I quite agree with Senator O'Donovan that there may be initial difficulties in getting this scheme going. It would be too optimistic, indeed, to expect otherwise. We are making every attempt and the Revenue Commissioners are making every attempt in the regulations which they are now preparing in anticipation of the Bill being passed to see that the scheme will run as smoothly as possible. Many people believe—in deed, I thought so myself in the beginning—that when this scheme comes into operation, there will be less reason for the number of officials necessary under the existing scheme and, therefore, that there could be a saving in administrative costs.
The point was mentioned by Senator O'Donovan. He quoted me as saying that 57,000 people who are at present paying income tax would no longer have to pay it and that that would mean a very big saving to the Revenue Commissioners in time. In fact, it does not, because, under the new scheme, they will have to certify these 57,000 people as being free from income tax. They will, therefore, have to go through all the steps that are necessary to find out whether a person is liable to income tax or not and, of course, there will be many more than the 57,000.
In fact, under the new scheme, everybody who is working in industry or in an employment will come under survey and a card will be handed to his employer telling him that he is liable for tax and over what level tax should be collected or, alternatively, his employer will be told that he is not liable for income tax. So that, in fact, at least for a while, there will be more work than there was in the past because a very big number of people who were working in industry in the past were just ignored. No notice was taken of them but notice will now have to be taken of them. However, as time goes on, I have every hope that the system will work smoothly and there may be a saving in staffs and so on in time to come.
With regard to the Comptroller and Auditor General—it is no harm to mention his name because he is taken as an example of a man who might suffer hardship if he came under this scheme next year—of course, if you look at it, he does not. If he does not come under it, he will be assessed next year on his income this year and, therefore, he will have to pay income tax and perhaps surtax on the amount we voted him here to-day. Suppose he does come under P.A.Y.E. next year, he would then have to pay, if he was working in outside employment, let us say, first of all, a half-year's income tax on 1st July on this year's income and then he would go on to P.A.Y.E. for the remainder of the year and, of course, the P.A.Y.E. amounts would be payable on his earnings, which would include the increase that we give him here to-day. So, I cannot see that it would make any difference to him whether he came under P.A.Y.E. or not.
Senator O'Donovan pointed out a clause in the Bill which said that if a man had anything abnormal by way of income, that might be added to his 1960-61 income and the 1960-61 income of the Comptroller and Auditor General would therefore be increased by what we gave him here today. There is a clause in the Bill which makes that provision but it is put in principally to deal with increases that might be given purposely for evasion of income tax. That is what we had in mind in that regard. It is fairly obvious that the increase given to the Comptroller and Auditor General was not given in order to evade income tax. I could not answer, of course, for what the Revenue Commissioners might decide in this case but I think they would at least have in mind that there was no intention on anybody's part to try to evade income tax in giving him the increase we gave him here to-day. I should say that as the civil servants will not come under P.A.Y.E. next year, the case does not arise.
The changing of the basis from previous years to the year in question was not done, as Senators might think, for administrative purposes. It was done because that is the whole idea in this scheme of P.A.Y.E. Remember, it means, "Pay as You Earn". In other words, income tax is deducted from every week's wages before you get them. You must necessarily deduct on the year in question rather than on the previous year's earnings. The question, therefore, of administrative convenience did not arise.
It is true that unmarried people get a bigger proportionate relief than other people. They all get equal relief of £84 but the reason, as I explained in my introduction of this Bill, was that it would be very complicated to work this scheme if we continued our present method of payment of income tax. As Senators know, the present method is that, having given all reliefs, we take the amount liable to income tax and say: You pay 2s. 9d. in the £ on the first £100, 5/6 in the £ on the second £100 and 7s.in the £ after that." That would be a very complicated system to work for the employer. In working out this scheme the Revenue Commissioners thought it would be better to have a straight rate with no reductions on the first £100, or the second £100, or anything like that, and that it would be much more simple for everybody to work.
To get away from a low rate on the first £100, and not so low a rate on the second £100, we had to exempt the first £84 so that nobody would be worse off as a result of the change. That is what happened. By making that change, something like 57,000 people now liable to income tax will no longer be liable. Everybody who comes under this scheme will be somewhat better off. In some cases, I admit, they will only be better off by £1 and in other cases they will be better off by £18 to £20.
We had to get a straight scale with the same amount right through in order to make it workable for employers and employees. In doing so, we had to make the sacrifice of losing something like £1 million. Senator O'Brien said that this is only a minor administrative change. He is quite right. There is no change in policy in this Bill, no financial or economic policy in it. Income tax remains much the same, or a little bit lower if you like. This is merely a Bill for the collection of income tax. That is not policy. It is just an administrative change, if you like an administrative policy. To that extent Senator O'Brien is right in saying it is a minor Bill and does not make any great difference to the policy that has been pursued in regard to income tax up to the present. It does provide for what we believe to be the more efficient collection of income tax—as somebody here put it, a more painless method of extraction.
