Special Committee Value-added Tax Bill, 1971 debate -
Tuesday, 20 Jun 1972

SECTION 9.

Dr. FitzGerald

I move amendment No. 5a :

In page 12, subsection (2), line 45, to delete " nine days " and substitute " thirty days ".

The problem is that the period allowed is very short and it is my advice from people engaged in the accountancy business that it is unreasonably short and that they would not be able to help their clients to meet such a tight deadline—that the time limit would not permit of getting the information required and that there should be a period given which would correspond more with reality.

Mr. Colley

The nine days period which is provided in the Bill is the period which at present applies to turnover tax and wholesale tax. Members of the Committee will remember that the taxable period was one month and we have extended that period now in relation to value-added tax to two months. In those circumstances it seems desirable there should be some extension of the period involved and, in the circumstances, I would be prepared to accept the amendment.

Amendment agreed to.

Dr. FitzGerald

I move amendment No. 5b :

In page 12, subsection (4), line 59, after " section " to add " and a copy of the order shall be published in Iris Oifigiúil and in at least one daily newspaper circulating throughout the State not less than 14 days before the appointed day ”.

The problem is, if a date is not fixed now, and if it is left to the Minister as is proposed—we understand the reasons for this—it is clear that people would not be put on notice sufficiently of the date. It has been put to me by people engaged in accountancy practice that they would like the position to exist in which there would be formal notification of the date, giving ample time and publicity to it to ensure that they would be able to get their clients to operate the Act in time without delay or difficulty.

Mr. Colley

The position in this regard is probably one that is not very clear to members of the Committee—I must confess it was not clear to me until I was briefed on it. The publication of the order referred to is governed by the Statutory Instruments Act, 1947. Under that Act, the requirements as prescribed by section 3 are as follows :

(a) within seven days after the making of the Order, a copy thereof shall be sent to each of the following, namely, the National Library of Ireland, the Law Library . . . the Incorporated Law Society of Ireland . . . ,

(b) . . . it shall . . . be printed under the superintendence of the Stationery Office,

(c) . . . the place where copies thereof may be obtained shall be published in the Iris Oifigiúil,

(d) . . . copies of the said statutory instrument shall be kept at the place specified in the said notice.

One of the problems here is that the form of the order could be quite technical as drafted by the parliamentary draftsman and, even if it is drawn to the attention of the ordinary trader, it might not convey what we should like to convey to him.

In addition to complying with the requirements of the Statutory Instruments Act, 1947, the Revenue Commissioners would give full publicity in the national press to the fixing of the appointed day and to the obligations of persons in relation to it. I think that is what Deputy FitzGerald wants to see achieved. The procedure in the 1947 Act, in addition to the practice which the Revenue Commissioners would adopt as I have outlined, would more readily achieve what Deputy FitzGerald has in mind than would his amendment.

Dr. FitzGerald

I simply asked if the notice given would be at least 14 days. I think if we had that assurance the problem would be met.

Mr. Colley

Yes, we would be giving at least 14 days' notice. I should point out that the vast majority of traders concerned would automatically become registered as they are already registered under turnover and wholesale tax. There is a provision here which automatically registers them unless they opt out under VAT. In regard to those persons who will be coming in for the first time, I can undertake that the notice would be at least 14 days.

Dr. FitzGerald

I accept that.

Mr. T. J. Fitzpatrick

(Dublin Central): What is the position with regard to invoices sent out on the following month? Invoices are generally sent out in the month following delivery of the goods. How will that operate in relation to VAT?

Mr. Colley

There are two dates mentioned in the Bill. There is the appointed date, which is the date fixed for registration under which people registered would be required to send in certain particulars. That would probably be some date in August. There is the specified date which is the date of commencement and at present this is tentatively fixed for 1st November. I think the second date is the one the Deputy has in mind.

Mr. T. J. Fitzpatrick

(Dublin Central): Invoices for October will be sent out in November. What will happen in this case in relation to VAT?

