SELECT COMMITTEE ON FINANCE, PUBLIC EXPENDITURE AND REFORM debate -
Wednesday, 29 Feb 2012

Finance Bill 2012: Committee Stage (Resumed)

NEW SECTION

Minister of State at the Department of Finance (Deputy Brian Hayes)

I move amendment No. 91:

In page 116, before section 64, but in Part 1, to insert the following new section:

64.—(1) The Principal Act is amended—

(a) by inserting the following section after section 610:

"610A.—(1) Subject to subsection (2), a gain shall not be a chargeable gain if it accrues to an approved body to the extent that the proceeds of

the disposal giving rise to the gain or, if greater, the consideration for the disposal under the Capital Gains Tax Acts have, within 5 years of the

receipt of the proceeds of the disposal or the consideration, as the case may be, been applied for the sole purpose of promoting athletic or

amateur games or sports.

(2) A gain shall not be a chargeable gain if it accrues to an approved body to the extent that the proceeds of the disposal (or part thereof)

giving rise to the gain or, if greater, the consideration for the disposal (or part thereof) have, within 5 years of the receipt of the proceeds of the

disposal or the consideration, as the case may be, been donated for charitable purposes to a person or body of persons and—

(a) application has been made to the Minister for Finance specifying the person or body of persons to which the

approved body proposes to make a donation and he or she has approved the making of the donation to the person or body of

persons specified in the application,

(b) the donation is evidenced by a deed which stipulates that the donation is applicable and must be applied for the purposes of

the charity only, and

(c) neither the donor nor a person connected to the donor receives a benefit in consequence of making the donation, either directly

or indirectly.

(3) The Minister for Finance may refuse to approve the donation to the person or body of persons referred to in subsection (2) if he or she

believes that the public good would not be served if the donation were made.

(4) The Revenue Commissioners may allow an extension of the period of 5 years referred to in subsection (1) for the application of proceeds for

sporting purposes if they are satisfied that an approved body is in the process of applying proceeds for that purpose.

(5) The Revenue Commissioners may allow an extension of the period of 5 years referred to in subsection (2) for the making of a donation for

charitable purposes if they are satisfied that an approved body is in the process of making such a donation.

(6) In this section ‘approved body' means an approved body of persons within the meaning of section 235(1).",

and

(b) in Schedule 15 by deleting paragraph 37.

(2) Subsections (2), (3) and (5) of section 610A (inserted by subsection (1)) of the

Principal Act shall be deemed to have had effect in respect of disposals on or after 1

January 2005.".

Currently, any approved sporting body qualifies for exemption from capital gains tax where the proceeds are used for the sole purpose of promoting athletic or amateur games or sports. The new section to be inserted ensures that a gain by any approved sporting body will continue to get the capital gains tax exemption if a portion of the gain is paid to a charity. However, the body must apply to the Minister for Finance for approval to make the deduction and must specify the charity concerned. The Minister will have the power to refuse to grant the exemption if he or she does not believe the public good would be served by the donation being made.

The new section also provides that the proceeds of a disposal made by an approved sporting body must be expended within a period of five years. However, an extension of the five-year period is provided for where the body concerned can show it is in the process of using the proceeds for the charity for sporting purposes.

I commend this amendment to the committee.

Amendment agreed to.

Section 64 agreed to.

NEW SECTION

Deputy Brian Hayes

I move amendment No. 92:

In page 118, before section 65, to insert the following new section:

65.—(1) The Finance Act 2005 is amended with effect as on and from 7 December 2011 by substituting the following for Schedule 2 to that Act (as amended by section 16 of the Finance Act 2009):

Deputy Richard Boyd Barrett,	Deputy Michael McGrath,
Deputy Jim Daly,	Deputy Michael McNamara,
Deputy Pearse Doherty,	Deputy Kieran O’Donnell,
Deputy Stephen S. Donnelly,*	Deputy Billy Timmins,
Deputy Brian Hayes (Minister of State at the Department of Finance),	Deputy Liam Twomey.

(2) The Finance Act 2005 is further amended with effect as on and from 1 May 2012 by substituting the following for Schedule 2 to that Act (as amended by subsection (1)):

Deputy Richard Boyd Barrett,	Deputy Michael McGrath,
Deputy Jim Daly,	Deputy Michael McNamara,
Deputy Pearse Doherty,	Deputy Kieran O’Donnell,
Deputy Stephen S. Donnelly,*	Deputy Billy Timmins,
Deputy Brian Hayes (Minister of State at the Department of Finance),	Deputy Liam Twomey.

I am referring to amendment No. 92 which is being considered on its own. Is that correct?

Chairman

Yes. I understand the issue was that Deputy Doherty had signalled he intended to oppose section 64 but we have moved on from amendment No. 91.

Deputy Brian Hayes

This amendment proposes to substitute a new section for section 65 of the Bill.

The first part of the new section does the same as the provision that it is replacing, that is, it confirms the budget increase in the tobacco products tax on cigarettes and tobacco generally. When the rate of VAT applicable on budget day is included, this amounted to 25 cent on a packet of cigarettes in the most popular price category, with pro rata increases for other tobacco products. The increases are expected to yield an additional €34.3 million in tobacco products tax, and an additional €6.6 in VAT this year.

The second part of the replacement section provides for a rebalancing of the component elements of the tax on cigarettes, without altering the overall rate, and also introduces a minimum amount of tobacco products tax payable on cigarettes.

The tobacco products tax on cigarettes is made up of a fixed amount, known as the specific component, and an amount related to the sale price of the cigarettes, known as the ad valorem component. A member state can decide on the balance between these two elements of the tax, within limits laid down by the governing EU directive. It is now proposed, availing of a greater discretion that has been given to member states, and taking account of the established approach here of emphasising the specific component, to rebalance the structure of cigarette taxation in favour of that component. That means that the way that the tax on cigarettes is expressed will change from €192.44 per 1,000 and 18.03% of the selling price to €233.11 per 1,000 and 9.04% of the selling price. This will not, however, change the actual amount of tax charged on cigarettes in the most popular price category.

The section will also introduce a minimum amount of tobacco products tax payable on cigarettes, bringing the Irish practice into line with that in almost all other EU member states. This means that, irrespective of the price at which cigarettes are sold, the amount of tobacco products tax paid on them cannot be lower than €268.14 per 1,000.

Amendment agreed to.

Section 65 deleted.

NEW SECTION

Deputy Brian Hayes

I move amendment No. 93:

In page 118, before section 66, to insert the following new section:

66.—Chapter 1 of Part 2 of the Finance Act 2001 is amended—

(a) in section 96(1) by deleting the definitions of “accompanying administrative document”, “free warehouse” and “free zone”,

(b) in section 96(1) by substituting the following for the definition of “tax representative”:

" ‘tax representative' means a person approved by the Commissioners under section 109U for the purposes of that section;",

(c) in section 96(1) by inserting the following definition:

" ‘transaction' means any action giving rise to a liability to, or a relief from, any duty of excise;",

(d) in section 96(1) by substituting the following for the definition of “vehicle”;

" ‘vehicle' means a mechanically propelled vehicle or any other conveyance and includes—

(a) any craft or aircraft, and

(b) any container, trailer, tank or any other thing, which—

"Amendment of Chapter 1 (interpretation, liability and payment) of Part 2 of Finance Act 2001.

(i) is or may be used for the storage of goods in the course of

carriage, and

(ii) is designed or constructed to be placed on, in or attached to

any such vehicle or other conveyance;",

(e) by substituting the following for section 97:

"97.—For the purposes of this Part the following are excisable

products:

(a) alcohol products within the meaning of section 73 of the

Finance Act 2003,

(b) tobacco products within the meaning of section 71 of the

Finance Act 2005, and

(c) mineral oils within the meaning of section 94 of the Finance

Act 1999.",

(f) in section 98A(2) by substituting “that consignment is, except in the case

of an irregular release, released for consumption" for "that consignment

is released for consumption",

(g) in section 99 by substituting the following for subsections (2) and (3):

"(2) The liability under subsection (1)(b) is fully or partly discharged where, and to the extent that, the consignment concerned has been (as the case may be)—

(a) received, under a suspension arrangement, into another tax warehouse in the State, or

(b) ended in accordance with subsection (1) of section 109K, and evidence to that effect has been received in accordance with subsection (2) of that section.

(3) A registered consignor is liable for payment of the excise duty on any consignment dispatched by such registered consignor under section 109E(1)(b), and that liability is fully or partly discharged where, and to the extent that, the consignment has ended in accordance with subsection (1) of section 109K, and evidence to that effect has been received in accordance with subsection (2) of that section.”,

(h) in section 99A by substituting the following for subsection (1):

"(1) In this section ‘authorised officer' means an officer authorised in writing by the Commissioners to exercise the powers conferred by this section.",

(i) by inserting the following after section 99A:

99AA.—(1) Where a person who is required, by any provision of excise law, to make a return of the excise duty payable by such person for any period fails to do so within the time specified in the provision concerned, the Commissioners may, subject to subsection (2)—

"Estimation of excise duty due.

(a) estimate the amount of duty payable by that person for such period, and

(b) serve notice (in this section referred to as a ‘notice of estimation’) on the person of the amount estimated.

(2) (a) Where the Commissioners are satisfied that the amount of any estimation is excessive or deficient, or that there is no liability for the period concerned, then they may accordingly reduce, increase orwithdraw such estimation.

(b) In any case where an estimation is reduced or increased under paragraph (a), the Commissioners shall serve an amended notice of estimation on the person concerned.

(3) If at any time after a notice of estimation or amended notice of estimation, as the case may be, is served, the return referred to in subsection (1) is made, and excise duty is paid in accordance with that return together with any interest and costs that may have been incurred in connection with that payment, then the notice of estimation, or amended notice of estimation, shall stand discharged.

99AB.—(1) In this section ‘taxable period' means a period in respect of which a person is required, by any provision of excise law, to make a return of the excise duty payable by that person for that period and to pay that amount.

(2) Subject to subsection (4), an assessment under section 99A or an estimation under section 99AA may be made at any time not later than 4 years from—

(a) except where paragraph (b) applies, the date of the transaction giving rise to the liability concerned,

(b) where the liability is in respect of a taxable period,the last day of such period.

(3) Subject to subsection (4), proceedings for the recovery of an amount of excise duty may not be instituted, or other action for such recovery taken, unless a notice of assessment, or another notification in writing stating that such amount is due, has been issued by the Commissioners before the expiry of a period of 4 years from—

(a) except where paragraph (b) applies, the date of the transaction giving rise to the liability to that amount,

(b) where the liability is in respect of a taxable period,the last day of such period.

Time limits.

(4) (a) Subsections (2) and (3) shall not apply in any case where there are reasonable grounds to believe that any form of fraud or neglect has been committed by

or on behalf of any person in connection with the liability concerned.

(b) For the purposes of paragraph (a),

and subject to paragraph (c),

‘neglect' means negligence or a failure to give any notice, information or record, or to make any return, required to be given or made under any provision of excise law, within such time limit as may be allowed under the provision concerned.

(c) A person who fails, within the time limit referred to in paragraph (b), to satisfy any requirement referred to in that paragraph shall be deemed not to have neglected to do so where the person—

(i) satisfies the requirements within such further time as the Commissioners may allow in any particular case, or

(ii) shows to the satisfaction of the Commissioners that there was sufficient excuse for such failure, and where such person satisfies the requirements as soon as possible thereafter.",

(j) by deleting section 100,

(k) in section 103(2)(a) by substituting “Where any amount of excise duty becomes payable” for “Without prejudice to the provisions of section 74 of the Finance Act 2002 concerning betting duty, where any amount of excise duty becomes payable”,

(l) in section 103 by inserting the following subsection:

"(3) Where an amount of excise duty has been repaid to a person, and where all or part of that amount is then found not to be properly refundable under any provision of excise law, simple interest shall be paid by the person on that amount or part of that amount at the rate of 0.0274 per cent for each day from the date the repayment is made to the date on which it was returned to the Commissioners or otherwise accounted for to their satisfaction.",

(m) in section 104 by substituting the following for subsections (1), (2) and

(3):

"(1) Subject to such conditions as the Commissioners may prescribe or otherwise impose, a full relief from excise duty shall be granted, by way of remission or repayment, on any excisable products that are shown to the satisfaction of the Commissioners to be delivered—

(a) under diplomatic arrangements in the State,

(b) to international organisations recognised as such by the State, and the members of such organisations based in the State, within the limits and under the conditions laid down by international conventions establishing such organisations or by other agreements,

(c) for consumption under any agreement entered into between the State and a country other than a Member State where such agreement also provides for exemption from value-added tax,

(d) for export or re-export from the State to a place outside the European Union, or

(e) to a tax-free shop at an airport for supply to passengers travelling to a destination outside of the European Union.

(2) Subject to such conditions as the Commissioners may prescribe or

otherwise impose, a full relief from excise duty shall be granted on any alcohol products or tobacco products released for consumption in another Member State which?

(a) have been acquired by a private individual in such another Member State for his or her own use and not for commercial purposes, and

(b) are transported into the State by that private individual, and accompanied by him or her during such transportation.

(3) For the purpose of subsection (2) the question of whether the alcohol products or tobacco products, as the case may be, are for a private individual's own use or are for commercial purposes shall be determined in accordance with regulations under section 153.",

(n) in section 104 by inserting the following subsection:

"(5) Subject to such conditions as the Commissioners may prescribe or otherwise impose, a full relief from excise duty shall be granted, by way of repayment, on any excisable products that have been released for consumption in the State and which?

(a) have been dispatched to another Member State in accordance with section 109V, or

(b) have been sold and dispatched by a State vendor to a private individual in another Member State in accordance with section 109W.”,

(o) by deleting section 105,

(p) by deleting section 105A,

(q) by substituting the following for section 105B:

"105B.?(1) Subject to subsections (2) and (3), and without prejudice to the provisions of section 960H of the Taxes Consolidation Act 1997 relating to the offset of overpayments, where a person has, in respect of any period or transaction, paid an amount of excise duty, or interest on excise duty, which was not due, the Commissioners shall repay such amount to such person.

(2) Subject to subsection (3), a repayment shall only be made under subsection (1) where a claim for that repayment, in writing or such other form as the Commissioners may allow, is made to them within a period of 4 years from the date of payment to which the claim relates or from the date of any other transaction giving rise to an entitlement to a repayment.

(3) Subsection (2) does not apply where a person would, on due claim, be entitled to repayment of excise duty or interest paid on that duty under any other provision of excise law which provides for a shorter period within which a claim for repayment is to be made.

(4) Except as provided for by this section or by any other provision of excise law, or by section 941 of the Taxes Consolidation Act 1997 as it applies for the purposes of the duties of excise, the Commissioners shall not repay an amount of excise duty paid to them or pay interest in respect of an amount of excise duty paid to them.",

(r) by deleting section 105C,

(s) in section 105D(1) by deleting the definition of “valid claim”,

(t) in section 108A(2) by substituting the following for paragraph (c):

"(c) the mixing or blending of excisable products with other excisable products or other materials, but only where?

(i) excise duty has been paid in full on the excisable products so mixed or blended, and

(ii) the amount so paid is not less than the amount chargeable on the mixture or blend,

(d) the production by a private individual of wine, beer or other fermented beverage to which a relief from alcohol products tax under section 77(f) of the Finance Act 2003 applies.”,

and

(u) in section 109(7) by substituting the following for paragraph (b):

"(b) (i) Without prejudice to paragraph (a), and subject to subparagraph (ii), a tenant shall, at a level specified in the authorisation document, provide security for any excisable products received by such tenant as a consignee under a suspension arrangement.

(ii) Subparagraph (i) does not apply to consignments of mineral oil by sea that are received by a tenant and delivered immediately into storage tanks in the tax warehouse that are under the direct control of the proprietor.".".

This provides for an amendment to Part 2 of the Finance Act 2001 which is the body of general law for excise duties. I reiterate, many of the changes are editing and restructuring changes in preparation for the excise consolidation Bill, such as the deletion of redundant and overlapping provision, repositioning of provisions and rewording for greater clarity. However, there are also some developments and improvements to the provisions concerned. This amendment concerns chapter 1, the general excise law part, which contains the general provisions for liabilities, payment and repayment and for the authorised warehousekeepers and registered consigners who are responsible for the excise duty on excisable products held and consigned by them.

The provisions for the liability of authorised warehousekeepers and registered consigners for the excise duties on the consignments made by them are amended to clarify that the liability is satisfied where the consignment has been properly completed. Provision is made for estimation of the excise liability for a period covered by an outstanding return. As with VAT and other taxes, an estimate must be made within four years of the end of that period and a similar time limit is set down for the making of excise assessments. The provisions for interest to be paid on unpaid excise duties are amended in order that they apply to amounts wrongly repaid to a taxpayer. This is consistent with other taxes, including VAT.

The section also provides a relaxation of the requirement for some authorised warehousekeepers who receive consignments of mineral oil by sea to provide a bond guarantee to cover the excise duty concerned.

Amendment agreed to.

Deputy Brian Hayes

I move amendment No. 94:

In page 118, before section 66, to insert the following new section:

67.—Chapter 2A of Part 2 of the Finance Act 2001 is amended—

(a) in section 109E by substituting the following for subsection (3):

"(3) Except where, in accordance with section 109I(1)(b), a consignment is accompanied by a paper document, a consignment from a place in the State to another Member State shall be dispatched under the computerised system and under cover of the electronic administrative document.”,

(b) in section 109H by inserting the following after subsection (3):

"(3A) In the case of a consignment of mineral oil, the Commissioners may, subject to such conditions as they may prescribe or otherwise impose, permit the consignor to split the consignment into 2 or more consignments—

(a) where the splitting is carried out—

(i) in the territory of a Member State that allows such splitting, and the Member State has informed the European Commission accordingly under Article 23 of the Directive,

and

(ii) under the computerised system in accordance with Article 6

(1) of the Commission Regulation, and the competent authority of the Member State referred to in paragraph (a) is, by such means, informed of the place where such splitting is to take place,

and

(b) where the quantity consigned does not change.”,

(c) in section 109J(3)(a) by substituting “such conditions as the Commissioners may prescribe or otherwise impose” for “such conditions as the Commissioners may prescribe”, and

(d) by deleting section 109P.”.

This section amends the provisions concerning the requirements for the movement of excisable products between member states under duty suspension to allow the splitting of a mineral oil consignment from the State into two or more consignments. This is an option under Council Directive 2008/118/EC on the general arrangements for excise duties.

The section also makes a correction to the provisions for the powers of the Revenue Commissioners to apply conditions to the registration of consignees in the State who may receive consignments of excisable products under duty suspension. It also deletes some provisions that are obsolete under new computerised procedures.

Amendment agreed to.

