I move amendment No. 5c :
In page 13, subsection (1), line 7, after " transaction " to insert " and not including hire purchase charges or charges for any other services being services which are exempted by the First Schedule ".
The purpose of the amendment is that the exception in subsection (1) of section 10 should be extended to cover the hire purchase charges.
The main reason for the approach in the Bill is to try to avoid a certain amount of distortion which could arise and prevent what we call the neutral operation of the tax in relation to the leasing or hiring of goods of this kind. What Deputy FitzGerald proposes is that there would be no VAT levied on the hire purchase charges in relation to goods and services which are exempt but there would be a liability to tax in so far as the leasing or hiring of these items would be concerned. Therefore, if we do not apply the tax to the hire purchase charges there would be a tendency to distort the pattern of trade; in other words, to push people towards hire purchase as distinct from leasing or hiring. So far as possible we are trying to achieve a neutral operation of the tax.
I am not fully clear on this matter. Would this not be met by exempting any hiring or leasing charges, as well as hire purchase?
This compounds our problem of distortion. If we do what Deputy FitzGerald suggests there would be a distortion in favour of delivery.
If hire purchase charges were exempt, is it suggested that this would affect the normal purchase of goods? I am thinking of people who hire the necessities of life, for instance, people who furnish their houses by hire purchase and so on. That is a different matter.
No, I am not thinking of those. This amendment relates to exempt items only.
(Dublin Central): Probably what the Minister had in mind was the renting of television sets. At present renting is subject to charge. If we accept Deputy FitzGerald’s amendment the charge will be put over to the hire purchaser.
Perhaps I caused confusion by not explaining properly my amendment.
May I suggest that there appears to be two issues in the amendment. Perhaps we might deal separately with them so as to avoid confusion. The first of these relates to hire purchases charges. If somebody wishes to have the use of goods, there are three ways in which he can go about acquiring them. He can pay cash for them in the ordinary way or he can enter into a hire purchase agreement or he can hire them without paying hire purchase. The problem here is to achieve, as far as tax is concerned, as much neutrality as possible between those three methods of purchase so that there will not be a bias in favour of any one. Hire purchase charges include various elements. There is a pure finance charge in it. Somebody has had to get money from somewhere to buy the goods. Therefore, there is a money-lending element in it. Also in it is the element of the hire of goods. If you exempt the two, it brings you to the next problem, which is, that in hired goods there is also a hire element and if you do not exempt that also you give a bias in favour of hire purchase. If you take the second step and exempt all hired goods there is difficulty in respect of a person who merely wants to buy goods in that, if he cannot pay the amount of money or if he has not the money to enable him to avail himself of discount, he will pay tax on the full price of the goods and in that case there will be a bias in favour of either hiring or hire purchase. Therefore, the approach in the Bill has been to tax fully the hire charges in relation to hire purchase agreements, to tax fully the hire in relation to a pure hire agreement and to tax fully the full price charged in the case of an ordinary purchase.
With respect, I think that in the interests of the pursuit of neutrality, the effect has been to reduce neutrality because you are trying to tackle the hire side without having regard to the interest side. A man faced with an alternative as between borrowing money from the bank or buying goods through a hire purchase agreement will find that if he chooses to borrow money from the bank the charges in respect of that are exempt under the First Schedule, No. 13. By imposing tax on hire purchase there is being introduced a lack of neutrality and the favouring of borrowing the money through the bank to buy goods as against hire purchase. It seems to me that in this way much more damage than good is being done to neutrality because, perhaps, so much attention is being directed towards the hire element which is a nominal if not, at times, a fictitious element—the real element involved is the interest payable—whereas hire purchase is only nominal to hire. In most cases it is a means of purchasing goods by paying interest on a diminishing amount of capital. Looking at that reality rather than the fiction, the neutrality that exists now is being attacked. If interest on bank loans is not being taxed, neither should transactions to contract, known technically as hire purchase, be taxed.