Mr. Colley

They will show the value-added tax.

Mr. T. J. Fitzpatrick

(Dublin Central): Will the trader be subject to turnover tax on the October sales? I think that normally these sales would be subject to turnover tax.

Mr. Colley

People who operate on a cash basis, generally the retail traders, will be entitled to adopt a cash basis on the VAT. There is no difficulty in this.

Mr. T. J. Fitzpatrick

(Dublin Central): A person would normally pay turnover tax for goods received in October. However, the invoices for October will be sent out in November. Will they be subject to VAT? Otherwise there would be two taxes.

Mr. Colley

I do not think so, because if a person is on a cash basis they will operate on the same basis for October and November. A difficulty could possibly arise for a trader who accounted for turnover tax on a cash basis and accounted for VAT on a sales basis. I accept there could be a difficulty here. However, it would be the same in the sense that there would be a payment of turnover tax on one basis for October and a payment of VAT on a different basis for the following two months—November and December. By changing from a cash to an invoice basis there might be a difficulty.

Mr. T. J. Fitzpatrick

(Dublin Central): On 31st October a person will submit turnover tax on goods, but the invoices will come in November for the goods received in October.

Mr. Colley

In what circumstances would the Deputy visualise a trader switching from accounting on a cash basis to accounting on an invoice basis?

Mr. T. J. Fitzpatrick

(Dublin Central): The wholesaler will send out invoices from 1st November and that will show VAT although the goods will have been delivered in October.

Mr. Colley

The majority of wholesalers account for turnover tax on the basis of invoiced sales.

Mr. Tully

Is there provision made for recovery of double taxation?

Mr. Colley

There is no provision in the Bill for double taxation of that type. In general there will not be double taxation in the sense that there will be a payment for a month, the last month, which is October, on whatever basis that is calculated. There will be a payment for the two subsequent months—November and December—which might be calculated on a different basis, but, in either case, there will be a measure of turnover for two months in the second case and a measure of turnover for one month in the first case. There could not be double taxation unless there was some extraordinary change in the nature of the turnover, in other words, that there were very big sales in one period and very small sales in another.

Mr. Tully

If it could happen, is there any way in which provision could be made to have it rectified or could it be done without having a special section included in the Bill to cover it?

Mr. T. J. Fitzpatrick

(Dublin Central): It can only happen once.

Mr. Colley

Perhaps it is correct to say that there is a proposal for power for the Minister to make refunds in special circumstances. This might be one case where that could be done. I am rather apprehensive about making a specific provision in the Bill. This has only been touched on and there has been no detailed discussion as to how the refund provision might be used to avoid taxation but, in a case in which clearly there was hardship, this provision, whereby the Minister could order a refund in special circumstances, could be used. I undertake to examine that and see whether it could be covered in that way.

Mr. T. J. Fitzpatrick

(Dublin Central): To give an example—Guinness’s send out statements but not invoices. It is a statement and invoice combined which would be sent out on the seventh day of the following month so that the statement would arrive around the seventh day of November for October goods. Since they would be sending out those statements on the 7th November, they would have to apply VAT on the goods concerned for the previous month. This would arise on many occasions during the transition period.

Mr. Gallagher

Surely goods invoiced in November would be November sales? Let us be clear on what VAT will be charged: will it be charged on an invoice?

Mr. Colley

If the invoice is issued in, say, November and includes value-added tax the trader to whom it is issued can claim that value-added tax in full as a credit or a refund against his liability.

Mr. T. J. Fitzpatrick

(Dublin Central): The point is that it would be on the previous month’s goods.

Mr. Tully

If a trader is liable for tax, he will have to pay it.

Mr. P. Barry

In the case of a registered retailer, it cannot be claimed but must be submitted. Is not that the position?

Mr. Colley

Yes. He can claim what he pays.