I think some Senators have an idea that the Revenue Commissioners and I were more or less forcing this scheme on the country. That is not true. I can say quite truthfully that the Revenue Commissioners did not like this scheme. They would have preferred to stay as they are. They did not want this departure from the present system but, when the Commission reported, the Government considered the report and said: "We shall adopt the scheme put forward by the Commission." Then the Revenue Commissioners fell in, as they always do, with Government policy and tried to produce the very best scheme they could. Taken all round, I think they have produced a simple and a good scheme, as schemes go.
Personally, I must say on examining this, that I do not think it will be very burdensome on employers. Somebody said that it is all right for the big employer because he can get an accounting machine to do the work for him. I am told that these machines are by no means expensive. If a man has, say, 18 or 20 people who are liable to income tax, he will probably get one of those accounting machines, and it will probably pay him to have one, but as far as a small number are concerned I do not think any employer can plead that he will be put to a great inconvenience. After all, he is not asked to make any great calculation. The way it works out is that when he gets a card for the employee who is liable, he is told he must collect 5s 3d in the £ on a certain amount for this employee and it is not a very big matter. As a matter of fact, he will not even be asked to calculate the amount at 5s 3d in the £ because he will get a ready reckoner to do it for him. Therefore he will not have to tax his intelligence too much in making out what he must deduct from any particular employee.
Somebody raised the point that employers should be compensated for this work. I do not know that there was any demand of any kind from employers generally on that score. If anybody reads the report of the Commission he will see that those who have worked the scheme have found that the time taken by an employer, or his clerk, to collect the amount that should be taken from any particular person is very, very small indeed.
Everybody will admit that the British scheme is very much more complicated than ours but I notice in this report that the Belfast Society of Chartered Accountants, who have been working the British scheme for many years, say that where a small employer has only one or two persons employed sometimes he does not make any attempt to understand the system and sometimes leaves it to his accountant or somebody else to look after it. The last part of this paragraph states—
"Where, however, there are a substantial number of employees there is no doubt that the cost could be valued as a proportion of the wages clerk's time spent in preparation of the wages. To give a very rough estimate, it could perhaps be said that where a firm is employing fifty or more persons the cost to operate the system would be a sixth or a seventh of the wages clerk's salary."
The estimate there, in a more complicated system, as the British system is, is that looking after the income tax of 50 or 60 employees would be roughly about one day's pay to the clerk who looks after the wages. Our system is simpler but actually we have not such a big number of employers who will have 50 or 60 employees who will be liable to income tax. When sample checks have been taken and the number of employers with employees taken into account the number exempt is rather surprising. As far as the employer is concerned he has no trouble because the Revenue Commissioners find out if employees are exempt or not and he is told that the employees are exempt up to a certain sum above what he is paying them. I think we should let this go on for some time before we talk about the cost which this scheme will involve for the employer.
The next point raised was in regard to the interest payable. I explained in the Dáil that giving the Revenue Commissioners power to collect one per cent. per month on amounts outstanding was not an attempt to collect a large amount of interest from the people concerned. It was put in to prevent their holding up accounts, so that they would pay promptly and, as Senator O'Brien pointed out, it is considered more a penalty than a method of compensating the Revenue Commissioners for outstanding accounts. I think it will have that effect because no employer would think it good business to hold accounts in his bank in order to save overdraft interest, if it cost him 12 per cent. per annum to keep money for that purpose.
I am afraid there is a great deal of confusion about what a person gains by coming into this scheme and what a person loses by not coming in. Let us take an example of two types of person coming in, of a person working with an ordinary employer and of a civil servant. That is the best illustration. The person in ordinary employment, as is stated very clearly in the Bill, pays his income tax which is due on the year 1959-60 on 1st July. He, therefore, has to pay a half year's tax in the first half of the year 1961-62. That person pays, of course, on the previous year and that goes on and on until he retires.
When he comes under P.A.Y.E., from 6th October until the end of the financial year, he pays as he earns so that he pays one half year's income tax in the first half of the year and the other half weekly or monthly, as the case may be, in the second half. He pays the full year's income tax in the year 1960-61—there is no doubt about that. When I come to present a Budget, that will be the basis on which the calculation is made, that there will be a full year's income tax paid next year. At least it will be collectable—whether paid or not, I do not know.
