Adjournment Debate. - Tax Code.
Mr. M. Higgins: When the Minister of State at the Department of the Environment and Local Government, Deputy Molloy, introduced deregulation of taxis he suggested that the measure was necessary. I questioned the measure at the time and suggested that reregulation and not deregulation was required. The Minister of State also suggested that he would be willing to listen to cases of distress or hardship.
What has transpired is the reference in section 51 of the Finance Bill to capital allowances for expenditure incurred on taxi licences acquired on or before 21 November 2000. The allowances, effectively, are backdated with the cost being deemed to have been incurred on 21 November 1997 where the licence was purchased prior to that date. The cost can be written off over five years at a rate of 20% per annum in line with the new capital allowances regime for plant and machinery announced in the budget. This is an insult to those whom the Government placed at risk of losing their homes and for whom the capacity to rear and sustain their families was taken away by the Minister of State, Deputy Molloy.
Let me give an example of what I have in mind. I deal with practical cases. A taxi driver who bought a licence for £70,000 from somebody who now drives around with one of the new licences for £5,000 had a taxable income of approximately £700 last year. It will take 100 years for what the Minister for Finance has proposed, at the request of the Minister of State, in section 51 of the Finance Bill to be of any benefit.
Other issues arise immediately. There are, for example, the issues that arise in relation to the destruction of the value of an asset which was not created by those who applied for or bought it in what is referred to as the secondary market. The asset acquired its status by virtue of the fact that a limited number of licences were issued and the local authority operated a quota system. People, therefore, borrowed money. In another case, the licence was purchased for £58,000 by adding to the mortgage on a house.
Those who spent £70,000 and £58,000 on licences have been asked to enter into competition with those who have not been asked to fulfil any requirements in relation to personal skills, size or quality of vehicle, commitment to a roster and commitment to provide a service during unsocial hours. They have to enter into competition with those who bought licences for £5,000. I ask the Minister of State not to tell me what is contained in the Finance Bill, but what the Government proposes to do to relieve the distress caused. I remind him that when the issue was discussed before I referred to an example in the United States in the 1980s where 24 cities experimented with deregulation. By 1993, only four were still operating a deregulated regime; all the others had reverted to regulation in some form.
What is needed is an adequate supply of clean vehicles to meet public demand which are driven properly by people who are competent and committed to operating a full service which is not only available at peak times. The position is that anybody can apply for a licence and concentrate on the peak times. The wife of one of those who borrowed money, who is trying to rear her family and whose home is at risk told me that her husband is now working 90 hours per week. If the Minister of State wanted to look after the people he had impoverished, why did he not treat them in the same way as those who have deferred share options in companies? If he wanted to offer £5,000 licences, he should have purchased back all the existing licences and reissued them under a regulated scheme in terms of personal fitness, vehicle fitness, commitment to a roster and adequacy of provision for the public. We would then have had a level playing field. Those who were already in the market now have to drive around with the disability of having to work twice as hard to meet the commitments they made on the basis of an asset for which they received credit.
I appeal to the credit institutions and the banks which are already writing to many of the families I know of to remind them that they are over the limit in regard to their loans and that the collateral they offered is in danger of being seized. I cannot understand how in a democracy a judge in giving a judgment would say that he will only award half the costs where people forfeit their right to appeal. It seems to be an extraordinary judgment. I appeal to the Minister of State to announce further measures to relieve the poverty created by the Government by way of its crude deregulation.
I thank the Deputy for raising this issue on the Adjournment. The Minister for Finance regrets that he cannot be present to take the matter. I strongly object to the suggestion that the concession made in respect of taxi licences acquired on or before 21 November 2000, that is, the announcement date of the new taxi licence regime, is, in any way, inadequate in the circumstances. It is important to make the point that what has been offered is not compensation for taxi drivers. That was never the intention. What is on offer is a wear and tear allowance against an asset people would have purchased prior to 21 November 2000. This is a generous measure.
Let me explain what is involved. It has been provided in section 51 of the Finance Act, 2001, that in the case of the taxi licences to which I have referred a new scheme of capital allowances for expenditure incurred in purchasing a licence will apply. The actual cost of the licence can be written off over five years at the rate of 20% per annum in line with the new write-off period for capital allowances for plant and machinery. Section 51 of the Finance Act, 2001, provides that the write-off will be allowed against the trading income only of the licence owner who drives the taxi. However, if the same vehicle is rented out on a part-time basis, then the cost can be written off against both the trading income and the rental income from the vehicle in question. Moreover, the capital allowances are, effectively, backdated with the cost being deemed to have been incurred on 21 November 1997 where the licence was purchased prior to that date.
In the Dáil Committee Stage discussion of the taxi licence issue the Minister for Finance introduced some further refinements to the provision, as it then stood, which are now reflected in section 51. The objective was to address some hardship cases that had been brought to his attention. Accordingly, the section also provides that where a licence was inherited from a deceased spouse who carried on a taxi trade the licence holder may offset the capital expenditure incurred on the original acquisition of the licence against the rental income from the licence, even if there is no trading income from the licence. This measure will only be available in respect of one licence.
In cases where inheritance tax or probate tax was paid in respect of a taxi licence, the value used for such tax purposes may be used instead of the actual capital expenditure cost, if higher. On Committee Stage, discussion of section 51 centred around whether the value of the licence before deregulation should be used for such tax purposes in place of the actual cost of the licence, if higher. It is an underlying principle in the tax code that relief by way of capital allowances is only given in respect of expenditure actually incurred. There is no other situation where capital allowances are given in respect of notional expenditure incurred or on the estimated market value of an asset.
When the difficulty with taxi plates arose at the end of last year, the Minister for Finance announced that he would give capital allowances on the cost of a taxi plate. The principle is that it has to be the actual cost, no matter how long ago the plate was purchased. As the Minister stated on Committee Stage, it would create an unheard of precedent in the tax code to start imputing a value, regardless of the cost incurred. The Minister will not establish the principle that, due to deregulation, we will impute a value higher than the actual purchase price of the plate. Those involved and who will continue to be involved in the taxi business are in a far better position after tax under the changes the Minister has made than they would have been under the old system.
How could they be if they do not have a taxable income?
Sin scéal eile. Most of those involved in the taxi business have some income.
The principle underlying wear and tear allowances on plant and machinery is that the asset wears out over time and depreciates to nil. The wear and tear allowances are given in recognition of this. In introducing an amendment which allowed value to be substituted for cost in cases where probate tax or inheritance tax was paid in respect of a licence, the Minister made an exception because he was trying to cater for a particular hardship case which was brought to his attention where £1,400 was paid in probate tax in respect of a taxi plate which formed part of the estate of a deceased taxi driver who had died intestate leaving behind a widow and children. For probate tax, the licence was valued at £70,000 and 2% tax was paid.
The Minister for Finance further extended the provisions of the section on Report Stage to cater for scenarios where a widow or widower has inherited the licence from his or her spouse.
In the circumstances the capital allowances that have been granted to taxi drivers are a generous and adequate response to what has happened.
The recent High Court ruling on 23 March upheld the Government's decision on deregulation of the taxi business.
It was an attack on the poor man.
