Vol. 527 No. 2
1 Mr. Noonan asked the Minister for Finance his proposals to enable holders of taxi licences to write off the value of their taxi plate against their tax liabilities as a result of the deregulation of the industry; and if he will make a statement on the matter. [28132/00]
4 Mr. McDowell asked the Minister for Finance the tax measures he will take on foot of the Government's decision to deregulate the taxi market; his proposals to treat licence plates as depreciating assets for tax purposes; the steps he has taken to communicate his proposals to the representative organisations; and if he will make a statement on the matter. [28064/00]
I propose to take Questions Nos. 1 and 4 together.
As I indicated last week, it is my intention to provide for tax relief in respect of the historic cost of taxi plates bought by existing taxi licence holders. The price actually paid for a plate will be treated as capital expenditure for tax purposes, similar to where plant and machinery is bought by a business. Accordingly, a capital allowance will be applicable so that the actual cost of a taxi plate can be written down over a period of years, in the same way as applies to plant and machinery. At present, a capital allowance may be claimed over seven years at a rate of 15% of the cost of the asset for each of the first six years, with the final 10% in year seven.
For example, in a case where a taxi plate was bought for £50,000, the owner-driver may offset £7,500 for each of the first six years against taxable trading income earned in this period and £5,000 in the final year seven. In the event the owner-driver has less than £7,500 or £5,000 in taxable income per annum, or even no taxable income, he or she will be liable to carry forward the unused amount to a later year or years for offsetting purposes.
The capital allowance may be fully offset against taxable earnings at the marginal rate of tax payable by the taxi drivers concerned. The allowance will be based on the historic or actual cost of the taxi plate. Finally, only the trading income derived from a taxi by the owner may be taken into account in using the capital allowance. In other words, the allowance may not be offset against other income.
The information I have just given was communicated to the representative taxi organisations at a meeting on Tuesday last between them and the Minister of State at the Department of the Environment and Local Government, Deputy Molloy. The Minister of State is responsible for taxi regulation.
Will the Minister agree that certain owners of taxi plates will suffer serious financial loss now that the taxi business is being liberalised? Will he reconsider the amendment he is proposing to the Finance Bill to allow capital allowances against income other than the income earned by running a taxi business against, for example, spouse's income? Will he also consider a further amendment which would allow someone who bought a taxi plate, say, two years ago to offset against income earned from an employment prior to that date?
I am aware the Minister is applying what is now available in respect of plant and machinery to the taxi plate. However, in the interests of fair play, an amendment to the Finance Bill is necessary which is designed to meet the particular need. The Minister would not be over-generous if he allowed this relief against all income, including spouse's income. In the case of recent purchasers who have the biggest loss, perhaps he would allow relief against income earned from other employments prior to the date of acquiring the taxi licence.
I am willing to consider any hardship cases brought to my attention between now and the Finance Bill. My announcement regarding the allowability of capital allowances against taxi plates was innovative. I am aware that certain people may have some difficulties. I will consider cases put to me, hypothetical or otherwise, where my scheme of capital allowances may not be of any great benefit. I am willing to consider hardship cases and the look-back period, and it is unique to apply this provision retrospectively. However, the principle I am applying to allow for depreciation on a wasting asset is not unique.
Those who bought taxi plates would have assumed they would be more valuable in the future, therefore, they would have fallen within the category of possible capital gains tax or loss, as the case may be. It is now legitimate to regard this asset as plant and machinery, an asset which will depreciate and not have the same value in the future. That principle is not new. However, my measure is unique in that I am prepared to consider the issue retrospectively.
The Deputy raised interesting questions about other incomes against which relief should be allowed. I will consider cases put to me and make sure that the Finance Bill will incorporate changes to deal with these particular problems. I am sure that neither the Deputy nor I would want to encourage a situation whereby a very wealthy person who may have a lot of income from other sources would be able to offset the capital allowance against that income. For example, it would not be legitimate to offset plant and machinery against the income of a solicitor, barrister or any other profession – I am not sure if there are barristers in the taxi trade. I am sure the Finance Bill will make allowances for hardship cases.
The difficulty here is that taxi plates have become items of value and have been treated as such by the Revenue, for example, for CGT or CAT purposes, irrespective of what was originally spent on them. Someone who got a plate for virtually nothing 20 years ago thought of themselves as owning an asset worth £70,000 or £80,000. Is there a case, therefore, to be made for compensating those people, irrespective of their original outlay, for the loss in the intrinsic value of the plate, which is clearly now not worth £70,000 or £80,000?
I do not doubt the Deputy's bona fides in trying to put forward genuine hardship cases. However, if one was to extend that particular principle, in almost all business decisions where people suffer loss, the State would be asked to take up the slack. Let us suppose a small business has to cease trading because a better supermarket opened up in the neighbouring town, of which there are many examples in my constituency, that business which may have been valued at £200,000 a few years ago might now be worth approximately one-tenth of that amount. The Deputy is hardly advocating that the State should compensate for such a loss.
What happens where a husband is earning a very good income and dies suddenly, I have personal experience of such a case? The State does not compensate that person's widow for the loss of business. Under the social welfare code, that widow may obtain some weekly allowance. I have a lot of experience in this area.
While I am willing to consider genuine hard ship cases, I do not agree with the principle the Deputy has outlined, if that is what the Deputy is advocating.
Is the Minister really dealing with hardship cases by trawling up cases of even worse hardship from his professional experience? That does not meet the need.