As the Deputy says it is true that there is an inherent lack of neutrality here arising out of the exemption of banking operations from liability to tax. This is a problem that is not easily resolved. Indeed, it has been approached in different ways in different countries but I do not think that the approach suggested by Deputy FitzGerald reduces the amount of bias. Rather, it increases it and, as explained earlier, if hire purchase charges are to be exempt. we could not stop at that without creating a greater bias than would exist under VAT amended in that way. The leasing operation is one example that was mentioned.
Could I put it to the Minister that, for the great bulk of transactions, hire purchase is much more akin to borrowing money than to leasing. Leasing is a transaction under which, normally, there is no intention for the possession of the goods to pass in the foreseeable future but hire purchase is an arrangement under which people intend to possess the goods and to pay for them over a period : for certain technical legal reasons that is called hire purchase and, technically, the hiring transaction is much more akin to a purchasing transaction than to a hire purchase transaction. In so far as there must be some lack of neutrality either between hire purchase and a bank loan or between hire purchase and leasing I would choose the lack of neutrality between hire purchase and leasing. It all depends on whether we consider the reality or the fiction.
What Deputy FitzGerald has said may seem plausible on the face of it. We are all familiar with the reality of people leasing television sets.
That is a different matter from hire purchase. It is a transaction in which the responsibility for maintaining the set is transferred to the people who are leasing it.
Normally I think people who participate in this sort of operation retain their set until it has reached the end of its life span.
I understand that very often after two or three years a hiring company enter into an agreement to leave the set with the hirer for a certain payment.
Normally the renting cost is reduced after a certain period.
If a set is not giving satisfactory service it is replaced by a new one and the hirer continues to pay the same amount as he was paying originally.
(Dublin Central): I think it would create terrible complications if you exempt hire purchase transactions. I can see no reason why they should be exempt. Why exempt the hire purchase end of it and leave ordinary purchases on the leasing end subject to tax.
Deputy FitzGerald is trying to exempt the interest on the hire purchase, not the actual purchase price of the television set. In the case of the Minister's and Deputy Tully's sets the tax is paid by whoever owns the sets, the supplier of the sets. Deputy FitzGerald wants to say that the person who has a television set and the ownership passes to him, he pays the tax on the set but not the interest involved in the money to buy the set.
If I understood him correctly I think the Deputy was inaccurate on one point. He said that the firm renting a television set paid the tax on the goods. That is correct. I think he implied that there would be no tax payable on the actual rent.
No. I think it is right that there should be. There is a similarity between going into a bank and borrowing money to buy a set and not paying any interest on the money you borrow, and having extended payments over three years, or whatever it is, and taking possession of the set, paying your tax on the set, and then not paying any interest on the money you get from a firm which is a different source.
It is very similar except for one thing and this is where the catch comes in. People who use hire purchase in the normal way are people who could not afford to buy outright, whereas the person who can buy outright or who goes to the bank and gets a bank loan is not in the same category. Therefore, I can see that if tax is exempt on the bank loan it should also apply to hire purchase.
Does it not mean that anybody who can will go for hire purchase rather than purchase?
So what? You are still paying the tax on the value of the goods. It makes no difference.
I do not accept the Minister's contention. Why would they go for hire purchase rather than purchase? They either have to get money from the bank or spend money and reduce their credit in the bank. Either way an interest payment is involved which is not taxed. The important thing is to preserve neutrality between like transactions. It seems quite clear to me that, if you are to draw a line, you do not draw it between bank borrowing and other forms of borrowing, which is an artificial place to draw a line, and do that simply because you call this method of borrowing money hire purchase. Where you draw the line is between the case where the man actually acquires the set and responsibility for it, for maintaining it, and looking after it, and replacing parts, and where he does not. The question is who is responsible for it. If something goes wrong with a hire purchase set, unless he can show that there was some negligence on the part of the person he bought it from, that is his funeral. He is in possession of the set and he is responsible for it. That is the right place to draw the line. The longer this discussion goes on the clearer I am that this amendment, which I was doubtful about, is entirely right.