To take the civil servant—in the present year, 1959-60, the civil servant pays his income tax. It is true that he completes payment of income tax by 31st March but he pays on his income for 1958-59, the previous year. He does not pay on the earnings of the year in which he is paying. If the civil servant were to come under this scheme and were to be allowed to pay no income tax for the first half of 1960-61, he would be paying on P.A.Y.E. for the latter half and would pay nothing for the first half, so that he would have a distinct advantage over the person working in industry because nobody working for an outside employer coming under this scheme will get what is referred to here as "a half year's holiday from income tax" or remission of income tax for a half-year. Everybody will be compelled to pay a full year's income tax next year even though half of it will relate to this year and half to next year. From that on, they pay on the earnings of the year in which they are paying.
When it was explained in the Dáil that if civil servants decided to come under this scheme—I am very doubtful if they will because the advantages are not all on the side of coming in in the case of civil servants; for people outside, I think the advantages are on the side of coming in—they would be paying a full year's income tax every year just the same as the people outside. But when it comes to the final year, when a civil servant is about to retire, he will get a half year's remission. That is the same provisions as applies to people are Senators know that if people are working in a job outside and liable to income tax, in the final year they work, they will pay—suppose they stop work on 6th April; that makes it convenient for me to give an example—they will be paying a half year's tax on 1st January and the other half in July. They would pay tax a half year after retiring. Under P.A.Y.E., that will not happen and in that case they get a half year's remission. There is no reason why a civil servant or anybody else should get it any sooner than he is getting it.
Senator Burke returned to the difficulties of the employer. I think his fear was that it would be difficult for the employer to carry out this scheme, that it would be hard to understand. That is the first point. I should say that it is intended to issue a guide to employers which will give all sorts of example tables and tell them as far as possible what to do in various circumstances. They will be helped in every way and if an employer has any doubt, somebody from the office of the Revenue Commissioners will be only too glad to call and explain it to him. I do not think they need worry about that aspect.
Another case Senator Burke made was that the wages clerk might not be a suitable person to carry out this task because, the Senator said, it would require a good deal of privacy and would be of a confidential nature. That consideration gave us a good deal of trouble when we tackled this scheme at first. It was evident that if the commissioners said to the employer, in the case of a particular employee: "You may pay this man £10 a week and after that, deduct," the employer may have had a suspicion that this man was heavily involved in the bank and he would say: "Now, I know I was right. I know he is involved in the bank. From his income, I know he must be getting big relief or otherwise that amount would not be allowed tax-free." We could not scrap the scheme for that, and there is a clause in the Bill which gives the employee the option, if he has anything outside his own employment and if he does not want it disclosed in his card, to say to the inspector of taxes: "I will settle that direct with you." In other words, a man who is working for an employer and who is heavily involved in the bank and does not want the employer to know it can say to the inspector: "Do not refer to the business in the bank; you can refund that direct to me later on," and that can be done.
Alternatively, if an employer suspects that a man is getting income from another source and in a case where, perhaps, it would not be good for the employee if that suspicion were confirmed, the employee can say to the inspector: "Do not refer on my card to the income I am getting from the other source. I shall pay direct on that." That can be done. The person concerned can always keep his business confidential if he wants to do so. The only thing he must agree to is that in the particular employment, the employer will deduct.
Coming to Senator Lenihan's speech, undoubtedly income tax has disadvantages. We all admit that. He would be a very brave man who would say he found nothing wrong with the payment of income tax, but, as Senator Lenihan pointed out, the whole trouble is to find a substitute for income tax. It yields a very big amount, between £20,000,000 and £30,000,000, and no Government could face the issue of saying: "We shall abolish income tax," without substituting for the greater part of the yield, anyhow, revenue from some other form of tax. I could not suggest anything that would yield anything like the same amount. One might be able to suggest some taxes that would replace part of the income tax yield, but only part. Whatever we do, I am afraid income tax will remain in some form or another, at some level or other.
As I said already, and this arises on Senator Lenihan's speech, employers will be provided with a guide and I think I should also mention that employees—covering the point raised by Senator O'Quigley—will be supplied with what is called a "quiz" in which every possible question that has so far occurred to the Revenue Commissioners will be included and the answers given. When this has been issued and if Senators think of other questions that should have been asked, perhaps we can issue a supplement later on containing any additional questions suggested.
It would be very difficult to issue a memorandum or booklet, as suggested by Senator O'Quigley, telling each person exactly where he stands in regard to income tax. We all know that the income tax code is very complicated and I do not think it would be possible for anybody to tell each income taxpayer exactly what applies to him. Sometimes even the Revenue Commissioners cannot do that; sometimes they are told by the Courts that they are wrong. On the whole, I think what we are attempting to do now is the best thing, that is, to ask all the questions that might arise for an employee under the P.A.Y.E. system and provide the answers.