Dr. FitzGerald

When is the first date on which the trader must pay something?

Dr. O'Donovan

Most of the goods he got in October and November will be sold.

Dr. FitzGerald

That would depend on the type of business. Supposing he starts on the 1st November, by what date has the first payment of tax to be made and in respect of what invoiced purchases can he claim any offset when he has to make that payment?

Mr. Colley

The 19th of January is the latest date for the payment of value-added tax for the two-month period, November and December.

Dr. FitzGerald

Therefore, nobody will have to pay any tax before the 19th January.

Mr. Colley

Between the 10th and the 19th January.

Dr. FitzGerald

On what exactly would the trader have to pay? On which month's cash sale, or on which month's credit sales would he have to pay?

Mr. Colley

He would have to pay on goods invoiced by him during November and December.

Dr. FitzGerald

Even thought they were sold by him, probably in October and November?

Mr. Colley

Yes.

Dr. FitzGerald

In the case of cash sales he pay what he sold for cash during November and December?

Mr. Colley

Yes.

Mr. T. J. Fitzpatrick

(Dublin Central): Would he have to pay turnover tax on October sales although they were invoiced in November?

Dr. FitzGerald

What does he get credit for?

Mr. Colley

For goods supplied to him between November and December.

Mr. P. Barry

Or October, if they are invoiced in November.

Mr. Colley

For goods invoiced to him during November and December, irrespective of the date.

Dr. FitzGerald

Is there not an anomaly here in that he will be paying tax on sales for part of October and November depending on what type of retailer he is? That does not seem very satisfactory.

Mr. P. Barry

Is what Deputy Fitzpatrick referred to very wide spread?

Mr. T. J. Fitzpatrick

(Dublin Central): I would say not. In the case of goods ordered from the 19th of the month onwards, it would be more likely that the invoice would arrive after the 1st of the following month. I am sure the invoice would be dated with the date of delivery.

Dr. FitzGerald

Is it the date on which it is sent out or the date that appears on it that matters?

Mr. Colley

The date on the invoice is the prima facie date on which the liability arises.

Dr. FitzGerald

That means that one could be receiving lots of invoices in November but would not get any credit for them because they were dated for October?

Mr. Colley

If that was so, yes.

Mr. P. Barry

The question of turnover tax would arise in respect of goods sold in October.

Mr. T. J. Fitzpatrick

(Dublin Central): There would be a certain looseness in that.

Mr. Colley

That is why I think it would be better to rely on this general power to deal with cases of genuine hardship that arise as distinct from the provision that has been just touched on which might be used to evade liability.

Dr. FitzGerald

Turnover tax is payable in respect of goods sold in October. Would it not be possible that there would be either an overlapping or an underlapping because of having two different systems of liability and the value-added tax being in respect of cash received for cash sales and goods invoiced in the case of credit sales. Would that mean that one would pay tax twice?

Mr. Colley

I do not think it arises that he would not pay tax at all. It is possible that one would have to pay tax twice in special circumstances in what we believe would be unusual and rare circumstances.

Dr. FitzGerald

Why would they be so unusual? From what we have said it would appear that this would only happen in the case of credit sales. Perhaps I misunderstood it.

Mr. Colley

We have to look at it from the point of view of somebody who is operating on a cash basis. He is unlikely to be switching. His position is different from that of a person operating on the invoice system.

Dr. FitzGerald

The cash basis does not seem to provide any problem, if I understand it correctly.

Mr. Colley

I think not.

Dr. FitzGerald

Both ways he pays on the cash he has received. When credit sales are involved under the turnover tax he is paying on the cash he receives in October for sales in September.

Mr. Gallagher

For invoices issued in November.

Mr. P. Barry

If he gets the money for goods no matter when they were supplied, after 1st November they are not subject to turnover tax. You only pay turnover tax on cash received. You do not pay it on goods supplied.

Mr. T. J. Fitzpatrick

(Dublin Central): Up to 31st October.

