Senators may remember with sadness that on this occasion last year the House was addressed on the Second Stage of the Finance Bill by the then Minister of State at the Department of Finance, the late Deputy Coveney. I want to add my tributes to those which the House has just expressed and to say how saddened and shocked I was at the terrible news of Deputy Coveney's untimely death. I had the greatest regard for Deputy Coveney, both as a person of great charm and courtesy but also as a very able and effective politician and member of the previous Government. It is a matter of great poignancy for me that just two short weeks ago I was facing him across the floor in the other House on Report Stage of this Bill. I know that the Members of the House present share my feelings over this tragic event.
This is my first Finance Bill as Minister for Finance and I hope to see many more of them through the Houses of the Oireachtas. As Senators are aware, the Bill's primary function is to give effect to the budget tax cuts — a budget which cut tax rates for one million taxpayers by two percentage points, introduced a greater degree of effective tax equity by cutting back on tax shelters and gave a fillip to productive enterprise and endeavour. The Finance Bill also contains many other necessary and substantive changes to our tax law which I will go into in a moment.
The budget delivered over £500 million in personal tax reductions for all income levels, for the elderly, for the widowed and those on lower pay generally. The public will see the benefit of this in the next two weeks when the new tax year starts on 6 April. There are peculiar reasons why the income tax year starts on that unusual date. If, as I feel, the income tax year should start on 1 January, they would be experiencing these benefits already.
Senators will note that the income tax, corporation tax and capital gains tax provisions in the Bill all refer to the recently passed Taxes Consolidation Act, 1997. That Act is a great testimony to the efforts of all concerned in the public and private sectors and in the Houses who saw it through to completion. It is also a testimony to my predecessor, Deputy Quinn, who made the introduction of the Act a keynote of his term as Minister for Finance. I take some credit myself for putting the Bill through both Houses last year.
For the benefit of the House I would like to run through the main provisions of the Finance Bill. I will be more than happy to go into greater detail on particular provisions on Committee Stage. The first few sections of the Bill give effect to the changes in tax rates, bands and allowances, income tax exemption limits and the increased widowed bereavement allowance announced in the budget. The budget package will deliver substantial gains to ordinary PAYE taxpayers — in the case of single people the gains in net take home pay range from over 2.5 per cent to 4 per cent and for married couples, with two children, the gains range from 2.5 per cent up to 5.5 per cent in some cases. These sums are before pay increases under Partnership 2000.
Many workers on low pay will get more from this year's budget than they got from the 1997 budget. For a married couple on £14,000 per annum, just under the average industrial wage, their average tax rate has dropped from over 21 per cent in 1996-97 to under 17 per cent in the forthcoming 1998-99 tax year. For a single person also on £14,000, the corresponding drop in average tax rates is 6 percentage points from 28.2 per cent in 1996-97 to 22.4 per cent in 1998-99.
At the same time, I have cut back substantially on a number of excessive tax shelters in order to ensure a fairer distribution of the tax burden. I recently published the results of a survey of 400 high income earners undertaken by the Revenue Commissioners. This pointed very clearly to how certain tax reliefs are being overused by some to reduce their taxable income almost to nil. The action I am taking will counter that unacceptable position.
The income tax provisions in the Bill also contain a number of anti-avoidance measures. Section 8 is intended to counter tax avoidance arrangements relating to the commencement rules for taxing the profits or gains of trades or professions. Under current rules some firms can engineer a situation where profits in the second year of assessment can fall out of charge. Action is now being taken to prevent this. Section 12 is a further anti-avoidance measure to remove the risk of certain individuals moving assets offshore to avoid tax. This arises from a UK court case which cast doubt on the effectiveness of British tax law on which our 1974 legislation in this area was modelled.
Section 15 closes off a loophole by which certain share incentive schemes for employees could be constructed to provide remuneration to top earners at the 20 per cent capital gains tax rate instead of the normal 46 per cent income tax rate applicable in such cases. There are other anti-avoidance provisions which I will elaborate on shortly.