There is a practical snag here. As we all know, interest on overdraft gets an abatement of income tax whereas hire purchase transactions do not. This will cut across the established procedure.
Some hire purchase transactions do. If you have hire purchased a car from the AA you can get the benefit of the abatement.
It is a pity that we did not frame some of the Income Tax Acts because people like us might have put forward this argument and had it included. It is never too late to do a good turn.
Perhaps we could have a go at amending it in the Finance Act.
You might end up with no abatement of income tax.
A person who goes to the bank and pays cash can buy cheaper than a person who takes credit. In a hire purchase transaction the purchaser is charged the full retail price, plus interest. In the matter of rental or lease of a plant, or a television set, or a radio set, or any service, the ownership is never his and will never pass to him. He may subsequently dispose of the old set to somebody or other. It may not be even the same person or the same set. There is a point there. Certainly it is not neutral. It favours the person with the assets to borrow direct from the bank and buy a television set on which he can get a large discount, or buy a plant on which he can get a large discount, or buy goods on which he can get discount sometimes. It is not neutral.
At the moment there is a lack of neutrality anyway because the man who cannot borrow money from the bank is paying a higher interest rate through hire purchase. He is forced through his lack of resources to buy in a more expensive way. We are increasing the lack of neutrality between rich and poor which exists already if we do not exempt hire purchase charges. In fact a strong case could be made for exempting the higher purchase charges and charging the bank interest.
(Dublin Central): He is not paying anything extra.
He will be paying VAT on the interest he is charged for the purchase of the set. He will pay it on the set and on the interest.
You do not pay turnover tax on a hire purchase charge.
(Dublin Central): Is it exempt at the moment?
No. It is subject to turnover tax.
Hire-purchase charges?
(Dublin Central): Yes.
I must make a full disclosure here. What Deputy Fitzpatrick said is right. At the moment it is subject to turnover tax. What is involved here can go further than that, depending on the goods concerned. Supposing they are goods which are liable to the 16.37 rate. Then the rate which would be applied to the hire purchase charges would be 16.37, as distinct from what corresponds at present to 5.26 rate.
That is a very expensive rate of interest. Will the Minister have another look at this in view of the arguments put forward?
The difficulty I am in is that there is an inherent lack of neutrality arising out of the exemption of banking charges. I cannot do anything about getting rid of that. I would welcome the opportunity of applying VAT to banking charges but it is not practical when you get down to seeing how you go about it. Granted that situation, there is an inherent lack of neutrality in any arrangement we come to. There is a difference of opinion as to how this should be approached. In Germany, France and Luxembourg, the full hire purchase price is charged to value-added tax at the rate applicable to the goods. In the Netherlands it is exempted and also in Belgium.
The Netherlands is the example the Minister is following most closely.
The UK proposes to exclude hire purchase charges from the tax base. We gave notice, by the way, in the White Paper that this would become liable. Furthermore the proposed treatment seems to be in line with paragraph 8 of the second EEC directive which provides:
The taxable base is to constitute, for deliveries and services rendered, everything which constitutes the consideration for the delivery of the goods or the rendering of the services, including all costs and taxes with the exception of the tax on value-added itself.
It seems our treatment complies with that but it is open to a Deputy to ask why, if that is so, other countries have not applied it.
The fact is that the Netherlands do not exempt these charges.
The EEC definition states: " Everything that constitutes a consideration for the delivery of goods."
This is a consideration for the lending of money.
In a couple of years, when we are in the EEC, if the Six Countries are still under the control of Britain—we hope they will not be—and I have to pay this tax under a hire purchase arrangement but if I go to Newry I can get the goods without paying tax on them——
This is a problem we have lived with since Partition.
It is not. There would be a duty——
Is there any definition of the word " consideration " in that document?