I know of taxi drivers in my constituency who became redundant, had no job, had their house paid for and remortgaged it to pay for a taxi plate. These plates are of no value now and the jobs will probably not be as lucrative as they might have been. In such circumstances, people have very significant mortgages because that is what they used to fund the purchase of the taxi plate. What the Minister is proposing by way of compensation through capital allowances favours those who are doing well in the business rather than those who are doing badly. Given that the relief will be at the marginal rate, those who are paying at the standard rate will only get relief at that rate. Therefore, it tends to favour the well off. Those who are struggling and paying no tax or very little tax have no taxable income to offset against.
Approaching compensation through the tax capital allowances formula only favours those who are not hardship cases and does nothing for the hardship cases. Will the Minister bring a proposal to his colleagues in Government to make provision for ex gratia compensation payments for hardship cases where the hardship can be proved?
The principle the Deputy is outlining in relation to deregulation and other losses business people suffer is that the State should step in with a form of compensation. I did not think that was the position adopted by either the Deputy or his party in these matters.
As I said, I am willing to consider genuine hardship cases in the Finance Bill to see how they can be facilitated by the tax code. It is a separate debate as to whether people will do more or less business in the taxi area as a result of deregulation. There has been more business for everyone in other businesses that have been deregulated and properly run. I do not profess to have any great expertise in the area of taxis, but I am bold enough to state that the living to be made from owning a taxi in the future, in spite of deregulation, will be better than it is now. That has been the experience in all other areas.
The situation I outlined in regard to capital allowances would put everyone in a better position in terms of their after tax income than is currently the case. Irrespective of whether people made large or small incomes from their businesses in recent years, they are not allowed the cost of the asset they purchased. If a person mortgaged his or her house, he or she is allowed, in terms of expenses, interest on the loan. However, he or she is not allowed, up until now, depreciation on the asset. Therefore, he or she has to fund the repayments or principal out of after tax income.
The changes I made in respect of capital allowances mean that after tax incomes are higher. We could have a separate debate on whether overall gross income at the top, due to deregulation, will rise or fall, but the net tax positions will be somewhat better. The Deputy is correct in stating that the higher a person's income the better will be his or her benefit at the marginal rate. This applies to all other areas.
The market was regulating itself in this sector as regards prices. People were paying large prices in the free market in the expectation of garnering big profits. One would not pay £60,000 for a taxi plate if one thought one was only going to make a couple of thousand pounds per annum. That would not make economic sense and I doubt if anybody did so.
What I am allowing people in terms of depreciation will be of more benefit to them in terms of their ongoing business. The separate question arises in respect of the expected capital depreciation by which a taxi plate might be affected in the future. That will not be the case because taxi plates will not be sold in that way. I will provide an analogy. Deputy Noonan's house, like mine, might have been worth £50,000 15 years ago and it could be worth a couple of hundred thousand pounds today. It might give the Deputy great comfort knowing that but if one wants to buy a new house one is obliged to pay the current market price. A person can only sleep in one bed and live in one house.
Unless a person involved in the taxi business is going to sell the plate when he or she retires, it is of no particular value to them. However, under my scheme of depreciation, it is of value to them as they continue in business. People do not appreciate that.
The time for this question is exhausted. We must proceed to the next question.
We are very clear on the principle – our spokesperson, Deputy Olivia Mitchell, has outlined that principle – and I am not debating it with the Minister. However, is he informing the House that the Government has decided that the tax measure is the only measure that will be introduced and that there will be no ex gratia compensation of any kind, regardless of hardship, for taxi drivers?
I will allow a final supplementary from Deputy McDowell.
I put it to the Minister that his analogy is not quite fair. The use of the word "depreciation" is hardly fair because we are not discussing depreciation in the value of the asset, we are discussing allowing somebody to write off the initial cost to them of acquiring the asset in the first instance.
Yes, because they could have sold the asset and, if they did, they would be subject to capital gains tax code and not the income tax code. The Deputy is mixing up two different tax principles.
We could debate that point because someone who, for example—
Question Time is not a time for debating issues, it is a time for asking questions.
—paid VAT in recent years on the acquisition of a taxi plate has had the value assessed as the market value of the plate at the time. Perhaps the Minister will confirm that this is the case. I put it to the Minister that there is a difference between our positions in so far as the value of the plate has been eradicated or vastly reduced by virtue only of a decision of Government, not because of some act of God, a change in the marketplace or anything of that kind.
It arose from a decision of the Government which was necessitated by a decision made by the courts. The consequential regulations had to be put in place on foot of the court's decision.
Capital acquisitions tax, which is a broad heading for gift or inheritance tax, applies when people die and their estate has to be valued. All their assets are valued and, therefore, if a person owned a taxi plate it would have to be valued. However, if the person who died passed on all his or her assets to his or her spouse, under the Finance Act, 1986, introduced by Deputy Dukes, no inheritance tax is liable to be paid. In addition, probate tax is not paid on a transfer from husband to wife because that tax only arises when death has occurred.
The Deputy may have a case in circumstances where a person may have died intestate. As he is aware, under the intestacy laws two thirds of the estate goes to the spouse and one third to the issue. The one third that went to the issue could possibly fall liable to gift or inheritance tax, but not the transfer to the spouse.
In reply to Deputy Noonan's question, the Government made decisions regarding the regulations put forward by the Minister of State at the Department of the Environment and Local Government, Deputy Molloy. I dealt with the taxation area and I came forward with this concession. That is the scope of the Government's decision.