Section 10 makes a number of operational changes to the tax relief introduced last year for certain pay restructuring deals. These will ensure that there can be a greater take-up of the relief where this will save jobs.
Section 11 improves the tax reliefs available for the purchase by employees of new shares in their company by reducing the minimum holding period for relief from five to three years. It also deals with an unintended anomaly whereby if an individual held a block of shares which were relieved partly under more than one relief — for example this particular relief, the BES and approved profit sharing — a disposal of any of those shares could trigger a withdrawal of relief under all the relevant provisions.
Section 13 of the Bill deals with tax relief for cross-Border workers and its effect will be to eliminate the tax charge on the foreign employment income of such individuals.
Section 14 introduces a special tax free allowance of £5,000 per annum for seafarers under certain conditions. The aim of this allowance is to encourage the fortunes of our maritime transport sector through increases in productivity and profitability of the sector. The new relief will have to be earned through new working arrangements in that sector. Section 14 also makes it easier for certain seafarers to avail of tax relief under the foreign earnings deduction regime.
Section 16 of the Bill sets out in detail how the tax relief for the employment of the long-term unemployed will apply. This is a two-pronged initiative aimed at giving the employer an incentive to hire a person out of work for 12 months or more and affording that person an incentive to take the job offer. I have every hope of this scheme succeeding and I have made arrangements to have the scheme actively promoted by the Revenue Commissioners.
Section 17 sets out the conditions to be fulfilled to obtain tax relief on personal and corporate donations to disadvantaged schools. I am glad to be able to give effect to this relief, which the Minister for Education and Science put forward at budget time.
A number of new schemes of tax relief for investment are set out in section 20 in respect of capital allowances for airport buildings and structures, in section 22 in regard to capital allowances for the construction, extension or refurbishment of approved nursing homes and in section 23 in relation to investment in the renewal and improvement of vessels in the whitefish fleet.
Section 24 makes a number of changes to urban renewal and enterprise areas reliefs. Firstly, the deadline for the 1994 urban renewal scheme is being moved from 31 July to 31 December 1998 to cater for certain projects which were unable to be completed for reasons outside the control of the promoters. Secondly, in relation to airport enterprise areas, the range of functions which can be undertaken there will include freight forwarding and related services. This is subject to EU approval. Finally, the termination date for the enterprise areas of Cherry Orchard/ Gallanstown, Finglas and Rosslare Harbour, as well as any such areas to be designated immediately adjacent to the regional airports, is being brought forward to 31 December 1999 to comply with EU requirements under State aid rules.
Sections 30, 34 and 35 in this part of the Bill provide for the implementation of the major budget changes on capital allowances and on the BES. These changes are important both in tax equity terms and in refocusing tax reliefs more narrowly on clearly defined sectors.
The budget day Financial Resolution limited the amount that an individual passive investor can set off by way of capital allowances against non-rental income to £25,000 in any tax year. This restriction applies to all types of commercial and industrial premises, with the exception of hotels, which I will come to in a moment. This initiative was taken after it became clear that the availability of unrestricted capital allowances on these properties was being used by high income earners to reduce their tax liability on earned income by very significant amounts. The closing off of this tax shelter will have lasting effects in ensuring a fairer sharing of the tax burden. As with all measures restricting reliefs, it was necessary to provide for transitional provisions to let through certain projects well in hand or committed to by firms and investors prior to budget day. This we did initially on budget night. However, on further examination, a number of modifications proved to be necessary to the transitional provisions so as to allow certain borderline cases to proceed. I announced the changes to both the main capital allowance and BES budget day provisions on 29 January.