Senator Crowley gave a certain example which I think is this: employees working in a certain firm—I know one firm like this myself but I do not know if it is the same as Senator Crowley has in mind—have their income tax paid for them by their employers on 1st January and 1st July. I am not sure of the dates in the case I know but I accept Senator Crowley's as correct. Then, from 1st January up to the end of November, they collect the tax from their employees. As Senator Crowley has said, when P.A.Y.E. comes into operation next year, these employees will be paying under it from 1st October onwards and, therefore, there will be overlapping for the two months, October and November, when they will also be paying income tax through their employers.
In such a case, it is obvious the employees are in arrears at a certain stage because, when the employers pay the Revenue Commissioners on 1st July, they have not got the money, but continue collecting it from their employees until the end of November. All I would suggest is that they make some arrangement to clear up the arrears next year a little more quickly, in order to have them cleared by 1st October. I might add we are suggesting that all around because it will give the new system a better chance of working.
Senator Crowley said there was a change in the method of assessment as regards earned income allowances. I am told there is no change. The same thing has been going on for years and years, and the easiest thing is to give an example. A man earning £1,000 a year is paying £200 a year bank interest. The Revenue Commissioners say he is assessable on £800 and then take off earned income allowance, personal allowance, married allowance —if he is married—and insurance allowance, and he is assessed on the balance. Senator Crowley made the point that such a man should get earned income allowance on the gross amount, the £1,000, but I do not think it would be fair to the State to do that because, if he is assessable only on £800, he should not get earned income allowance on £1,000. It is conceivable I could work out a case, where Senator Crowley's recommendation would be carried, in which we would owe such a man money at the end of the year, if his interest were high enough as compared to his total income.
I think I have answered the two questions put by Senator O'Quigley on the explanatory memorandum and with regard to civil servants. There are no changes as far as life insurance is concerned. In the past, as Senators are aware, if a person were paying £20 a year to a foreign company, he got relief on half of that, £10, and that was deducted from his income tax. It always came in at the end of the sheet. Having given the full assessment of income tax owed, the Revenue Commissioners deducted a certain amount for life insurance and then showed a net total. The change made now is that instead of doing it that way, saying £20 is paid to a foreign insurance company, £10 will be free of income tax, that is deducted from a man's income and we go on from that. In the case of an Irish insurance company, a deduction of two-thirds the amount is given and the procedure is the same.
I do not think Senator O'Quigley was serious in suggesting that we should not try to build our experience on the failures and the defects of systems in other countries. I think we should study this scheme, as the Commission did, as to how it works in other countries and find out what weaknesses there were. Usually other countries are quite willing to tell you what are the weak points in their schemes, which we can strive to avoid and, instead of building up our own experience, we can start with experience from other countries and try to get a better scheme.
I was asked by Senator Murphy about the people excluded from the P.A.Y.E. system. They are civil servants and in that sense they include those paid by the State, such as teachers, Gardaí, and Army personnel. There are other groups also and there is a history in relation to the fact that they have their own special way of paying income tax. They include employees of the Dublin Port and Docks Board, the Irish Lights, the Bank of Ireland and the Church of Ireland. Various statutes were passed from time to time dealing with these bodies and, if you like to put it that way, it was arranged they would have what is known as their own assessor, who collects income tax from them.
I need hardly tell Senator this assessor is very closely in touch with the Revenue Commissioners and he deducts the proper amounts from these groups. While the tax is deducted from source, it is possible these groups might prefer the P.A.Y.E. system to what they have, and what is provided in the Bill is that if any one of those bodies, by an obvious majority, wants to have P.A.Y.E. applied, they can come along and, in accordance with the undertaking I gave in the Dáil, I shall put the necessary amendment in the Finance Bill next May. It would be impossible to put an amendment in now because we do not know whether any, or all of them, would be anxious to come in under the P.A.Y.E. scheme.
There are three headings under which certain people are exempt or will not come in under the scope of this scheme. The first are those who have their own assessors. The second are those who, as Senator Murphy mentioned, are working with a foreign company. We have no power over a foreign company. We cannot collect but, if there is an agreement made, I daresay it can be arranged—I am not sure actually if it can, but it may be possible—if the company concerned and its employees are anxious to come in under this scheme.
The third category is that of professional men in particular who are partly assessed under Schedule D and partly under Schedule E. The best example of such people is dispensary doctors. The dispensary doctor gets part of his salary from the local authority. In addition to that, he earns fees from his private patients. It would be very, very difficult to collect from a person such as that under this scheme. It is easy enough to collect on his salary as a dispensary doctor, but it would be well-nigh impossible to collect on every fee he gets. Such people must, therefore, be left out. These are the three classes left out of the scheme. That, I think, answers Senator Murphy's point.
