I move amendment No. 68:
In page 83, before section 45, to insert the following new section:
"45.—(1) Section 18 of the Finance Act, 1978 is hereby amended by—
(a) the insertion in subsection (1) of the following definition after the definition of ‘selling by wholesale':
‘"scheduled transactions" means—
(a) in relation to an agricultural society, transactions falling within any of the classes of transactions set out in Part 1 of the Second Schedule; and
(b) in relation to a fishery society, transactions falling within any of the classes of transactions set out in Part 2 of the Second Schedule;
but excluding sales to the intervention agency and for the purposes of this exclusion, the sale of a commodity by an agricultural society or a fishery society to a person other than the intervention agency shall be deemed to be a sale by the agricultural society or the fishery society, as the case may be, to the intervention agency if that commodity is ultimately sold to the intervention agency;',
(b) the substitution for sub-section (3) of the following sub-section:
‘(3) where, in the case of a trade carried on by a society the transactions in any accounting period of the society throughout which the society was an agricultural society or a fishery society include scheduled transactions, so much of the trading income or the loss (as the case may be) of that period as is attributable to scheduled transactions of the period shall be disregarded for all purposes of the Tax Acts to the extent of 92 per cent of such trading income or loss (as the case may be) in the period to the 31st March, 1993, 84 per cent thereof in the period to 31st March, 1994 and to the extent of 75 per cent of such income or loss arising in the period commencing 1st April, 1994 and ending on 31 March, 2010.',
(c) by the substitution in sub-section (4) (b) for ‘exempted' of ‘scheduled',
(d) by the substitution in subsection (5) (b) for ‘exempted' of ‘scheduled',
(e) by the substitution in subsection (6) for ‘exempted' of ‘scheduled'.
(2) The Finance Act, 1978 is hereby amended by the substitution in the Second Schedule for ‘EXEMPTED TRANSACTIONS IN RELATION TO AGRICULTURAL SOCIETIES AND FISHERY SOCIETIES' of ‘SCHEDULED TRANSACTIONS IN RELATION TO AGRICULTURAL SOCIETIES AND FISHERIES SOCIETIES'.".
This amendment is in effect a new section in substitution for the section the Minister has put in. The Minister announced in the budget that he was going to tax co-operative societies and that the 100 per cent tax exemption which applied to co-operative societies as defined in the 1978 Act would no longer apply. Rather like the debate we just had on section 43, co-operative societies have manufacturing activities which would attract the 10 per cent rate and have other activities which would attract the 40 per cent corporation tax. The Minister has attempted to make all activities, the surpluses rather than the profits because it is surpluses we talk about in relation to co-ops, liable to corporation tax at the relevant rate, manufacturing activities at a maximum of 10 per cent and other activities at a maximum of 40 per cent.
I would argue that the co-operative societies, which are still genuine co-ops are not, of their nature in the business of making profits. They have been an essential part of rural development over the years in farming, in fisheries and in local development. They have been one of the planks on which the development of rural Ireland has been based since the end of the last century. There is no need for me to talk about the development of the co-operatives movement because we are all fairly famliar with it. It built up the economy of rural Ireland, particularly in the processing of milk and the making of butter in the old creameries. In more recent times, when the fairs were taken off the streets, the marts in the towns were organised on a co-op basis.
All along the coast, especially along the west coast, there are fishery co-operatives and they work on the basis of ensuring that those who produce from the sea get a fair return on the sale of that product. Historically, they were exploited, and paid very small rates for their produce. The companies buying from them made profits on the manufacture of goods from that produce.
I know circumstances have changed and, over the last two months, if one opens the financial pages of the newspapers, we see that Kerry Co-op, Golden Vale or Waterford, to name some of the bigger companies, are making very extensive products indeed. I know the time has come for a change and I am not opposing that change. However, I believe there is a better way of doing it. The way the Minister has decided to do it is complex and difficult for the companies.
Most of the activitiy which brings profits in the large co-ops, Kerry or Golden Value, Ballyclough, Waterford, Avonmore and so on, is 10 per cent activity and the Minister brings that in at the 10 per cent rate of corporation tax. I have no problem with that. It is difficult to understand why a publicly quoted company like Kerry plc would not pay or be subject to the same regime of taxation as any public liability company or, indeed, any limited liability company.