In the case of capital allowances, the amendments to the qualifying conditions for transitional reliefs were as follows: exclusion of refurbishment projects where 5 per cent of the cost of the project was incurred before budget day; the extension of the deadline for investors to sign a binding contract for investment in the project from 1 February 1998 to 1 May 1998; the removal of the condition to have individual investors in place for the project prior to the budget for any project where the IDA had in the two-year period prior to 3 December 1997 given approval for grant aid; and the addition of a condition to allow promoters to satisfy Revenue that detailed discussions had taken place before budget day with the planning authority as an alternative to having made an actual planning application to a planning authority.
These changes will allow a number of pipeline projects to avail of unrestricted capital allowances. They do not go as far as some promoters wish, but I found it impossible to accommodate some of these cases without throwing open the whole relief and thus undermining the provisions of this important tax equity measure which must provide for a definite and firm cut-off date.
In the case of hotels, I announced in the budget that there would be a total ringfence of capital allowances whereby the allowances can be set off only against rental income in the case of individual passive investors. However, this ringfence does not apply to hotels above a certain standard located in counties Cavan, Donegal, Leitrim, Mayo, Monaghan, Roscommon or Sligo except for those hotels in designated seaside resorts in any of those counties. Capital allowances may be set off against all the income of a passive investor's total income, without restriction, in the case of those hotels. I see this as an important incentive to investors to fund good quality accommodation in areas which to some extent are off the beaten track and which have not so far shared to their full potential in the increased tourist activity in the State. This incentive is subject to EU approval which is currently being sought.
I should emphasise that the restrictions in capital allowances apply only to passive individual investors. Owner-operators and corporate investors are not affected.
In the case of BES the aggregate amount that a company can raise under the scheme was reduced from £1 million to £250,000 with effect from budget day. This will refocus the relief on riskier projects which require tax relief to obtain investment in them and which would not be prime candidates for investment from other sources such as the banks. I note that despite prognostications a significant number of designated funds are still in operation and that the funds are being focused on smaller projects. Judging from the financial papers there are also quite a number of individual projects seeking to attract small scale investment.
To cater for projects that were well advanced prior to budget day, the budget night Financial Resolution included transitional arrangements for such BES projects. The transitional arrangements caused unintended difficulties for a small number of companies who fell foul of the requirements. To deal with this, the Bill amends these rules so that projects that had been certified prior to 3 December 1997 by a development agency will be able to raise the amount for which they were certified up to the maximum limit of £1 million. The need for binding contracts — which was part of the transitional arrangements passed on budget night — will not apply in these cases. The deadline for the issue of shares to investors is being extended from 30 June 1998 to 30 September 1998. These changes cater for most of the projects affected by the budget day change.
Advance factories can continue to raise up to £1 million provided the company is engaged solely in the construction and leasing of an advanced factory. I have done this because the provision of advance factories is a community based initiative designed to address the difficulties faced by certain communities in attracting employers to their regions.
The reduction in the BES limit to £250,000 also affected the seed capital scheme, which is aimed at assisting individuals who give up employment to start their own business. The scheme provides a refund of PAYE paid in the five years prior to setting up on one's own. Seed capital projects can also seek BES moneys. In order to ensure that the budget day change does not impact unduly on these new start-up projects, I decided to provide for the Bill to allow seed capital projects to raise £500,000, with no more than £250,000 of the £500,000 being raised under the BES scheme. This hybrid approach fuses the good elements of both schemes into one focused approach.
Section 36 amends the tax reliefs introduced last year to allow employees to acquire a substantial shareholding in their company through an employee share ownership trust — ESOT. These reliefs were introduced under Partnership 2000 with the Telecom situation in mind. The changes I am now making reflect further input received from both the company and the union side representing the staff. Section 36 will exempt dividend income received by the ESOT on shares in the company from income tax where the income is used for certain qualifying purposes — for example, to fund the purchase of shares in the company or to repay borrowings used for that purpose. The section will also provide that where the shares are held in the ESOT for a minimum of three years under certain conditions, they may be passed to the employee free of income tax via an approved profit sharing scheme and disposed of without further delay. The section also makes a number of further changes in the structure and scope of an ESOT which will align the trust provisions more closely to those that apply to approved profit sharing schemes.