Deputy Brian Hayes

I move amendment No. 95:

In page 118, before section 66, to insert the following new section:

68.—Chapter 3 of Part 2 of the Finance Act 2001 is amended—

(a) in section 121 by substituting the following for paragraph (b):

"(b) to take possession or charge of any excisable products in the knowledge that an offence under paragraph (a) has been committed in relation to such excisable products.”,

(b) by substituting the following for section 122:

"122.—It is an offence under this section for any person to deliver any incorrect return, statement or accounts or to furnish any incorrect information—

(a) in connection with—

(i) any claim for relief or repayment under excise law,

(ii) the granting of a licence under section 101 of the Finance Act 1999, or

(iii) any application for—

(I) authorisation as an authorised warehousekeeper, or approval of a tax warehouse, under section 109,

(II) authorisation as a registered consignor under section 109A,

(III) registration as a registered consignee under section 109J,

or

(IV) approval as a tax representative under section 109U,

or

(b) for any other purposes in relation to any duty of excise.”,

(c) in section 123 by deleting paragraph (a),

(d) in section 131(1) by substituting “any question of fact” for “any dispute”,

(e) in section 131(1) by substituting “the burden of proof shall rest” for “the burden of proof in such dispute shall rest”, and

(f) by deleting section 132.”.

The section makes minor changes to the provisions for general excise offences. The provision for a summary offence of taking possession or charge of excisable products that have not been made subject to required excise procedures is amended in order that it is clearly confined to cases where the person concerned is aware that the products have been the subject of an excise offence. The provision of a summary offence of providing false or misleading information for excise purposes is amended to clarify the kinds of information it covers. A provision for a summary excise offence of restricting or obstructing or giving false information to a Revenue officer or a garda is deleted, as it is covered by a similar provision in general tax law.

Deputy Michael McGrath

Is definition of what constitutes an offence being amended or are the penalties for the relevant offences being amended?

Deputy Brian Hayes

Just the definition. The penalties are not affected, as I understand it.

Amendment agreed to.

Deputy Brian Hayes

I move amendment No. 96:

In page 118, before section 66, to insert the following new section:

69.—Chapter 4 of Part 2 of the Finance Act 2001 is amended—

(a) by substituting the following for section 133:

"133.—In this Chapter—

‘foreign packet' means any item, addressed in the final form in which it is to be carried from a place outside the State and delivered to an address in the State, and includes a postal packet within the meaning of the Communications Regulation (Postal Services) Act 2011;

‘postal services' has the same meaning as in the Communications Regulation (Postal Services) Act 2011;

‘officer' means an officer of the Commissioners authorised by them in writing to exercise the powers conferred on officers by this Chapter.",

(b) in section 135(1)(b) by substituting the following for subparagraph (ii):

"(ii) any excisable products being transported in or on, or in any manner attached to, the vehicle, are transported in accordance with any provision of Chapter 2A or 2B to which they may be subject, and conform in every material respect with the description of such excisable products in any electronic administrative document, simplified accompanying document, or other document that is required, under any such provision, for the consignment of the excisable products concerned, or

(iii) the vehicle has been, or is required to be, registered in any of the registers established and maintained under Chapter IV of Part II of the Finance Act 1992,",

(c) in section 135(1)(d) by substituting the following for subparagraph (iii):

"(iii) to produce to the officer or accompanying officer any document referred to in paragraph (b)(ii)”,

(d) in section 136(1)(b) by substituting “carried on,” for “carried on, or”,

(e) in section 136(1) by substituting the following for paragraphs (bb) and (c):

"(c) bets liable to betting duty are reasonably believed to be accepted,

(d) any activity for the provision of postal services, or any other service for the delivery of foreign packets, is being, or is reasonably believed by the officer to be, carried on,

(e) any activity for the supply of electricity or natural gas is being, or is reasonably believed by the officer to be, carried on, or

(f) any records relating to, or reasonably believed by the officer to relate to, the products or activities referred to in paragraph (a), (b), (c) or (e) are kept, or are reasonably believed by such officer to be kept.”,

(f) in section 136(3) by substituting the following for paragraph (a):

"(a) carry out such search and investigation as such officer may consider to be proper, including the examination and the carrying out of searches, under section 135, of any vehicle on such premises or in such place,”,

(g) in section 136(3)(c) by substituting “subsection (1)(f)” for “subsection (1)(c)”,

(h) in section 136(3)(d) by substituting “subsection (1)(f)” for “subsection (1)(c)”,

(i) in section 136(3) by substituting the following for paragraph (e):

"(e) exercise the powers of detention under section 140 and of seizure under section 141.”,

(j) in section 136 by inserting the following after subsection (3):

"(3A) Where an authorised officer in or on any premises or place, referred to in subsection (1)(d) or pursuant to a warrant issued under subsection (5), has reason to believe that a foreign packet contains excisable products, and that any requirement—

(a) under excise law, for payment of the excise duty on such products, or

(b) for any declaration under Council Regulation 2913/92/EEC of 12 October 19922, Commission Regulation 2454/93/EEC of 2 July 19933, or Council Regulation 450/2008/EC of 23 April 20084, in relation to such foreign packet,

has not been complied with, then such officer may open such foreign packet and examine its contents.",

(k) by inserting the following after section 136:

136A.—An officer, on production of the authorisation of such officer if required to do so by any person affected, may require any person entering the State from another Member State to stop, and to give to such officer—

(a) the name, address and date of birth of such person,

(b) any information in relation to any excisable products that may be in the possession or charge of such person,

(c) such excisable products for examination, and, where such officer has reason to believe that such person is committing an offence in relation to such excisable products under section 119 or 121, such officer may search the baggage of such person and examine any such excisable products.”,

and

(l) by deleting section 137.”.

The new section makes a number of amendments to the provisions for the powers of Revenue officers for excise control purposes. A number of amendments are made to the provisions for Revenue officers to enter premises and places where excise-related activities are carried on and to carry out searches and examinations. These provisions are extended to include premises where activities relating to the supply of natural gas and electricity are carried on.

The section also provides for clarification of the legal basis for Revenue officers operating in postal sorting offices and other premises where courier and delivery services are carried on to open packages that are reasonably believed to contain untaxed tobacco products and to examine the contents. Provision is also made that where a Revenue officer has entered a premises or place, he or she may seize anything that is liable to forfeiture under excise law without first having to detain it.

The section also clarifies that the power to search a premises includes the search of any vehicle on that premises. A new section 136A will provide for the power of Revenue officers to stop persons entering the State, to question them about excisable products being transported by them and to search their baggage when there is reason to believe an excise offence has been committed. These powers are provided for in customs law but it is more appropriate to state it here where the other excise powers and provisions are set out. The provisions for the power of Revenue officers to examine and search vehicles are also amended to include search and examination to determine that a vehicle is properly registered for vehicle registration tax.

Minor amendments are also made to update the terminology of these provisions.

Deputy Michael McGrath

My starting position on the question of powers of the Revenue Commissioners is they should be given whatever powers they require to enforce the taxation legislation of the State and I have no difficulty with additional powers being given to them.

On the issue of compliance with the excise requirements for tobacco, it has always been a mystery to me how illicit tobacco is allowed to be sold openly on the street. Is the Minister of State satisfied that the enforcement activity of the Revenue in this area is robust enough? Clearly, the Exchequer forfeits significant excise revenue and there are various estimates of the amount involved. I do not get the sense that there is an overarching drive by Revenue to tackle the issue in a robust way. I assume that these additional powers are designed to beef up the resources and tools the agency has to tackle this issue.

Deputy Brian Hayes

The powers conferred by the amendment are specific to postal packaging, which is another means through which this kind of illegal activity can occur. The Deputy is correct to point out the enormous loss to the State as a result of this activity. Since mid-2010, Revenue has conducted a series of nationwide intensive tobacco blitz-type operations concentrating additional resources at ports, airports and selected inland retail points, including markets, for the purpose of identifying and seizing illicit tobacco products. To date, Revenue has conducted nine such operations resulting in the seizure of 34.6 million cigarettes and significant volumes of tobacco. These intensive operations are additional to the agency's ongoing day-to-day operations targeting illicit tobacco products.

Much of this relates to cost. It becomes a self-defeating prophecy. The more tax applied to tobacco, the greater the prize for those involved in illegal trafficking to present at ports and airports and to use their network to engage in this activity. There is also a consequential loss to legal traders who pay the full excise on this product. We are conscious of this issue, which Revenue is taking seriously. These blitz-type operations will continue and the amendment is a clarification that the powers extend to parcels and packages. The Revenue Commissioners have sought this amendment and they would not seek it if they did want it but it can only come into being if we pass it. Some 7 million cigarettes were seized in the post last year. It does not talk about cartridges - I am sorry, Deputy Doherty. Maybe we will have to start looking for those. There were 57 convictions for selling and 103 convictions for smuggling, so obviously there is a lot of work going on, because there is a lot of money to be made from this.

Deputy Pearse Doherty

There are quite a number of detailed amendments - Nos. 93 to 100 - in this area. There is substantive detail in this. Would it not have been more appropriate if this was contained in the original Bill? Why is it going into the Finance Bill?

Deputy Brian Hayes

That was the question I asked last night. I was trying to get ahead of the Deputy. My understanding is that over a period of years, we have been consolidating large tranches of our tax law and that a new consolidation of legislation for excise is due at some point in the not too distant future. That would be the primary consolidation legislation. In order for the laws to be updated, however, it is still required that we do these things in the normal Finance Bill. There is a certain repositioning, one could argue, in other legislation. As I said to Deputy McGrath, the Revenue Commissioners need these powers. Traditionally this has been achieved through the Finance Bill but, as I understand it, when the consolidated legislation on excise comes before the House - I am not sure whether it includes this - that will be another tranche of tax law that we have consolidated. There has been an effort over the past number of budgets to do this in specific areas, and the understanding is that excise will be the next area to require standalone consolidation legislation.

Chairman

It is codified in a separate piece of legislation, not in the Finance Bill.

Deputy Brian Hayes

Correct. With regard to Deputy Doherty's question about powers of enforcement for the Revenue Commissioners, I do not know whether that could be included in a separate Bill. The Finance Bill is an amalgamation of amendments of existing consolidation-----

Deputy Pearse Doherty

There are pieces of legislation all over the place.

Deputy Brian Hayes

Yes.

Deputy Pearse Doherty

It is just that it is usually not as detailed. There is quite a wide scope of detail in these amendments.

Deputy Brian Hayes

On the Revenue Commissioners side?

Deputy Pearse Doherty

Yes.

Deputy Brian Hayes

Most of them are in preparation for the consolidated legislation, as I understand it, but it is still required that we extend the Revenue Commissioners' powers to do this tidying up exercise.

Amendment agreed to.

Deputy Brian Hayes

I move amendment No. 97:

In page 118, before section 66, to insert the following new section:

70.—Chapter 5 of Part 2 of the Finance Act 2001 is amended—

(a) in section 144A by substituting the following for subsection (2):

"(2) Any power, function or duty conferred or imposed on the Commissioners by any provision of section 108A, 109, 109A, subsections (3) and (4) of section 109J or subsection (2) of section 109U, may be exercised on their behalf and, subject to their direction and control, by an officer authorised by them in writing for the purposes of the provision concerned.",

(b) in section 145(3) by inserting the following after paragraph (e):

"(ee) a refusal to grant a licence under section 101 of the Finance Act 1999, or a revocation under that section of any such licence that has been granted,”,

(c) in section 145 by deleting subsection (13),

(d) in section 153(2) by substituting “section 97” for “section 97(1)”,

(e) in section 153(2)(e) by substituting “registered consignee” for “registered trader”,

(f) in section 153(2) by deleting paragraph (f),

(g) in section 153(2) by substituting the following for paragraph (h):

"(h) specifying in relation to the electronic administrative document (within the meaning of Chapter 2A) and movements of excisable products between Member States under a suspension arrangement—

(i) the correct completion of that document and the person responsible for that completion,

(ii) the submission of that document and the cancellation or amendment of that document after it is submitted,

(iii) the submission of a report of receipt or report of export (both within the meaning of Chapter 2A),

(iv) the confirmation of receipt or export where the computerised system is unavailable,",

(h) in section 153(2) by deleting paragraph (i),

(i) in section 153(2)(j) by substituting “the simplified accompanying document” for “such accompanying document”,

(j) in section 153(2) by deleting paragraph (k),

(k) in section 153(2)(l) by substituting “section 109J(7)” for “section 117”,

(l) in section 153(2)(t) by substituting “section 104(5)” for “section 105”, and

(m) in section 153(2)(t)(iv) by deleting “as provided for in section 117,”.”.

This section makes a number of minor amendments to miscellaneous general excise law provisions. A refusal to grant an auto fuel trader's licence or a mart fuel trader's licence, provided for in section 66 of the Bill as initiated, is made subject to appeal to the Revenue Commissioners and the appeal commissioners. The section also makes a correction to the provision for the delegation to authorised officers of the Revenue Commissioners of certain functions of the Revenue Commissioners and updates the terminology of the provision for the Revenue Commissioners to make regulations for the detail of excise procedures.

Amendment agreed to.

Deputy Brian Hayes

I move amendment No. 98:

In page 118, before section 66, to insert the following new section:

71.—Chapter 1 of Part 2 of the Finance Act 2003 is amended—

(a) in section 73(1) by substituting the following for the definition of “illicit alcohol product”:

" ‘illicit alcohol product' means any alcohol product—

(a) that has, contrary to the requirements of section 108A of the Finance Act 2001, been produced or processed in the State, otherwise than in a tax warehouse, or

(b) that is counterfeit goods;”,

(b) in section 75 by substituting the following for subsection (1):

"(1) Subject to the provisions of this Chapter and any regulations made under it, a duty of excise, to be known as alcohol products tax, shall be charged, levied and paid, at the rates specified in Schedule 2, on all alcohol products—

(a) released for consumption in the State, or

(b) released for consumption in another Member State and brought into the State.

(1A) Subsection (1)(b) does not apply to any alcohol products that have been released for consumption in another Member State and which are held on board a ship or aircraft making a sea crossing between another Member State and the State, where such alcohol products are not available for sale or supply while the ship or aircraft is within the territory of the State.”,

(c) in section 77(1) by inserting the following after paragraph (a):

"(aa) to be delivered for shipment for use as stores on board a ship or aircraft on a journey from a place in the State to a place outside the State,”,

(d) in section 78(3) by substituting the following for paragraph (b):

"(b) Except where the Commissioners may, in any particular case, allow, a repayment claim shall be made within 6 months following the end of the period referred to in paragraph (a).”,

(e) in section 79(1) by substituting “It is an offence under this subsection” for “Except where subsection (2), (3) or (5) applies, it is an offence under this subsection”,

(f) in section 79 by deleting subsections (3) and (4),

(g) in section 79(5) by substituting the following for paragraph (d):

"(d) to keep prohibited goods on any premises or other land or on any vehicle, or”,

and

(h) by deleting section 82.”

This amendment inserts a new section into the Finance Bill to make a number of minor amendments to alcohol products tax law. These are technical and editorial amendments in preparation for an excise consolidation Bill, including the deletion of redundant provisions and repositioning and rewording for greater clarity and consistency.

Deputy Pearse Doherty

What deletions are involved? What are the redundant sections, as a matter of interest?

Deputy Brian Hayes

I will read the note I have been given. This new section provides for restructuring. A provision for the application of customs law and other excise law to alcohol product tax is to be deleted. This provision is now obsolete as excise law is now comprehensive and does not rely on any customs or other excise provisions. The amendment also provides for the repositioning in the alcohol products chapter of provisions for relief on alcohol product tax for alcohol products held on a ship or aircraft arriving from another member state and for alcohol products that are delivered for use as stores on board a ship or aircraft on a foreign journey. These reliefs have been provided for under general excise law. There is also some rewording of provisions for greater clarity and consistency. It is to do with the legitimacy of alcohol on flights coming into and leaving the country.

Chairman

Very well.

Amendment agreed to.

Deputy Brian Hayes

I move amendment No. 99:

In page 118, before section 66, to insert the following new section:

72.—Chapter 3 of Part 2 of the Finance Act 2005 is amended—

(a) in section 71(1) by deleting the definition of “tax representative”,

(b) in section 71 by deleting subsections (2) and (4),

(c) by substituting the following for section 72:

"72.—(1) Subject to the provisions of this Chapter and any regulations made under it, a duty of excise, to be known as tobacco products tax, shall be charged, levied and paid, at the rates specified in Schedule 2, on all tobacco products—

(a) released for consumption in the State, or

(b) released for consumption in another Member State and brought into the State.

(2) Subsection (1)(b) does not apply to any tobacco products that have been released for consumption in another Member State and which are held on board a ship or aircraft making a sea crossing between another Member State and the State, where such tobacco products are not available for sale or supply while the ship or aircraft is within the territory of the State.”,

(d) in section 75 by substituting the following for subsections (3) and (4):

"(3) Where a price does not for the time being stand declared under subsection (2), the Commissioners may, in relation to the cigarettes concerned, determine a price to be taken, for the purposes of this Chapter, as the price at which such cigarettes are sold by retail.

(4) Where a price has been declared under subsection (2), or determined by the Commissioners under subsection (3), a manufacturer or importer of tobacco products shall not recommend, expressly or by implication, that the cigarettes concerned are sold by retail at a price higher than the price so declared or determined.",

(e) in section 76 by substituting the following for subsection (1):

"(1) In this section ‘appropriate tax stamp' means a tax stamp in respect of which an amount equivalent to the tax chargeable, on the pack of tobacco products to which that tax stamp is to be affixed, has been paid.

(1A) Subject to subsection (1B), all specified tobacco products that are intended for sale, delivery or consumption in the State shall have an appropriate tax stamp affixed by the manufacturer to each pack in which the specified tobacco products concerned are intended to be put up for retail sale.

(1B) Subsection (1A) shall not apply to specified tobacco products that—

(a) have been acquired by a private individual in another Member State and are relieved from excise duty under section 104(2) of the Finance Act 2001,

(b) are exempted from value-added tax and excise duty under the European Communities (Tax Exemption for Certain Non-Commercial Goods Imported in the Personal Luggage of Travellers from Third Countries) Regulations 2008 (S.I. No. 480 of 2008),

(c) are being held or delivered under a suspension arrangement, or

(d) under section 73(2), are subject to the provisions of this Chapter governing other tobacco products.”,

(f) by substituting the following for section 77—

77.—(1) Subject to such conditions as the Commissioners may prescribe or otherwise impose, a relief from tobacco products tax shall be granted on any tobacco products that are shown to the satisfaction of the Commissioners—

(a) to have been destroyed in accordance with their requirements,

(b) to have been rendered unfit for use as tobacco products, and used for industrial or horticultural purposes,

(c) to have been returned to a tax warehouse for remanufacture,

(d) to be intended for use, or to have been used, solely for scientific tests or for tests connected with product quality, or

(e) to be delivered for shipment for use as stores on board a ship or aircraft on a journey from a place in the State to a place outside the State.