It is not an EEC definition but a definition in English law and in our law. It is the case of Currie versus Misa from Anson’s Law of Contract:
A valuable consideration in the sense of the law may consist in some right, interest, profit, or benefit accruing to one party, or some forbearance, detriment, loss, or responsibility given, suffered, or undertaken by the other.
That would be a different kind of consideration.
We are talking about a consideration for the lending of money, not for the delivery of the goods. The fact that the Dutch exempted it suggests that the Minister might have another look at it.
I will consider it.
(Dublin Central): There is the problem in relation to stamps. There is a shop selling Green Shield stamps in Mary Street. There is no cash transaction. If you go to a petrol pump and buy petrol you get stamps.
The stamp company would pay value-added tax on the cost price of the goods they purchase but the sale of the stamps themselves to retailers would not be subject to VAT.
When the company gives away the goods, is there a tax on the goods?
The tax would be payable on the goods only at the purchase level.
(Dublin Central): It is an ordinary retail outlet. You are giving stamps instead of money.
Is the Deputy talking about a retailer or is he referring to the stamp company?
(Dublin Central): In effect, yes.
They would pay VAT on the goods they purchase.
If I buy something and give it away I could not be taxed on it.
The goods are sold presumably at retail level.
(Dublin Central): A brochure is issued.
No profit is made by the retailer. There is no rebate.
This is dealt with specifically in a later section.
The second part of my amendment may be desirable in relation to the position where services are exempted. Charges in respect of those services should also be exempted and I should like an assurance in that respect. That part of my amendment may be useful.
I take it what the Deputy has in mind is where a single consideration covers a taxable activity and an exempted service. In that case the Deputy would propose to exempt that portion of the activity which is referable to an exempted service?
I think so—the charge on a service which is exempt.
We could easily have got over the amendment by taking the reference to hire purchase out of it.
The amendment would appear to exclude any elements in the total consideration in relation to the service already exempted.
Is that already covered.
It is not. Perhaps I I might explain how the position appears at the moment. Then we might be clearer. In the ordinary way, separate considerations would be charged for a taxable activity on the one hand and an exempted activity on the other and no difficulty would arise, but in other circumstances the essential character of the activity would have to be looked at. For instance, the exemption for passenger transport would not be regarded as lost merely because the passenger was served a meal on the journey. Similarly, a contract for maintenance in an hotel would not be regarded as exempted merely because the hotel provides transport. Section 11 (3) provides:
Subject to sections 5 (5) and 10 (8) (c), where—
(a) goods of different kinds or services of different kinds or goods, whether or not of different kinds, and services, whether or not of different kinds, are delivered, or rendered, or delivered and rendered, for a consideration that is referable to the transaction as a whole and not separately to the different kinds of goods or goods and services.
Does that clarify it for the Deputy?
It clarifies it but it seems to make the amendment even more necessary. If you have an exempted activity combined with a related service, of a very minor character, the whole thing should be charged at the tax level applicable to the ancillary activity. If that is the effect of the present legislation, I think the amendment is badly needed.
What I was trying to convey was that, where one part of the transaction was a minor part, it would not be deemed to affect the essential character of the transaction. In other words, if the minor part of the transaction is the exempt activity, this does not operate to exempt the whole. Conversely, if the minor part of the transaction is a taxable activity, it does not operate to tax the whole transaction.
I thought the Minister said the opposite a few minutes ago, that if anything was taxable all parts would be taxable at the higher rate and that if there was no tax payable it would be taxable at the rate of the small portion.
I think the Deputies are referring to what I said at the end. I said that where a single consideration is payable under contract, the whole consideration will be liable to tax at the highest rate which would be chargeable if the separate amounts were applicable to its component parts. However, before I said that, I spoke about how this would operate in certain concrete examples. I said the essential character of the transaction has to be looked at. For example, the exemption for passenger transport would not be regarded as lost merely because a meal was served on the way.