Section 37 extends the relevant contracts tax — RCT — system to the poultry processing trade and certain haulage operations in the meat industry generally. The existing RCT system covers payments to subcontractors in the construction, red meat processing and forestry sectors and is commonly referred to as the C2 or C45 system. The system is essentially an anti-evasion measure designed to ensure the deduction of tax in subcontracting situations which might otherwise not be collected. There is however an essential issue of deciding what is a subcontracting situation and what is actual employment liable to PAYE. Principal contractors and subcontractors must certify that the arrangement concerned is a genuine contract of self-employment. However, if it emerges as a result of an investigation that an employment rather than subcontract exists and PAYE/PRSI and levies are not being deducted, the principal becomes liable for the PAYE/PRSI and levies.
Revenue is currently engaged in a nationwide campaign to ensure that declarations made by principal contractors and subcontractors represent the true situation. The campaign commenced in November 1997 and the results at this stage indicate that in the Dublin area 74 per cent of the cases examined were correctly designated as subcontractors, leaving 26 per cent to be reclassified as employees. Resistance to reclassification has been met from some principal contractors. Revenue intends to visit every principal contractor in the State to ensure compliance with the PAYE/PRSI and levies system.
Section 45 of the Bill proposes certain changes to the self-assessment system which have proved somewhat controversial. The current arrangements for the payment of tax and the filing of returns are complicated. If a firm has an accounting year ending in the current tax year — 1997-98 — preliminary tax must have been paid on 1 November 1997, the accounts and return for that year filed by 31 January 1999 and the balance of tax paid by 30 April 1999. Thus, if the accounting year in the 1997-98 tax year ended on 30 April 1997, the accounts for that year would not have to be filed with Revenue for 21 months until 31 January 1999. If the accounting year end were 31 March 1998 the filing gap would be ten months.
The Bill proposes to bring forward the filing date by two months to 30 November and to delay the payment of preliminary tax by one month from 1 November by moving that payment date forward also to 30 November. This will bring the two dates together. There are a number of good reasons for doing so. First, it is a simplification measure and, second, it will help clients avoid interest charges on underpayment of preliminary taxes.
At present, the amount of preliminary tax to be paid can be calculated as either 90 per cent of the estimated tax liability projected for the current tax year or 100 per cent of the previous year's tax liability. Most taxpayers use the 100 per cent rule because of uncertainty at the time about the current year's liability. However, given that under the current system final accounts for the previous tax year do not have to be filed until three months after the preliminary tax payment date, there is often no reliable figure on which to base the 100 per cent. This leaves the taxpayer open to interest charges which can be substantial. If the return filing date for the previous year and the preliminary tax payment date for the current year were harmonised, this would greatly assist in the payment of correct preliminary tax and the avoidance of interest charges. This is in taxpayers' and tax advisers' interests. To help support the change the Revenue Commissioners are also prepared to reduce significantly the documentation that must be filed with the return.
However, strong representations have been made by certain accountants and advisers representing smaller practices to the effect that bringing forward the filing date by two months will cause significant problems for them. The fears and difficulties envisaged, while genuinely put forward, are overstated. Several accounting practices have written to me supporting the changes. Nonetheless, I have provided that the section will be subject to a commencement order so as to give the Revenue Commissioners time to sort matters out and to allow a fuller impact assessment to be made before going ahead.
All income tax should be put on a calendar year basis. The 6 April date arises from a time when the financial year ended on 25 March and debts fell for payment on that quarter day. When the calendar changed in Great Britain and Ireland in the mid-18th century 11 calendar days ceased to exist. To compensate for this the year end payment date was deferred by 11 days from 25 March to 5 April. If, instead of this historical anachronism, the income tax year ended on 31 December, accounts could be required to be filed by 30 June following and the balance of tax paid by 30 September. That is a far more rational approach and would be my ultimate aim. The full practical and budgetary implications would have to be worked out. I have asked my Department and the Revenue Commissioners to set up the necessary procedures to examine the practicalities and timing of such a change.