Mr. Colley

In the turnover tax system legally there is only one basis, that is, the basis of cash received. Most traders, particularly manufacturers and wholesalers do not find that a convenient basis because that is not the way they keep their accounts. They keep them on the basis of sales made and, as a result, virtually all manufacturers, and the great majority of wholesalers, account for turnover tax at present on the basis of sales made and not on the basis of cash received and that is acceptable. On the changeover to VAT, if they continue on the same basis, there should be no problem for them. The problem is the residue of the small number of wholesalers who, at present, account for turnover tax on the basis of cash received and who, on the changeover to VAT, will account on the basis of sales made. It is in that small residue of cases that there could be an overlap.

Dr. FitzGerald

That relates to wholesalers. I was dealing with retailers.

Mr. Colley

The great majority of retailers are on a cash basis and will continue on a cash basis.

Dr. FitzGerald

There may be retailers who sell wholly or partly on credit.

Mr. Colley

Even so, the great majority adopt the cash basis for turnover tax and will continue to adopt it for VAT, because it will be more favourable to them for the purpose of accounting to the Revenue Commissioners.

Mr. T. J. Fitzpatrick

(Dublin Central): If I receive £5,000 worth of goods in the last half of October and I get invoices on 1st November, I am accountable to the Revenue Commissioners. I have sold the majority of these goods up to 31st October. Therefore I must pay current turnover tax. On that £5,000 invoice I am accountable to the Revenue Commissioners for the turnover and sales.

Mr. Colley

If the invoice was dated 1st November you would not be charged turnover tax because it is the issue of the invoices which would determine the turnover tax.

Mr. T. J. Fitzpatrick

(Dublin Central): The invoice will be delivered after 1st November but dated 20th October probably.

Mr. Colley

In that case it will not attract liability to VAT.

Dr. O'Donovan

I agree. I do not see any real difficulty here because it is the date of delivery of the goods that counts. What is the significance of the date? The goods are delivered on 26th October and the invoice is issued five days later.

Mr. Gallagher

So long as it is clearly understood that the date of the sale of the goods and the date of the invoice are the same dates——

Dr. O'Donovan

Surely from a legal point of view the effective date is the date of the sale of the goods not the date that the invoice is issued.

Mr. Gallagher

I should imagine so. There may be people who do not send it out for two or three weeks after the delivery.

Mr. T. J. Fitzpatrick

(Dublin Central): There is certainly looseness about this.

Mr. Colley

It is only in a small number of cases that the overlap can occur.

Mr. Tully

Could we get over it this way? The Minister said he will have another look at it. I am not happy that, as it stands, it can prevent people from having to make a double payment and some of them may have difficulty in getting it back. Even if only one person were involved it should be tightened up. We will not straighten it out now. I suggest that we should let the Minister have another look at it and we can have another go at it.

Dr. FitzGerald

Would the Minister agree to look at the power he has to make exceptions to cover a case like this? I am wondering whether we do not need an amendment saying that VAT shall not be applied to any goods on which turnover tax has been paid.

Mr. Tully

If the Minister finds he has not got the power and there is a necessity for that power then an amendment might be considered.

Dr. FitzGerald

It is not very satisfactory for us as a Parliament to legislate on a matter which involves the legal imposition of double taxation, if you like, on sales or transactions, on the basis that the Minister has power which he says he will exercise in cases of hardship. We should not create cases of hardship of double taxation if we can avoid doing so and make it necessary for the Minister to use a power of that kind in cases which we know must arise, even if they are a small proportion of the total.

Mr. Colley

One of the problems about a provision like this is that it could be used to evade the tax.

Dr. FitzGerald

How?

Mr. T. J. Fitzpatrick

(Dublin Central): By backdating invoices.

