We will deal with No. 3 on the agenda, a discussion with the Irish Taxation Institute and the Consumers' Association of Ireland on the subject of allowances and reliefs for taxpayers. This is the first of two meetings on the subject. Next week representatives of the Revenue Commissioners will attend to discuss the same issue. We are joined by Mr. Dermot O'Brien, president of the Irish Taxation Institute; Mr. Mark Redmond, chief executive, and Ms Cora O'Brien, director. We are also joined by Mr. Dermot Jewell of the Consumers' Association of Ireland. I welcome them and thank them for attending. Before the discussion begins, I advise that while comments of members are protected by parliamentary privilege, those of visitors are not. Members should not comment on, criticise or make charges against a person outside the committee or the Houses. We will commence with a short PowerPoint presentation by the Irish Taxation Institute. We will then have a presentation by the Consumers' Association of Ireland, after which there will be an open discussion with members of the committee.
Tax Allowances and Reliefs: Presentation.
Mr. Dermot O’Brien
On behalf of the Irish Taxation Institute, ITI, I thank the Chairman and joint committee for the invitation to attend today. We want to discuss with members the very important issue of unclaimed tax reliefs and to offer our thoughts and suggestions as to how ordinary PAYE taxpayers might best be served by the tax administration system. As president of the ITI, I commend the Chairman and members of the committee for granting this issue the importance it deserves and taking an active interest in it. Their initiative in putting the issue of unclaimed tax reliefs on the formal Oireachtas agenda is not only a reflection of the importance of the subject but also recognition of the central role played by the most important person in the the tax system, the PAYE taxpayer.
I am joined by Mr. Mark Redmond, chief executive of the ITI, and Ms Cora O'Brien, director. If the committee is agreeable, my colleagues and I propose to use the time allocated for our opening address to offer some background information on the ITI and our work to date in the area of unclaimed tax reliefs, to outline our views on the current administrative system for claiming tax reliefs and to bring forward recommendations for specific measures which could be taken to offer real improvements for PAYE taxpayers. We will be happy to take any questions members of the committee might have arising from our presentation.
As the leading representative body on taxation affairs in Ireland and an organisation with 5,500 members nationwide, the ITI's key function is to create a deeper understanding of how the tax system works. Now in its 40th year, the ITI educates, represents and sets standards for qualified tax advisers and works to inform and assist PAYE taxpayers in their day-to-day dealings in taxation matters. Through our nationwide branch network and comprehensive committee structure our members are actively involved in developing and advancing research on taxation isues. The everyday experience of our members means the ITI is perfectly located to play a very important role in outlining its views on the administration of the tax system.
For some time it has been clear to our members that people are losing out on significant amounts of money every year by not claiming their tax entitlements. To ascertain the scale of the problem, last June we decided to conduct the first ever survey of PAYE taxpayers, details of which my colleague Mr. Redmond will present shortly. The findings were stark and brought real attention to this issue, the proof of which is its place on the committee's agenda today.
There was an immediate response to our survey results from the Revenue Commissioners, highlighting people's ability to recover tax. That was welcome but the timing was interesting. The findings have placed an onus on all of us who believe in an efficient and fair tax system to take meaningful action to address under-claimed taxes. Mr. Redmond will outline how best we can achieve this objective.
Mr. Mark Redmond
I thank the Chairman and members of the joint committee for inviting us before it. In the committee's letter of invitation, we were asked to specifically address three key areas: the level of non-claimed allowances by ordinary taxpayers; the level of awareness or otherwise among taxpayers about their entitlements; and support given by the Revenue Commissioners in this regard. My colleague, Ms Cora O'Brien, and I will discuss these issues.
With regard to the non-claiming of allowances, the institute believes individual taxpayers are entitled to receive all necessary information in a clear and timely manner to help them claim their entitlements. We also believe individual taxpayers are entitled to an efficient and timely service from the Revenue Commissioners and to independent oversight and monitoring of their rights.
As the members of the committee may be aware, the institute has in recent years engaged in a number of initiatives aimed at helping taxpayers in getting entitlements. In 2006, for example, as part of our PAYE Tax Return Week campaign, we published a series of tax guides in plain English written for the ordinary taxpayer. These explained the system and how taxpayers get what they are entitled to. We distributed the guides freely throughout the country by means of the network of citizen information centres and our website. The guides were also translated into Polish, Czech, Slovak, Latvian and Lithuanian.
The response from the public to these initiatives confirmed statements made by members of this committee that a substantial number of our more than 2 million PAYE taxpayers were paying too much tax, many unknowingly. As the president of the institute has alluded to, it was against this backdrop that we commissioned independent research to measure the level of awareness and understanding among PAYE taxpayers about the tax system and entitlements. It will not surprise the committee to hear that the survey confirmed what we all suspected.
Up to hundreds of millions of euro remain unclaimed by our PAYE taxpayers. The problem is deep-seated and demands a sustained and systematic response. The key poll findings regarding non-claiming of tax allowances indicated 50% of taxpayers are not claiming tax relief on medical expenses, 55% are not claiming tax relief on bin charges and two in five are uncertain of their entitlements.
We have estimated that the tax overpaid as a result of non-claiming of medical expenses alone could be €50 million per annum. I stress that this is a non-scientific measurement and could be conservative. The chairman of the Revenue Commissioners, Mr. Frank Daly, stated before the Committee of Public Accounts on 9 November last that the amount of PAYE tax overpaid by employees could amount to €100 million per annum. We do not know the exact amount because it has not been scientifically measured.
The committee's second concern was the awareness among taxpayers of their general entitlements. Our research has clearly shown that taxpayers not claiming their entitlements is down to two key reasons. These are lack of awareness and confusion about how the system works. Key poll findings on this issue indicate that one in every two PAYE taxpayers does not understand how tax is calculated and a third — some 700,000 — do not understand the most basic information they receive each year on their tax position, the P60 at the end of the year or the certificate of tax credits at the beginning of the year. These findings are supported by other research on this issue. For example, market research published by Irish Life this month reports that almost 60% of taxpayers do not understand how tax relief for pension contributions works.
The committee also asked about support from the Revenue Commissioners. As the institute president has stated, the Revenue took some very specific and welcome actions following the publication of our findings. In August last year it launched an information campaign aimed at PAYE taxpayers, explaining some key reliefs and encouraging the claiming of refunds. We also give Revenue credit for its electronic services from text messaging to on-line filing, the Revenue on-line system, ROS. ROS is unavailable to PAYE taxpayers at the moment but we understand Revenue will make it available this year.
The Irish Taxation Institute strongly welcomes the commitment made by the Minister for Finance, Deputy Cowen, in his 2007 Budget Statement that "the Government is determined to make it easier for ordinary taxpayers to claim and receive their rightful entitlements". Making it simple for taxpayers to get what they are entitled to is the heart of the issue. In his Budget Statement the Minister announced further changes to help taxpayers get their entitlements at source. For 2008, Revenue has indicated a plan to move, where possible, to the automatic granting of tax relief at source for certain payments and the Minister has asked Revenue to widen this measure to include payments for nursing home and other medical expenses.