Section 45 also proposes that capital gains tax, which is collected in the tax year following the year of assessment, should be paid in full on the preliminary tax date and not at the rate of 90 per cent of the liability as at present. The section also proposes to put the instalment system for the payment of preliminary tax on a tax year basis in order to encourage take-up. Only 1 per cent of self-assessed taxpayers use this facility each year. I consider this package of proposals in the Bill as balanced and progressive and I am confident that we can make progress.
Another important feature in the Bill is the technical measures in section 47 and the Second Schedule to the Bill to deal with the proposed introduction of the euro from 1 January 1999. The basic thrust of the proposals is to make the change to the euro as tax neutral as possible without departing from current taxation principles. Section 50 amends the anti-avoidance provisions in the Taxes Consolidation Act, 1997, to prevent the exploitation of tax losses by passive investors in certain tax-driven partnerships. The two areas of concern relate to oil and gas exploration and film distribution partnerships.
Among other measures dealt with in this Chapter are the extension of transitional provisions for capital allowances for certain Northern Irish hotels until 30 September next, improved capital allowances for farm pollution control measures, changes to the scheme of capital allowances for certain third level educational projects, revised and extended reliefs for mining operations, the phased abolition of tax credits and advance corporation tax in respect of dividend payments to shareholders and related alterations to the tax treatment of scrip dividends as announced in the budget, technical changes to tax law to reflect the new US/Ireland double tax treaty, a number of changes to assist investment in the IFSC and Shannon and the closure of a tax loophole on assets leased abroad by domestic financial institutions using IFSC and Shannon companies to avoid the effects of existing ringfencing provisions.
Sections 55 and 56 give effect to the reduction in corporation tax from 36 per cent to 32 per cent and from 28 per cent to 25 per cent in respect of the first £50,000 of company profits announced in the budget with effect from 1 January 1998. With regard to the phasing in of a single 12.5 per cent rate of corporation tax for trading activities, discussions are continuing with the Commission to secure their final sign-off on the planned time-table for achieving that single low rate.
Section 58 continues the exemption of the income of credit unions from corporation tax. Section 60 introduces an improved double taxation relief for dividends received by Irish parent companies from their foreign subsidiaries. Sections 61 and 62 set out the proposed new reliefs for company donations to charities and for investment by companies in certain renewable energy projects respectively. The new scheme for renewable energy requires EU approval and this is currently being sought. Section 63 amends the limits on donations which can be made tax free by companies to the Enterprise Trust Limited set up under social partnership arrangements to promote enterprise in disadvantaged areas. Section 64 rectifies a number of technical deficiencies in the taxation of the profits of life assurance companies.
Sections 65 to 75 in Chapter 5 deal with capital gains tax. I have been slated by certain Opposition spokespersons for cutting capital gains tax to 20 per cent. Perhaps they should look to the British Labour Government which has taken a leaf from my book and cut capital gains tax to as low as 10 per cent in certain cases. I wonder if the same noises will still be made here about my cutting capital gains tax. I have been strongly of the view for some time that a reduction in capital gains tax will encourage investment and growth in the economy and over time expand the revenue from capital gains tax. In my experience, many taxpayers simply would not realise investments at a 40 per cent capital gains tax rate and invest in new wealth generation. One needs only look at the increased activity in the level of the average daily turnover on the Irish Stock Exchange since the budget. It is widely held that some, although not all, of the increased activity results directly from the cut in the capital gains tax rate. I decided that, except for development land where windfall gains are involved, a cut across the board was the best way to proceed. While the UK Government has cut capital gains tax in a different manner, its aims and mine are at one — to encourage risk taking and investment.
With regard to specific capital gains tax provisions, sections 65 and 66 provide for the general 20 per cent rate while retaining the 40 per cent rate for development land, foreign life assurance policies and certain offshore roll-up funds to ensure broad equity of treatment as compared to the tax treatment of similar domestic investments.