Dr. FitzGerald

I do not see that. If turnover tax has been paid on goods VAT should not be payable on the same goods. What has backdating invoices got to do with that? The point is that there is an invoice and the goods on that invoice either have paid turnover tax or they have not. If the Revenue Commissioners are not satisfied that turnover tax has been paid, fair enough, but if they are satisfied that it has been paid they should not want VAT as well.

Mr. Tully

The Revenue Commissioners will not be inspecting every invoice so it comes back to the honesty of the people concerned.

Dr. FitzGerald

I do not follow that at all. We are laying down here how this tax is to be paid. If we add in a clause saying that, where turnover tax has been paid on goods, they shall not be liable to VAT. That means that the onus is put on the person who is paying the tax to show to the satisfaction of the Revenue Commissioners that he has paid tax on these goods. If he shows that, any liability for VAT which might arise due to overlap will not arise. I cannot see why the Revenue Commissioners should object to listening to somebody making a case of that kind.

Dr. O'Donovan

When you have a major change of tax like this there are always difficulties. In fact it takes months to sort them out. We have no hope whatever of providing in the Bill for all the difficulties that will arise. I think—I do not know—that even the Revenue Commissioners are reasonable when it comes to this kind of problem and when there is a complete change in approach.

Dr. FitzGerald

I have not yet been told what is wrong with my proposal.

Mr. T. J. Fitzpatrick

(Dublin Central): You will be accountable for the VAT——

Mr. P. Barry

Not if it is dated October.

Mr. Colley

The basis of accounting for turnover tax for the vast majority of retailers is a cash basis. The basis of accounting for VAT will be an invoice basis. Therefore, you cannot readily compare the two and ascertain whether, in relation to a particular set of goods, turnover tax has been paid without going back a very long distance into the turnover tax accounts of the retailer.

Mr. Tully

That is the point.

Mr. Colley

That is the reason it would be open to abuse.

Dr. FitzGerald

It could not be if the Revenue Commissioners had to be satisfied. The thing is that it would be open to giving them an awful lot of trouble.

Mr. Colley

Deputy O'Donovan quite rightly said that, in a changeover, there are bound to be problems and that is one of the reasons why I propose to set up an advisory committee representing the various interests so that we can have these anomalies ironed out.

Dr. FitzGerald

I can appreciate that.

Mr. Tully

I agree with the Minister and Deputy O'Donovan that it would not be possible to iron out here all of the problems in relation to double taxation.

Mr. Colley

That is why I said I would undertake to let the Committee know whether the power we propose for the Minister in relation to double taxation would cover this case. If such cases were brought to notice and if the power existed, they could be dealt with.

Dr. FitzGerald

If the Minister would give an assurance that the Revenue Commissioners exercised the power only where genuine cases of double taxation arose, I would be satisfied.

Mr. Colley

I can give that undertaking.

Amendment, by leave, withdrawn.

Mr. E. Collins

Would the Minister accept an amendment to section 12?

Mr. Colley

Does the Deputy mean a late amendment?

Mr. E. Collins

Yes. The Minister said the last day that he would accept amendments.

Mr. Colley

My recollection is that it would be prior to the first meeting of this week. I do not wish to be difficult but I think all members of the Committee have an interest in seeing that this debate is not extended and that we would not continue to receive amendments. Certainly on the basis that this relates to only one amendment, I would be agreeable.

Chairman

Will the Committee accept this one amendment?

Deputies

Agreed.

Question proposed: " That section 9, as amended, stand part of the Bill."

Dr. FitzGerald

There is reference to the appointed day and I wish to press again on the Minister the desirability of reconsidering the 1st November date when he comes to nominating an appointed day. Since this was discussed earlier I have had further representations from separate groups who have strong exception to this Bill. At that period people are stocked up with goods for the Christmas season. It applies to a very wide range of businesses such as pharmacy, drapery, grocery and so on. The 1st March would be a much more ideal date. In equity, it would be important to appoint a date other than the begining of the Christmas season.

