Dáil Éireann debate -
Thursday, 26 Oct 1995

Vol. 457 No. 6

Adjournment Debate. - Tax Payment Method.

Mr. McCreevy

I thank the Ceann Comhairle for allowing me to raise this matter on the Adjournment. Section 31 of the Finance Act, 1995, contains a very welcome provision. The purpose of that section was to extend to the self-employed the direct debit or instalment method of making their preliminary tax payment. In recent years considerable progress has been made by the Revenue Commissioners and by compliant taxpayers in developing a well structured system for the payment of PAYE and value added tax. As is evident from reports of the Revenue Commissioners, considerable progress has been made in the collection of all taxes.

For a number of years it was possible to pay one's VAT or PAYE by way of an instalment arrangement. The logical extension of that for income tax was provided in section 31 of the Finance Act, 1995. The purpose of that section was to allow people to make instalment payments of their preliminary taxes by direct debit. Unfortunately, it will not be possible to avail of that facility in the tax year 1995-96. Preliminary tax payments should be made on 1 November and I understand that the Revenue Commissioners were not in a position to issue mandate forms and the Collector General's office is not allowing people to avail of that concession.

It appears that a mistake was made in the drafting of section 31 of the Finance Act. The Act should have provided that that concession would commence in the tax year 1996-97. I am aware that the group which meets with the Revenue Commissioners has agreed that the facility will commence on 1 January 1996 and will relate to preliminary tax payments for the year 1996-97 which will be due on 1 November 1996.

A strict reading of the Act is that the facility should have been available for this tax year and people whose preliminary tax payments are due on 1 November should have been allowed to use it given that the provisions of section 31 are specific. It should not be necessary for me to read the provisions of the Act, but the Minister can be assured that a layman's interpretation is that the concessions should have applied to the tax year 1995-96. As it would be legally possible for taxpayers to avail of the direct debit method under section 31 until 31 December, I ask the Minister to indicate to the Revenue Commissioners that they should facilitate any taxpayer who wishes to use that concession. I understand the Collector General's office indicated that it does not intend to allow that concession, but if a taxpayer is refused that concession he or she could take a legal action. My reading of section 31 is that the concession was intended and an error was made. I suggest that section should have been framed to provide for the commencement of that concession in that tax year 1996-97. The reason I raise this matter is that the section specifically provides for the commencement of the concession in the 1995-96 tax year and a taxpayer should be allowed to avail of it if he or she so desires.

Minister for Agriculture, Food and Forestry (Mr. Yates)

I wish to convey the apologies of the Minister for Finance to the House as he is unable to be present, but I am delighted to have an opportunity to reply to the matter Deputy McCreevy raised. I have listened carefully to what he said which is broadly correct in so far as enabling legislation to provide for the introduction of the direct debit option for payment of preliminary income tax was introduced in the Finance Act, 1995. That facility was part of a package of measures which emerged from a review of self-assessment carried out by the Revenue Commissioners and representatives of tax practitioners through the Tax Administration Liaison Committee, of which I am sure the Deputy is aware. I found that committee very useful when I was in Opposition as members of it helped me draft amendments to Finance Bills. As the Deputy is aware, the package put forward by TALC was accepted and given legislative effect in this year's Finance Act, specifically in section 31. That section also provides for a fixed date for the payment of the balance of tax over and above the amount of preliminary tax and the closing of a loophole whereby spouses jointly assessed could hitherto avoid the payment of preliminary tax by alternating as assessable persons.

While the enabling legislation was enacted this year, I am advised it was never intended that the instalment system would be implemented before next year. This was clearly understood by all concerned with the new package of measures. A lead-in time was necessary to allow the Revenue Commissioners to make the necessary practical arrangements, including the putting in place of new computer systems to support the instalment arrangements. The implementation of the legislation is placed under the care and management of the Revenue Commissioners in the normal way.

Apart from the practical arrangements to be made, the legislation on the direct debit option requires arrangements to be agreed between taxpayers and the Collector General's office and is subject to such conditions as the Collector General may reasonably impose.

The direct debit scheme is clearly intended to spread the burden of preliminary tax over 12 months. On this basis the earliest the scheme can come into operation is January next for the payment of preliminary tax for 1996-97 which would otherwise be due on or before 1 November 1996. The desirability of a calendar year based scheme was accepted by all participants, that is Revenue officials and tax practitioners in TALC.

The systems to support the payment of preliminary tax by direct debit are currently being put in place and will be operative prior to January next to enable taxpayers to pay their preliminary tax for next year over the full calendar year 1996 in monthly instalments on the ninth day of each month. The mandate forms and suitable publicity to promote the scheme will be available before then.

While the enabling legislation does not rule out direct debit arrangements which are for shorter durations than the 12 month calendar year outlined, this is of course subject to arrangements being agreed with the Collector General as I already mentioned. The possibility of a shorter duration was intended to cater for exceptional circumstances. It was felt that it would be unwise to preclude the possibility of payment arrangements involving direct debiting arrangements for certain cases over a shorter period than a calendar year if these had the agreement of the Collector General. Of particular concern in this regard were relatively new or small businesses which might not be in a position to sign up for the direct debit scheme at the beginning of the year. However, even in these cases, the spread of payments would normally involve a period of at least six months.

Those opting to avail of direct debit to pay their preliminary tax will have the option of basing their preliminary tax liability on 105 per cent of the preceding year's tax. Thus, taxpayers exercising this option in 1996-97 can base their preliminary tax on 105 per cent of their liability for 1994-95 as against 90 per cent of their final liability for 1996-97 or 100 per cent of liability for 1995-96 if they wish to ensure against the possibility of interest charges. The 105 per cent option is only available to taxpayers opting for direct debit.

The Minister for Finance is satisfied that Revenue is pressing ahead with the necessary arrangements and that, as from next year the direct debit facility will provide a useful payment option for taxpayers. This and other amendments have arisen out of a process of consultation with the tax profession highlighting the benefit of such consultations which the Minister for Finance will be seeking to develop in the future.

The Deputy also requested that people should be allowed the instalment payment option this year. I will convey that request to the Minister and ask him to consider it favourably.