(2) Subject to such conditions as they may prescribe or otherwise impose, the Commissioners shall repay any amount paid, and remit any amount due, under section 73(3), on the issue of tax stamps that have been shown to the satisfaction of the Commissioners to have been—

(a) destroyed, damaged or otherwise rendered unsuitable for use as tax stamps, or

(b) affixed to specified tobacco products that have been the subject of an irregularity, within the meaning of Article 38 of Council Directive No 2008/118/EC of 16 December 2008, in another Member State, and where excise duty on such products has been paid in another Member State.

(3)(a) For the purposes of the relief under subsection (1)(c), except where paragraph (b) applies, the amount repayable shall be the full amount of tax paid on the tobacco products concerned.

(b) For the purposes of the relief under subsection (1)(c), where on the day the tobacco products concerned are returned to the tax warehouse, the rate of tax on any of those tobacco products is lower than that at which the tax was paid, the amount repayable in respect of those tobacco products shall be calculated at that lower rate.

(4)(a) Claims for repayment under subsection (1) or (2) shall be made in such form as the Commissioners may direct and shall be in respect of qualifying events, giving rise to the relief concerned, occurring within a period of 3 months.

(b) Except where the Commissioners may, in any particular case, allow, a repayment claim shall be made within 6 months following the end of the period referred to in paragraph (a).”,

(g) in section 78(1) by substituting “It is an offence under this subsection” for “Except where subsection (4) or (5) applies, it is an offence under this subsection”,

(h) in section 80(1) by substituting “The Commissioners” for “Subject to subsection (2), the Commissioners”,

(i) in section 80 by deleting subsection (2),

(j) by deleting section 82, and

(k) in section 83(1A) by substituting “Council Directive No. 2011/64/EU of 21 June 2011” for “Council Directive No. 92/79/EEC of 19 October 1992, Council Directive No. 92/80/EEC of 19 October 1992 and Council Directive No. 95/59/EC of 27 November 1995.”.

This amendment inserts a new section in the Finance Bill to make a number of amendments to tobacco products tax law. The provision for the Revenue Commissioners to determine a price to be used as the retail price of cigarettes for tobacco products tax purposes, where the manufacturer or importer declares one that the Revenue Commissioners consider to be too low, is deleted. This is to take account of a European Court of Justice ruling. The requirement for tax stamping of tobacco products is also amended to clarify that it does not apply to personal imports of tobacco products within customs limits. There are also a number of technical and editorial amendments in preparation for the alcohol products tax chapter of the excise consolidation Bill. These include the deletion of redundant provisions and repositioning and rewording for greater clarity.

Amendment agreed to.

Deputy Brian Hayes

I move amendment No. 100:

In page 118, before section 66, to insert the following new section:

73.—Chapter 1 of Part 2 of the Finance Act 2002 is amended by deleting sections 72, 73, 73A, 74, 75, 75A and 76.".

In preparation for the excise consolidation Bill, this amendment inserts a new section into the Finance Bill to delete a number of redundant provisions from the excise law for betting taxes. Most of these redundant provisions will be covered instead by provisions of general excise law, as amended in the Finance Bill as part of the preparation for an excise consolidation Act.

Amendment agreed to.

Sections 66 to 68, inclusive, agreed to.

SECTION 69

Question proposed: "That section 69 stand part of the Bill."

Deputy Pearse Doherty

This section deals with changes to the carbon tax on gas, with effect from May of this year. People are already struggling, but the tax rates on gas are being increased substantially, from €3.07 to €4.10 per megawatt hour. We are talking about an increase of around 25% in the rate. I would like to hear the Minister of State's view on why this has been deemed necessary.

Deputy Richard Boyd Barrett

This is just another charge on ordinary citizens, many of whom are struggling to manage and to pay their bills as it is. I do not believe many of these things that are presented as environmental taxes are anything other than revenue-gathering exercises which further penalise low and middle-income families. These taxes are misconceived, and this is the responsibility of the current and previous Governments; it was the Green Party that started the ball rolling. I do not think the revenue is used to clean up our environment, which is something the State will have to take a different and more proactive role in. It is just another revenue raising exercise and I wish to signal my opposition to it.

Deputy Brian Hayes

Amendment No. 69 opposes the section so it gives us an opportunity to discuss the section.

Chairman

There is not an amendment as such; opposition has been expressed to the section.

Deputy Brian Hayes

This gives application to the increase so if this was not done, the full cost would be €80 million and it would need to be found elsewhere. In the current budgetary climate where we must raise revenue, that would have to be offset elsewhere. There is also a commitment in the EU-IMF memorandum of understanding to consider increases in carbon tax as part of the broadening of the tax base, as we discussed yesterday. Increasing carbon tax by €5 means a relatively small increase spread across all fossil fuels, rather than larger increases in the excise rates on specific fuels such as petrol and diesel. The carbon tax will not be applied to home heating fuels until after this winter period, from 1 May 2012. While tax increases are unpopular, where member states are under fiscal pressure, as we are, it makes sense to increase taxes in areas where some benefits can arise. In this instance, a carbon tax promotes energy efficiency, reduces emissions and reduces our dependence on imported fossil fuels.

The application of the carbon tax to solid fuels, such as coal and peat, remains subject to a ministerial commencement order. In the context of the overall impact the budgetary measure will have on households, the Government decided to apply carbon tax to coal and peat at this point. The net issue is that the section gives application to the increase which will amount to around €80 million. We regard that as crucial if we are to reach the budgetary position we have set out and to make sure other taxes do not apply but I appreciate it is a difficult situation.

Deputy Pearse Doherty

The Minister of State said this was about broadening the tax base but it will not do that, it will simply increase the tax liability on individuals who are already paying. The increase is substantial in percentage terms, about 25% of an increase to raise this €80 million. Has the Department examined the consequences of the increase and the impact it will have on fuel poverty? Has there been any engagement with those who are trying to address fuel poverty? There are no alleviating measures whatsoever.

What impact will this have on small and medium enterprises? We continually hear about the need to foster and support small and medium enterprises but if we talk to SMEs, they will say they are being crippled by all the different charges and the cost of energy is at the top of that list along with rates and rent. Has the Department considered the impact the measure will have on the SME sector?

Deputy Richard Boyd Barrett

Combined with the cuts in the fuel allowance, this will lead to more winter deaths, which are rising as it stands. It is little consolation to the many elderly in particular who are already freezing because they cannot afford adequate fuel during the winter, that this increase will not happen until next year on top of all the increases that have already taken place. This is misconceived and will lead to more suffering. There are always choices and we have spoken many times about what we think the alternative is, to tax those who can afford it and who will not be shivering in the cold in the winter.

Deputy Brian Hayes

The Deputy will only get so far with that performance.

Deputy Richard Boyd Barrett

I do now know why it is so off the radar to tax the wealthy.

Deputy Brian Hayes

They are being taxed and they will continue to be taxed, I assure the Deputy of that. The dilemma is that if we tax them according to Deputy Boyd Barrett's system, we would still not cover the difference between expenditure and revenue. They would then leave; they would be taxed in the first year but they would then head off the following year because the difference is so great we simply cannot do it with the numbers there. That is the sort of Alice in Wonderland playground some people like to pretend is an option.

Deputy Richard Boyd Barrett

Winter deaths are better?

Deputy Brian Hayes

The public see through it. On Deputy Doherty's amendment, we have information on the effect on households and we anticipate that it will amount to less than €1 of an increase per bill, presuming bills are on a bimonthly basis. It is a small increase, although I accept it can have an impact on those on a low income. We do not have information on the business side but we will try to get it.

The Deputy asked if anyone was feeding into this strategy across Government. I refer to the affordable energy strategy launched by the Minister for Communications, Energy and Natural Resources on 27 November that set out the overarching policy of Government to reduce energy, make homes more efficient and put the necessary supports in place for poorer households to become more energy efficient. The better energy programme has stimulated the upgrade of 150,000 homes. Last year, €90 million was dispersed in grants for energy efficiency, which included the upgrading of almost 70,000 homes across all schemes and directly supported about 6,000 new jobs.

The warmer homes programme aims to provide energy efficiency improvements to low income homes unable to afford the cost of implementing such measures. More than 20,000 homes benefited from retrofitting measures in 2011 and the target for 2012 is in excess of 17,000 homes. At one level, on the carbon side, there is a requirement on the State to reduce dependency and taxation is one measure but the bigger issue is how do we continue to invest in the retrofitting of homes and making them more energy efficient. The Government is very conscious of this area.

Deputy Pearse Doherty

I am sure the Minister of State will acknowledge there are people at this point who are suffering fuel poverty and that people have died unnecessarily as a result of fuel poverty. Winter deaths are not a myth, they are a fact. This measure will increase bills which will increase the severity of fuel poverty.

This will bring in €80 million. It affects businesses as well. If it just impacted on houses, the average figure would be €50 per house, based on the idea that theoretically the household charge will bring in €160 million. How many businesses will come under this? If 160,000 business units were included, it would amount to €25 per unit, if business units are charged the same.

Deputy Brian Hayes

It depends on the volume and how much each unit uses. I will try to get the breakdown for the total number of business, big and small, as against the total number of households. It would be impossible to estimate on a volume basis.

Deputy Richard Boyd Barrett

Of the €80 million expected to be raised, how much of that comes from domestic household use? It has been calculated per bill.

Deputy Brian Hayes

We do not have that breakdown at present.

Chairman

Is it possible to obtain that?

Deputy Brian Hayes

Yes. We can give a note to the Deputy.

Chairman

That would be helpful.

Deputy Brian Hayes

There are plenty of people here who can deal with it.

Chairman

Does Deputy Boyd Barrett wish to make a final point?

Deputy Richard Boyd Barrett

I do not accept the argument. It is dishonest to suggest that this is an environmental charge. It is called a carbon tax and the implication is that it will reduce carbon emissions. It affects people's ability to heat their homes or run their business, although my concern is primarily about the immediate impact of people using less fuel and freezing as a consequence of the combined effect of this, the cuts in the fuel allowance and other cuts in the incomes of vulnerable sectors of our society. It is not likely to have any substantial impact on the environment and in so far as it does, it is at the expense of human suffering.

If the Minister is serious about retrofitting, I can make a suggestion which I have put to a number of Ministers but to which I have received no response. It is a simple suggestion that is fiscally neutral, which should be attractive to the Minister. It came from a constituent in Meath - which is not my constituency - and it is that we should set up a system where loans would be extended to people to retrofit their homes and the repayments on those loans would match the reduction in their fuel bills. In other words, it would not cost them anything. If one gets a 25% reduction in the cost of heating one's home as a result of the house being retrofitted, for example, the repayments would be linked to that saving. It therefore does not cost any more. That would also act as a significant stimulus to the construction industry, which would carry out the retrofitting. Perhaps the Minister might consider it. If there was real movement on retrofitting, it would be far more beneficial for the environment than simply increasing what is, in effect, another revenue raising exercise. The Minister admitted as much when he said it is about the €80 million. It is not about the environment, but let us do something serious about the environment.

Deputy Brian Hayes

It is about both. If the Deputy wishes to make a submission on his proposal, we will be all ears. He might submit the proposal in writing and we will consider whether it is possible. I will certainly speak to the Minister for Communications, Energy and Natural Resources, Deputy Pat Rabbitte, who is the lead Minister in this area.

Question put.

Chairman

In accordance with the order of the Dáil of 23 February last, the division is postponed until 1 p.m. today or until the completion of proceedings on the block of matters to be dealt with in this section.

Section 70 agreed to.

SECTION 71

Deputy Brian Hayes

I move amendment No. 101:

In page 134, subsection (1), between lines 26 and 27, to insert the following:

"(f) in section 133 by substituting the following for “new vehicle”:

" ‘new vehicle' means a vehicle that has not previously been registered or recorded on a permanent basis—

(a) in the State under this Chapter or, before 1 January 1993, under any enactment repealed or revoked by section 144A or under any other provision to like effect as this Chapter or any such enactment, or

(b) under a corresponding system for maintaining a record for vehicles and their ownership in another state,

and where the vehicle has been acquired under general conditions of taxation in force in the domestic market;",".

This amends the definition of a "new vehicle". In May 2011 the Commission followed up on its infringement proceedings against Ireland - the reference number is 1995 - 5321 which I presume is the number of the infringement - by informing us that it was of the opinion that the definition of a "new vehicle" contained in the vehicle registration tax, VRT, legislation would not be appropriate to make a distinction between new and used vehicles, that is, for establishing the point from which the real wear and tear of used vehicles must be taken into account. While a response has been provided, it has been indicated at an informal meeting with Commission officials that without a change to the definition in our legislation, the case will proceed to the European Court of Justice. To avoid a potential adverse judgment, this amendment changes the definition to be more compliant with the European treaties.

This refers to what is a new or used vehicle. It relates to the amount of mileage that can be on a clock before it is decided. In other words, when a vehicle goes from one country to another the question is whether it is new at the point of leaving the factory or at the point it is first registered. If there are more than 3,000 km on the clock, it had an effect on the definition. There are proceedings against Ireland about this. Changing the definition here would make those proceedings more difficult and bring it more in line with European law.

Deputy Pearse Doherty

I do not understand. Can the Minister explain the practical changes this will make to importing a car from another state or from the Six Counties? Can the Minister outline a scenario to explain what this will mean for somebody who wishes to buy their car from Belfast or Newry?

Deputy Brian Hayes

A car, once registered, will depreciate immediately once it comes into the State. Previously, it was three months and 3,000 km. Once a car comes into the State and is registered, it depreciates whereas previously it was three months and 3,000 km.

Chairman

It loses its newness.

Deputy Michael McGrath

Is it governed by a directive? Is that the origin of the tightening of the definition?

Deputy Brian Hayes

Presumably, it is arguing that our procedures and laws are out of kilter with other member states.

Deputy Pearse Doherty

The Minister referred to the ongoing court proceedings in Europe. This has been ongoing for many years and still has not been resolved. I understand, however, that the proceedings do not simply hinge on the definition of "new". Are there not other proceedings? The Commission has made statements on a number of occasions on the application of VRT in this State, to the effect that it is out of line with European practice.

Deputy Brian Hayes

The Deputy is correct that the proceedings date back to 1995. On this particular one, however, it is the only outstanding issue we must address.

Deputy Pearse Doherty

Yes, but am I correct that there is another case which deals with the bigger issue of VRT and how it is applied?

Deputy Brian Hayes

There is another one relating to leasing which we have addressed in this Bill as well.

Deputy Pearse Doherty

Will the proceedings before the European Court on VRT be satisfied as a result of this change? Is it just to do with the definition of "new"?

Deputy Brian Hayes

This follows informal discussions with the Commission. We understand that by making this change we are less likely to be in breach.

Deputy Pearse Doherty

The idea of transferring a car from Strabane to Lifford-----

Deputy Brian Hayes

This is to do with a new car. I am informed that there are temporary exemptions for cars that must be moved across the Border for specific purposes.

Deputy Pearse Doherty

If somebody in Lifford decides to cross the bridge and buy a car, they must pay VRT.

Deputy Brian Hayes

Yes.

Deputy Pearse Doherty

It is something that sticks in the craw for many people. After all, there is common travel for goods and services and so forth. We can buy something in France, Germany or Belfast. In the case of cars, participation in the Common Market does not allow us to apply additional taxes to the car but we get around that through registering, by telling somebody that it will cost them €40,000 to put a registration plate on a €100,000 car.

Deputy Brian Hayes

Am I correct in saying that in recent years, a significant number from south of the Border purchased a car in the North and then reregistered them here? That was due to currency fluctuations at the time, rather than VRT.

Deputy Pearse Doherty

The prices would still be significantly lower.

Chairman

Perhaps we can discuss that point further on another occasion.

Amendment agreed to.

Deputy Brian Hayes

I move amendment No. 102:

In page 136, subsection (1), between lines 15 and 16, to insert the following:

"(j) in section 136A by substituting, in the first sentence of subsection (4), the following for the meaning assigned to “B” for the purpose of the formula

in that subsection:

"B is an amount (if any) payable by the competent person to the Commissioners that is calculated by means of one or more than

one formula or other means of calculation as may be prescribed.",

(k) in section 141, in subsection (2), by deleting “and” where it last occurs in paragraph (m), by substituting “vehicles, and” for “vehicles.” in

paragraph (w) and by inserting the following after paragraph (w):

"(x) for the purpose of the formula in subsection (4) of section 136A, prescribe one or more than one formula or other means

of calculation for the purpose of the meaning assigned to ‘B' in that subsection.",".

This amendment amends the provision for prescribing the amount of interest payable to the Revenue Commissioners by a competent person on the VRT collected on behalf of Revenue for the period the competent person holds it. The original rate was set in the Finance Act 2010 and in light of the financial landscape since then, this was set at an unreasonable rate. This amendment will allow the Revenue Commissioners make further adjustments either upwards or downwards as appropriate through Revenue Commissioners' regulations.

Amendment agreed to.

Question proposed: "That section 71, as amended, stand part of the Bill."

Deputy Pearse Doherty

This is an important section, which I support. Let me put it into context by taking an example. Is it correct that a person from County Donegal who has a second-hand car business and exports a car to Derry can claim a VRT refund?

Deputy Brian Hayes

Yes.

Deputy Pearse Doherty

Is the refund of VRT conditional on having originally imported the car from a member state?

Deputy Brian Hayes

No.

Deputy Pearse Doherty

Is this a provision to boost the second-hand and used car market to allow them to transfer cars across the Border or to other member states?

Deputy Brian Hayes

I understand it is to deal with an infringement concerning car leasing companies outside the State. It will make it easier for leasing companies outside the State to provide leased cars here.

Deputy Pearse Doherty

I want to tease this out further so that I do not misunderstand the section. Does it allow for a company in County Donegal which sells the car to a customer across the Border to claim a refund of VRT?

If I were to go to the Volkswagen garage in County Donegal and spend €40,000 on a new Volkswagen car and the following year, sell it across the Border, in Derry, what impact will this section have? Can I claim a VRT refund?

Deputy Brian Hayes

The Deputy will be allowed a refund of VRT.

Deputy Pearse Doherty

Will the refund of VRT be on the amount of VRT applicable at the time of sale or on the market value of the time?

Deputy Brian Hayes

At the time of sale.

Deputy Pearse Doherty

At the time of sale? What is the cost of this measure?

Deputy Brian Hayes

There is a €500 administration fee.

Deputy Pearse Doherty

Would there be a loss of revenue to the State?

