I move: "That the Bill be now read a Second Time."
The Bill before us has been framed in the context of the most difficult economic and financial climate in a generation. The upheaval and uncertainty in the international financial system has had a detrimental impact on the global economy and its prospects. Each day brings further bad news for economies across the globe. The majority of our trading partners are experiencing a weakening in their economic fortunes and this clearly will have a negative impact on a small, open trading economy such as ours.
On the domestic front, the contraction in the new house building sector, which will continue into next year, has been exacerbated by the international credit difficulties. The downturn in construction has resulted in a rise in unemployment and deterioration in consumer sentiment.
On foot of these developments, economic activity is forecast to contract both this year and next year. The rapidity and scale of the downturn has surprised even the most pessimistic of commentators. However, it is important to remember that despite the gloomy short-term outlook, our economy retains the structural achievements of the past decade. Notwithstanding the rise in unemployment, we now have 600,000 more persons at work than we had in 1998. Our export levels have doubled over the past decade and the living standards of ordinary workers have risen substantially. We also have one of the lowest public debt levels in the EU.
Our main economic focus must be the restoration of international cost competitiveness. It is imperative that we are in a position to take advantage of the global recovery when it emerges. Maintaining public capital investment at high levels relative to national income, boosting productivity and ensuring credibility and sustainability in the public finances will all be helpful in this regard.
Confronted with rapidly falling revenues and negative economic growth, we had to introduce the most difficult and unpalatable budget since the late 1980s. As a Government, we faced difficult choices, but in making those choices we were at all times conscious of the need to protect the truly vulnerable in our country. That is why we increased the State pension by €7 per week and all working age payments by €6.50 per week.
In framing the budget, we were also guided by the need to introduce measures that would strengthen economic performance and encourage recovery. The essential first step to economic recovery is to stabilise our public finances. The Bill we are debating contains the necessary adjustments to ensure the 2009 budgetary arithmetic is maintained and that the core disciplines and decisions to correct our public finances remain intact. We must support and develop our productive sector to ensure our competitiveness is maintained and enhanced. As I stated last Thursday, the Bill supports enterprise and sends out a message that Ireland is open to business.
In my budget speech, I said that despite the need to raise revenues, the Government is committed to maintaining and enhancing pro-employment business tax relief. I announced in the budget the introduction of a three-year exemption from corporation tax on trading profits and chargeable gains for new companies commencing to trade next year. New companies that benefit from tax exemption will see full relief where total corporation tax liability in any of the first three accounting periods does not exceed €40,000. There will be marginal relief where corporation tax liability falls between €40,000 and €60,000.
I also announced in the budget that the research and development tax credit would increase from 20% to 25%. The Bill includes very significant changes to the scheme which increase its attractiveness to business, in particular small companies and those in the start-up phase. These changes involve the following: an option to carry-back unused tax credits for set-off against the previous year's corporate tax liability, thereby generating a tax repayment; a further option, where there is insufficient or no corporation tax liability in the previous year, to claim payment of the remaining unused credit which will be paid in instalments over a three year period; 2003 will be permanently set as the base year for calculating incremental research and development expenditure under the scheme — over time, this will have the effect of turning the scheme into a volume-based scheme; and finally, the Bill provides that a tax credit will be available in respect of a proportion of the expenditure incurred on a new or refurbished building used in part for research and development activities. This change reflects the reality that research and development takes place in manufacturing or production environments and not just in laboratory conditions. These combined changes make our research and development regime in corporation tax one of the most attractive in the world.
In respect of international trade, I want to refer to our network of double taxation agreements, which was significantly increased this year with the addition of Turkey, Malta, Vietnam, Macedonia and Georgia. These agreements lead to the reduction of tax obstacles that could deter cross-border activity and are critical to the development of our bilateral trading and investment opportunities. The signature of agreements with Malta and Turkey was particularly significant because they represent the completion of Ireland's network of double taxation agreements with all EU and OECD countries and brought our total network to 50 double taxation agreements.
As ratification of these agreements can take time, because of lengthy parliamentary procedures in most countries, I am making provision for the recognition of payments to and from these countries for preferential tax treatment as soon as the agreements are signed, rather than awaiting the completion of the ratification process. This will have the effect of accelerating reliefs to business in the area of dividends, interest and capital gains tax already contained in the tax code.
The income levy was one of the key measures in the budget aimed at stabilising tax revenues. The levy will apply at a rate of 1% to gross income up to €100,100 per annum or €1,925 per week and at a rate of 2% to gross income above that amount. A further 1% will be payable on gross income in excess of €250,120 per annum or €4,810 per week. This additional 1% will enhance the progressive nature of the levy. It helps meet the cost of the exemption thresholds now being included for those on low incomes and the elderly.