Following the Minister's Budget Statement, Revenue announced that in the coming year it will engage in a process of consultation to make the system simpler. We strongly welcome this and will be as helpful and constructive in that process as possible. It is vital that this process identify the barriers, real or imagined, that prevent ordinary taxpayers from claiming entitlements and recommend steps to remove them. This will only happen if Revenue engages closely with taxpayers as part of the process. Each of these is a step in the right direction, but the onus is on everyone concerned to ensure the solutions reached are lasting and permanent.
We would like to remind members of the committee that any delay in addressing this issue will cost PAYE taxpayers material amounts of money. As a result of rule changes introduced in the Finance Act 2003 taxpayers are only entitled to claim tax overpaid in the previous four years, whereas previously they were entitled to go back ten years. This means that taxpayers who have overpaid taxes for 2002 or earlier can now no longer claim that tax back.
The ITI believes Revenue has a key responsibility to make the system easier and work for ordinary taxpayers and my colleague, Ms Cora O'Brien, will now discuss some suggestions relating to this issue.
Ms Cora O’Brien
I will present some slides to illustrate the points raised by Mr. O'Brien and Mr. Redmond. I will make reference to the handout because there appears to be a problem with the slides.
So be it.
Ms O’Brien
In this presentation I want to refer to some of the key documents that the average PAYE worker will come across on a regular basis. I wish to give the committee an overview of some of the more common forms of tax relief that are available and give some indication of the scale of this issue.
I have copies here of a tax credit certificate, a P60 and a payslip. The committee members may wish to inspect them. These documents are quite complex and almost every PAYE taxpayer will receive them on a regular basis; either weekly, monthly or annually. At a glance one can ascertain that they contain quite a lot of technical language and tax jargon and such documents can be daunting for the average PAYE taxpayer. Given the results of our survey which showed that almost one third of those polled did not really understand some of these basic documents, there is a case to be made for simplifying the documents, if we can.
My presentation tries to give an overview of the range of tax reliefs available. While it is not a comprehensive list, the main reliefs for the average PAYE taxpayer are included. They include reliefs for health expenses, charitable donations, mortgage relief and pensions, etc. Others are available to investors in respect of film production, the BES and seed capital. Those claiming such reliefs are well aware of them.
The presentation also shows the ways in which taxpayers can go about claiming tax relief. There are approximately 25 reliefs listed and there are five or six ways in which they can be claimed. Some can be claimed at source, while others can only be claimed if one completes a basic income tax return known as Form 12. Some require specific claim forms, while others can be claimed through Revenue's on-line service, as well as via a mobile phone. The reliefs available and the methods used to claim them are different. As such it can be difficult for the average taxpayer to understand how to go about availing of them.
Let us take as an example a married couple with two children. They are jointly assessed but only one spouse works and has a salary of €50,000. Their mortgage is approximately €350,000. Like any family, they have to make visits to the dentist and doctor, but there is also non-routine dental work, and pension subscriptions, while one of the sons is studying for a HDip in computing. Based on budget 2007 figures, this family would be entitled to tax relief of approximately €5,000. If we take it that mortgage interest relief is available at source, they can probably obtain this easily enough through their lender. However, the reliefs for which they must make a claim amount to €3,600.
As Mr. Redmond said, there are approximately 2 million PAYE taxpayers in the system. If, as our poll suggests, up to half of these do not fully understand their tax entitlements, 1 million taxpayers are not fully aware of the amounts they could claim. If they each have only €500 in unclaimed expenses, there is €500 million in unclaimed expenses in the system. If 25% of taxpayers have outstanding expenses to claim, that gives rise to a figure of €250 million in unclaimed expenses. When one also allows for the fact that taxpayers are allowed to claim for up to four years of unclaimed expenses, we could be talking about a figure of up to €1 billion in unclaimed expenses. As Mr. Redmond said, these are figures are subjective, as we do not have the information which would allow us to categorically give an overall number. However, this exercise shows members the potential scope of the money forgone.
Returning to our family example, if one accepts the assumption that they know what their entitlements are, how do they go about claiming them? In order to claim dental expenses, they must be aware of the difference between routine and non-routine dental treatment — the former is not allowable for relief purposes. For non-routine dental treatment — in this case, root canal work — an individual must obtain a Med 2 form and have his or her dental practitioner indicate the treatment received. A list of qualifying treatments is appended to the form which the dental practitioner must also sign. The person concerned must then obtain a Med 1 form and transfer onto it the total dental expenses from the Med 2 form. The Med 1 form provides an overall summary of the medical expenses incurred. The person concerned must then subtract €250 from the total amount of expenses because families are not allowed to claim tax relief on the first €250. Owing to the fact that the individual to whom I refer must make other expense claims in the year in question, he or she will be obliged to complete an income tax return. This is where matters become interesting. The basic income tax return — Form 12 — is 16 pages long and can be seen on the relevant slide. As regards a family, where there is some employment income and a small range of expenses, taxpayers are obliged to complete a form that is 16 pages long. In our family scenario the person concerned is obliged to read through 14 pages — comprising 58 questions — before he or she indicates the amount of medical expenses. There is a more complex income tax return for the self-assessed which is 22 pages long.
We fully understand that there are complex tax cases in respect of which Revenue is obliged to ask many questions and obtain a great deal of information. However, the vast majority of PAYE taxpayers do not need 16-page income tax return forms. It is hugely daunting for people to be obliged to read through such forms. Why is it not possible to have a two page tax return, comprised of questions relating to income and simple expenses? We are in favour of introducing such a tax return. The overall message is that if we want taxpayers to obtain their entitlements, we must try to simplify the system.
Mr. Redmond
It is clear, from what we have seen, that ordinary taxpayers can understandably find the system confusing and intimidating. This need not be the case. However, if the current system continues in place, we will continue to collectively fail PAYE taxpayers. To tackle this issue in a sustained manner, we offer four key proposals for the consideration of the committee. First, we need to remove the guesswork from this issue and scientifically measure the amount of tax relief being forgone by PAYE taxpayers. We recommend that a body such as the ESRI be commissioned, in conjunction with Revenue, to scientifically measure such tax relief forgone.
The second proposal is that we must simplify the system for ordinary taxpayers and offer them an easily understood way to claim their entitlements. The most common reliefs can be accommodated in one simple form.
Our third proposal is that the system must be swift. If a PAYE taxpayer is claiming a refund, he or she should receive it quickly.
The final proposal is that we must inform and educate PAYE taxpayers in a targeted, imaginative and, most importantly, sustained manner in respect of the system and their entitlements. We must target those most at risk, particularly the elderly, younger workers and those who hail from other countries. The more informed the PAYE taxpayer base is, the better it will be for them and the system in general.
These four proposals demonstrate a proactive, more individual-focused tax system. The importance and scale of this issue demand sustained and independent monitoring of ordinary taxpayers' rights. This can be best achieved through a taxpayer advocate-type figure who would be independent of Revenue. We formally call for the creation of such a role as a matter of urgency. Such a position could be created without any additional red tape and accommodated within existing structures, for example, the Ombudsman's office. We are also of the view that Revenue could simultaneously show the lead by creating a PAYE customer satisfaction unit that would be specifically tasked with addressing this issue and making it simpler for ordinary taxpayers to obtain that to which they are entitled. Proactive measures of this sort are required, particularly in the interests of the country's 2 million PAYE taxpayers.