Deputy Brian Hayes

We do not have an estimate, but the figure would be based on the number of cars coming in and out. The Society of the Irish Motor Industry, the organisation responsible for it, maintains that 5,000 vehicles could leave, but for every car that leaves another car can be imported. If one takes the figure of 5,000 cars, the gross cost could be about €9 million.

Deputy Pearse Doherty

I support this section, as amended, because it will help the sales of used cars, particularly in the Border areas, which are strangled. It will widen the scope for used cars.

Question put and agreed to.

Chairman

As the proceedings on sections 64 to 71, inclusive, have now concluded, the postponed division on section 69 will be taken now

As there are fewer than ten members present, under Standing Orders, we are obliged to wait eight minutes or until the full membership is present before proceeding to take the division.

Question put:

The Committee divided: Tá, 6; Níl, 2.

Tá

• Daly, Jim.
• Hayes, Brian.
• McNamara, Michael.
• Timmins, Billy.
• Twomey, Liam.
• White, Alex.

Níl

• Doherty, Pearse.
• McGrath, Michael.

Question declared carried.

Section 72 agreed.

SECTION 73

Question proposed: "That section 73 stand part of the Bill."

Deputy Pearse Doherty

What powers does it confer on the Minister in respect of ministerial orders?

Deputy Brian Hayes

The section amends sections 2, 52 and 103 of the VAT Consolidation Act which relate to the powers of the Minister to make certain orders in relation to VAT. These changes are being made in order to provide guidance in the form of principles and policies for the use of those powers. The need for the changes has arisen as a result of an examination of the provisions in primary legislation to make orders to secondary legislation and on foot of corresponding advice received from the Attorney General in this regard. The powers available to make orders will be strengthened by these amendments.

In addition section 103 is being amended to provide that the Minister may include in an order, a requirement for a person who receives a refund to carry out a review to ensure that the conditions in that order have been fulfilled and to repay all or part of the refund to the Revenue Commissioners if these conditions have not been fulfilled.

This amendment is one of a number of measures being introduced to deal with the abuse of certain refund orders.

Question put and agreed to.

Section 74 agreed to.

SECTION 75

Amendments Nos. 103 to 105, inclusive, not moved.

Question proposed:"That section 75 stand part of the Bill."

Deputy Michael McGrath

We have had an extensive debate on the Government's decision to increase the higher rate of VAT by 2%. I do not propose to rehears that debate. However, the early preliminary indications from the retail sales from January, as the Minister is aware, indicates a continuing weakness in the domestic economy. The figures were disappointing showing a 3.7% reduction in volume terms in January. The notes issued by various analysts point to the 2% VAT increase as a contributory factor in the weakness in retail sales. I acknowledge the VAT increase was provided for in the memorandum of understanding with the EU and the IMF, signed up to by the previous Government for 2013 and 2014, but was frontloaded to 2012 by the Government as a political decision. Time will tell whether the gamble has paid off. Clearly, the move has greatly assisted the Government in achieving its budgetary targets, at least in theory. Whether they are achieved remains to be seen because it will take several months of VAT returns before we know. We remain of the view that it was the wrong decision at a time when consumer sentiment is depressed, the domestic economy is on the floor and when retailers hoped for a boost in the budget. We now have to deal with a 2% increase in the standard rate of VAT. My party has made those points already but I wanted to put them on the record.

Deputy Pearse Doherty

The Minister of State will be well aware of Sinn Féin's position on a VAT increase. VAT is an indiscriminate form of tax and affects people on a low income. The Minister of State can argue that food is exempt and so on. If one looks at recent results one can see that people are making adjustments in their homes and are spending less. For example, people spend less on clothing that is subject to the 23% VAT increase. It is not just luxury items as the Government would have us believe. If one buys a pair of shoes or rain jacket both are subject to 23% VAT.

The increase has had a huge effect on the retail sector. Again wearing my county hat, the measure has had a detrimental impact on retail activity in Border counties and communities. I did not agree with the previous Government's proposal to increase the VAT by 1% this year and 1% the next year. We should not increase the tax like that because it does not take account of a person's ability to pay.

I will give an example and ask the Minister of State to consider it on Report Stage where we will have an opportunity, and Sinn Féin signals its intention, to oppose the section then. Last week I met the management of Letterkenny General Hospital who explained their budget to me and its €12 million deficit and how they will find it impossible to breach it, narrow or bring it into balance. One of the substantial costs incurred by the hospital is on junior doctors. The hospital cannot get junior doctors to apply for a post. The management has signalled that there will be a problem filling junior doctor posts again this year because the hospital is peripheral. Junior doctors prefer to go to larger hospitals that have more specialities and so on. The problem is that the hospital must employ junior doctors through agencies and pay the junior doctor, an agency fee and now 23% VAT on top of that. The sums are substantial in terms of the hospital's budgeting. It is forced to rely on so many junior doctors being supplied by agencies, yet the VAT bill imposed on it is 23% which does not make sense. The move is circular because the State funds the hospital in order to pay wages to junior doctors, the hospital then pays the agency and pays VAT on that sum and then it goes back to the State.

Public hospitals should be exempt from VAT when paying agencies for health professionals. Such a move would immediately alleviate hospitals that cannot recruit junior doctors. I am not arguing on behalf of all agency workers. Letterkenny General Hospital has developed a successful programme to attract South African junior doctors and it has also been to Canada and elsewhere. No matter how well it tries to directly recruit junior doctors it has had to consistently rely on agency doctors.

I ask the Minister of State to take my comments on board and to find a way, under the VAT laws, to exempt hospitals from VAT when paying for necessary health professionals supplied by agencies. Given that it would be a circular payment an exemption would not make a difference to the headline figures for the State but it would make a huge difference to hospitals when they are allocated a budget. The payment of VAT by them is unfair. A larger hospital has more disciplines and is more attractive due to being in a more urban setting, although I will always argue that Donegal is the best place to visit and live. Sometimes agency doctors from other countries have not discovered the beauty of Donegal and go to an urban centre instead.

Deputy Brian Hayes

They might get a tax credit under the special assignee relief programme, SARP.

Deputy Pearse Doherty

I offer that as an example. Other areas will be hit by the VAT increase, not just domestic individuals or consumer spending. It is places like hospitals that will have to pay more money and incur a cost. When Letterkenny General Hospital must pay an additional 2% for its agency doctors that means some operations are cancelled. It is as simple as that. The hospital has a €12 million deficit and an increase in VAT will impose that kind of decision on it.

I object to the section. A VAT increase of 2% is an easy way to raise €670 million but it is not a fair way. I ask the Minister of State to consider my two points.

Deputy Billy Timmins

When a tax increases it will not lead to an increased demand. There was a lot of opposition to the VAT increase, particularly in the retail sector which has suffered gravely around the country. Notwithstanding that the increase will have an impact initially I hope it will not affect retail and demand over time. It is important that the Government does not have a knee-jerk reaction. Perhaps VAT could be reduced after the first quarter or half year results are released. Over a period, be it a year or more, we should keep VAT under continuous review and I am sure that we will. If the increase has a negative impact over a long period the Government will review it and replace it with a different form of taxation so we would get the same amount of money in direct taxation rather than this VAT increase.

It is important to give this time to settle. One fault I have noticed over the years is that when a measure is introduced there is a knee-jerk reaction and the process stops or is reversed. Let it settle and see how it works over time.

Deputy Brian Hayes

There has been much debate on this issue because it is a key aspect of the Budget Statement budget announcement. It is hoped that the measure will raise over €670 million in revenue so it is a key part of the budget's arithmetic.

Deputy Timmins made an important point. We must examine the scheme for a year. We cannot base a policy on one month, two months or even a quarter of a year when we know that there is enormous fluctuating factors between one quarter and the next. For instance, if one looks at last year, there was great optimism in the first two quarters and it seemed that we had finally pushed through this downturn but then recovery was held back by the international gloom that followed from the summer of last year. It is far too early to give a definitive view on the impact of the measure on the economy.

I wish to make a political point. When in opposition I and the Minister for Finance, Deputy Noonan, the then opposition spokesperson on finance, were very clear. In our pre-budget submission that we published in December 2010, when Deputy Michael McGrath's party was in Government, we highlighted this issue as being important to us on the basis that we all accept the necessity for additional revenue. It was crucial to our election platform and to the programme for Government that we would not increase tax on work.

The key driver, in terms of the economy and trying to get economic growth back, must be to keep the 1.8 million people at work and create incentives so that we are not taxing people inordinately. As much as 80% of the adjustments in the previous two years were done using the taxation system, either through the universal social charge and tax credits and on the tax side, although not so much through tax rates. Admittedly, the Government had to do a lot of that because to get the money in quickly one has got to change the tax rate.

We were very consistent, when coming to office, that we wanted to stimulate economic growth and activity. We wanted to make sure that it was still in people's economic interest to work in circumstances where the top marginal rate of tax now is effectively 41% plus another 11% between the USC and PRSI. We were clear in our pre-budget submission that we would increase it from 21% to 23%. Deputy McGrath's party in office signed off on a memorandum of understanding that it would increase it from 21% to 23%, admittedly over two years. This was well flagged in a circumstance where there had been a substantial rise in tax in the three previous budgets in that three-year period. It also came out in the campaign. I believe the Chairman's party attacked us on it also during the campaign but we were up-front about what we wanted to do on the basis that we did not want to increase the headline rate of tax, the bands and the credits.

I do not like developing policy based on the "I met a man last week" principle but when the budget was announced I met a man in my constituency who made a useful observation. He said that direct taxes will not increase next year, which I confirmed, and that what one had last year is what one will have this year. He said that is important because he knew what he wanted to spend his money on next year and he now had some certainty in terms of what he will have. That is important in trying to provoke some improved domestic circumstance where we all accept the domestic economy is as flat as a pancake. If people have certainty as to the amount they are bringing home on a monthly or weekly basis they can organise their affairs over a 12 month basis because they have stability in terms of their take-home pay. That could not have happened if we did not increase indirect taxation in the manner set out in the budget. It simply was not possible to do it on any fair basis, and that is something we hope to continue. We have made a commitment in the programme for Government not to increase the rates, the bands or the credits. I said yesterday that it would be a foolish Minister for Finance who would make that prediction into the future but, ultimately, that is the commitment of the Government and it is something we believe is important in trying to support economic growth.

I would point to ongoing OECD research which shows that increases in indirect taxation are less harmful to economic growth than increases in direct income taxation or work taxation. That is fairly well accepted internationally, particularly in a circumstance where we are coming out of an extraordinary slump during which we lost about 15% of GDP over a three-year period and the economy has seen an inordinate rise in unemployment. Economic growth is the key to getting the country back on track.

My understanding also is that 51% of all goods and services are subject to the standard VAT rate. Deputy Doherty made the point about clothes but children's clothes, footwear and oral medicines are not included. They are part of the lower rate.

He also asked about medical services. I understand that medical services are exempt from any deductibility. That is restricted by EU law. To do that for the junior doctors in Letterkenny about whom Deputy Doherty spoke would not be in compliance with EU law, as we understand it, and is something on which we would be severely reprimanded.

If one reads the figures published yesterday one would come to the assumption that there has been a major slump in car sales but what is interesting, and we have this hot off the press, is that on the VRT, which is a fairly good indication of whether moneys have been coming in, the figures for January 2012 show a 0.6% increase from 2011. The scrappage scheme in place in 2011 was another incentive to sell and transact in the car business. It may not be as significant, therefore, as yesterday's CSO figures suggested based on our VRT take from January of this year. As Deputy Timmins said, that is something we will have to review to see its full impact in a full year because months and quarters vary from one degree to the next.

Deputy Pearse Doherty

I presume the Minister of State is comparing January 2012 with January 2011.

Deputy Brian Hayes

Yes.

Deputy Pearse Doherty

He will acknowledge that it would be unfair to compare 2012 with 2011. Thank God we have not had a repeat of what happened in January 2011 when retail sales were down across the board because of the big freeze.

Deputy Brian Hayes

That is not entirely fair because for part of January 2011 the car scrappage scheme was in place which was a major component in terms of the number of transactions. I am not making huge comparisons.

Deputy Pearse Doherty

I know that but it is a factor.

Deputy Brian Hayes

All I am saying is that if one reads the CSO headline figures of yesterday and the extrapolation from that on the car sales front it looks fairly difficult but if one tallies up on the VRT side there has been a slight increase. That is the only point I am making.

Deputy Pearse Doherty

On the section, it is disappointing that that is the response but I ask the Minister of State to re-examine that issue-----

Deputy Brian Hayes

On the medical services side?

Deputy Pearse Doherty

Yes. The medical services issue is separate from the general issue.

The Minister made the point that indirect taxation is more harmful to the economy than direct taxation. When direct taxation is being applied one must be sensitive in terms of where it is applied. The problem with the Government strategy is that it has maintained the take-home pay of somebody who is earning €25,000 a year but it has also maintained the take-home pay of somebody earning €125,000. Direct taxation would be less harmful to the economy than indirect taxation. If the Minister were to apply the direct taxation on the higher end there would be an ability to pay and therefore taking more money out of people's pockets would not result in more money being taken out of the domestic economy.

The problem is with indirect taxation. If we take the person who is earning €25,000 a year, the Minister of State has maintained their take-home pay but as soon as they get home they are being fleeced. That is the problem. We referred earlier to their gas bills increasing, and there is also the household charge and water charges. If they want to buy a pair of trousers they will have to pay more. They will have to pay more for home heating oil. If they are travelling to work they will have to pay more for their petrol or diesel. Time and again we will see more charges being imposed on them. They might get some comfort at the end of the week when they see their pay is the same but the reality is that their disposable income will be reduced. People want to know what their disposable income will be.

The question is not just whether that is fair because in my view what has been done in terms of VAT increases is deeply unfair. In fairness to the Fine Gael Party, it was up-front in bringing forward clear proposals to increase VAT by 2% but on this occasion I agree with the Labour Party that every little increase hurts, and this is one of the measures that hurt but it will not hurt everyone. A 2% increase in VAT will not make any difference to many people. The problem is that when VAT is increased by 2% it not only affects people who have the ability to absorb it but also those who do not have the ability to absorb it. Referring back to what I spoke about earlier, we hear calls to radio shows or directly from people in our clinics that they only heat one room in the house. That might be a mother with young children. In terms of disposable income some people say they have only €5 to survive on for a week. All of this is increasing those pressures.

The Minister said the domestic economy is flat. The domestic economy is worse than flat. If we are to believe the Central Bank report we will see the domestic economy shrink by another 0.7%. The export figures, and the multinationals, are masking what is really happening in the domestic economy. If the Central Bank's projections come to pass we will still be in a deep recession. This was a policy platform for Fine Gael but given that our domestic economy has been shrinking in recent years it should decide to examine areas that do not involve taking money out of people's pockets.

As for the Government taking money from the pockets of those with incomes of €20,000 or even more, such individuals spend all their money each year on goods and services, mortgages and child care. There is no chance that individuals who are paid €20,000 to €30,000 per year are able to save a large tranche of money in a bank account as they spend everything they get in the domestic economy. If more money is taken from them through VAT, they will spend less and as a result, small and medium-sized enterprises will suffer more. As a consequence, such enterprises will reduce the number of staff they have or the hours they work, which in turn will put more pressure on the social welfare bill. In addition, it will contract their businesses and make it more difficult for them to recover. I acknowledge there is an ideological difference between my party and Fine Gael on this matter-----

Deputy Brian Hayes

I thought Sinn Féin was coming into the centre ground.

Deputy Pearse Doherty

No, I am happy where I am, which is supporting those who are finding it difficult to get back-----

Deputy Brian Hayes

I am not so certain about that.

Deputy Pearse Doherty

----- and asking those who can give a wee bit more to do so. While I would have no problem if one could introduce a measure that would increase VAT at 23% for those who could afford to absorb it, this is not what is being done or can be done.

Deputy Brian Hayes

One chooses.

Deputy Pearse Doherty

Therefore, I strongly object to this proposal. As bad as was Fianna Fáil's policy of applying a 1% increase each year over two years, at least it would not have had the immediate impact this measure is having on the retail sector.

Deputy Billy Timmins

To clarify, Deputy Doherty twice referred to VAT on home heating oil. I understand the rate of VAT charged on home heating oil is 13.5% and therefore the increase in VAT has no impact on it. The Minister of State might confirm this for me. However, to follow on from the point, perhaps the Government should give consideration to a third rate of VAT for necessities. Perhaps there should be a lower VAT rate for necessities than the 13.5% rate that applies to oil at present. As for luxury goods, I am unsure whether any goods currently in the 13.5% band rate could be moved to the 23% band but perhaps a third or fourth rate of VAT could be put in place. While I acknowledge this entails more work administratively, perhaps consideration should be given to creating a category of necessities such as home heating oil or other basic goods.

Deputy Brian Hayes

I understand Deputy Donnelly has left the room again.

Chairman

Yes, but hopefully he will get a chance to contribute.

Deputy Brian Hayes

Washington must be calling.

Deputy Billy Timmins

I seek confirmation from the Minister of State that the VAT rate for home heating oil is 13.5%.

Deputy Brian Hayes

Yes, I will put on record that the VAT rate of 13.5% applies to new homes, electricity, gas and home heating fuels. Obviously, the rate on these goods is not affected by this measure.

Deputy Pearse Doherty

The point was not that the increase from a VAT rate of 21% would affect home heating oil but that as a result of this Finance Bill, the price of home heating oil will increase. Members dealt with this point in their consideration of section 64, in which the cost of home heating oil effectively has been increased.

Deputy Brian Hayes

The assessment of the Government is it will increase by less than €1 every two months for the average home.

Deputy Stephen S. Donnelly

I apologise for my absence but I was taken by surprise by the efficiency with which the sub-committee is moving today. I wish to raise a number of issues and I agree with much of what Deputy Doherty said. My first issue is that, by definition, the VAT increase is a regressive taxation move, for all the reasons that already have been outlined, which fits into a regressive budget. An interesting article appeared in a newspaper late last week showing this budget to be the first regressive budget in recent years. While I have criticised roundly Fianna Fáil's fiscal policy for quite some time, the article, which I believe appeared in The Irish Times-----

Deputy Brian Hayes

What was the source of the article? Was it the ESRI?

Deputy Stephen S. Donnelly

I cannot recall at present but I will find it.

Deputy Brian Hayes

Good.

Deputy Stephen S. Donnelly

This is a regressive budget.

Deputy Brian Hayes

According to the source the Deputy does not know.

Deputy Stephen S. Donnelly

According to The Irish Times. It was the ESRI report.

Deputy Brian Hayes

I apologise to the Deputy.

