support from all sides within the Revenue Commissioners so as to secure the necessary deployment of staff on the most efficient basis. Both the Revenue Commissioners and the Government will be keeping progress under close review.
Can the Minister reconcile the reply with the conviction of people, expressed through their union, that the system is far from assuring a degree of progress in combating evasion?
I gave a longer reply than normal and I thank the House for its patience. The Revenue Commissioners have been trying over several years to put in place a number of structures which I have outlined. Regarding resources, I said in my budget speech that the vast majority of the 608 people who will not be required from 1 January next for Customs and Excise work will, if I can get agreement at union level, be brought into the system and most of them into this kind of work. All of us receive a salary and pay what is legally required. Everyone should be in the same position. Revenue are trying to focus on who should be audited. I have been told in discussions with accountants and tax practitioners that some of the audits are overrigorous. The intention of Revenue is not to be overrigorous on the wrong people but rather to screen the cases which will then be rigorously dealt with. It takes some time to achieve that. It is not perfect in 1992 but they are working on a programme leading to 5 per cent random audits.
(Limerick East): I put it to the Minister that he is not in a position to give accurate information because the very information he provides shows that he and the Revenue Commissioners do not know the true position. Of the sample audited, 75 per cent had evaded to an average of £10,000. That kind of evasion, even on a screened sample, is so big that the Minister is not in a position to state what the position actually is. Only when he has a significant random sample will he know the compliance and evasion rates. When he talks about a 5 per cent random sample for audit, is he talking about 5 per cent of those sampled or 5 per cent of taxpayers who submit returns on self-assessment?
It will be 5 per cent of the cases audited.
(Limerick East): That is minuscule.
That is the figure projected. At this stage we are on 1.5 per cent of the cases returned, including companies. These are cases that would be screened. Quite a large proportion would be companies and the remainder would be general cases. There are about 30,000 calls by Revenue apart from this. We are talking about the auditing aspect and 1.5 per cent is still too low.
It would not be correct to say that the amount of tax outstanding in respect of every self-assessed taxpayer can be based on these figures. The figures are based on cases where Revenue knew there was non-compliance. The Deputy is correct that the figures for that group were extremely serious.
It is not just a matter of staff resources. If this House is serious about assisting the Revenue Commissioners to do this work it must give them additional strong powers. I have watched attempts by Ministers in various Governments to bring in strong powers for the Revenue, but people tend to get cold feet. I hope I will get support in the Finance Bill for tough measures. The Revenue require tough powers to deal with tough non-compliers; otherwise we will be sending people out to do an impossible job. They will be run ragged by people who know the law.
(Limerick East): Self-assessment can only work if those who are sending in returns are fearful that if they do not send in proper returns they will be found out and penalised. People whom the Revenue suspect of non-compliance are being chased in the traditional manner. The random sample for audit, on the Minister's figures, is 5 per cent of 1.5 per cent, which is 0.075 per cent. The chance of being audited on a random basis is so small that it must be very tempting for people to put in any figure that comes into their heads. Self-assessment cannot work unless there is a significant random audit sample, but that is not the case at the moment.
I agree with Deputy Noonan that we have not reached the stage where there is a satisfactory random sample system but there has been an improvement. However, the point remains that increased powers are required to deal with defaulters. In fairness to the Revenue, over 100,000 returns are screened each year and it is from that number that they take the percentage we are quoting. The most qualified staff is used in the screening process because they are the people who can detect non-compliance. Our objective is to ensure that a higher proportion of the 100,000 is selected for a full and rigorous audit. With increased powers which will be contained in the Finance Bill, in a few years' time the number selected will be substantially increased, as is the wishes of Revenue. I will return to that matter again on the Finance Bill.
That disposes of questions for today.