I thank Mr. Redmond and his colleagues for their presentation. I call on Mr. Dermott Jewell of the Consumers' Association of Ireland to make his presentation. We will then have an open discussion. Deputy Nolan indicated first. I ask members who wish to contribute to give their names and they will be called in rotation. I ask Mr. Jewell to proceed.
Mr. Dermott Jewell
On behalf of the members and council of the Consumers' Association of Ireland, I thank the joint committee for its invitation and the opportunity to express some of our views. It is fair to say we are in agreement with much of what was put forward by the representatives of the Irish Taxation Institute. It is true that we start from the point of realising that many taxpayers are unaware of their entitlement to claim some tax allowance or relief. They do not know that they need to find out this information and very often do not know how to do this. Other scenarios are also presented. Some taxpayers mistakenly believe they are in receipt of credits and allowances. In other words, they trust the system and lose out as a result. Many others are of the opinion that, for example, some of the credits to which they are entitled have been disallowed. This lack of knowledge and education brings us to the realisation that more must be done to provide for those who cannot work within a system that is geared, particularly in recent years, towards an emphasis on collection rather than supporting taxpayers in terms of what they need.
As with much of the financial information available, there is an abundance of information which leads to two specific problems. First, there is consumer inertia, which means that those who do not understand the tax system decide to do nothing. Second, those who thought they were getting the reliefs to which they were entitled are unsure what to do. This is of no benefit to anybody except a system that continues to collect tax without asking taxpayers if they know what they are entitled to or helping them to obtain that information.
The chief executive of the Irish Taxation Institute highlighted the fact that information should be provided in clear and understandable terms because this problem has been apparent for a long time. There is an assumption that every citizen has the ability, knowledge and wish to do his or her business on-line or that he or she has access to that level of information. The reality is that he or she does not, which is another deterrent to taxpayers accessing the available information. The use of plain English is very important in addressing this problem but a change of approach is needed also rather than an assumption that everybody knows what we are talking about.
An example I often give concerns financial discussions and points being made to consumers. In an hour long speech a now well known bank manager in the United Kingdom referred to bank charges as ‘‘negative retrospective augmentations''. Even those within the industry had no idea what he was speaking about. Too often we find that is the case and Form 12, as outlined, is a classic example. It runs to 16 pages and is of little benefit to a consumer struggling to understand the system. It makes sense, therefore, to move on from this. It is important that there be a change of attitude and approach.
In the paper we have presented to the committee we suggest an advocate is required. The individual concerned would spearhead an information campaign for taxpayers. He or she would be someone with whom taxpayers would identify and come to know and trust. That is an all-important element of the consumer requirement. The individual concerned could work through whatever office was suggested by members after debate and negotiation, but it is important that this issue be approached and treated as a matter of urgency.
Other options that could be possible and which have been proven in other areas involve moving among local communities. A form of roadshow is important. It is has been proven to be beneficial in many other areas and gives individuals a chance to interact, outside the on-line capacity, which has become more a source of frustration than anything else for consumers. Another point we have made is that, similar to the plain English guides, there should be short three-to five-minute radio slots that would benefit consumers. Again, there is an embarrassment factor for some and this would remove it and allow them to have access to the information on their terms and in the time they have available. It would help them.
The key to all of this is education, as we have seen in our programme for trying to work with young people who act as educators and, most importantly, have the multiplier effect. They work within the home where they can discuss an issue. It is another element of creating awareness. If we were to invest in advising, educating and explaining the system to the younger consumer, perhaps through a school awareness programme for students in the 15 to 16 year age group, it would be a way of moving forward and could produce good results.
Most important is the element of direct resolution. This involves providing for clarity and a system whereby more of the allowances would be directly or automatically allowed, that is, there would be an automatic generation of the credit for the taxpayer, either at the point of sale or attainment of the service. There must be clarity. I can give a simple example with regard to private health insurance. Those who are paying for such insurance obtain relief according to whether they are part of an employment scheme or are paying it privately. Most consumers think it is all the same but it is not. This is just one simple difference and there are many other such examples.
I do not wish to regurgitate the contributions made. In summary, it is important that we examine what can be achieved by a task group working quickly. I cannot over-emphasise the urgency of this because it involves the lifeblood of money that is important to consumers. They are paying too much in tax and need that money in what is already a difficult country in which to work and live and pay for their needs and those of their families. We owe it to them to make this easy and work for them.
The Consumers' Association of Ireland appreciates the opportunity to contribute to this debate. We will continue to do so in any way we can and in any way suggested to us.
Members have indicated their wish to contribute in the following sequence: Deputies Nolan, Catherine Murphy and Ó Caoláin; Senator Mansergh and Deputies Bruton and Burton. Before calling on them, could the association send a quantity of the forms mentioned for distribution to members before our meeting with the Revenue Commissioners next week? We could see the forms and demonstrate what we were talking about.
I wish to make a brief observation. People do not understand their payslips or P60. I defy the majority, even Members of the Houses, to reconcile their final payslip for the end of December with the P60 they will receive before the end of January. Most will be unable to do so. One would expect one's final payslip to tally with the P60. It does not happen, even in the Houses of the Oireachtas, because there are many other items on pay slips and pay-roll methods that do not necessarily impact on one's P60. That results in confusion. It should have been a basic rule of thumb.
Perhaps the ITI can answer this further question. If not, we will put it to Revenue. Would many be on emergency tax, for example, at the end of the tax year? That, to me, is a clear indication of people whose tax affairs are not in order, who are probably paying considerably over the odds and who might never know how to go about it. Has the ITI such information? Did the ITI survey show how many are on emergency tax rates, or did it deal with this?
Mr. Redmond
It did not ask that question.
Next week we will put it to Revenue, which should have the answer. I ask the ITI to send the committee whatever forms it deems useful to us.
Ms O’Brien
I brought copies of Form 12 today. If members want them, we can circulate them.
I thank Ms O'Brien, who may leave them with the committee. If there are other forms the ITI believes will help the committee in its meeting with Revenue next week to demonstrate the points made, it may send them to us.
I welcome the Consumers' Association of Ireland and the Irish Taxation Institute to the committee. If the committee would bear with me, I want to particularly welcome Mr. Mark Redmond who is from the same street in County Carlow as I. It is nice to see that someone from Kilree has gone on to national prominence.
I am impressed by what we have been told here today. I commend the ITI on its June survey, the findings of which we read in the newspaper at the time but which have been given to us again here today. My own view is that, if anything, the institute is underplaying the extent of the problem it is identifying. I, and I am sure most members of the committee, have received representations from individuals on a weekly basis regarding tax issues and particularly tax reliefs.
While it is fair for the ITI to speak of 50% of taxpayers not claiming relief on medical expenses, a further investigation of the matter by the institute would find that there is a divide within the PAYE taxpayer sector, in that those at middle management and senior management levels, who may have the use of professional tax advisers in their companies or wherever, would be fully aware of the extent of their entitlements and reliefs. I would imagine most of the 50% about whom the institute spoke are on the bottom rung of the wages or salary ladder. This compounds the problem because these are the people towards whom we should be working. These are the people whom we should be advising and to whom we should be getting the message across. The more they do not claim their expenses, the greater the proportion of their disposable income they form.