Deputy Stephen S. Donnelly

This has been the first regressive budget for a number of years and was part of an austerity budget that indicates to me a clear move from the centre to the right. In the Dáil, I outlined and went through the numbers of a case concerning the cut being applied to a single mother in Fassaroe, Bray. I appreciate this committee pertains to finance rather than expenditure but she will experience a cut that is 46 times greater than someone who earns €150,000 and who lives in a wealthier part of the country. This is absolutely extraordinary and I wish to echo the concerns expressed by Deputy Doherty. I understand that standard economic policy states one should tax consumption rather than labour and in a steady-state economy, a gradual move from taxing labour to taxing consumption is perceived to be a fairly good thing. However, under present circumstances, I must object strongly to what, according to the case studies and analysis I have seen, unfortunately is a deeply regressive budget that is ideologically flawed. The budget suggests that if one wishes to promote jobs, one should not tax labour and, therefore, one should instead make cuts.

A report emerged from an Italian university in recent weeks that featured in The Wall Street Journal over the weekend and I can forward the reference to the Minister of State. It showed the effect of tax increases on the domestic economy is one third that of cuts. Unfortunately, in Ireland we appear to be going the other way and as Deputy Doherty noted, this is having an impact on local business. A prominent businessman in Bray approached me recently. He runs a shop that has been in the town for more than 100 years and he believes the 2% increase in the VAT rate will put him out of business. The business has been there for an awfully long time but is hanging on by its fingernails. The Minister of State will be aware that many business people in his own constituency are in the same position. This is not a guy who is prone to scaremongering or who habitually visits his local Deputy. He is a businessman who comes from a trading family in Bray who reckons this is the final straw and that he will be obliged to close down and put everyone out of work.

This leads to the second issue I wish to raise. In recent weeks, I have submitted some parliamentary questions to the Minister, Deputy Noonan, and have received conflicting responses. However, I received the latest response this morning, which pertains to the calculation of the amount and which indicates the full year amount arising from the increase will be €670 million. The Tánaiste confirmed to me in the Chamber that this was a static estimate. It was calculated simply by multiplying by 0.2 the total value of the goods to which the increase applies, which results in a figure of €670 million. However, I received a conflicting answer to a parliamentary question from the Minister, Deputy Noonan, which stated that second order effects had been taken into account. Consequently, I pressed again and asked for the actual analysis. Not surprisingly, the analysis was not provided to me but I was informed it actually was a static calculation. Obviously, serious second order effects occur when one increases price, the most obvious being that consumption falls. It is the entire economic rationale behind the jobs initiative, namely, if one reduces the VAT rate on tourism-related goods, jobs in tourism will increase. One can make a calculation if one takes fairly conservative assumptions regarding elasticity of consumption versus price, reasonably conservative assumptions in respect of the number of businesses that will close down, such as the aforementioned gentlemen in Bray, and the number of people this will put out of work, as well as the loss in corporation tax receipts. I am sure the Minister of State is also aware of this point from contacts with businesses in his own constituency but many businesses in County Wicklow, particularly those engaged in the hospitality trade, have indicated they simply will absorb the 2% increase themselves. They believe they cannot increase prices but will absorb the increase. A few have stated that as a result, they will be obliged to lay off one person or half a person. Obviously, however, if such businesses absorb a 2% increase in price and do not pass it on to the consumer, their profits will fall.

This means this measure will have three major effects. The first is a fall in consumption, the second is an increase in unemployment and the third is a fall in corporation tax receipts. I carried out a simple back-of-the-envelope calculation that suggested the cost of these three effects probably will come in at approximately €300 million. I spoke to Dr. Stephen Kinsella, who has carried out more advanced analysis on this issue, and he arrived at a figure of approximately €350 million. I am puzzled by this proposal because if these calculations are correct, they could amount to almost one third of the full €1 billion the tax increases are projected to take in. I would welcome a response from the Minister of State's on that issue.

Deputy Brian Hayes

The report to which the Deputy refers is the ESRI report. I will forward a copy of it to the Deputy, which he should read because it does not come to the same conclusions as the Deputy. It has a review about the regressive nature of the indirect tax increase on which we had a discussion yesterday but the Deputy was not here. The ESRI takes a different view in regard to whether our taxation system over a period of years has been more or less progressive in terms of the adjustments made. It does not arrive at the same conclusions arrived at by the Deputy. The Deputy should read the report.

Deputy Stephen S. Donnelly

I will.

Deputy Brian Hayes

The ESRI's switch model is interesting. In terms of getting that assessment, it makes the point that the biggest adjustment has been on well-off families. It also had interesting things to say about the elderly in terms of the lack of reduction in that area. It also makes the point that cumulatively the budgets since the start of the crisis have been more than progressive. If one looks at the six countries concerned, Ireland is the most progressive in terms of budgets. I recommend to the Deputy that he read the report and then come back to us on it.

The Deputy will be aware that headlines are often misleading.

Deputy Stephen S. Donnelly

Would the Minister of State accept that the recent budget is, mathematically, a regressive budget?

Deputy Brian Hayes

Taking money out of an economy is always a regressive action.

Deputy Stephen S. Donnelly

No, it is not.

Deputy Brian Hayes

I do not accept the ESRI's view on the issue of indirect taxation, which I will explain.

In regard to any decision which a government must take in terms of increased taxes or reductions in expenditure, if a government stops spending then it knows that, say, €1 billion, will not be spent but when it decides on a taxation policy one way or the other it can never be sure how much it will bring in because it is based on human behaviour. If ever there was an example of this it is in this area, which is based on consumption. People have the choice to buy or not. In trying to make adjustments last, a government is probably better off trying to do more on the expenditure side than on the tax side because it can then be certain about whether it can spend money. The position is not as clear when it comes to taxation, in particular in an economy like ours, which is recovering following an enormous drop from the edge of a cliff.

I do not agree with Deputy Doherty. Neither I nor the Minister for Finance said at any stage in our contributions that this budget does not introduce increases in taxation because there have been increases in taxation. The Government made the decision, in an attempt to keep people at work and to incentivise them to work, to not increase direct income taxation. I admit there are increases in taxation in many areas, as there will be during the course of the next few years. Achieving a budget deficit of 3% will require a number of budgets which increase tax and reduce expenditure. That is as obvious as the nose on one's face. There is no other way of achieving that target. I am not pretending to people that there have been no tax increases because there have been but the decisions the Government has taken in terms of this budget attempt to avoid harming economic growth.

I agree with the Deputy that this is about disposable income. It is about how much money people have in their pockets at the end of the week or month in terms of spending in the real economy. Deputy Donnelly is correct that significant discount pricing is going on on the high street, be it in Bray, Greystones or any constituency. This is an understandable reaction in a circumstance where the domestic economy is difficult. This has been factored into our proposal. Discount pricing and the sales phenomena is occurring everywhere, in terms of buying goods and services by the consumer. Prices are reducing and rightly so because for many years the consumer was being ripped off.

We will see how we go this year. Our estimate is €650 million. Deputy Donnelly has suggested that the €1 billion euro tax take we are expecting could be down by one third. We will see whether we hit the targets set out in the budget. The hospitality sector is subject to VAT at 9%. It is not affected by this increase. As I said earlier, 51% of all goods and services are subject to the standard rate of VAT. Many of these goods and services are purchased by choice. A consumer has a choice in terms of deciding whether to buy a good or service, to which is attached a 23% VAT rate. This gives the people choice in terms of certainty of disposable income between now and end December. Like the Deputy I too would love to be in the position to provide options. However, the options open to the Government are limited, which I believe the people accept. The Government must make these choices in the circumstance of our having to achieve an 8.6% of deficit by the end of this year.

Last year, we managed to not only hit our target but to go beyond it, which makes the job of this year slightly easier. Irrespective of what the Central Bank has said in terms of growth projections for this year, everyone has accepted we can still hit our target of 8.6% even with lower growth in the Irish economy. The Deputy will be aware that the Department of Finance will produce its growth forecasts for the end of 2012 in April. We will wait and see where it goes. The Deputy asked if I accept that on the totality of €1 billion euro tax take, we will be out by one third. That is not our assessment of the situation.

Deputy Stephen S. Donnelly

We may not be out by one third. I hope we are not. We know, on the basis that these second order effects, which are fairly standard, that if prices increase consumption will fall by quite a bit. Why was the analysis, which seems extraordinarily simple, not done? It seems odd to me, if there is any question of there being €300 million in second order effects, that the analysis was not done.

I would like to reply to the Minister of State's statement that every time money is taken out of an economy, it is a regressive step. Let us be clear, every time one takes money out of an economy, it is not regressive. It is how one takes money out of an economy that determines whether it is progressive or regressive. In a situation where a single mother with four children in Bray has to take a cut which is 46 times that taken by someone earning €150,000, it is reasonable to say that the budget under which it was introduced is a regressive budget. Would the Minister of State, therefore, accept that it is not taking money out of an economy that is regressive rather it is how one takes it out that determines if it is regressive.

Deputy Brian Hayes

Sorry, Deputy.

Deputy Brian Hayes

The Minister of State stated that every time one takes money out of the economy it is regressive. It is not. How one takes money out of an economy determines whether it is progressive or regressive.

Deputy Brian Hayes

It is regressive to the person who has to pay.

Deputy Stephen S. Donnelly

Yes but that is not how one measures regressive versus progressive.

Deputy Brian Hayes

I again refer the Deputy to the ESRI report.

Chairman

There is a general understanding of what progressive and regressive mean. There is no big dispute about that.

Deputy Stephen S. Donnelly

Perhaps the Minister of State will respond to my question in regard to why the analysis was not done.

Deputy Brian Hayes

I will read the note I have on the issue of the €580 million in 2012. The imposition of a budgetary adjustment package has negative economic implications in the short term in that it takes money out of the economy. This means that the deficit will not reduce by the full amount of adjustment package implemented. Let me put it in simplistic terms. A VAT rate increase, income tax increase or a social welfare rate reduction would all directly or indirectly reduce the amount of money people have to spend, with consequential negative implications for consumer spending and, therefore, tax receipts.

I refer the Deputy to the budget booklet, which was made available on the day the Minister for Finance made his budget statement. It sets out the impact of the budget on the fiscal position. It also sets out the impact of new budgetary measures, of which the VAT rate increase is one element, which it is estimated will reduce taxes by €770 million. In other words, if the full benefit of the budgetary adjustment package is not gained because of negative economic implications in the short run, it is built into the overall budgetary arithmetic.

Deputy Stephen S. Donnelly

It was indicated in response to a parliamentary question that it was a first order static standard calculation.

Deputy Brian Hayes

I will take up that issue and if it was not communicated in the response to the parliamentary question, I will look at it. If clarification is required, we can set up a specific meeting.

Question put.

Chairman

In accordance with the order of the Dáil of 23 February, the division is postponed until 1 p.m. or the completion of proceedings on the matters to be dealt with in this session.

Sections 76 to 79, inclusive, agreed to.

SECTION 80

Question proposed: "That section 80 stand part of the Bill."

Deputy Pearse Doherty

I have no problem with the interest charged on an inappropriate refund on condition that it is based on a refund claimed in a fraudulent manner. Is that the case? If there is an overpayment by the Revenue Commissioners, the refund should not carry a penalty.

Deputy Brian Hayes

If there is an overpayment by the Revenue Commissioners arising from a fraudulent act, does the question concern the penalty that will be applied?

Deputy Pearse Doherty

There will be an interest payment.

Deputy Brian Hayes

Yes.

Deputy Pearse Doherty

If there is an overpayment by the Revenue Commissioners not arising from a fraudulent act - as a result of a mistake - is there an exemption from the interest charge payable?

Deputy Brian Hayes

I understand the point made by the Deputy who is asking if the mistake is on the Revenue Commissioners' side, the penalty will be applied. I presume it would not. This only relates to fraudulent cases.

Deputy Pearse Doherty

That is fine.

Deputy Brian Hayes

This is the standard procedure. If the Revenue Commissioners make a mistake, people are not penalised for it. Of course, the money must be returned, but it is not the same as a fraudulent case.

Chairman

That is understood.

Question put and agreed to.

Sections 81 and 82 agreed to.

SECTION 83

Deputy Brian Hayes

I move amendment No. 106:

In page 141, subsection (1), lines 8 to 12, to delete paragraph (c) and substitute the following:

"(c) in paragraph 8 by substituting the following for subparagraph (4):

"(4) Admission to—

(a) exhibitions, of the kind normally held in museums and art galleries, of objects of historical, cultural, artistic or scientific

interest (not being services of the kind specified in paragraph 3(5) of Schedule 1), or

(b) built or natural heritage facilities which are open to the public other than on an occasional basis (not being services of the kind specified in paragraph 3(5) of Schedule 1),

but excluding any part of the fee for such admission which relates to goods or services other than such admission.

(5) Admission to an open farm, but excluding any part of the fee for such admission which relates to goods or services other than such admission.".".

Section 83, as initiated, amends Schedule 3 to the VAT Consolidation Act 2010 to provide that the temporary reduced rate of VAT, 9% until 31 December 2013, applies to admission to open farms. The section is being further amended to extend the 9% VAT rate to admission to built and natural heritage facilities. I understand Deputy Richard Boyd Barrett is against this decision taken by the Minister to extend the rate to open farms. I do not know what he has against them.

Chairman

The Deputy is not present.

Deputy Stephen S. Donnelly

To clarify, the open farms issue would have been raised by me through Deputy Richard Boyd Barrett's name.

Deputy Brian Hayes

The Deputy is one of at least ten taking the credit.

Deputy Stephen S. Donnelly

I was contacted by people running these businesses in County Wicklow and their concern was that the VAT rate would be increased from zero to 9% or 21%. They did not know which it would be. We looked at the background and there was a European Court ruling. I know from where this has come, but the concern is that a 9% increase in gate prices would probably result in them being put out of business. They are wondering if there is anything the Government could do to phase in the increase over time, while accepting the European Court ruling.

Deputy Brian Hayes

I understand that if they were exempt previously, deductability now applies. They can claim back the VAT against the costs of the facility. This is something they have sought and the Minister for Finance indicated he would include the measure in the Finance Bill. He has done so because he was contacted by the Deputy and others who made this point. They are now very happy with the provisions set out.

Deputy Pearse Doherty

If they were not exempt, they would have paid at the higher rate and will now pay at the lower rate.

Deputy Brian Hayes

That is correct; the higher rate has moved from 21% to 23%.

Deputy Stephen S. Donnelly

To be clear, the net effect should be zero.

Chairman

The cost can be offset.

Deputy Brian Hayes

Yes; they should not pay more.

Deputy Pearse Doherty

There will be a substantial reduction in some cases.

Deputy Brian Hayes

Yes.

Deputy Stephen S. Donnelly

Those who asked me about it would have been exempt. Therefore, there is no net difference.

Deputy Brian Hayes

Yes; the people concerned may have already said they are happy with the change. There was an association which contacted us about the issue.

Amendment agreed to.

Section 83, as amended, agreed to.

Chairman

As we have completed proceedings on the matters to be dealt with in this session, we will now take the division called on section 75.

Question put: "That section 75 stand part of the Bill."

The Committee divided: Tá, 7; Níl, 3.

Tá

• Daly, Jim.
• Hayes, Brian.
• McNamara, Michael.
• O’Donnell, Kieran.
• Timmins, Billy.
• Twomey, Liam.
• White, Alex.

Níl

• Boyd Barrett, Richard.
• Doherty, Pearse.
• McGrath, Michael.

Question declared carried.

Sitting suspended at 1.10 p.m. and resumed at 2 p.m.

Sections 84 to 89, inclusive, agreed to.

NEW SECTION

Deputy Brian Hayes

I move amendment No. 107:

In page 146, before section 90, to insert the following new section:

90.– Section 101 of the Principal Act is amended by substituting the following for subsection (1):

"(1) In this section ‘intellectual property' means a specified intangible asset within the meaning of section 291A(1) of the Taxes Consolidation Act 1997.".".

Section 101 of the Stamp Duties Consolidation Act 1999, provides for a stamp duty exemption in relation to the sale or transfer of intellectual property.

Section 291A of the Taxes Consolidation Act 1997, provides a definition of a "specified intangible asset". This definition and the definition of intellectual property in section 101 of the Stamp Duties Consolidation Act 1999, are similar but not quite the same. The only differences are the inclusion in paragraph (ca), relating to computer software, and paragraph (g), relating to secret processes or formulae, in the definition of a specified intangible asset in section 291A of the Taxes Consolidation Act 1997.

In the interest of consistency and of ensuring that future changes are implemented across all tax heads, this amendment introduces a change to the definition of intellectual property in the Stamp Duties Consolidation Act 1999 so that it corresponds with, and is linked to, the definition of "specified intangible asset" in the Taxes Consolidation Act 1997. This will mean that any further changes to specified intangible assets in the Taxes Consolidation Act will be automatically applied to the Stamp Duty Acts.

Amendment agreed to.

Section 90 agreed to.

NEW SECTION

Deputy Brian Hayes

I move amendment No. 108:

In page 146, before section 91, to insert the following new section:

91.—Section 123B of the Principal Act is amended—

(a)in subsection (1) by inserting the following definition before the definition of “bank”:

" ‘account holder' means the person authorised to charge amounts to a card account;",

(b)in subsection (1) by inserting the following definition after the definition of “bank”:

" ‘basic payment account' means a card account that meets the following conditions—

(a)in the 3 years immediately preceding the opening of the card account, the account holder—

(i)did not have access to a card account, or

(ii) did have access to a card account (in this subparagraph referred to as the ‘old account') but no amounts were charged to the old account in that period, the old account was closed at the time the card account was opened and any balance of funds was transferred to the card account,

(b)all amounts payable to the account holder under the Social Welfare Acts are paid into the card account, and

(c)in respect of 2 consecutive periods of 3 months ending on 31 March, 30 June, 30 September or 31 December, all amounts paid into the card account, other than those referred to in paragraph (b), do not exceed €2,000 in a period of 3 months;”,

and

(c)by substituting the following for subsection (3):

"(3) Notwithstanding subsection (2)—

(a)if the cash card, combined card or debit card is not used at any time during a year,

(b)if the cash card, combined card or debit card is issued in respect of a card account—

(i)which is a deposit account, and

(ii)the average of the daily positive balances in the account does not exceed €12.70 during that year,

or

(c)in relation to the year 2012, if the cash card, combined card or debit card is issued in respect of a basic payment account,

then it shall not be included in the statement relating to that year.".".

This amendment introduces changes to section 123B of the Stamp Duties Consolidation Act 1999 which imposes a levy on ATM and debit cards. As part of the restructuring of the Irish banking system, my Department has undertaken a review of the options available to reduce financial exclusion. Financial exclusion is defined by the European Commission as "a process whereby people encounter difficulties accessing and-or using financial services or products in the mainstream market that are appropriate to their needs and enable them to lead a normal social life in the society in which they belong". There is a high correlation between low income and financial exclusion and it is likely that the majority of those financially excluded are in receipt of welfare benefits.