All social welfare and similar type payments will be excluded from the levy. Similar payments from other states will also be exempt. Those with an entitlement to the medical card will also be exempt from the income levy. The exemption threshold of €18,304 per annum is being introduced to exclude those on low incomes and age-related exemption thresholds for persons aged 65 years and over are also being introduced. The income levy is progressive. It does not apply to low incomes or social welfare payments. In short, it means that the vulnerable and elderly are protected while those best able to pay will pay the most. Those paying at the top rate of 3% will contribute 20% of the total take from the levy.
In the case of income tax, the standard rate bands will increase by €1,000 from €35,400 to €36,400 for single individuals, from €44,400 to €45,400 for a married one-earner couple and an increase of €2,000 from €70,800 to €72,800 for a married two-earner couple. This measure will help to cushion the effect of the income levy on middle-income earners.
There is also provision for an increase in the rate of mortgage interest relief for first-time buyers from 20% to 25% in years one and two and from 20% to 22.5% in years three, four and five. While the measure also provides for a reduction in the rate of mortgage interest relief for non-first-time buyers from 20% to 15%, it is broadly revenue neutral. This re-balancing makes for a fairer system and helps those buyers with the biggest financial exposure and those facing falling property values.
The Bill confirms the budget day increases in excise duties and it makes provision for an increase in betting duty from 1% to 2% from 1 May 2009. The Bill allows deducibility for betting duty in computing the amount of profits or losses of a bookmaking business for income tax or corporation tax purposes.
New arrangements for the VAT treatment of tour operators and travel agents are also contained in the Bill. A margin scheme for tour operators, and a measure making travel agents liable to VAT on their commission, are being introduced with effect from 1 January 2010. Most EU member states operate a margin scheme for tour operators whereby they are taxed on the profit margin realised on the supply of a domestic or EU travel package.
I am amending Revenue's civil penalties regime across all taxes and duties except customs in accordance with the advice which Revenue received from the Attorney General, and as recommended in the Law Reform Commission's "Report on a Fiscal Prosecutor and a Revenue Court", so as to ensure its compatibility with the provisions of Article 6 of the European Convention on Human Rights. In brief, a person will be given an opportunity to have the courts examine whether that person is liable to a civil penalty for contravention of tax or duty legislation.
I will also amend the various tax codes so as to place on a statutory basis the current practice of the Revenue Commissioners in respect of the level of tax-geared penalties sought in settlements arising out of Revenue audits and investigations. In addition, a number of fixed penalties are to be brought up to date and standardised and the amounts of such penalties, which have not been increased in many years, are to be increased.
The Bill runs to 95 sections and six schedules and is structured by tax heads. In the time available, I will outline some of the main provisions.
Section 2 describes the income levy. As I have already outlined, the levy will apply at a rate of 1% to gross income up to €100,100 per annum or €1,925 per week and at a rate of 2% to gross income above that amount. A further 1% will be payable on gross income in excess of €250,120 per annum or €4,810 per week. All social welfare payments will be excluded from the levy, as will similar type payments made by Departments and agencies other than the Department of Social and Family Affairs, in addition to similar payments from other bodies. Those with an entitlement to the medical card will also be exempt from the levy and an exemption threshold of €18,304 per annum is being introduced to exclude those on low incomes from the levy. Age related exemption thresholds for persons aged 65 years and over are also being introduced. These thresholds will be €20,000 per annum, with a provision for double that limit for a married couple where one or both is aged 65 or over. Where the age related or general thresholds are exceeded, the levy will be payable on all income.
Section 3 provides for a parking levy, which is to apply where an employer provides car parking facilities for employees. The levy will apply where an employee has an entitlement to use a parking space and such space is provided directly or indirectly by his or her employer. The levy will not apply to disabled drivers or to employees of the emergency services in the context of responding to an emergency situation. The charge for a full year will be €200 where an employee has an ongoing entitlement to use a parking space. Where parking spaces are shared by employees, the levy is reduced to €100 where the ratio of the number of employees to the number of parking spaces is two to one or more.
Section 4 provides for an increase in the standard rate bands by €1,000 from €35,400 to €36,400 for single individuals, from €44,400 to €45,400 for a married one-earner couple, and an increase of €2,000 from €70,800 to €72,800 for a married two-earner couple. This measure will help to cushion the effect of the income levy on middle income earners.
Continuing the work commenced earlier this year, section 6 will provide for a new CO2 based system of calculation of benefit-in-kind in respect of company cars provided for employees. The new system is structured on the seven bands adopted for vehicle registration tax. Cars in the three lowest bands of CO2 emissions remain at the current level of benefit-in-kind charge, and higher charges apply for vehicles with higher emission levels. Existing vehicles retain the current method of calculation of benefit-in-kind.