I commend the institute and support its call that a body such as the ESRI should determine the extent of this problem. The institute's presentation is timely because the finance Bill is coming up and we will be speaking to the Department of Finance. Not even the mandarins in the Department could be so cold-hearted as to fail to agree that something should be done to identify and assist those individuals, who are in the bottom half of the PAYE taxpayer sector and are closer to the minimum wage.
I thank the institute's delegation for coming before the committee. I would support their call to mandate a body such as the ESRI to undertake a report on the matter and perhaps report back to this committee. With the timescale involved I do not know whether that can happen between now and the general election but it is a matter which should form part of the work programme of this committee's successor.
Would the institute care to make a brief response? No specific question was raised.
Mr. Redmond
I thank Deputy Nolan for his kind remarks. He has certainly made my father's day. I support the Deputy's comments. In fact, the detail of our survey shows the problem is at its greatest in elements of the PAYE sector. Most at risk include the elderly, young workers coming into the system, those on lower incomes and workers coming here from other countries.
Has there been any analysis of the current system using tax credits as opposed to pre-tax credits? Many more people probably understood the previous system. There was no serious attempt to educate people when the new tax credit system was introduced. Older members of families have been unable to explain the tax system to younger members. The system was generally talked about as being good for taxpayers while people were not told how it would be good for them.
People tell me that they are afraid they will end up with a large tax bill. They believe it is not worth the effort of going through the large form because they will inevitably end up with a minute refund or with a bill. I am often asked to check out information for people but they ask me not to identify them by name.
With regard to other systems, for instance, the flat charge for bin collection was allowed for at the lower rate of tax; then it was just the flat charge and now we have the bin tag system which is a pay by weight system. I believe very few people collect those little bits of paper. This system is not designed to be user-friendly for people claiming that element of their tax refund. Other organisations such as the local authorities should be aware that this system is not user-friendly in terms of the tax system aspects of it.
I take the point that not everybody has on-line facilities but I suggest that the teletext system with which older people are more familiar is under-used. It is grossly under-used for the dissemination of information. I would like to hear the delegation's views on imaginative ways of disseminating information. That would be useful to the committee when addressing the issue with the Revenue Commissioners.
Mr. O’Brien
I will respond briefly to some of the points raised by the Deputy. We wonder why there is tax relief for bin charges. It would surely be much simpler to just make bin charges that little bit less expensive and remove the necessity for people to claim tax relief on them. This would be the absolute simplification that would deal with the issue.
The benefit of a tax relief does not necessarily pass on to all people who are in the lower income bracket. As they may not pay tax, therefore, they do not receive a tax credit. At the same time they have to pay the top level bin charge the same as everyone else. The bin charge is wrong for lots of reasons.
As Mr. Mark Redmond stated in his presentation, simplicity lies at the heart of everything to which the Deputy has referred. The folklore among the general public is that the Revenue Commissioners, by and large, are people that one is better off keeping away from and one should only go to them if it is absolutely necessary. The complexity of the documentation involved reinforces concern that before they even get past the starting block of deciding to talk to the Revenue about claiming tax back, they are presented with an enormous wall of difficulty.
The Deputy asked about imaginative ways of getting the message across to people. The first step must be simplification. There is little point in going to the general public with a big campaign of education if one has not made the job easier for them in the first place. The starting point is to simplify the system, make it workable for the ordinary person and then ascertain various avenues. Mr. Jewell has suggested going into communities to get the message across. It is essential to start with simplification.
I welcome our guests from the Irish Taxation Institute and Mr. Dermott Jewell from the Consumers' Association of Ireland. I have raised the issue of tax entitlements for some time with the Revenue Commissioners and Ministers for Finance. Members will recall that the current Minister dismissed the points that the two delegations made. He has defended the Revenue Commissioners' efforts as if they were the be-all and end-all, meeting the entire needs of the population. They clearly do not and the Minister needs to open his eyes and reappraise his nauseating defence of the current tax entitlements arrangements.
Since the 2003 Finance Act, the deadline for a claim on overpaid tax is four years. Therefore, the opportunity to make a claim for the 2002 tax year was lost if one did not have the claim form in by 31 December 2006 and stamped. It must have been stamped by that date even if there were some outstanding aspects that needed to be clarified.
This punitive approach is not taken when the Revenue Commissioners are pursuing outstanding moneys. It is simply wrong. Is it constitutional that the State has such an obstacle to the right of people to full enlightenment, which not everyone has? Is it right that a four year limit is in place, after which one has missed the boat? We are trying to estimate the total of unclaimed tax overpayments by PAYE workers. How much of that will never be claimed because they occurred in or prior to 2002? There is supposed to be a small compensatory element, 4%, added to moneys returned. That pales into insignificance when compared to the penalties that have applied to many ordinary workers in recent investigations by the Revenue Commissioners.
There is no equilibrium to this approach. It perpetuates the notion that the tax system is "take, take, take" and it is unfair. The individual taxpayer is a victim rather than a fully compliant party, understanding the need for taxation to create a more equal society, provide for the redistribution of wealth and essential services. While the notion of "them and us" is perpetuated, there will only be problems. The system needs to be loosened significantly. The previous system allowed for a ten year timeframe for claims. Rather than the situation improving, we now find that it is four years. This must be addressed. I hope the Minister will listen to that argument.
I would be interested to hear delegates' comments on mortgage interest relief. I understand the ceiling for mortgage interest paid is €6,000 for the current year. The example furnished by the Irish Taxation Institute involves a couple, Jane and Dave, with a single salary of €50,000 per annum. The mortgage interest that the family pays — as distinct from any capital repayments — is of the order of a fifth of its total income, €9,100 per annum. That is a very substantial proportion.
Why is the ceiling set at €6,000? Many families are finding their mortgage commitments crippling. In the context of European Central Bank interest rate increases, of which there were five in 2006 alone, could one not now argue, to aid young people in particular, for whom mortgage options are becoming a receding possibility or even a dream, that we should revisit the mortgage interest ceiling of €6,000? For many, the door is already closed, and we should reflect the reality with which families must contend.
I strongly agree with Deputy Nolan's point that, with all due respect to the delegates from the Irish Taxation Institute, tax accountant advice on the PAYE system is the preserve of the better-off or those who have already reasoned through other interests that they should engage such an adviser or accountant. For the vast majority of ordinary PAYE taxpayers, it is not an option. I had experience of it some years ago, and I have tried to fouter through it as an individual taxpayer since. I ended up having to pay a local accountant who undertook to consider previous years' entitlements retrospectively for me. It cost a phenomenal percentage of what I had overpaid in tax in the preceding years, since I was to pay the accountant a substantial part of the rebate. That is nonsense, since it should be so simple that we ordinary PAYE taxpayers need not engage expert professionals.
Surely the objective is that people from all educational and employment backgrounds should be able to deal with the matter themselves. The money is being taken from us, and we have an entitlement. Revenue should be fully and proactively involved in assisting the individual taxpayer, who should only have to meet his or her due contribution. It should not be making it difficult to access an entitlement to a rebate.
In Mr. Jewell's contribution, he spoke of the free leaflet in ESB bills. If anything more arrives in the ESB envelope, I will have difficulty even finding the bill among it. It is now a major junk mail distribution method, and I do not believe another leaflet would provide the key to the matter.
