Dáil Éireann debate -
Wednesday, 7 Jun 1995

Vol. 454 No. 1

Written Answers. - Withholding Tax.

Seamus Brennan

Question:

77 Mr. S. Brennan asked the Minister for Finance his views on the lack of recognition in successive Finance Acts of the interest foregone by business as a result of withholding tax; if he will address this anomaly which is causing cash strain for many businesses; and if he will make a statement on the matter. [10403/95]

Seamus Brennan

Question:

78 Mr. S. Brennan asked the Minister for Finance his views on the effect on business of withholding tax being levied on professional services in contravention of the recommendation in the report of the Task Force on Small Business; if he will support the implementation of this recommendation; and if he will make a statement on the matter. [10404/95]

Minister for Finance (Mr. Quinn)

I propose to take Questions Nos. 77 and 78 together.

Withholding tax does not impose any additional tax liability. Full credit for the tax deducted at source is allowed against the normal tax liability of the taxpayer in question. In calculating normal tax liability, the taxpayer is allowed relief-credit for all the usual deductions such as legitimate expenses, business loan charges etc. as well as personal allowances.

The report of the Task Force on Small Business recommended that, as a first step, withholding tax should no longer be deducted from payments for professional services to enterprise with a turnover below £1 million per annum and in possession of a valid tax clearance certificate.

It is not possible to identify separately the withholding tax yield from enterprises with a turnover below £1 million per annum. Consequently it is not possible to anticipate how the abolition of the tax for such enterprises holding a tax clearance certificate would affect the tax yield. However, in the vast majority of cases withholding tax is applied to individuals-professionals or to small companies all of which would have a turnover of below £1 million per annum. It follows that any concession in this area could seriously erode the significant cash flow gain to the Exchequer associated with withholding tax.

Concerns that withholding tax should be on a current year basis have already been raised and the operation of the scheme in this context has been considered. To move to a current year basis would lead to a situation in which either the tax credit available for the following year of assessment would be dropped; this would "freeze" that amount of withholding tax for all time and it would never be available for set off; or the tax credit "dropping out" could be added to the tax credit for the current year effectively doubling the amount of credit available for that year. This option has a very high flow cost estimated to be in the region of £68 million.

It is obvious that each of the options outlined above would cause considerable difficulty. In particular the £68 million cost of the double credit option could not be accommodated due to current budgetary constraints. However, this issue is reviewed on an ongoing basis and should budgetary conditions permit, changes may be made in the future.

I would like to take this opportunity to draw the Deputy's attention to the system of interim refunds which operates to alleviate the impact of the tax in certain situations. Interim refunds ensure that deductions do not exceed the taxpayer's liability in the previous tax year. Adjustments are also made where the previous year's liability is unusually high and there are special provisions for the first year of operation and for hardship cases.