In addressing financial exclusion, access to banking and in particular, to transaction banking, that is, the ability to make lodgments and payments through a variety of mechanisms, needs to be the primary priority because it is a key to accessing other financial services.

A basic payment account is a transaction account which has been designed to meet the needs of the financially excluded. The provision of a basic payment account is a logical first step in addressing the issue of financial exclusion in the State.

My Department has been working with the banking industry to make basic payment accounts available to those who are financially excluded and it is expected that such accounts will be made available on a pilot basis shortly and depending on the outcome, these will be extended over time.

A basic payment account will meet the following conditions: the account holder will not have used a bank account in the three years prior to opening of the account; all social welfare payments payable to an individual must be paid into the account; and other amounts up to €2,000 in two consecutive quarters can be lodged to the account.

The banks have given a commitment that transaction fees will not be charged to those accounts and I am now providing that the stamp duty levy payable on debit and ATM cards will not apply to a card issued in respect of a basic payment account. The section effectively excludes people who will shortly have these accounts from paying stamp duty on debit or laser cards. Clearly, this will be an incentive to use such cards. We will await the outcome of the pilot scheme.

Deputy Michael McGrath

This is a very good idea which I am pleased to support. The current stamp duty is €40. Is that correct?

Deputy Brian Hayes

It is €5 per card.

Deputy Michael McGrath

The charge is separate from the annual charge on a credit card which is, I understand, €40.

Deputy Brian Hayes

It is €30.

Deputy Michael McGrath

This is a separate €5 charge which applies to any debit or credit card.

Deputy Brian Hayes

Yes, it applies to credit cards and joint debit cards. The charge for joint ATM debit cards is €5 and the charge for ATM only cards is €2.50.

Deputy Michael McGrath

If an account is established under this section, it will be exempt from these charges. Will it also be exempt from other bank imposed charges?

Deputy Brian Hayes

My understanding is that the banks are absorbing the ordinary transaction charges that other people will have to bear. Holders of these cards will not have to pay the stamp duty or transaction charges.

Deputy Michael McGrath

How will the target group, those who do not have a bank account, be made aware of the new facility?

Deputy Brian Hayes

The Department has been in discussion with the Department of Social Protection and we will announce a pilot scheme this year which will operate in a certain part of the country. We will await the outcome of the pilot project.

Amendment agreed to.

SECTION 91

Deputy Brian Hayes

I move amendment No. 109:

In page 149, to delete line 22 and substitute the following:

"(b) aged 18 years or over on 1 January in the accounting period,”.

Section 125A of the Stamp Duties Consolidation Act 1999 imposes a levy on health insurers which is used to meet the cost of granting tax credits to older persons to ensure the net amount of health insurance premia paid by insured persons is the same regardless of the age of the individuals involved. This amendment, which relates to the levy payable from 1 January 2013, is a technical change to section 91 of the Finance Bill, as initiated, to ensure that, in the case of a person who becomes 18 years of age in an accounting period, only one levy will be chargeable in respect of that person during the year. Without this change, the possibility of two levies arising in one year in respect of the same person could arise. This is an unintended consequence of the section, as set out in the Bill as published. I commend the amendment to the sub-committee.

Amendment agreed to.

Section 91, as amended, agreed to.

Sections 92 to 94, inclusive, agreed to.

SECTION 95

Deputy Michael McGrath

I move amendment No. 110:

In page 152, subsection (1)(a), line 19, to delete “€250,000” and substitute “€300,000”.

The amendment relates to the proposed reduction in the tax free threshold for capital acquisitions tax in respect of group A transfers. Having examined the changes that have been made in this area, I note that when the adjustment process commenced in 2008 the group A threshold stood at €542,000. It has since been reduced in several stages, first to €434,000, then to €414,000 and subsequently to €332,000. The Minister proposes to further reduce the threshold to €250,000. My concern is that parents who pass on a modest family home or some savings to a child will come within the ambit of the new capital acquisitions tax regime. This is a step too far and for this reason I propose reducing the threshold by to €300,000. The Minister's proposal is excessive, especially when one considers that the threshold stood at €542,000 some years ago. The proposal would amount to a 54% reduction in this figure, a significant decline which would bring into the net many inheritance transactions that would otherwise have been exempt from capital acquisitions tax.

Deputy Brian Hayes

The amendment seeks to increase the group A tax free threshold, which applies broadly to gifts and inheritances taken by children from their parents, from €250,000 to €300,000. The group A tax free threshold was reduced from €332,084 to €250,000 in the budget. In addition, section 95 rounds up the group B and C tax free thresholds from €33,208 and €16,604 to €33,500 and €16,750, respectively, while breaking the link between the thresholds and the consumer price index.

The budget change reduced the group A tax free threshold from ten times to just under 7.5 times the group B tax-free threshold, which applies broadly to siblings and nephews and nieces. This is the level of differential that applied until 1999. Approximately 50% of the capital acquisitions tax yield currently comes from gifts and inheritances in the group B threshold, while approximately 30% of the yield comes from gifts and inheritances in the group A threshold, notwithstanding that gifts and inheritances from parents to children are more common and usually larger than gifts and inheritances in the other categories. The reduction in the group A threshold rebalances the yield from the tax and is appropriate in light of the continuing decline in asset values. The revised group A threshold is still significantly in excess of the price of the average house.

The decrease in the group A tax free threshold, together with the increase in the rate of capital acquisitions tax and capital gains tax from 25% to 30%, is necessary to raise additional revenue to meet the commitments in the memorandum of understanding with the European Central Bank, European Commission and International Monetary Fund to reform the capital taxation system in 2012, as was set out in the budget. In light of these commitments to raise additional revenue from capital taxes in 2012 and the dramatic reduction in house prices in recent years, I regret I cannot accept the Deputy's amendment. The argument, therefore, is that house prices have declined and the differential between groups A and B has not been dramatically altered as a result of the changes.

If the truth be told, we are moving into the area of taxation of property of one description or another. Should people who obtain significant asset through inheritance pay a little as part of a contribution to resolving our problems? I believe the answer is "Yes". If one is moving towards property taxes and taxes on consumption, an issue we discussed before lunch, although one removes pressure on direct taxes on income, one must leave open one's options in the areas of capital taxes and taxes on the disposal of assets.

While I do not have a note on the additional yield, it is estimated that the overall yield was €62 million. I hope I have been of some assistance to the Deputy.

Deputy Michael McGrath

I appreciate the Minister of State's reply and understand from where he is coming. It is fair and reasonable to expect that people who receive a gift or inheritance make a contribution in the form of taxation. That is fair and reasonable but there has not been much public discussion or analysis of the changes made in the area. We have come from a threshold of €542,000 down to €250,000 in the space of three years, notwithstanding the significant drop in property prices. It represents a fundamental change and, of course, not all assets transferred by way of gift or inheritance are in the form of property, but may be in the form of liquid assets. For future reference, we should bear in mind there has been a major change in the area and I caution against going any further in the future.

Deputy Brian Hayes

I appreciate that we need a debate on property taxes in general but also on the question of inheritance. That is a fundamental issue. We need a public debate on the responsibility of the State where a substantial gift or inheritance has been made to an individual in respect of where stands the tax code. It is probably part and parcel of the upcoming question of a viable property tax which is part of the broadening of the base argument that we all have to respond.

Deputy Pearse Doherty

I support the lowering of the thresholds as presented by the Minister of State. In terms of the gifts and inheritance does he have a breakdown of the percentage for property, even with the thresholds at €540,000 down to €250,000 they would correspond with the drop in property prices during those periods?

Deputy Brian Hayes

I do not have that information with me but I will get it for the Deputy.

Deputy Pearse Doherty

Excellent.

Amendment, by leave, withdrawn.

Amendment No. 111 not moved.

Question proposed: "That section 95 stand part of the Bill."

Deputy Pearse Doherty

I welcome the fact that the Government has increased the capital acquisitions tax from 25% to 30% and reduced the thresholds in line with the drop in property prices. The initial figure suggested it would yield €76 million.

Deputy Brian Hayes

In capital acquisitions tax.

Deputy Pearse Doherty

That these measures would bring in €76 million.

Deputy Brian Hayes

Between the rate increase and the threshold-----

Deputy Pearse Doherty

Yes.

Deputy Brian Hayes

-----we think it is €72 million.

Deputy Pearse Doherty

In our pre-budget submission one of the areas we proposed to look at was capital acquisition tax. I would have liked to see the Government go further. We suggested a rate of 35% which would have brought in an additional €89 million to what the Government will bring in with 30%.

Deputy Brian Hayes

It is €89 million - from €25 million to €35 million.

Deputy Pearse Doherty

If the rate were to be increased to 35%, it would bring in not only the €72 million suggested from the 30% rate but an additional €89 million. Those figures are based on a reply to a parliamentary question received from the Minister. It is an area we have to look at. This is a windfall from which people benefit. Given that there is still €250,000 for category A, when huge amounts of transfers are being gifted to individuals it is appropriate that a higher rate of tax would apply. The thresholds are important and we may have to look at the issue again if the property prices start to bottom out as expected. It is an issue for the future. I would like if the rate had been increased further.

Deputy Brian Hayes

The matter is being kept under constant review and as the circumstances change all these issues will, I presume, be on the table. In respect of all capital taxes, we entered into a commitment to bring uniformity to them and to increase them because we recognise it is an area of significant potential that previous Administrations did not tap. Arguably, doing it at a time when there is such a collapse, the question is whether we will get the yield and the bottom line is to get the yield.

Although we did not get to the Deputy's amendment what I have to say may be of interest as it is on the same issue. The CAT rate has increased from 20% to 30% since 2008 and the group A tax free threshold is 59% lower than its peak value in 2009. That is a very substantial change. Also the capital gains tax, capital acquisition tax and deposit interest retention tax rates have been set at the same level as the effective rate of income tax under the high earners restriction. In terms of loopholes or potential difficulties, that rate reduction since 2008 is significant. The issue will be kept under constant review.

Question put and agreed to.

Sections 96 to 104, inclusive, agreed.

NEW SECTION

Deputy Brian Hayes

I move amendment No. 112:

In page 157, before section 105, to insert the following new section:

105.-Section 912A of the Principal Act is amended-

(a ) in subsection (2) by substituting “902A, 905,” for “902A,”, and

(b ) by substituting the following for subsection (3):

"(3) Where sections 902A, 905, 907 and 908 have effect by virtue only of this section, they shall have effect as if the references in those sections to-

(a ) tax, were references to foreign tax, and

(b ) any provision of the Acts, were references to any provision of the law of a territory in accordance with which foreign tax is charged or collected.”.”.

Ireland's international obligations in respect of exchange of information with tax authorities in other countries, with which Ireland has a double taxation agreement or tax information exchange agreements, needs to conform to OECD standards in this area. To a large extent they do. However, there are a number of issues that need to be addressed. This provision seeks to do that.

As I mentioned in regard to section 104, it is vitally important to Ireland's reputation in the international tax arena that there be no shadow on our ability to assess and exchange information needed by our double taxation agreement or tax information exchange agreement partners to protect their domestic tax base. Any perception that Ireland might be non co-operative could be enormously damaging to Ireland's reputation and perception as a willing and responsible participator in the exchange of information between tax administrations.

In this context section 912A of the Taxes Consolidation Act 1997 applies certain provisions in the Taxes Consolidation Act for the purposes of complying with exchange of information provisions contained in Ireland's double taxation agreements and tax information exchange agreements. This section is being amended to enable specifically authorised officers of the Revenue Commissioners to use the powers contained in section 905 of the Taxes Consolidation Act 1997, where necessary, for the purposes of obtaining information requested by foreign tax authorities under double taxation agreements or tax information exchange agreements. The powers available under section 905 can only be used in respect of domestic taxation. Section 905 enables authorised Revenue officers to enter business premises to inspect documents, search for documents, examine and remove documents for further examination, as necessary.

In addition, when section 912A was enacted it was thought that a foreign tax authority would always be in a position to give the name and-or address of the person in respect of whom information was required. "Taxpayer" was, accordingly, defined as meaning "a person". However, experience has shown that the name and address of "a person" might not always be known by a foreign tax authority, although other identifiers may be available, such as an account number. In such cases, doubts have been expressed that "taxpayer", as defined in section 912A may not apply to an unnamed person. Accordingly, the definition of taxpayer is being deleted to remove this doubt.

The select committee looked at a number of taxation agreements in recent months. It is fair to say that the Department and the Revenue Commissioners were very conscious not only of increasing the number of double taxation agreements, but making sure that they are updated and relevant, and that we comply with the best international standards. Given the reputational damage we have suffered - I have attended some of the OECD meetings myself - a huge store is put on this. It adds up to whether a country is seen in a positive light if these exchange agreements are in place and if they are updated. What we are doing here is bringing the best international practice to bear.

We currently have 69 double taxation agreements in place. We have 15 exchange information agreements, but four more are coming on stream, so that makes 19 in total.

Amendment agreed to.

Sections 105 to 108, inclusive, agreed to.

SECTION 109

Question proposed: "That section 109 stand part of the Bill."

Deputy Pearse Doherty

This is in respect of filing of returns to the Revenue Commissioners, which can impose penalties on deliberately false claims and careless claims. How do we define "careless" and how do we then pursue that? Recently, I had to make a P35 return for a number of people I employed on a part-time basis. When I was doing their P60s, I obviously put in the wrong data. What is "careless"? That is a very simple thing. I think the form should be changed, but that is a separate matter.

Deputy Brian Hayes

My understanding is that it is currently in the law. It is ultimately a matter for the courts to determine what "careless" means.

Deputy Pearse Doherty

Can the Revenue pursue it? It gives the Revenue the power to impose penalties in respect of this, so I presume they will not be running to the courts. How would Revenue determine what "careless" means?

Deputy Brian Hayes

If the one agrees with Revenue, then one obviously comes to an agreement, but if agreement cannot be reached, it goes to the courts. The question is about what is "careless". It is set out in the legislation, but we do not have a copy of it in front of us. However, this section does not change that. All it does is put the USC component as part of it. It is not actually changing the fundamental provision on "careless".

Officials have told me that if the one comes to an agreement, there is no court action. The Revenue will come to a view as to whether one's bona fides in this are fair and above board.

Chairman

It is an interesting question, but it does not-----

Deputy Brian Hayes

It does-----

Chairman

"Deliberate" seems to suggest "wilful", whereas "careless" could simply mean that one did not attend to something one should have.

Deputy Brian Hayes

I do not wish to second guess the Deputy, but I suspect the question he is asking is whether it is routinely happening that people who did not something wilfully would be caught up in this. Is that his question?

Deputy Pearse Doherty

Yes. The section is quite short, but it amends subsection 1.

Deputy Brian Hayes

As I understand it, all it does is put in the USC component.

Deputy Pearse Doherty

There is a penalty at the moment for deliberately false returns or careless returns. What are we doing in this section?

Deputy Brian Hayes

We are including the USC and the domicile levy. The Tax Consolidation Act came into force in 1997, so all we are doing is including those two taxes which were established since then.

Deputy Pearse Doherty

Up until now, if I make a careless or deliberately false return on the USC or the domicile levy, I cannot be penalised.

Deputy Brian Hayes

Correct.

Deputy Pearse Doherty

So we are bringing in this measure to include the USC.

Deputy Brian Hayes

Yes.

Deputy Pearse Doherty

There is still a question about how to define "careless". If one comes to an agreement, that is fine. We are saying to people that if they make a return on the USC which is not deliberately seeking to defraud the State or that is not careless-----

Deputy Brian Hayes

A code of practice has been established that is used by Revenue auditors. The view is that if there is an honest mistake, people are not penalised for that. We do not have the code of practice, but we can get a copy for the Deputy which sets out the very concepts and the standard practice with which auditors on behalf of the Revenue must comply.

Deputy Pearse Doherty

If it is an honest mistake, penalties do not apply. The reverse of that is that if it is not an honest mistake, penalties apply. What about a careless mistake? Why is "careless" there? If it is not an honest mistake, then it is a deliberate mistake. Why are we including the term "careless" in this at all?

Deputy Brian Hayes

My understanding is that there are gradations of penalty here. Carelessness is not the same as an honest mistake. There is a grade of penalty attached to the degree to which the mistake occurred. It is a bit like venal and mortal sin.

Deputy Pearse Doherty

We are basically talking about a sloppy accountant who would file a return that has caused the Revenue Commissioners problems.

Deputy Brian Hayes

Yes, but there is a code, which we have just found and can give to the Deputy.

Deputy Pearse Doherty

Is there a chance that the Revenue could submit to me figures on penalties imposed as a result of carelessness instead of deliberate actions?

Deputy Brian Hayes

Yes. There would be information for each of those classifications, but a different penalty applies to each classification. We can get that for the Deputy.

Deputy Pearse Doherty

I am not opposed to the section. I just wanted to tease this out.

Question put and agreed to.

Section 110 agreed to.

SECTION 111

Question proposed: "That section 111 stand part of the Bill."

Deputy Seán Conlan

I note there is no amendment tabled to this section, but I am concerned because this section allows the Collector General the power to require a person carrying out a business to provide security for certain fiduciary taxes, where the taxes are not paid within 30 days of the due date. This section makes it an offence for a person served with such a notice to engage in business until the security is provided. I am very concerned that this section could potentially close down a business to which it is applied, and I think the 30 day time limit is too short. I think it should be extended to 60 or 90 days and I ask the Minister to look at this before Report Stage. In the meantime, I would like to seek some advice.

There may be other sections that prevent people making appeals if they are not fully tax compliant, so that needs to be checked out. If that is the case, maybe we need to extend the time. This is a pro-business Government and I would hate to see a situation whereby businesses were shut down because they were not tax compliant for 30 days. That may not be the intention, but certainly I would not like to see it in legislation, so I ask the Minister of State to look at it. In the interim, I will consider putting down an amendment on Report Stage.

Deputy Brian Hayes

I understand that the Deputy has raised this with officials and I would like to put the reply on the record.

The use of this provision will be very restricted and will only apply where the Revenue Commissioners form an opinion, based on past experience and so on, that there is likely to be non-payment of fiduciary taxes by a person. In essence, we will be targeting phoenix operators. There is no intention to go after ordinary businesses here.