As regards health expenses relief, section 8 provides that the relief will be granted at the standard rate only from 1 January 2009, with the exception of nursing home expenses which will continue to be allowed at the marginal rate.
In providing tax relief, we must ensure as far as possible that it is targeted on those that need it most. As such, section 12 provides for an increase in the rate of mortgage interest relief for first-time buyers from 20% to 25% in years one and two and from 20% to 22.5% in years three, four and five. The measure also provides for a reduction in the rate of mortgage interest relief for non-first-time buyers from 20% to 15%. This measure is broadly revenue neutral and this re-balancing makes for a fairer system and helps those buyers with the biggest financial exposure and those facing falling property values.
The so-called "'Cinderella" rule is changed by section 13. Under this, presence in the State during a day does not count in determining residence for tax purposes where the individual leaves before midnight. In future, a presence in the State at any time during a day will be counted for determining residency.
As regards pensions, section 14 provides that the annual earnings limit for determining maximum tax-relievable contributions for pension purposes is being set at €150,000 for 2009 in comparison with the 2008 limit of €275,239. The formula relating to the determination of the annual earnings limit is amended, as are the standard and personal fund thresholds in order to provide the Minister for Finance with discretion as to whether those thresholds should be indexed.
In the area of farming, section 15 extends the farm pollution control relief to 31 December 2010. This relief will continue to encourage farmers to make the necessary and sometimes costly investments in pollution control measures while section 16 renews the 25% general farming stock relief and the special 100% stock relief for the same period.
A scheme to facilitate the removal and relocation of certain facilities where potentially dangerous activities are undertaken is introduced by section 19. Such industrial facilities can hinder the industrial and commercial regeneration of docklands in urban brown field areas. The scheme arises from the EU Seveso Directive 96/82/EC, which seeks to protect public safety near locations where potentially dangerous activities are undertaken. The relief, given by way of accelerated capital allowances and "additional relocation allowances" covers the removal costs of the industrial facilities and the cost of building the relocated facilities, including land purchase costs. Costs are limited to the net costs of the removal and relocation.
The rates of tax that apply for deposit interest retention tax and other investment products are increased by sections 24 and 25. In order to support new companies, section 27 introduces a three year tax exemption for new start-up companies which commence to trade next year. Also in support of business, section 29 makes provision for the recognition of payments to and from countries where double taxation agreements have been signed for preferential treatment rather than awaiting the completion of the ratification process. Sections 30, 31 and 32 deal with various amendments to the provisions relating to the research and development tax credit, the main elements of which I have already outlined to the House.
Building on the initiatives in the Finance Act 2008, section 33 extends from three to seven the categories of energy-efficient equipment included in the scheme of accelerated capital allowances for energy-efficient equipment. The scheme provides for 100% capital allowances in the year of purchase on expenditure incurred by companies on qualifying equipment bought for the purposes of the trade. The new categories included in this scheme are information and communications technology, heating and electricity provision, process and heating, ventilation and air-conditioning control systems and electric and alternative fuel vehicles.
All sectors must make a contribution to stabilising our public finances. Accordingly, section 34 provides for revised arrangements for the payment of preliminary tax by large companies with a tax liability in excess of €200,000 in their previous accounting period. It also revises the dates for payment of capital gains tax on asset disposals by individuals, thereby giving effect to the two measures announced in the Budget Statement. The section provides for payment of preliminary tax by large companies in two instalments, the details of which are set out in the explanatory memorandum to the Bill.
With regard to capital gains tax, the payment date for disposals made in the period 1 January to 30 November of a year of assessment will be 15 December, while the payment date for disposals made in December will be the following 31 January. The revised payment dates apply to disposals made in 2009 and subsequent years.
To ensure consistency with the EC treaty, section 37 amends the existing provision that provides that any gain arising from the disposal of assets situated outside the State and the United Kingdom to a person who is resident or ordinarily resident, but not domiciled in the State, is based on the actual amount received in the State, in accordance with the remittance basis of taxation. Section 39 increases the capital gains tax rate to 22%, as I announced in my budget speech.
Excise duties are dealt with in sections 41 to 61, inclusive. These sections set out a range of changes in regard to excise duties, including confirming the budget day increases in excise on tobacco, wine and petrol; the introduction of a lower rate of excise duty for low alcohol beer and cider; and for increases in excise duty payable in respect of licences, other than pub licences, permitting the sale of alcohol.
The provision to increase betting duty from 1% to 2% from 1 May 2009 is set out in section 48 and, as I have already mentioned, to allow deductibility for betting duty in computing the amount of profits or losses of a bookmaking business for income tax or corporation tax purposes.