Sections 67 and 68 address a tax problem in relation to a waiver of property under the State Property Act, 1954. The provisions ensure that any subsequent disposal of the property by the person acquiring it in this way will be fairly taxed. Section 69 provides for relief in certain circumstances from the capital gains tax liability of a trustee of settled property where a life interest is disposed of.
Section 71 affords capital gains tax roll-over relief in respect of the disposal of financial assets by certain sporting bodies. Section 72 allows a person in certain circumstances to avail of capital gains tax retirement relief notwithstanding that the person had previously participated in the EU farm retirement scheme. Section 73 extends to greyhound racing tracks roll-over relief on the disposal of development land where the proceeds are reinvested in race track facilities. A similar relief was given to racecourses in last year's Finance Act. This section also grants roll-over relief to transfer of lands from a statutory body to the Dublin Docklands Development Authority. Section 75 provides that a capital gains tax exemption limit of £1,000 will apply per individual. This is an increase in the limit of £500 per annum proposed in the budget and is aimed at relieving the capital gains tax liability on smaller investors.
Section 76 introduces a new scheme of tax incentives to promote urban renewal. The scheme provides accelerated capital allowances in respect of expenditure on the construction or refurbishment of industrial and commercial buildings with a double rent allowance for lessees of qualifying premises. Reliefs are also available for owner occupiers of residential accommodation and for expenditure on rented residential accommodation. It is intended that the scheme will operate for three years from 1 August 1998. However, due to considerations relating to the state aids provisions of the EU Treaty, a distinction must be made between the business incentives which will run initially from 1 August 1998 to 31 December 1999 and the residential incentives which will apply for the full three years from 1 August 1998 to 31 July 2001. The position of the business incentives will be reviewed when the post-1999 EU regional aid position is finalised.
The new urban renewal scheme will: introduce a more structured approach to the urban renewal process; focus on issues of physical development along with wider issues of socio-economic benefit; be based on integrated area plans prepared for priority areas identified by local authorities involving widespread public consultation and involvement, and entail a more selective approach to the application of incentives, including tax incentives, to any designated area. Although a similar range of tax incentives will be available under the new scheme as had been available under the 1994 urban renewal scheme, there will be no blanket entitlement to all the tax reliefs for any qualifying area. The incentives may vary in mix in different areas and there is provision to discriminate between different types of commercial development for tax incentive purposes.
A new process of designation will be employed under this scheme. Based on their integrated area plans, the local authorities will recommend areas for designation to a Department of the Environment and Local Government advisory panel, which will then make recommendations to the Minister for the Environment and Local Government. The legislation provides that the Minister for Finance may make orders applying one or more tax incentives to areas designated by the Minister for the Environment and Local Government.
Section 77 introduces a new pilot scheme of incentives to promote the renewal of certain rural areas. The scheme is targeted at part of the
Upper Shannon region and it will cover all of the counties of Longford and Leitrim and parts of Counties Cavan, Roscommon and Sligo based on a district electoral division, the details of which are set out in the Bill. Formal EU Commission approval is needed before the scheme can commence. Once that is obtained the scheme will begin on the date of a commencement order to be made by the Minister for Finance and it is proposed that it will last until 31 December 2001.
The incentives consist of accelerated capital allowances in respect of expenditure on the construction or refurbishment of industrial and commercial buildings with a double rent allowance for lessees of qualifying premises. Reliefs are also available for expenditure on rented residential accommodation where the lease is for a minimum of 12 months and the accommodation is used as the sole or main residence of the lessee throughout the period of the lease.
Part 1 of the Bill deals with direct tax measures and Parts 2 and 3 relate to excise and VAT. Sections 78 to 82 deal with VRT and give effect to the reduction in rates of VRT on cars announced in the budget. There are also provisions to tighten up the law in relation to the registration of vehicles in a crashed condition, the refund of VRT on demonstration or replacement vehicles in the motor and car hire trade, and the forfeiture of vehicles which have been converted privately, for example, from a car-van, liable at 13.3 per cent, to a car as such, liable at 22.5 per cent, without payment of the additional VRT.