The Revenue will issue a notice under this section requiring a person to provide security, such as a bond or whatever. If that person is of the opinion that the issue of the notice is unwarranted and feels that, based on his history and so on, he should not be required to give a security, he can appeal the decision of the Revenue Commissioners. Presumably, he appeals it to the Appeal Commissioners. The appeal against the decision of the Revenue Commissioners must be made within 30 days. This is a standard time limit, and it is unclear why it is suggested that the 30-day limit for making an appeal is too short. If he appeals, the requirement to provide a security is deferred until the Appeals Commissioner has determined the matter. We would not be disposed to extending the time for making an appeal, as the purpose of this provision is to protect the Exchequer yield. It would also mean we would have to wait for an extended period to see whether the person processes the appeal.

On the second issue raised by Deputy Conlan of whether non-compliant taxpayers can appeal, that is fundamental. It is true that if one is not tax-compliant with regard to a particular tax area, one cannot submit an appeal against an assessment unless that assessment has initially been complied with. However, this provision relates to situations in which the Revenue Commissioners considers that a risk exists that fiduciary taxes may not be handed over in the future, so the concern about inability to appeal does not arise.

Deputy Michael McGrath

This is an interesting section. The Minister of State might clarify what he means by a phoenix company. On the issue of the type of security involved, the Minister of State mentioned that it could be financial security or it could be a bond. He might elaborate on what types of security the Revenue Commissioners would be seeking.

Deputy Brian Hayes

It would have to be financial security. It would not be an asset.

Deputy Michael McGrath

Okay. Otherwise it could have implications for a business seeking credit, for example, because if a particular item was given as security it would no longer be available for the purpose of obtaining credit. Even if a company that is in arrears with regard to its tax obligations has reached an agreement with the Revenue Commissioners and established a repayment schedule, would it still be the intention of the Revenue Commissioners to invoke this section and require a security? The main issue is that the type of company to which this would apply needs to be clarified.

Deputy Brian Hayes

A phoenix company is a company that rises from the ashes pretty quickly, leaving a long trail of tax liabilities. This provision is designed to apply to a group of people who regard themselves as untouchable; they come and go as they please, and consequently we need the powers to do this. My understanding is that the full import of the provision will only come into being after some consultation with industry sources but we need the power to do this as an ultimate measure if people are not complying. I have been advised by the Revenue Commissioners that before this provision is applied, it will publish detailed guidance on the circumstances in which it will be used. In this regard, the Revenue Commissioners will engage as required with business interests and tax agents with a view to developing clear guidelines on how and when the provision will be invoked. The view is that this is required by the Revenue Commissioners, but the gun will only be fired when it believes it is appropriate to do so. This is specifically going after a group of people who are simply not complying.

Deputy Michael McGrath

Is it the first time such a measure has been proposed?

Deputy Brian Hayes

I understand there is a similar measure to do with VAT. This is just establishing a provision for PAYE as well.

Deputy Pearse Doherty

The intention of this section is one that I support in its application to phoenix companies, as the Minister of State calls them. However, my reading of the Bill leads me to believe that it does not preclude the requesting of such a security from any company that exists. It is not restricted to a certain type of company. The legislation allows the Revenue Commissioners to apply this to any business from the local hairdresser to the butcher's shop.

Deputy Brian Hayes

The Deputy is right in saying the provision could apply, theoretically, to everyone. The reason this legal change is sought is that we need the power to do that, but the application of the provision is very focused on the phoenix companies that come and go as they choose. It would be impossible to frame an amendment.

Deputy Pearse Doherty

I will give a hypothetical scenario, although it is not so hypothetical because it actually happened. In my constituency there is a young female entrepreneur who has run a successful business for the last eight years, employing another individual. The business ran up a tax liability with the Revenue Commissioners which was last year in the region of €1,800. The Revenue Commissioners passed that on to the local sheriff, who intended to break the door down the seize the assets of the business. This was for a liability of €1,800 which was as a result of PAYE. The Revenue Commissioners were threatening to put this individual out of business. There has been some accommodation but the situation is still difficult. The business is going through a difficult time because of everything we discussed earlier on, including lack of spending, but the owner is hoping to see it through. Could the measure we are discussing have been imposed on that business, or does it apply only to new start-up businesses?

Deputy Brian Hayes

Theoretically it could be imposed but the view is that this is for people who have a track record in this regard. The business the Deputy refers to may have a liability for one year because of a trading difficulty; it does not have a track record of doing this. I am informed that the provision would apply to people who have a track record of non-compliance and who walk away from their tax debts. In the case of the business to which the Deputy refers, the Revenue Commissioners would encourage that person to engage with it to work out some solution. That person is staying with the business; she is not moving to another business. This provision is for a group of people who regularly move in and out of businesses and simply walk away from their debts.

Deputy Pearse Doherty

Does it say in the Bill that the provision applies to such companies?

Deputy Brian Hayes

No, but the Deputy must put his faith in us. We will operate within the guidelines that have to be worked out following consultation with tax practitioners.

Deputy Pearse Doherty

I was not there at the time because I was in the Dáil, but I had the business owner on the other end of the telephone. This young individual was in tears as a result of the situation, and other locals were there trying to comfort her.

Deputy Brian Hayes

Had she engaged with the Revenue Commissioners?

Deputy Pearse Doherty

She has been engaging with the Revenue Commissioners for a while. I agree with the section in principle but is there a way of tightening it up? At the moment, the Revenue Commissioners probably intends to pursue the provision in the way the Minister of State has said, but there is nothing to stop it being applied in a different way in the future. A business could run into difficulties for two or three years in terms of its tax liability, which would create a record. The Revenue Commissioners could impose this security on it even if it was struggling to pay bits and pieces. The Revenue Commissioners does its job very well in terms of collecting revenue, but if such a security provision was to be introduced, it could close businesses.

Deputy Brian Hayes

The section does allow for an appeal to the Appeals Commissioner, which is totally independent of the Revenue Commissioners. Can we look at it again to see if it could be tightened up?

Deputy Pearse Doherty

Yes.

Deputy Brian Hayes

We all accept the necessity for it. It is a very wide power and much hangs on its application.

Deputy Pearse Doherty

I agree.

Deputy Brian Hayes

Let us consider it again to see whether it can be improved. I have not given away too many commitments or created false hopes for Report Stage, but we can look at this again to see whether we could make some improvements. It is a wide power; it needs to be wide and all-encompassing in order for the Revenue Commissioners to do its job, but equally, it must be proportionate to the difficulties that businesses are facing. We are not going after people who are in difficulty; we are going after habitual offenders who have a track record of moving in and out of businesses. Let us look at it again to see whether it can be improved.

Chairman

That is satisfactory.

Question put and agreed to.

Section 112 agreed to.

NEW SECTION

Deputy Brian Hayes

I move amendment No. 113:

In page 175, before section 113, to insert the following new section:

113.—(1) Part 37 of the Principal Act is amended—

(a) in section 865(1)(a) by substituting the following for the definition of “the Acts”:

" ‘Acts' means the Tax Acts, the Capital Gains Tax Acts, Part 18A, Part 18C and Part 18D and instruments made thereunder;",

(b) in section 865(1)(a) by substituting the following for the definition of “tax”:

" ‘tax' means any income tax, corporation tax, capital gains tax, income levy, domicile levy or universal social charge and includes—

(i) any interest, surcharge or penalty relating to any such tax, levy or charge,

(ii) any sum arising from the withdrawal or clawback of a relief or an exemption relating to any such tax, levy or charge,

(iii) any sum required to be deducted or withheld by any person and paid or remitted to the Revenue Commissioners or the Collector-General, as the case may be, and

(iv) any amount paid on account of any such tax, levy or charge or paid in respect of any such tax, levy or charge;",

(c) in section 865(1)(b) by substituting the following for subclauses (A) and (B) of clause (I):

"(A) would arise out of the assessment to tax, made at the time the statement or return was furnished, on foot of the statement or return, or

(B) would have arisen out of the assessment to tax, that would have been made at the time the statement or return was furnished, on foot of the statement or return if an assessment to tax had been made at that time,",

and

(d) by inserting the following new section after section 865A:

865B.—(1) In this section—

‘Acts' means—

(a) the statutes relating to the duties of excise and to the management of those duties,

(b) the Tax Acts,

(c) the Capital Gains Tax Acts,

(d) Parts 18A, 18C and 18D,

(e) the Capital Acquisitions Tax Consolidation Act 2003 and the enactments amending or extending that Act,

(f) the Stamp Duties Consolidation Act 1999 and theenactments amending or extending that Act,

(g) the Value-Added Tax Consolidation Act 2010 andthe enactments amending or extending that Act, and

(h) any instruments made under any of the statutes andenactments specified in paragraphs (a) to (g);

‘relevant period', in relation to a repayment, means—

(a) in the case of corporation tax, the accounting periodof the company in respect of which the repaymentarises,

(b) in the case of income tax, capital gains tax, incomelevy, universal social charge or domicile levy, theyear of assessment in respect of which therepayment arises,

(c) in the case of stamp duties, the year of assessment oraccounting period, as the case may be, within whichfalls the event in respect of which the repaymentarises,

(d) in the case of gift tax or inheritance tax, the year ofassessment or accounting period, as the case maybe, within which falls the latest of the dates referredto in section 57(3) of the Capital Acquisitions TaxConsolidation Act 2003 and in respect of which therepayment arises,

(e) in the case of excise duty, the year of assessment oraccounting period, as the case may be, within which falls the act or event in respect of which the repayment arises, and

(f) in the case of value-added tax, the year of assessment or accounting period, as the case may be, within which falls the taxable period in respect of which the repayment arises;

‘repayment' includes a refund;

‘tax' means any income tax, corporation tax, capital gains tax, value-added tax, excise duty, stamp duty, gift tax, inheritance tax, income levy, domicile levy or universal social charge and includes—

(a) any interest, surcharge or penalty relating to any such tax, duty, levy or charge,

(b) any sum arising from the withdrawal or clawback of a relief or an exemption relating to any such tax, duty, levy or charge,

(c) any sum required to be deducted or withheld by any person and paid or remitted to the Revenue Commissioners or the Collector-General, as the case may be, and

(d) any amount paid on account of any such tax, duty, levy or charge or paid in respect of any such tax, duty, levy or charge;

‘taxable period' has the same meaning as in section 2 of the Value-Added Tax Consolidation Act 2010.

(2) Subject to subsections (3) and (4), where a repayment of any tax cannot be made to a person by virtue of the operation of—

(a) section 865,

(b) section 105B of the Finance Act 2001,

(c) section 99 of the Value-Added Tax Consolidation Act 2010,

(d) section 159A of the Stamp Duties Consolidation Act 1999,

(e) section 57 of the Capital Acquisitions Tax Consolidation Act 2003, or

(f) any other provision of any of the Acts, then, notwithstanding any other enactment or rule of law, that repayment shall not be set against any other amount of tax due and payable by, or from, that person.

(3) Where a repayment of tax cannot be made to a person in respect of a relevant period, it may be set against the amount of tax to which paragraph (a) of subsection (4) applies which is due and payable by the person in the circumstances set out in paragraph (b) of that subsection.

(4) (a) The amount of tax to which this paragraph applies is the amount, or so much of the amount, of tax that is due and payable by the person in respect of the relevant period as does not exceed the amount of the repayment that cannot be made to the person in respect of that relevant period.

(b) The circumstances set out in this paragraph are where tax is due and payable in respect of the relevant period by virtue of an assessment that is made or amended, or any other action that is taken for the recovery of tax, at a time that is 4 years or more after the end of the relevant period.

(5) No tax shall be set against any other amount of tax except as is provided for by the Acts.".

(2) The Stamp Duties Consolidation Act 1999 is amended in section 159B by substituting the following for subsection (6):

"(6) Except as provided for by this Act or section 941 of the Taxes Consolidation Act 1997 as it applies for the purposes of stamp duties, the Commissioners shall not repay an amount of duty paid to them or pay interest in respect of an amount of duty paid to them.".

(3) The Capital Acquisitions Tax Consolidation Act 2003 is amended in section 57 by substituting the following for subsection (9):

"(9) Except as provided for by this Act or by section 941 of the Taxes Consolidation Act 1997 as it applies for the purposes of capital acquisitions tax, the Commissioners shall not repay an amount of tax paid to them or pay interest in respect of an amount of tax paid to them.".

(4) The Value-Added Tax Consolidation Act 2010 is amended in section 105(6)(b) by substituting “section 941 of the Taxes Consolidation Act 1997 as it applies for the purposes of value-added tax” for “any provision of any other enactment”.

(5) This section shall apply as respects any tax (within the meaning of section 865B (inserted by subsection (1)(d)) of the Principal Act) paid or remitted to the Revenue Commissioners or the Collector-General, as the case may be, whether before, on or after the passing of this Act.”.

Amendment No. 113 proposes changes to the legislation governing the time limits applying to the repayment of taxes and to the related question of when a repayment of tax may be set off against other tax liabilities.

The background to this measure is that section 865 of the Taxes Consolidation Act 1997 is concerned with the repayment of income tax, corporation tax and capital gains tax. Similar provisions are contained in the various other tax codes. All of these provisions were introduced in the Finance Act 2003 to provide a general statutory right to the repayment of tax together with interest. The intention behind this general scheme was to provide a clear legislative basis for the repayment of tax that would replace an evolving common law right being developed by the courts on a piecemeal case-by-case basis. Without such a clear statutory basis for dealing with claims for repayments there were serious Exchequer implications in that tax which has been collected and spent by the State on the basis that it was properly due could, years afterwards, fall to be repaid with interest, thereby undermining current tax revenues and threatening current Exchequer spending.

The 2003 scheme provided for a general statutory right to repayment in addition to any other existing statutory right under tax law but abolished any existing common law right. The right to repayment was made subject broadly to a claim being made to the Revenue Commissioners within four years of the end of the period to which the claim related, with interest on a tax free basis paid on repayments at a rate of 4% per annum. The 2003 scheme also reduced Revenue's right to make and amend assessments to a four-year period in line with the taxpayer's right to repayment, except in certain limited cases.

Since the introduction of the 2003 scheme the position of the Revenue Commissioners, supported by legal advice, is that if a repayment cannot legally be made to a person because the repayment is claimed outside the four-year limit, there can be no right to offset that repayment against other tax liabilities that might be due by that person, either in the past or in the future.

Revenue's position is founded on legal advice to the effect that in law the existence of a debt that is capable of being repaid is a precondition for any right of offset to apply.

The position may be summarised as follows. Where a repayment cannot be made because it is claimed outside the statutory time limit of four years, there is no debt due and, consequently, there is nothing available for offset against other liabilities. On this basis, Revenue refused claims for repayments of tax to be offset against other tax liabilities where the repayment cannot be made because it is claimed outside the four-year period.

The reason for the amendment, notwithstanding Revenue's position on this issue, is that taxpayers have been seeking to offset time expired repayments against past and current tax liabilities to date. Revenue has resisted these claims. However, a clear statutory provision to support the legal advice received by the Revenue Commissioners is needed to bring clarity to the law in this area for all concerned. Such a provision would also reinforce the policy objectives underpinning the 2003 scheme, namely, to prevent current tax yields from being undermined, either by repayment having to be made years after the tax had been paid or by such repayments being offset against current tax liabilities.

Accordingly, the amendment seeks to confirm in legislation that where a repayment of tax cannot be made because its repayment is claimed outside the four-year period, the tax will not be available for offset against any other tax liabilities, with one exception. The exception is where the Revenue Commissioners are, themselves, seeking to collect tax outside the four-year period. In such a case, any repayment that cannot be made but which was paid in respect of the same period as the tax liability Revenue is seeking to collect will be available for offset. The amount available for offset will be limited to the amount of tax revenue in pursuing for that period. This exception can be justified on the basis that it poses no threat to current year tax flows to the Exchequer, as old repayments will be set off against corresponding old liabilities. Where a repayment of tax is claimed within the four-year period the repayment will still be available for offset in the normal way. In this regard, the amendment clarifies that similar to repayments there is no right of offset outside of that already provided for under the tax codes.

The amendment makes a number of technical amendments to the legislation dealing with the repayment of tax, to clarify a number of matters. These include: extending the repayment provisions to the new taxes introduced over the past few years; clarifying the definition of tax for repayment purposes; and correcting an apparent error in the repayment provisions of some tax codes, in that the right to a repayment outside the tax legislation does not appear to have been fully eliminated.

I commend the amendment to the sub-committee.

Amendment agreed to.

Section 113 agreed to.

NEW SECTION

Deputy Brian Hayes

I move amendment No. 114:

In page 175, before section 114, to insert the following new section:

114.—(1) Section 811 of the Principal Act is amended by inserting the following after subsection (5):

"(5A) (a) In this subsection—

‘assessment' includes a first assessment, an additional assessment, an additional first assessment and an estimate or estimation;

‘amendment', in relation to an assessment, includes the adjustment, alteration or correction of the assessment.

(b) Where the opinion of the Revenue Commissioners, that a transaction is a tax avoidance transaction, becomes final and conclusive, then for the purposes of giving effect to this section, any time limit provided for by Part 41, or by any other provision of the Acts, on the making or amendment of an assessment or on the requirement or liability of a person to pay tax or to pay additional tax—

(i) shall not apply, and

(ii) shall not affect the collection and recovery of any amount of tax or additional tax that becomes due and payable.".

(2) (a) Subsection (1) applies to any assessment to tax or any amendment of any assessment to tax which is made, on or after 28 February 2012, so that the tax advantage resulting from a tax avoidance transaction, in respect of which a notice of opinion has become final and conclusive, is withdrawn from or denied to any person concerned.

(b) For the purposes of paragraph (a), "assessment", "amendment", "tax advantage", "tax avoidance transaction", "notice of opinion" and "final and conclusive" shall be read in accordance with section 811 of the Principal Act.".

This amendment inserts a new subsection (5A) to section 811 of the Taxes Consolidation Act 1997 which is a general anti-avoidance provision and an important part of the State's armoury in the fight against abuse of tax avoidance schemes. Under this legislation Revenue is empowered to form the opinion that particular transactions entered into by a taxpayer are, in fact, abusive. Where the taxpayer disputes this opinion, the matter is settled by the appeal commissioners or the courts. If Revenue is, ultimately, successful the taxpayer must pay over the tax that he or she had hoped to avoid, along with interest and a surcharge where the taxpayer had not made a protective notification to Revenue in respect of the transaction.

Separately in our tax legislation, there is a general four-year rule concerning tax assessments, tax payments and tax repayment. What this means is that, except in specific circumstances, Revenue cannot make a tax assessment on a person for a tax year after four years. Similarly, a person cannot seek a repayment of tax after the four years. However, one of the exceptions to this rule is where a transaction falls foul of section 811, in which case there is no time limit.