There is a further consideration that a number of interests are concerned that the time available between the date when this legislation, with its many amendments, is enacted and the appointed day should be adequate for preparation for the new taxation system. The period allowed for preparation for decimalisation was far longer and I am hoping that there will be an extension of the period at least to 1st March. I wish to say that I have been impressed by the range of diverse interests who made representations on this.

Mr. T. J. Fitzpatrick

(Dublin Central): It is a fact that during June, July, August and September a large number of managerial staff will be on holiday. That is one reason for consideration for this.

Mr. Tully

We also have had a lot of representation in regard to the appointed day. From the point of view of a date, why does the Minister not consider 1st April? That would be the beginning of the financial year. I can see difficulties even in the Department of Finance because of changing the taxation system in the middle of a financial year or even at the beginning of March. The Minister says, of course, that the amount of taxation will be the same. All of us do not think so. I agree with Deputy FitzGerald that appointing a day coming up to Christmas will impose extra headaches on people already very badly tied up. As between 1st March and 1st April, I think the Minister should consider the latter date.

Mr. Colley

I understand 1st April is the proposed date in Britain.

Mr. Tully

I think 1st April would be the better date.

Mr. Colley

I do not want to go back on all that was said but Deputy Tully will remember the discussion in the House as to whether there would be a loss and a continuing loss.

Dr. FitzGerald

Will the Minister consider the points we made?

Mr. Colley

I have had representations on these lines from different groups, not perhaps as strongly put as Deputy FitzGerald put them. One finds that any date is unsuitable to some group. One must pick a date which is reasonably acceptable to everyone, including the Exchequer having regard to the consequences on the revenue.

Dr. FitzGerald

I will not argue about 1st March or 1st November.

Mr. Colley

It is a factor that must be brought into account. With regard to the matter of stocking up for Christmas, any date later than 1st November would be impossible. The earliest date one can think of after Christmas would be 1st February, or 1st March.

Mr. T. J. Fitzpatrick

(Dublin Central): The date of 1st February would not be very good because the larger stores have sales and prices are fluctuating.

Dr. FitzGerald

I accept what the Minister has said that it would be difficult to please everyone. I think that if the Minister chooses 1st March he will find that a wide range of people would be pleased and that relatively few would be displeased.

Mr. Colley

My impression from talking to various groups and from information I have received is that while 1st November is not the most popular date, nevertheless it is not one that will cause undue disruption. For people who think that the introduction of VAT, irrespective of when it is introduced, will cause disruption, any date would be unsatisfactory. I believe 1st November will not cause undue disruption.

Dr. FitzGerald

I have a different impression.

Mr. P. Barry

While I accept that stocktaking is a point to be considered, a more important aspect is that many traders will need professional advice regarding the introduction of VAT. If many accountants and auditors who might give this advice are on holiday in August and September, only a limited number will be available in a month to help the traders who will require advice regarding VAT. That is a more important argument than the point about stocktaking; the latter is something that can be got over because it is a question of degree as it would be necessary to take stock in any event. The availability of professional advice is very important.

Dr. FitzGerald

It is not only the question of the trouble of stocktaking. As I understand it, the volume of stock in hand will affect the amount that will have been invoiced in the preceding month. There could be an unfavourable position if firms had heavy stocks at a given moment and were not buying in a significant amount. The amount they could offset would be abnormally low and, therefore, it would be desirable to choose a moment when the flow of purchases would be more normal. This should be done in fairness to firms so that they will not suffer an initial loss. It is not only the trouble of stocktaking; it involves an actual financial loss.

Mr. Colley

I would remind the Committee that there are people who want to see VAT introduced as quickly as possible. Deputies will have noted that an amendment in my name was passed at Committee Stage with regard to boats and yachts and so on. Contrary to what Deputies might hear, newspapers are anxious to have VAT because there is a substantial reduction of taxation involved for them. One must balance all these factors.

Question put and agreed to.