This Bill provides for the implementation of the scheme for P.A.Y.E. which was described in the White Paper circulated to Senators last month. The scheme is based on the recommendations in the First Report of the Commission on Income Taxation. It has the support both of employers' and employees' organisations. Its purpose is to spread the incidence of income tax more evenly over the year and make easier the discharge of liability.
The Bill does not deal with the scheme in the detail appearing in the White Paper because much of the detail will be covered by regulations.
The Bill is divided into three parts, the third of which, comprising Sections 15 to 18, is of interest to all taxpayers, whether or not they will be affected by the introduction of P.A.Y.E. This part contains proposals for certain general alterations and adjustments in personal reliefs and allowances. These changes are designed to facilitate the administration of P.A.Y.E., but they will apply to all individual taxpayers. This part of the Bill comes into operation on the 6th April, 1960.
Part II, consisting of Sections 3 to 14 contains the provisions directly related to the proposed scheme of P.A.Y.E. and its operation. Part I deals with the Short Title and construction of the Bill and the coming into operation of Part III.
Under Sections 3 and 4 of the Bill the scheme of P.A.Y.E. will in general apply to employed persons who are liable to income tax including directors and pensioners.
It is not, however, applied to three classes. The first of these classes is State employees and employees of four other bodies who already have schemes for deduction of tax from their emoluments and have their own Departmental assessors.
It is obviously not necessary that the new scheme should apply to this class as the existing schemes have operated to the satisfaction of all concerned. However, as stated in the Dáil, I am prepared, if the great majority of persons in any of the excepted bodies wishes to enter the new scheme, to give the matter most careful consideration. If it appears in all the circumstances that such persons should be included, I will introduce legislation in the next Finance Bill to bring them in as from the 6th April, 1961. Furthermore, if any such persons are admitted to P.A.Y.E., a tax remission will be made available to them in the last year of employment, analogous to that provided in Section 14 for persons brought under P.A.Y.E. by the present Bill.
The reason why a half year's tax is remitted for persons now being brought within P.A.Y.E. is that if the scheme were to start in April, 1960, instead of in October, 1960, they would be paying the equivalent of twelve months' tax in the first six months of 1960-61. The tax remission merely secures that, in that period, they will pay only six months' tax.
If persons assessed departmentally were to come under P.A.Y.E. and were to be granted a remission of a half year's tax for 1960-61, it would mean that they would pay no tax at all from the 6th April, 1960, to the 5th October, 1960. In other words, they would secure a six months' tax holiday. I should like to emphasise at this stage, to remove any misconception, that other workers are not being allowed a six months' holiday from tax. They will pay twelve months' tax in 1960-61 and in each succeeding year. Manifestly, persons assessed departmentally cannot be accorded better conditions than other workers.
There is, therefore, no substance in the suggestion that persons assessed departmentally are being offered less favourable treatment than persons brought into P.A.Y.E. by this Bill. On the contrary, if persons assessed departmentally were to be brought in as from 6th October, 1960, and given a half-year's tax remission for 1960-61, they would be put in a much more favourable position than persons brought in by this Bill as it stands. They would get a six months' tax holiday in 1960-61. That is to say, they would only pay six months' Income Tax in 1960-61. On the other hand persons brought in by the Bill —even with the tax remission provided by Section 14—will still have to pay in 1960-61 the equivalent of twelve months' tax. On the 1st July, 1960, they will be billed for the second instalment of tax for the year 1959/60 under the existing basis. Then, as from the 6th October, 1960, tax will be deducted under P.A.Y.E. for the second half of the year 1960-61. They will thus, in that year, bear twelve months' tax in all.
Any benefit from the remission being granted by the Bill to persons coming under P.A.Y.E. will not be felt immediately but will be discernible when the person has ceased to hold his employment. If any body of persons outside the scope of the Bill as it stands wish to avail themselves of my offer and to come in, they will get terms which will put them in the same position as other employees who are now included in the Bill, by giving them appropriate relief in the last year of employment.
The second class excepted from P.A.Y.E. by Section 4 of the Bill comprises cases to which it would not be practicable to extend the scheme. The third exception is where a person is in receipt of earnings chargeable under Schedule D and at the same time has emoluments falling under Schedule E and where, for his convenience, the whole of his earned income is dealt with in a single assessment under Schedule D. This is the usual method of dealing with a professional man who engages in private practice and also holds an appointment related to his profession.