There are, however, other activities in the smaller co-ops where 40 per cent rate would apply. Members will be familiar, for example, with the farm relief schemes where, for the first time in generations, there is a scheme in place under which a farmer and his wife can get Sunday afternoon off or can take a week's holiday because there are people who can come in on a commercial basis to milk the cows and make sure that the milk is delivered to the co-op. These kind of service activities would attract the 40 per cent rate of tax and, I think that is going to kill them completely. As regards the fishing co-ops, the catching of fish in the sea landing it on the quayside, putting it in boxes and throwing ice on top, delivering it to the Dublin market, is not a manufacturing activity despite all the Supreme Court cases, and will attract the 40 per cent rate of tax. I think it is questionable whether the fishing co-ops along the west coast are in a position to pay a 40 per cent rate of tax.
There are also difficulties for the co-ops where for example, at certain times of the year, one dairy co-op has a surplus of milk and a neighbouring co-op has a shortage and the co-op with a surplus sells to the one in deficit. That would not be regarded as a 10 per cent activity because there is no manufacturing involved and that transaction will attract a rate of 40 per cent.
The Minister brought in a section different to what he suggested in the budget in an attempt to save that activity, but I do not think he has it right. I believe there is still a problem. Quite frequently the sale is not from co-op to co-op but is a sale from the milk producing part of the co-op into a manufacturing unit of another co-op which may not be organised as a co-op within the meaning of the Act, so consequently it will attract the 40 per cent rate of tax.
I am suggesting to the Minister — this is not down for debating purposes, because I firmly believe it is a better approach — that he look at the amendment again. The present position is that there is a 100 per cent exemption for the activities of co-ops. A co-operative society and their activities have already been defined within the principal Act, so we do not have to go into this business of redefinition of activities or try to extend the scope of what is a 10 per cent company or anything like that.
The only exclusion on the co-ops is selling into intervention. That is not regarded as an exempt activity, as I understand it. That is fair enough, I agree with that completely and would ask for no change on that. I am saying to the Minister that the approach he should take is to pull back progressively the 100 per cent exemption, on a phased basis, to 75 per cent and he will achieve a 10 per cent tax rate on all co-op activity and acquire the yield he is looking for.
The way the amendment is drafted at the moment ensures a 100 per cent exemption from taxation on the surpluses of co-ops. I am saying that progressively over three years bring it back down to 75 per cent, so that 75 per cent will be exempt but 25 per cent will be taxable at 40 per cent at the standard rate of corporation tax and 40 per cent of 25 per cent is 10 per cent. You will then get a flat rate of 10 per cent right across the board and we will get over the problems Deputy Rabbitte was talking about — that those to whom a 10 per cent applies will get away with it. I am saying that it should be phased in. My amendment suggests that, with a three year phasing-in period, the exemption in this tax year would be 92 per cent, it would be 84 per cent in the second year and in the third year you would arrive at the desired point.
Even if the Minister found difficulty with the phasing, I believe the principle is still very sound and a better approach. In any event, I do not think we are going to get very much from the co-ops on those activities which are not manufacturing, the ones to which the 40 per cent applies. If we do it the Minister's way, they will go to their professional advisers and they will start restructuring; we will get this outbreak of restructuring all over the country. A lot of what the Minister should be getting in yield will be going into the business firms and he will not get as much.
From what I am hearing I believe the Minister's estimated yield is grossly underestimated. He estimates a yield of £1.5 million in the first year and between £6 million and £7 million in a full year. Those figures are a lot lower than the real figures. On last year's profits two of the main Munster co-ops would give the Minister his £6 million to £7 million. I am saying to the Minister that he has scope.
If the concession I am talking about is made, the Minister will achieve his yield and a lot more. The yield put in by Finance and Revenue was very prudent and very cautious and I know why. When people are being brought into the tax net for the first time, there is only an estimate of what the tax yield will be because it is not known what they are at. You can take it that they themselves admit that the yield will be higher than the Minister estimates. This amendment is meant to save the yield and make it easier to administer.