Perhaps I might return to the last point, which concerned citizens' information centres. Elected representatives at all levels lack the relevant expertise. I can put my hand on my heart and say I do not have it. I am learning, making my way through all of this, and I am deeply disappointed by that experience. The Institute of Public Administration could help empower elected representatives at all levels. Apart from the citizens' information centres, a free service which plays a very valuable role all around the country, the only other free service is through constituency offices of Members of the Oireachtas and county and town councillors. The Institute of Public Administration or the Irish Taxation Institute, in tandem with various representative bodies such as the Association of Municipal Authorities of Ireland, the Local Authority Members' Association and the General Council of County Councils, could empower and arrange for greater expertise on the part of local and national elected representatives to give basic advice and assistance. We often have these questions posed and perhaps not everyone is in a position to answer them effectively and authoritatively and then people are moved in the direction of more costly and prohibitive options and they do not proceed. These are other ways of trying to help, to aid and abet the objective of achieving a fairer system. I hope some of the points made will be taken on board, particularly by the Minister who has a very important role to play in correcting all the imbalance and inequity currently within the taxation system.
Mr. O'Brien or his colleagues can deal with such observations in their response. They might clarify the situation as regards the four-year rule mentioned by Deputy Ó Caoláin. I believe it applies both ways, apart from where Revenue fraud may be involved. Generally the four-year rule applies, except where Revenue has evidence to the effect that a serious infringement is involved. However, the taxation institute might clarify the position from both sides of the equation.
Mr. Redmond
I will do so. I welcome the Deputy's comments on the various matters and the opportunity to assure the committee that it is the clear position of the Irish Taxation Institute that the ordinary PAYE taxpayer should not need an adviser to sort out his or her tax affairs. We firmly believe that ordinary taxpayers should be given the information and empowered to do so themselves. I support the Deputy's comments as regards citizens' information centres. We worked closely with the network of centres last year and will do so again this year, distributing plain English guides to ordinary taxpayers.
Mr. Redmond might deal with the four-year rule, if he is in a position to do so.
Mr. Redmond
We will double check and write to the committee if this needs to be corrected. My understanding is the Revenue Commissioners can go beyond four years if they have reason to believe there has been a negligent underpayment of tax. If that is the case they can go back as far as they wish.
I recall the time the four-year rule was being put to this committee, the then Minister for Finance, Mr. McCreevy, made the point that it applied in both directions, apart from where fraud was suspected. Perhaps what we are seeing are special investigations which have been in train from prior to the four-year rule being introduced. However, we shall get clarification.
Before the committee moves on from this, does the Irish Taxation Institute believe that the four-year ruling is harsh? Does it have a view as regards the point I made in relation to mortgage interest relief, because current interest rates are so high? Even in its own example, this far exceeds the allowable figure of €6,000 that may be reclaimed. What has the institute to say about these matters?
Mr. O’Brien
I agree it is harsh. The rule has been introduced in terms of repayments to taxpayers to reduce administration in Revenue. There is no other particular reason as to why it should be there. As regards the four-year rule on the other side, it is important to note that Revenue cannot pursue tax liabilities that are more than four years old except where there is fraud or neglect. That phrase "or neglect" is extremely important because it gives Revenue a great deal of power. What is neglect? If one makes a mistake, that could be neglect. Revenue will say it does not pursue underpayments through innocent error. However, it is very unforthcoming in defining what neglect means because it serves its purpose to keep those waters muddy. It has that authority. I believe that is unfair.
I thank the delegates from the Irish Taxation Institute and the Consumers' Association of Ireland for their presentations. The excellent Revenue on-line system, ROS, allows users to process tax payments on the day they are due. Where Revenue has verified that refunds are due in cases where tax is overpaid, it is now brisk in issuing repayments. This is as it should be given the Exchequer is flush with revenue.
The delegates omitted two tax reliefs from their list. One of these is the tax relief available to commuters who purchase an annual public transport ticket. This may be availed of by regular commuters on bus, Luas and rail services but it is not a particularly well-publicised tax relief. There may be an issue in that claims are administered through employers rather than made directly by the claimant.
The other relief to which reference was not made is that relating to charitable contributions, which applies above a certain de minimis level. Nobody is saying that PAYE earners do not make charitable contributions. Charitable organisations will happily claim the relevant relief on a donor’s behalf but the onus is on the latter to complete the necessary documentation. It might be more efficient to have some system whereby those who make a donation above the minimal level to a charity can tick a box indicating whether they wish to assign the associated tax relief to the organisation in question or keep it for themselves.
In the case of bin charges, it is perfectly feasible in this computerised age that local authorities, provided customers supply them with their PPS numbers, should be able to transmit that information to the Revenue in order that customers are automatically credited the appropriate tax relief. There is a problem in that people are inclined to let matters go where the sums of money involved are not large. For example, Dublin Bus commuters who do not have the correct change for the fare may find they often pay €1 rather than 70 or 80 cents. What proportion of such commuters will go through the laborious process of bringing their tickets to the Dublin Bus offices to reclaim the amount they have overpaid? I suspect few do so.
Another area in which there is overpayment is where tax is deducted at source from workers whose main incomes leave them below the tax threshold. I refer, for example, to a student who engages in part-time work and has a small amount of private income. It can be time consuming to complete forms when one is reclaiming a sum of €40 or whatever. The principle ought to be that, where feasible, as many of these reliefs as possible should be automatically deducted.
Some useful suggestions have been made. My intention is that, following next week's meeting, the committee should be in a position to produce a short and succinct report by February.
I apologise for missing the beginning of the presentation — unfortunately, our Front Bench meeting clashed with this one. Fine Gael is conducting a campaign to highlight instances where consumers are being ripped off and, as part of this, we focused on unclaimed tax reliefs some two years ago. At that time we estimated the tax refunds due to people could amount to approximately €350 million per year, which is serious money. The Revenue Commissioners have an obligation to ensure that people do not get away with money that is rightfully due to the Exchequer. However, they must be equally attentive to ensuring that compliant taxpayers are not asked to pay more than they should. At present, Revenue's systems are not hardwired to so do and this must change, although to be fair there are welcome signs that it is beginning to do so. Having highlighted this issue consistently for some time, I will take a small amount of credit in this area. The Minister and the Revenue Commissioners are beginning to respond.
A significant number of areas, such as DIRT, are affected. As for the refund of DIRT to those who are over 65 and not in the income tax net, I am not convinced the payout of €2 million in any way covers those who are due such a refund. Moreover, I reckon that approximately €200 million is not recouped in respect of medical relief, which is a much higher amount than some official estimates. I examined the household budget survey in this regard.
In respect of rent, while some private landlords do not make returns on their properties and there may be an element of a wheeze in this regard, the official numbers of tenants who claim relief are much lower than the numbers who are renting. The issue of bins has already been raised. As for nursing home charges, I reckon that, at present, approximately €600 million per year is being paid privately in this regard. If such payments are being made at a rate of 42%, this constitutes a massive amount of money, which is not reflected in Revenue's figures.