Section 5 embodies the kernel of the new scheme. It provides that, as from the year 1960-61 onwards, Income Tax on emoluments within the scope of P.A.Y.E. is to be computed by reference to the actual earnings of the year of assessment—and not by reference chiefly to earnings of the year preceding the year of assessment, as hitherto. It also provides for the making of the appropriate tax deductions and repayments by employers.
Section 6 empowers the Revenue Commissioners to make the necessary regulations as to the assessment, charge, collection and recovery of Income Tax under P.A.Y.E. The regulations will provide for collection of tax on a cumulative basis, that is the tax will vary week by week—or month by month if the employee is paid monthly —with any fluctuations in earnings. When earnings increase, the deductions for tax increase accordingly. When earnings fall, the tax likewise falls; and the employee, instead of paying tax, becomes entitled to a repayment if earnings fall below a certain amount.
Section 7 contains penalties for neglect in complying with the regulations. It imposes a penalty of £20, together with a continuing penalty of the same amount for every day on which the non-compliance is continued.
Section 8 authorises the charging of interest where an employer does not pay over the tax to the Revenue in due time.
The employer with a small number of employees earning a fixed remuneration and in constant employment is catered for in Section 9. Under a simplified procedure he will be enabled to pay over to the Revenue, by means of stamps to be affixed by him to a stamp book, the tax he has deducted.
The need for Section 10 arises out of the contemplated change over, for 1960-61 and succeeding years, from the previous year's basis of assessment to the basis of the current year. The change will mean that earnings for the year 1959-60 will not constitute a basis of assessment. In order to prevent an improper advantage being taken of this fact, Section 10 secures that, where the emoluments for 1959-60 exceed those for 1958-59, the excess is to be added to the 1959-60 assessment, except where the excess is due to such factors as promotion in the ordinary course of events, increments and overtime.
Under Section 11 the provisions of the Income Tax Acts as to the recovery of Schedule E tax are to apply, with appropriate modifications, to the recovery of any amount of tax which an employer will be liable under P.A.Y.E. to pay to the Revenue Commissioners.
Section 12 makes deductions under P.A.Y.E. rank as preferential payments in cases of bankruptcy or insolvency.
Section 13 incorporates various supplemental provisions, such as abolition of the requirement for raising formal assessments under Schedule E save in a small proportion of cases.
As I have already mentioned, Section 14 is intended to ensure that a person will not, by reason of his being brought within the provisions of the P.A.Y.E. scheme, pay more than approximately a year's tax in the year 1960/61 in respect of remuneration. This is done by remitting half the tax on earnings in 1960/61 in appropriate cases. If this were not done, in addition to paying half the tax for 1959/60 in July, 1960, a taxpayer would pay the whole of the 1960/61 tax as well— or tax for a year and a half in all.
Section 15 marks the beginning of Part III which, as I have said, is of interest to all taxpayers. It effects general amendments in the personal allowances so as to facilitate the operation of P.A.Y.E. This section raises the existing unmarried personal allowance from £150 to £234, the married personal allowance from £310 to £394 and the allowance for widows or widowers from £175 to £259. These increases are in compensation for the termination of the reduced rates of tax, which at present are 2s. 9d. in the £ on the first £100 of taxable income and 5s. 6d. in the £ on the next £100. The termination of these reduced rates is provided for in Section 18.
Sections 16 and 17 make certain alterations in the interests of simplification for P.A.Y.E. purposes. Under Section 16 the rate of earned income relief is altered from one-fourth on earnings up to £800, plus one-fifth on earnings from £800 to £1,800, to a uniform rate of one-fourth on earnings up to £1,800. Under Section 17 the life insurance relief is amended by making it allowable as a deduction from income, rather than from tax.
The broad effect of the amendments in this part of the Bill will be that some 57,000 persons who now have to pay £11 11s. a year or less will be relieved entirely from income tax. All other individual taxpayers, about 150,000 in number, will gain some relief. The gross cost of the reliefs is over £1 million a year but this will be largely offset by the increased inflow of revenue resulting from P.A.Y.E.
In conclusion, I would like to say how much I appreciate the goodwill which employers and employees have shown towards the scheme. Its successful operation will, of course, depend on a continuance of the co-operation which has already been forthcoming from them.