Sections 83 to 103 deal with miscellaneous matters concerning excise duties. The provisions here may be categorised as follows: confirmation of the increases in excise rates on tobacco and certain road fuels announced in the budget; changes in the licensing arrangements for betting shops and gaming and amusement machines to allow extended opening times; other changes include a tightening of the law on the use of rebated diesel in certain vehicles; the introduction of new rules governing the commencement of customs proceedings and the production of samples of products in court prosecutions, and the confirmation of the powers of members of the Garda to arrest suspects in relation to certain excise offences; miscellaneous provisions to tidy up excise law to remove an archaic restriction on the grant of wine on-licences; to abolish certain duty relief for hydrocarbon oil used in the operation of lighthouses; to redefine cider and perry for excise duty purposes; and to provide that duty charged on spirits in late December be given the same deferment arrangements as beer and wine and a number of technical amendments to implement EU directives on the control and movement of excisable products involving mutual assistance between member states, certain documentary procedures, territorial scope and treatment of losses.
The changes I am making to the opening hours of betting shops is to acknowledge the reality of betting practice nowadays and the staging of sporting events in the evenings in summer and on Sundays. It recognises the reality of the situation. However, to allow time for the new opening hours to be put in place and for staff arrangements to be settled to everyone's satisfaction, I am providing for these changes to come into effect from April 1999. The law on extended opening hours is permissive. Betting shops will not be required to open for the extended periods if it does not suit them.
The Bill contains a number of important changes in the area of VAT. Much of what is in the Bill is of a technical or sectoral nature dealing with VAT self supply rules, the charging of VAT on telephone cards and certain financial services, VAT on AI products and services, and on live poultry, the deductibility of post-letting expenses for property and VAT on air traffic control services.
The Bill also gives effect to the increase in the farmer's flat rate of VAT from 3.3 per cent to 3.6 per cent together with a corresponding change in the related VAT rate on the supply of livestock, live greyhounds and the hire of horses. There is also the proposed reduction in the VAT rate on magazines from 21 per cent to 12.5 per cent with effect from 1 May 1998. I have asked my Department to liaise with the Director of Consumer Affairs to help to ensure that the reduction is passed on to the consumer.
Sections 111 and 113 seek to safeguard VAT revenues by amending the rules on restricting VAT deductibility of cars used for business purposes. These changes take account of a recent European Court of Justice ruling on car leasing and VAT. Sections 114 and 115 contain important new provisions on the assessment and refund of VAT. Within the past few years there has been increased focus by tax planners both here and in other member states on exploiting the opportunities in EU VAT law for new interpretations of VAT provisions. Given that the yield from VAT is considerable and that successful VAT planning schemes can be costly, it is important to seek, from the Exchequer's viewpoint, to limit the potential damage. In this context, it is also important to reduce the exposure of the Exchequer to claims for VAT refunds.
Section 114 reduces the time limit within which a VAT refund may be claimed from ten years to six years. Accordingly, VAT refund claims in respect of VAT taxable periods arising from 1 May 1998 will be subject to the new six year time limit. There will be transitional arrangements in relation to VAT taxable periods before 1 May 1998. In such cases, the new six year time limits will apply as and from 1 May 1999. For reasons of equity, section 115 also applies the reduced time limit to VAT assessments by the Revenue Commissioners. Furthermore, the new period will correspond with the existing requirement for traders to keep records for six years.
The advance notice of one year for possible pipeline claims is consistent with the approach taken in other areas when the use of a tax relief, such as BES, is being restricted. In addition, section 114 clarifies the rules designed to avoid windfall gains which may occur with VAT repayments, taking into account the outcome of cases in the European Court of Justice, in the courts in other member states and in domestic appeal commissioners' cases.