As an indirect result of comments in a High Court judgment made last year, the Revenue Commissioners v. Hans Droog, an element of doubt has arisen over Revenue’s entitlement to make or amend the necessary assessment beyond the four-year period so as to actually collect the tax after a transaction has been judged to be abusive. Where the courts are involved, the process of determining if the transaction is abusive will almost always take more than four years, so while these assessments are merely a procedural means of finally getting the tax into the Exchequer, they are important nonetheless. It would be nonsensical if, having secured a determination from the courts, up to and including the Supreme Court, that a transaction is abusive, Revenue was prevented from collecting the tax that falls due for technical procedural reasons.

This amendment removes any lingering doubt there might be that all of these final steps necessary to collect the tax where a transaction has been shown to be abusive are not bound by the four-year rule. The measure will come into effect for assessments made or amended after today, arising out of transactions, which have been finally determined to be tax avoidance transactions.

Tax avoidance is a very serious matter. As it is usually conducted away from public gaze, it is difficult to accurately assess the drain it poses on the Exchequer. However, it is measured in hundreds of millions of euro. Of that I am certain. In these difficult times the State cannot afford this level of potential loss and if I feel other changes are necessary to assist Revenue in this area, I will not hesitate to introduce them.

On these grounds, I commend this amendment to the sub-committee.

Amendment agreed to.

Sections 114 to 118, inclusive, agreed to.

NEW SECTION

Deputy Michael McGrath

I move amendment No. 115:

In page 178, before section 119, to insert the following new section:

119.—The Minister shall within 3 months from the passing of this Act prepare and lay before Dáil Éireann a report on the contribution made to the Exchequer and in particular the contribution in that regard as a result of the measures introduced by the Finance Act 2012.".

This amendment relates to the application of the domicile levy, an issue I am sure the Minister of State will agree is of significant public interest. My proposal seeks to ensure that the amount of money collected from the levy will be a matter of public record, with particular reference to any additional revenues arising as a result of the proposed change in the Bill, namely, to abolish the citizenship condition in respect of the levy. Will the Minister of State indicate how much revenue the levy yielded last year, how many people were affected by it and the likely or anticipated impact of the proposed abolition of the citizenship condition?

Deputy Brian Hayes

The Deputy's amendment proposes to introduce a new section into the Bill which would require the Minister for Finance, within three months of the passing of the Finance Act, to prepare a report on the contribution made to the Exchequer by the domicile levy and, in particular, the contribution as a result of the measures introduced by the Finance Act 2012, and to lay that report before Dáil Éireann.

Before explaining why I cannot accept the amendment, I will address what is a significant misunderstanding in respect of so-called tax exiles. The taxation of individuals in the State is broadly in line with that prevailing in most other OECD jurisdictions. In general terms, individuals who are resident in the State for tax purposes are taxable here on their worldwide income and gains. Individuals who are not resident here for tax purposes pay tax here only on income arising in the State and income derived from working here and from certain assets in the State or from certain assets which derive their value from certain assets in the State.

It is important to note that not all non-resident individuals who file a tax return here are tax exiles. Legitimate cases include "ordinary" Irish nationals who have moved abroad for work reasons but have prudently retained their home in this State. In such cases, the individual's tax return is generally only in respect of rental income on his or her home here. Likewise, foreign nationals who never resided here but who have investments, including property, in the State, and foreign nationals who worked here for a period and who may have not acquired Irish tax residency for that period during a relevant tax year - individuals who worked here on a temporary assignment, for example - are not tax exiles in the common understanding of the phrase.

In an Irish context, discussion regarding tax exiles generally focuses on individuals of Irish origin who are perceived to be largely based in Ireland but who arrange their affairs so that they are not tax resident in the State and hence pay less tax than they would if they were Irish tax resident. The Minister stated in his budget speech that he intends to keep the contentious issue of the tax treatment of tax exiles under constant review. Contained within the Taxation Measures for Introduction in 2012, which accompanied the Budget Statement, is a commitment to publish, in early 2012, a set of proposed amendments to the current tax regime as it applies to non-residents and to present such proposed amendments for public consultation with a view to informing preparation for further changes in 2013.

The Deputy's amendment relates to section 119 of the Bill, which gives effect to the proposal announced in the Budget Statement that citizenship be removed as a requirement for payment of the domicile levy. This means that, regardless of citizenship, the domicile levy will be payable by Irish-domiciled individuals whose Irish assets exceed €5 million, whose worldwide income exceeds €1 million and whose liability to Irish income tax for the relevant year is less than €200,000. The amendment applies to domicile levy chargeable for the year 2012 and subsequent years. It should be noted that payment of the levy for a particular year can be made at any time up to and including 31 October in the year immediately following the year in which the levy was chargeable. This means that payment of the levy for 2012 can be made up to and including 31 October 2013. As the impact of the changes made to the domicile levy by the Finance Bill will not be known until after 31 October 2013, I regret that I cannot accept Deputy McGrath's amendment.

I understand the domicile levy yielded €1.5 million last year from a total of ten individuals.

Deputy Michael McGrath

Can the Minister of State indicate the number likely to be affected by the abolition of the citizenship requirement?

Deputy Brian Hayes

We cannot say how much additional protection to our revenue will arise from the amendment. It is a precautionary measure against people renouncing their citizenship in order to avoid paying tax. However, we are not in a position to offer an assessment of the likely numbers.

Deputy Michael McGrath

Is Revenue satisfied with the level of compliance with the levy as it is currently constructed? The revenue yield is very modest and affects only ten people, which is surprising given that this is such a high profile matter. Can Revenue dispel the myth - if it is a myth - that many people are escaping their obligations under the existing taxation regime? In other words, is there an outstanding compliance issue in respect of this particular levy?

Deputy Brian Hayes

Revenue acts in accordance with the laws as they exist. I agree that the amount taken in last year was quite derisory. The levy must be designed in a way that is proportionate but also fair and seen to be fair. The Minister has undertaken to review the matter as soon as possible and, if additional changes are to be brought about, to introduce them in the next Finance Bill. I presume he will also consult with the sub-committee on this issue. There is a role for the Opposition in agreeing how this levy might be redesigned to ensure it gives a more substantial yield.

In terms of the immediate changes introduced in the budget in regard to citizenship, we are not in a position to assess how many additional people will be affected. I cannot say whether an additional 30 or 40 people, say, will be caught for this levy in 2012 because of the change. I cannot give a guarantee to the Deputy in this regard.

Deputy Michael McGrath

I thank the Minister of State for his response and am happy to withdraw the amendment.

Deputy Richard Boyd Barrett

I welcome the measure introduced in the Bill in so far as it attempts to chase down some of those multimillionaires or multibillionaires who are apparently choosing to live outside the State in order to avoid paying taxes. Is there any evidence that such is happening and how do we identify non-compliant persons? Does Revenue wait for them to identify themselves voluntarily, for example, or does it take it upon itself to inform such persons that they may be liable? How do we identify the constituency for this tax and how are those who make up that constituency responding? The amount of money yielded and the number of persons involved are both quite minuscule. Is there anything we can do about this?

Deputy Brian Hayes

The straight answer is that of course it is something we can do. That is why the Minister wants to consult widely in respect of this matter in 2012. Obviously, he is not satisfied with regard to the poor level of return. The original proposal in this regard was brought forward by the previous Minister, the late Brian Lenihan, in 2008 or 2009. There was an expectation at that time that the yield would be significantly greater than that which has been realised to date. There is a responsibility on all our parts to consider how this might be framed in a way which would significantly increase the yield while also ensuring that the effect of the levy would be proportionate.

The Deputy inquired as to whether there is any evidence to indicate whether people are renouncing their citizenship as a means of avoiding the liability which obtains. The only evidence we have to date is anecdotal in nature. However, such evidence is not worth the paper on which it is written. We have no concrete evidence in this regard.

I am also informed by Revenue that if its risk assessment systems indicate that where someone who would have been expected to pay the levy has not done so, it will examine the matter very closely. There are individuals who would be identifiable to us all and who might not be paying the levy. If they are not doing so, Revenue engages in a thorough investigation of their affairs and reaches a determination in respect of whether a liability exists. To be honest, the domicile levy has not been successful in bringing forward a significant yield. Nor has it led to the very high-worth individuals to whom I refer paying the additional amounts they were expected to pay. That is why the entire scheme is going to be reconsidered by the Minister during the current year. The input of the Deputy and the remaining members of the committee will be important in that regard.

Deputy Pearse Doherty

What amount is levied from people at present?

Deputy Brian Hayes

It is €200,000.

Deputy Pearse Doherty

What will be the net benefit to the State of the changes proposed here?

Deputy Brian Hayes

Is the Deputy referring to the passport changes?

Deputy Pearse Doherty

No.

Deputy Brian Hayes

We have no idea.

Deputy Pearse Doherty

The Department does not know how much will accrue.

Deputy Brian Hayes

No.

Deputy Pearse Doherty

Has the Department considered the thresholds involved?

Deputy Brian Hayes

They are being considered as part of the ongoing review. We have time this year to get this right. Other countries apply this in a much more vigorous way than Ireland. The French system has a different reach and is able to consider wealth, particularly international wealth, in a different way. In advance of the next budget, we have time to consider, in a co-operative way, how the scheme can be operated in a more effective manner. The evidence to date indicates that it has not been very successful.

Deputy Michael McGrath

Did the rate change? How is it that ten people paid €1.5 million rather than €2 million, particularly if the levy is €200,000 per person?

Deputy Brian Hayes

One can credit the income tax one pays here against one's domicile levy.

Deputy Pearse Doherty

This is a self-assessment system. In such circumstances, does Revenue have access to information on the assets held by Irish individuals or their worldwide incomes?

Deputy Brian Hayes

If they make returns, I presume-----

Deputy Pearse Doherty

Would Revenue have access if the individuals in question did not make returns under the self-assessment system?

Deputy Brian Hayes

If Revenue suspects that an individual has not paid, it will launch an inquiry. It would then have the power to assess the totality of that individual's assets.

Deputy Pearse Doherty

Would that include his or her worldwide income and not just his or her Irish assets?

Deputy Brian Hayes

Yes. As a result of the fact that we have agreements with 64 countries, that information can be readily obtained. That is, of course, assuming someone does not have his or her money or assets on the Faroe Islands.

Deputy Pearse Doherty

Are there countries from which we cannot obtain that information?

Deputy Brian Hayes

We can obtain it from countries with which we have double taxation or information exchange agreements. Where such agreements do not exist, we cannot obtain it. A proposed EU directive is currently under active discussion in Brussels - we understand deliberations on it are due to be completed - which provides for a substantial level of co-operation on exchanges of information among all member states. One would expect such exchanges to occur in any event. The difficulty arises in cases where people's assets or wealth are located outside the EU. A convention currently being ratified by the members of the Council of Europe and the OECD will allow for administrative assistance and co-operation and exchange of information on a much wider basis. The terms of this convention will relate to Council of Europe and OECD countries but it will include a facility whereby states outside these organisations may sign up to it.

Chairman

That information is extremely useful.

Deputy Richard Boyd Barrett

It is interesting that the Minister of State has indicated that Revenue has the ability to identify the assets by the individuals in question, both here and abroad. This raises an interesting question with regard to why it is not possible to go further. Certain Opposition members have referred to the introduction of a wealth and assets tax and have pointed out that some people's assets have undergone a considerable increase in value in recent times. I refer here to the figures presented to the committee by the Central Bank last week in respect of financial assets. If we could procure information with regard to individuals who are domiciled abroad-----

Deputy Brian Hayes

We tax them on the basis of their worldwide assets if they are tax resident here. In other words, the full assessment of their tax liability is based on the totality of their assets.

Deputy Richard Boyd Barrett

I take that point. However, the question arises as to why we might not go further and increase what is quite a low levy of €200,000.

Deputy Brian Hayes

The Deputy made a suggestion in respect of a previous section and I put it to him that he submit a paper to us on that matter. He should do the same in respect of this measure. There is no opposition among those of us on this side with regard to arriving at a better solution. The collective view of the Government is that action must be taken in respect of this issue. We have an opportunity between now and December to get matters right. I encourage the Deputy and others to work with us in the context of trying to arrive at a solution that would be fair to all. It is my view and that of the Government that the return in respect of this levy is not good enough.

Amendment, by leave, withdrawn.

Section 119 agreed to.

Sections 120 and 121 agreed to.

SECTION 122

Question proposed: "That section 122 stand part of the Bill."

Deputy Pearse Doherty

Will the Minister of State indicate what is the purpose of this section, which relates to the capital services redemption account?

Deputy Brian Hayes

This is a standard provision first introduced in the Finance Act 1950. The latter established the capital services redemption account, CSRA, also known as the sinking fund. The CSRA was set up on foot of a decision by the then Government that borrowings for voted capital services should be amortised over a period of 30 years in order that they would involve no permanent addition to the public debt. Each year a new annuity is calculated and this is designed to provide an annual sum which, when accumulated over 30 years, will amortise the expected borrowings in respect of expenditure and voted capital services for that year. The Finance Bill gives statutory effect to this annuity.

Section 122 provides for an annuity of just over €118 million to be charged on the Central Fund in 2012 - and for the following 29 years - in order to cover the projected borrowings for voted capital services this year. It has also been the practice to adjust the annuity in the previous year's Finance Act in order to take account of the actual outturn for the borrowing requirement in respect of voted capital services in that year. The Finance Act 2011 provided for an annuity of just over €141 million and this is being amended to €118 million in the Bill in order to take account of the actual outturn for last year. On foot of the provisions in the Finance Act, annual payments are made from the capital fund into the capital services redemption account. These comprise both principal and interest elements. A sum not exceeding the interest portion of the annuity may be paid from the account each year towards meeting interest on the national debt. In practice this has no impact on the budgetary position as this portion of the annuity is applied towards meeting interest payments which would otherwise have to be funded from the Exchequer. The balance of the annuity is applied towards funding debt redemption.

The practical impact of this arrangement is that the cost of capital projects each year is charged to the current budget over a 30-year period. This is somewhat akin to the treatment of depreciation in commercial accounting. The charge results in an increase in the current budget deficit or a reduction in the current budget surplus. However, given that the costs of the capital projects are included in the capital budget each year as they are incurred it is necessary to credit the capital budget with an amount equal to that charged to the current budget in order to avoid double accounting. The result of these transactions, therefore, is that the payment to the capital services redemption account on the current side is cancelled by a receipt on the capital side leaving the Exchequer balance unchanged. In practice, the payment to the account is used to make interest and principal payments in the year in question and, as such, the year end balance is generally minimal.

Chairman

I thank the Minister of State for clarifying that.

Deputy Brian Hayes

The Chairman is welcome.

Deputy Pearse Doherty

For additional clarity, can the Minister circulate that note to the members? My brain was gone-----

Deputy Brian Hayes

I reassure the Deputy I have another note behind that one.

Deputy Pearse Doherty

This is only for voted capital expenditure and not non-voted capital expenditure.

Deputy Brian Hayes

Yes. It would have to be for voted capital expenditure.

Deputy Pearse Doherty

The non-voted capital expenditure was quite large in recent years given the Anglo-----

Deputy Brian Hayes

The banking costs would not be part of this.

Deputy Pearse Doherty

All the recapitalisation of the banks is down as non-voted capital expenditure. Last year's money that went from the Exchequer into the bank would be classified as non-voted capital expenditure and therefore in regard to-----

Deputy Brian Hayes

I do not think that would fall into this-----

Deputy Pearse Doherty

No. It is only for voted-----

Deputy Brian Hayes

I cannot say for certain but I will find that out. It would only be for voted capital expenditure, even though the Deputy is right in saying that the blood transfusion into the banks was non-voted-----

Chairman

For clarification, if they were included those figures would be much different, would they not?

Deputy Brian Hayes

They would be astronomical.

Chairman

I think we can assume, therefore, that it is not.

Deputy Pearse Doherty

The banks is the new issue in that we have given so much money to the banks but what is the reason it is only for voted capital expenditure? Perhaps a note could be circulated instead of-----

Chairman

Again, for clarification, that would be the initial rationale in the 1950 Finance Act where it was originally set up.

Deputy Brian Hayes

Yes. Is that not to be classified as a national debt? In the broadest terms the current national debt is approximately €186 billion. Approximately €139 million of that is effectively the structural deficit. It is the difference on the current side, and the remaining portion of it, even though they do not classify it as a full national debt, is the capital local authority debt and other debt. I am presuming that is the rationale for that. It is voted expenditure. I suppose it is because it will be paid off at some point. I do not know. We can get further clarification on that for the Deputy.

Deputy Pearse Doherty

I would appreciate that.

Question put and agreed to.

Sections 123 and 124 agreed to.

SCHEDULE 1

Deputy Brian Hayes

I move amendment No. 116:

In page 182, paragraph 2, between lines 6 and 7, to insert the following:

"(a) in subsection (1) by substituting the following for paragraph (b) of the definition “excepted operations”:

"(b) (i) working scheduled minerals, mineral compounds or mineral substances (within the meaning of section 2 of the Minerals Development Act 1940), or

(ii) working minerals (other than those specified in subparagraph (i)) other than so much of working such minerals as is manufacturing,

and",".

This amendment relates to Schedule 1 to the Bill which provides for the removal of references to manufacturing relief in the Taxes Consolidation Act 1997. The scheme of relief for certain manufacturing companies - the effective 10% rate of corporation tax - expired on 31 December 2010. This amendment will ensure that certain activities of the quarry industry that previously qualified for manufacturing relief continue to be charged corporation tax at the 12.5% rate, as intended. I commend this amendment to the committee.

Amendment agreed to.

Schedule 1, as amended, agreed to.

Schedules 2 to 5, inclusive, agreed to.

SCHEDULE 6

Deputy Brian Hayes

I move amendment No. 117:

In page 276, paragraph 1, between lines 12 and 13, to insert the following:

"(d) in section 473(1) in column (3) of the Table to the definition of “specified limit” by substituting “4,000” for “3,600”,”.

Members will be glad to know this is the last amendment. Section 473 of the Taxes Consolidation Act 1997 provides tax relief at the standard rate in respect of rent paid by individuals for private rented accommodation that is their sole or main residence. Section 14 of the Finance Act 2011 ceased section 473 from 8 December 2010 for new rental agreements beginning on or after that date. However, tax relief for individuals already paying rent on that date is to be phased out over a number of years up to and including 2017. The table in the definition of "specified limit" in subsection (1) of section 473 provides the amount of relief due during this phasing out period.

It has come to my attention that the amount of relief for widowed or married persons over 55 for 2013 in column 3 of the table is incorrect. This amendment corrects the error and increases the relief available for the 2013 tax year from €3,600 to €4,000 for widowed or married persons aged over 55 by inserting a new sub-paragraph (d) into paragraph (a) of section 6.

Amendment agreed to.

Schedule 6, as amended, agreed to.

Title agreed to.

Chairman

I thank the Minister of State and his officials for attending over these days for consideration of Committee Stage of the Bill.

Bill reported with amendments.