Changing job is another time when many people do not get their money back. In particular, this concerns non-Irish people who may be transient. Undoubtedly, this is not morally right as the State is taking money to which it is not entitled and this concept must be introduced to the system. To an extent, at present the opposite view has grown up within the system, namely, it is acceptable to hold onto the money of those people who are not sufficiently cute to claim it back. A real change of attitude must take place in this regard.
As the delegates noted, a number of at-source claims are coming through, which I welcome. However, it would be perfectly possible for Revenue to have claims at the point of sale. It would be much easier to have a simple system at obvious locations, such as nursing homes or doctors' surgeries, where one can make a claim at that time. One could simply fill out one's name and PPS number at the time one pays the money. The €125, or €250 deductible limit for a family, which discourages and prevents this is ridiculous. It prevents people from getting tax relief on their medical expenses for the sake of €125 of a deductible which is put there purely as a hand-tripping mechanism to stop people receiving what they should. If members are serious about providing tax relief for medical expenses, such a preventative hand-trip mechanism should not be included.
I agree with Deputy Ó Caoláin that the manner in which the four year limit operates is not equitable because Revenue has much better powers to go back. The limit, which had been six years, was reduced to four, which is too short. As the delegates are aware, Fine Gael opposed this when it was introduced and I still believe it is wrong. I agree with the Irish Taxation Institute's proposal for a tax advocate and the consumer information network could be an extremely useful vehicle for disseminating information through the system.
Previously, I have made the point that people may wonder why one pays a consultant's fees when they are so expensive. However, if one's trousers are down around one's ankles, one will not argue about the price of the consultant's fees. To some extent, people who deal with Revenue are in the same relationship. Revenue has so much power that one will not get into a row with it or assert one's rights aggressively. There is a place for an advocate to do so and to start the process of re-hardwiring the system.
I agree with the proposal regarding a study. While I have asked the Revenue to do so, it appears to be reluctant to take on this task. This may be owing partially to the appalling vista defence. The ESRI may be willing to do so. However, Revenue is changing and would now be willing to co-operate with such a study, were the joint committee to request it.
Mr. Redmond
I welcome the Deputy's comments and wish to respond on two aspects. If the Deputy's estimate of €350 million per year is taken to be the amount of unclaimed tax, last year Revenue claimed somewhat more than €500 million through its audit programme. These figures are not a million miles apart. One quarter of the entire staff of Revenue is devoted to the audit programme. Revenue has rightly invested very heavily in software and intelligence to pick cases most at risk that need to be audited. We suggest the same approach, type of software and sampling be used to identify PAYE taxpayers who are not claiming their entitlements and to contact them to ask whether they realise they are missing out on these claims. I support the Deputy's comments.
I apologise but there is another meeting ongoing next door which I must attend. I welcome the presentations by both the Consumers' Association of Ireland and the Irish Taxation Institute. For four years, I have put forward proposals in respect of a standing commission on taxation and the creation of an office of a taxpayers' advocate. I am very pleased the institute gave its support to this proposal approximately one year ago and that the association would also support it.
I should speak briefly about the context. We have a tax system which, for the past ten years under the Minister for Finance, has been focused on tax breaks for people who are exceptionally wealthy, including millionaires who pay no tax. The system is finessed to deal with people who have large incomes and property holdings and can, therefore, afford to employ an expert to eliminate or reduce their taxation.
In respect of bringing in mechanisms to rebalance the tax system in favour of hard-working families and individuals who get a pay packet at the end of a fortnight or month and who know they have expenses to which a tax break is attached, the critical issue is to give these people a sense of power as to whether and how they can claim a tax refund, for example on refuse charges.
If one looks at young people and medical expenses, one can see that at this time of the year when flu is very prevalent, many 25 to 30 year olds will visit doctors for antibiotics or injections. Happily, they will probably never have to go near a doctor again until perhaps towards the end of the year when another flu epidemic occurs. In the meantime, how do they remember to keep a box somewhere into which they can throw doctors' receipts if they get them and chemists' forms? In the new year, one is supposed to carry out feng shui on one's living quarters to eliminate clutter. I do not know how many families have duplicates of these large chemists' forms. One finds oneself looking at them and asking who went to the doctor on what occasion and for what reason and whether they are tax deductible. It is to give people such as these a sense of a rebalancing of power and that our tax system is not only about offering people in the enterprise or millionaire area absolute red carpet treatment for tax breaks while the ordinary nine-to-five person has much more difficulty with the concept.
I have one comment about Revenue. I know that during the year, the institute carried out a survey which bears my comment out. The fundamental point is that the telephone lines to Revenue are breaking down frequently because the system is unable to cope with the volume of queries. In respect of creating a standing tax commission and an advocate's office, I do not know whether the problem is that the system in terms of telephone lines is not sufficient for our increasing population. For small and medium-sized employers and employees who move through employments frequently — many in the economy have more than one employment or work several part-time jobs — our system is no longer flexible or fast to react.
The situation regarding telephone lines is not as bad as ringing the ESB and going as far as menu line 18 on weather forecasts in the west Dublin area when one wanted line 2 of 20, but it is close. In terms of customer service, the current Revenue telephone line is not good enough. That said, the Revenue Commissioners have taken on board the committee's message. I am sure the Irish Taxation Institute and the Consumers' Association of Ireland have sent the same message.
We have not come to grips with the issue of the building industry. I will not go into the principles of how the industry is taxed. My example is of young men, perhaps my nephews, who do carpentry or plumbing, go through many jobs, have not reached the point of having their own companies and are earning a great deal of money. They are on the high rate of emergency tax. The issues regarding the principle of taxing young people in the building industry have been ignored, but they must be addressed.
I hope the commission and taxpayers' advocate will be established under the Finance Bill or the programme for Government. If the Labour Party is in government after next summer, that will certainly be the case. The family income supplement is a significant issue for families on modest to low incomes. It is the devil and all to get it. The supplement is the greatest effective tax credit in our system. We call it social welfare and it is located in the Department of Social and Family Affairs, but it is a tax credit structure and a top-up. It has been difficult for many European countries to deliver in this respect but, in the current system, one's employer must be co-operative and both parties must be knowledgeable.
Currently, it takes approximately five months or more to process a FIS claim on average, as is the case in respect of quite a number of social welfare claims and, perhaps, the Revenue Commissioners' telephone lines. I am interested to learn whether the Consumers' Association of Ireland or the Irish Taxation Institute has figures in this regard. If we were to view FIS as a form of tax credit instead of social welfare payment, we would set different standards in terms of accessibility and the time taken. This issue must be included in the mix.
The presentation and slides provided by the institute were good and informative. It was helpful for the committee to see information that is user friendly and I thank our guests for providing it.
Mr. Jewell indicated that he wishes to comment.
Mr. Jewell
Rather than let the occasion go by, I wish to thank Deputies for the points they made. From the CAI's point of view, many of the threads in terms of how this matter will progress have been pulled together. We do not have statistics on FIS claims, but we hope to work towards them.
Regarding advocacy and the commission, not only has a determination of the need for them been made, but there will also be action in that respect. I do not know whether the process will move quickly. At all levels we must raise awareness of the difficulties consumers experience. As every speaker pointed out, this is particularly true for the have-nots because of their large number.