The introduction of an air travel tax from 30 March 2009 is provided for in section 50. The general rate applying will be €10 per passenger, with a lower rate of €2 for shorter air journeys. I have taken account of concerns raised by regional airports, particularly those on the western seaboard. The lower rate of €2 will apply to departures from any Irish airport where the destination is 300 km or less from Dublin airport. This means that all Irish departures to locations such as Manchester, Liverpool and Glasgow will be subject to the €2 rate.
To address ongoing concerns about road safety and VRT evasion, section 56 provides for the introduction, in respect of vehicle registration tax, of a pre-registration test for vehicles, including used imported vehicles, being brought into the State while section 59 provides for the setting up of a temporary registration system for non-Irish registered vehicles being brought into the State for a period of more than 42 days.
In addition, provision is being made for the introduction of estimated excise assessments in cases where excise duty, including VRT has not been paid; extending more specifically the principle of unjust enrichment to VRT; and for changes to the VRT relief scheme for short-term car hire including phasing out the scheme, over a period of two years, by October 2011.
VAT is dealt with in sections 62 to 71, inclusive. These sections set out a range of changes in regard to VAT including, as announced in the budget, the increase in the standard VAT rate by 0.5% to 21.5% with effect from 1 December 2008. This increase applies to all goods and services which were subject to VAT at 21%. The other VAT rates are unaffected.
Section 73 amends several sections of the Stamp Duties Consolidation Act 1999 to allow for the introduction of the e-stamping of instruments for stamp duty purposes. To facilitate the introduction of e-stamping, section 74 provides an incentive to encourage the presentation to Revenue of instruments executed before the enactment of the Bill and in respect of which the stamp duty chargeable has not been paid within the prescribed period of 30 days. Provided such instruments are presented to Revenue for stamping within eight weeks of the passing of the Act together with the full stamp duty and appropriate interest, a penalty will not be applied to such instruments. This measure is intended to facilitate a smooth transition to e-stamping.
Section 75 repeals section 110 of the Finance Act 2007 from the enactment of the Bill and reinstates it with the same charging provisions but subject to certain exemptions being made to those charging provisions. The exemptions relate to certain transactions involving public private partnership arrangements and certain incentive schemes for capital allowances purposes. The section is subject to a commencement order being made and it is my intention to commence the provisions early next year.
Section 79 amends Part 9 of the Stamp Duties Consolidation Act 1999 to confirm the new reduced charges, already announced in the budget, for ATM, debit and combined ATM debit cards. The new rate on ATM cards and debit cards will be €2.50 and on combined cards it will be €5. The reduced charges for ATM, debit and combined cards take effect for the year ending 31 December 2008.
The reduction in the top rate of stamp duty for non-residential property from 9% to 6% is dealt with in section 80 along with a number of other items. Section 83 increases the rate of tax on gifts and inheritances from 20% to 22%. The tax reliefs in respect of the donation of heritage items to approved State institutions and the donation of heritage property to the Irish Heritage Trust are amended by section 87 to 80% of the market value of the items and property donated respectively. The ceiling on the aggregate value of donations qualifying for each of these schemes in any one year will remain at €6 million. This measure will ensure that the State achieves value for money and that there is a greater philanthropic element in the schemes.
To further facilitate business, section 89 and Schedule 3 give effect to the budget day announcement of an extension to return filing and payment deadlines where returns and payments are made electronically via the Revenue On-line Service. A number of amendments are being made to the Taxes Consolidation Act 1997 and to the Value-Added Tax Act 1972 to extend and align the existing deadlines for corporation tax, relevant contracts tax and value-added tax.
With effect from 1 January 2009, where returns and payments are made electronically, the return filing and payment deadlines for these taxes will be the 23rd of a month. This has the effect of extending the existing filing and payment deadlines by two days for corporation tax, four days for VAT and nine days for relevant contracts tax. A similar extension to the 23rd of a month is also being made for PAYE and PRSI by way of an amendment to the PAYE regulations.
Similarly, section 90 and Schedule 4 streamline and simplify the provisions in various Acts relating to the collection and recovery of taxes and duties, except customs, and replaces them with an integrated collection and recovery regime across the various tax headings.
I hope that the House has benefited from this explanation of some of the measures in the Bill. The measures it contains strike a balance between the need to protect those on low incomes and the need to restore order to our public finances. It also contains the measures we need to promote enterprise and business in this country so that we can return as early as possible to the path of growth. There are some matters under consideration that I may bring forward on Committee Stage. I will, of course, also give consideration to any constructive suggestions put forward during the debate today and tomorrow.