Sections 118 to 125 in Part 4 contain a number of technical amendments to the stamp duty code and repeal a series of redundant stamp duty provisions in various Finance and other Acts dating back to 1830. The impact overall is to extend stamp duty exemptions and to lighten the burden of administration on the taxpayer. Section 119 is an anti-avoidance section. It makes contracts for the sale of bearer shares liable to stamp duty.
The sections in Part 5 dealing with capital acquisitions tax rectify certain shortcomings in the existing provisions dealing with business reliefs and appeals against CAT assessments. Section 126 gives effect to the budget proposal to increase the relief for capital acquisitions tax purposes in respect of part or all of the family home inherited by an elderly person from a deceased brother or sister. The section also introduces a new relief in similar cases where the home is inherited by a close relative of the deceased owner, for example, a niece, where both parties have been living in the house for at least ten years prior to the inheritance. The relief means that the value of the home for CAT purposes will be reduced by 80 per cent, or £150,000, whichever is the lesser. The existing relief for brothers and sisters was 60 per cent, or £80,000 whichever was the lesser. The new and revised reliefs will reduce considerably the amount of CAT to be paid by the inheritors in the situations I have described.
The final Part of the Bill contains miscellaneous provisions. Section 131 provides for the increase in the rate of DIRT on special savings accounts from 15 to 20 per cent announced in the budget. The section also provides that credit unions will no longer have to report to Revenue interest paid on their members' deposits. Despite the withdrawal of my Finance Bill proposals, it should be noted that under existing law all dividend and interest income on credit union shares and deposits has for many years been liable to tax at the recipient's marginal rate of tax and must, irrespective of the amount, be returned by the individual to Revenue, regardless of whether it is reported by the credit union.
I am setting up a working group with the Irish League of Credit Unions under an independent chairperson to examine the general issue of the taxation of the return on credit union savings, bearing in mind the special and particular nature of the credit union movement, its contribution to society and the wider taxation issues involved. The working group will report to me by 30 September 1998. I do not need to recount the experience of the credit union taxation proposals in the Bill as published. I believe it is one of the few times a Minister has been castigated by a representative body for doing what it asked him to do. I have, however, learned from the experience.
Section 132 contains enabling provisions for the extension of tax clearance to solicitors and counsel who are on the criminal legal aid scheme panels. Section 133, and sections 124 and 127 earlier in relation to stamp duty and probate tax, reduce the rate of interest either charged by Revenue on unpaid taxes or paid by Revenue on refunds of certain taxes. Section 134 permits the publication by the Appeal Commissioners of their decisions in appeal cases. This is to assist taxpayers and practitioners in being clear on how tax law affects them. The identity of taxpayers, however, may not be divulged in such publication. Section 135 amends the Freedom of Information Act, 1997, to ensure that the declarations of non-disclosure certain Revenue officials are required to make under tax law will not prevent the disclosure of information in accordance with the Act. That concludes the substantive provisions of the Bill.
The issue of extra Revenue powers has been the subject of recent debate. I made it clear in the Dáil that Revenue has a wide range of powers to combat evasion. It has powers to access bank accounts, although only in certain specified circumstances where it has the names of the account holders. I also outlined the kind of new powers which could be given to Revenue to seek information from financial institutions in the case of organised tax evasion schemes. I will act to counter such activity and take new powers where these can be shown to be desirable and likely to be effective.
The best approach is for such decisions on new powers to be taken in the light of all the relevant and available information. This includes information and recommendations which the Moriarty tribunal may provide. It would also mean taking account of what the authorised officers appointed by the Tánaiste under section 19 of the Companies Act, 1990, may discover in their examination of the companies concerned. It would also include material or facts thrown up by more recent events. There are many views and contributions on what should be done in this area. It is important all relevant contributions and evidence be listened to before deciding.
There are many important and positive features in this Bill and I look forward to a constructive debate. I am pleased to commend the Bill to the House.