Returning to an earlier point on simplicity, it is true a huge amount of work must be done on changing allowances, the four-year rule and the unrealistic system of mortgage interest relief. However, before we do so, we must create awareness among taxpayers to empower them to seek information and demand better deals. If we can do so, I hope it will work.
One of the reasons the CAI has mentioned the ESB is its bill is the only one delivered to every home. It is the one means we have to ensure we access them. The consumer information card failed because not all consumers received it.
I welcome the contribution of the Irish Taxation Institute and that made on "Morning Ireland" today. I do not know whether Mr. O'Brien or Mr. Redmond participated in that programme. I dealt with Mr. O'Brien previously and found him helpful in my name and shame campaign. I thank him for his assistance.
The huge amount in unclaimed allowances and reliefs is startling. Does the Irish Taxation Institute have an interest in the farming community? It must be aware that it does not reclaim a large amount of VAT. I highlighted this issue many years ago when the figure involved amounted to millions. I do not know whether the institute is concerned with this but it is an issue I wish to highlight. I ask farmers to collect their receipts and send them in, as all VAT paid, including that on buildings and fuel, is refundable to them. However, quite a number do not realise this, although it is included in the budget every year. No effort is made by the Revenue Commissioners to inform farmers and little effort is made by other organisations to do so.
As its representatives spoke about forms, I challenge the Irish Taxation Institute to design a form and present it to the committee and the Revenue Commissioners. I ask the members of the institute to put their minds to work to see what they can come up with. The existing form is far too complicated. I went through it and know what it is like.
Have improvements in Revenue on-line services brought about accessibility to ordinary taxpayers? Regarding the amount in unclaimed rent allowances, some landlords are not enthusiastic. It is a tremendous help to young people living in cities, particularly Dublin. They are not good at claiming tax allowances and reliefs. Reliefs in respect of refuse charges and medical expenses are also accessible.
There is a clothing allowance. How many people, including Deputies and Senators, claim it? Because of a particular job one is entitled to a clothing allowance. Will Ms O'Brien, who is an expert, confirm this? I remember having a certain allowance at one stage.
Mr. Jewell may be made redundant following the introduction of the new consumer agency, the representatives of which should be invited before the committee to see whether it would take on the task of being an advocate. The Ombudsman's office has enough on its plate. This issue involves 2 million taxpayers. If the new agency wants to be an agency of the State, one of its first tasks should be to look after taxpayers.
The point made by Senator Mansergh on charitable donations was extremely interesting. Our local parish priest, Fr. John Leogue, highlighted the issue in a recent newsletter. He made a good point to PAYE taxpayers who were churchgoers that they could dedicate the amount to the church. It would give a boost to all denominations if PAYE taxpayers could make contributions to the church of their choice. Senator Mansergh pointed out that it should be possible for the taxpayer to claim the relief, an idea I would like to clarify for my newsletter because it would be useful to dedicate such relief to organisations. The budget made a nice gesture by allowing charitable organisations to claim refunds of taxes.
Will Ms O'Brien respond to the points raised?
Ms O’Brien
In regard to the clothing allowance, there are rules for specific industries on the allowances which may be claimed. The allowance is not payable across the board, however. We can investigate that matter and revert to the committee.
We welcome the developments which have been made in respect of Revenue's on-line service. Certain taxpayer credits can be claimed over the Internet such as bin charges, home carer's credit, age credits and trade union subscriptions, although the latter will, we hope, be eligible for relief at source in 2007. These credits are listed on the Revenue website. There is also the facility for registering a mobile phone. However, I reiterate Mr. O'Brien's point that while the development of on-line services are welcome, not everybody has Internet access. Therefore, while these services are part of the answer, they are not the complete solution. As Mr. Redmond noted, the inclusion of tax return form 12 on ROS will also be helpful.
I also raised the issue of VAT for farmers.
Mr. O’Brien
It is a relatively straightforward procedure to recover VAT. I am surprised farmers' organisations have not done more to assist farmers in becoming aware of the facility for making claims.
A flat rate refund for registered farmers is also available.
Mr. O’Brien
Farmers also have other options. They can, for example, recover VAT on the construction of farm buildings, land reclamation or fencing, even if they are not registered. I suspect that the reason why more farmers do not make claims is a straightforward lack of awareness.
More effort is required in that respect.
Is Mr. O'Brien implying that, instead of spending their time arguing with the contractor over the VAT charged, the farmers should have agreed to the VAT and claimed it back afterwards?
What suggestions would Mr. O'Brien make in regard to redesigning the form?
Mr. O’Brien
We would be happy to come forward with suggestions.
That would be a good challenge for the gurus in the Irish Taxation Institute.
Mr. O’Brien
We would certainly be happy to meet the IFA and the ICMSA to see if we can assist in improving the knowledge base among farmers.
I would like to see the Irish Taxation Institute's efforts in terms of designing the form.
Mr. O’Brien
We would be happy to take up the challenge.
As the committee will be preparing a report on the matter in a few weeks, we will consult Mr. O'Brien at that stage.
I apologise for my late arrival, which was due to a coincidental meeting I had arranged with the National Women's Council of Ireland. I have, however, received copies of the representatives' presentations.
I wish to act as devil's advocate with my question. In a sense, the three-and, occasionally, four-figure amounts involved in the tax reliefs under discussion mean that they tend to be claimed by relatively few people. Has any exercise been carried out on whether too many tax reliefs exist or the effect on the standard and higher tax rates of reducing the number of tax reliefs currently available?
Mr. Redmond
To respond to the Deputy's point, approximately a year ago we submitted to this committee a report in which we suggested a good methodology be put in place to measure the effectiveness of all reliefs and whether people know about and are availing of them, and that they should be phased out if they are not being utilised. It supports the Deputy's comments that we need to constantly evaluate all reliefs and ensure they are delivering what was intended by the Oireachtas in the manner they should. If they are not doing so, the Deputy is correct in stating that the system should be simplified by removing them.
How does Ireland compare with similar pay-as-you-earn systems in the number of reliefs available to the individual taxpayer?
Mr. Redmond
We do not have that information with us today but we will certainly undertake to try to provide the committee with information on that point.
Will Mr. Jewell respond? We do not intend making him redundant. That was a light-hearted remark.
Mr. Jewell
I thought it important to make the point that rather than redundancy — the Chairman is correct and I agree — it will be all the more important that we, as the independent organisation, ensure that an organisation that has just had its taxpayers' contribution double to €8.5 million will do its work and get involved on their behalf. We will keep chasing this.
I hope Mr. Jewell is a member of it.
Mr. Jewell
We will wait and see.
In the context of the medical expenses Deputy Bruton mentioned the €250 threshold where when the sum of a person's bills comes to €2,000 one must deduct €250. I can understand there was a rationale for that in the past because people submitted their doctors' receipts, together with loads of other bits and pieces. Under the current system a person keeps the bills at home in case of audi. I take the view that one need not send all of those bits and pieces to the Revenue and the argument about being bogged down in paperwork is substantially redundant. Maybe there is a case for dropping that threshold. I am merely making that observation.
There are two other questions I want to put to the institute. The first, which is not strictly for them but on which they might comment, relates to the ruling dating from the end of last year concerning the opticians who had been charging VAT to their customers. My view on this is simple — everybody wearing glasses is owed money from their opticians. I understood the essence of the case was that there was an arrangement that they would charge VAT on the spectacles, etc., but the opticians successfully argued that they should not have had to charge VAT on the service of providing contact lenses or glasses, and they won their case. In the interim, however, Revenue had insisted they charge VAT.
I now understand the position is clear-cut, that the VAT charged by the opticians on Revenue's instruction should not have been charged and there are millions of euros collected in VAT, which had been collected by the opticians and have been returned, and that such VAT is not now in the hands of Revenue. Who should make the rebate, and to whom? There is an argument that it is the optician who should do it. I would take the view that they must have a record of their customers. They should know to whom it should be given. Is Mr. O'Brien familiar with the issue?
Mr. O’Brien
I am familiar with it.
Perhaps I got it wrong. I am only giving a summary.
Mr. O’Brien
I think the Chairman has got it substantially correct. There is VAT of 21% chargeable on the supply of spectacles. There is no VAT chargeable on the professional fee which an optician charges for testing eyes and prescribing the correct lenses. In the past one went to an optician and paid a sum of money, for example €200, which encompassed everything. The opticians' argument was that only part of that should have been liable to VAT because their dispensing fee is exempt. Revenue stated that this was not so, that where one charges an inclusive fee the entire amount becomes liable at the highest rate and it sought 21% on everything. The opticians appealed against this. In the meantime there was a European Court of Justice ruling on another case, which was unrelated but which set down the principle that one cannot use such a broad-brush approach to make taxable something which is inherently exempt from VAT. In essence, the appeal commissioners here had to find in favour of the opticians that the Revenue could not apply VAT to the dispensing element.
Under protest over many years, as I understand it, opticians paid VAT on the full amount of their takings as directed by Revenue and reserved the right to recover the overpaid VAT if ultimately the courts found in their favour, which they did. Since last year opticians have been in a position to recover that overpaid element of VAT. I have heard figures bandied around which suggest it could be as much as €50 million nationally but I am not in a position to comment. I do not know where that figure came from. However, I have no doubt it must amount to a substantial sum.
Can opticians now request the VAT back from Revenue?
Mr. O’Brien
Yes. The question then arises as to whether the opticians should pass it back.
Logically, they should pass it back to the customers who paid them. Have any refunds been made to opticians yet, or has the process only just commenced?
Mr. O’Brien
As I understand it, the process commenced seven or eight months ago.
I am just putting—
Mr. O’Brien
I honestly do not know whether money has filtered back to opticians at this stage.
I am marking it as a minor point for the committee to pursue. It is not right that Revenue should refund the VAT to opticians to essentially allow them to pocket the VAT paid by the consumer. If they have a list of clients who were charged VAT, they should pass it back to them. They should not be taking the lump sum and placing it in their own tills.
Mr. O’Brien
There are, possibly, two relevant issues. One is the principle of unjust enrichment in VAT legislation. This is a defence for Revenue when not making a repayment to people who it believes would be unjustly enriched. In this type of scenario, if Revenue believed the consumer paid the tax, that if it repaid the optician and the consumer did not get the benefit, the optician would be unjustly enriched. Therefore, it would not make the repayment. On this issue, Revenue has not used the defence of unjust enrichment. Therefore, we must assume it is satisfied opticians would not be unjustly enriched. This means one of two things. Either opticians will pass back the VAT to those who ultimately bore the cost — the consumer — which is fair enough, or they may well claim that the dispensing element has been exempt from VAT, that they have paid from that sum, which they have received for dispensing, an amount of tax which has not been borne by the consumer because they have borne it themselves. That is an argument that could be made.
I do not fully follow and ask Mr. O'Brien to restate the point.
Mr. O’Brien
Let us take a simple example. If the dispensing fee is €50 and the price of the spectacles is €100, the charge as they see it is €171 — €100 for the spectacles, €21 in VAT and a dispensing fee of €50. VAT only applies to the spectacles. Revenue's argument previously would have been that VAT should have been charged on the total sum of €171 which, therefore, should have been approximately €30, not €21. However, in that instance the optician has not passed on the VAT charged on his or her dispensing fees to the consumer. He or she only charged €100 for the spectacles and €21 in VAT on the spectacles. The sum of €50 is his or her dispensing charge, from which he or she paid VAT, as Revenue demanded he or she should do and which he or she is now getting back from Revenue because the courts have proved Revenue to be wrong. It does not necessarily mean that it must be passed on to the consumer because the consumer did not pay it in the first instance.
Was that point not thrashed out with the appeal commissioner? If so, how did he rule on the matter? Surely it was part of the debate.
Mr. O’Brien
That would not necessarily be an issue for the appeal commissioner because all that would be concerned would be whether a higher tax rate could be applied to something inherently exempt.
We can see what is coming. I do not think we should let it go from our side.
Mr. O’Brien
I am only saying what the answer could be.
I appreciate that. Mr. O'Brien has helped us on an issue which received little coverage.
The question of a tax advocate is in the public domain. I will put the other point of view. Would it not be better if Revenue did its job properly in the first place? Let us all start from the basis that it has not done so. Next September it will place advertisements coming up to the deadline for submitting self-assessment tax returns. It should make the same effort at the start of the year when people are receiving their tax credit forms. The correct approach is for Revenue to do its job properly. If a tax advocate were appointed, members of the public would go to the tax advocate who would go to Revenue. I would prefer if people received a good service from Revenue. Why do we need such a third party? Would it not be better to get the two parties concerned to work together on a one-to-one basis rather than introducing a third party?
Mr. Redmond
They are not mutually exclusive. We need an efficient and effective Revenue for the ordinary taxpayer. It is now recognised that there is a serious problem with the system.
We accept that.
Mr. Redmond
It is impacting on the ordinary taxpayer. I support Mr. Jewell's comment that people want an independent voice to protect them in situations of this nature. They need someone to whom they can turn. Approximately 90% of those who responded to our poll said they wanted a voice that is independent of the Revenue Commissioners to protect their rights and entitlements. I suggest to the Chairman that the Oireachtas should ask an individual or an office to ensure, on behalf of ordinary taxpayers, that the promises which have been made by the Revenue Commissioners and others are met. There are some useful models in this regard in other territories.
Mr. Redmond would say—
Mr. Redmond
We can look to some very useful models of taxpayer advocates in other countries. We stress that it is not about providing for more red tape — it is about the Oireachtas ensuring that it addresses a serious systematic problem that is affecting 2 million taxpayers.
Mr. Jewell made the same point.
Mr. Jewell
I agree that we need a new approach that appeals to taxpayers and is trusted by them. I do not suggest the Revenue Commissioners are not trusted, but a different approach is required. Much value is placed on ombudsman-type schemes, which receive a great deal of support from taxpayers.
We have had a useful and productive discussion. There is a general consensus about this important issue. It has not been a contentious meeting. I expect that the tempo of the committee's meeting with representatives of the Revenue Commissioners next week will be slightly different from that of today's meeting. As public representatives, we are essentially on the side of individual consumers on this matter. We appreciate the help of the delegates. On behalf of the committee, I thank all the delegates who attended today's meeting. The committee intends to produce a short report promptly in February, after it has met the delegation from the Revenue Commissioners. We will not allow the matter to lapse. We may contact the various groups again at that stage. I again thank the delegates.