That is a specific case.
In a mixed operation where the essential character of the transaction is chargeable to tax, it is chargeable at the highest rate which would be charged if the separate amounts were applicable to its components parts. However, before we get to that stage we must look at the essential character of the transaction. If the essential character is that it is an exempt activity with a minor part consisting of a taxable activity, it is treated as an exempt activity in toto. Conversely, if the major part of the transaction is a taxable activity, the fact that the minor part is exempt does not exempt it and the entire transaction is taxed.
Where is this set out in the Bill?
It is a question of interpretation.
How is " minor " defined?
I have tried to give some concrete examples of the essential character of the transaction.
What the Minister has said is obvious enough, but I want to know what criteria are applied and what authority have the Revenue Commissioners to apply them? We should know what is involved here. Will the Revenue Commissioners decide what is or is not minor, whether they will exempt or charge taxation?
What I described is the practice of the Revenue Commissioners at present in relation to turnover tax. There is no specific legislative authority which spells out that method of approach but there must be, in practice, in the approach of the Revenue Commissioners to these matters, a determination as to whether a transaction should be taxable or should not be taxable. What I have described is the basis on which they approach this problem with regard to turnover tax and the basis on which they propose to deal with the matter under VAT. There cannot be a satisfactory spelling out of this in the Bill, unless one were to approach it as we had to approach a somewhat different problem and talk about what proportion should be represented—two-thirds——
Have we not done that?
In another context.
It was in a similar context. I cannot remember the difference offhand.
It was not in the same context.
It seems unsatisfactory that we go to such trouble in one context to spell out this two-thirds rule and that in another context the Revenue Commissioners decide what is major or minor, what is taxable or is not taxable.
There is a danger here that there might be something that was, for instance, five-eighths and three-eighths, and that it would be decided that five-eighths is the major part and, therefore, should be taxable. There is always the danger of this when it is not specifically spelled out.
First, it would be agreed that we should not leave it on the basis that every transaction must be analysed by the parties to it. If one wants to approach it on a different basis from the present approach—which I do not think has given rise to any complaint—one must lay down a formula; for arguments sake, let us say two-thirds. If one does this, one should realise that while there are benefits for certain transactions, other transactions will be taxed.
Can the Minister state what is considered at the present time to be minor?
It is not operated on the basis of a fixed proportion but rather of trying to look at the essential character of a transaction.
Does this mean that every individual case must be considered? Is there not some rule of thumb under which this might be dealt with?
We are dealing with a type of tax which is a " do-it-yourself " tax in that the person makes his own apportionment. We have a situation where certain services are exempt and some are taxable but it would be unusual to have a combination where a single sum would be paid for two services, one of which is taxable and one which is exempt from tax. We think it would be unusual also in VAT to have such a combination of circumstances, a single consideration for two sets of services, one of which is taxable and one that is exempt. In those circumstances the people have their own remedy. The can fix the consideration for each.
We are back again to square one: what is a reasonable manner? While it is true that a very small proportion of the entire tax revenue may come from transactions such as that, in what way would the Revenue Commissioners decide that somebody was not being honest about his returns?
This is a problem of law. Lawyers have a concept by which they get around it. The Revenue Commissioners might be prepared to ignore a little more.
I am not clear as to where we have got to.
The number of transactions that would come into this kind of situation must, inevitably, be small. There would be an unusual combination of circumstances. As has been pointed out, the parties have a remedy if they wish and, of those who do not apply that remedy, only a small proportion would be examined by the Revenue Commissioners. When the Revenue Commissioners come to examine such a transaction they can work only on the basis of trying to determine whether the character of the transaction is one that is essentially a taxable activity or one that is essentially an exempt activity. It is not possible to spell out precisely the way they can approach this in a manner that would cover all possible combinations of circumstances and yet achieve justice. A greater degree of justice for the taxpayer is achieved under the present system of operation than would be achieved by any conceivable method of spelling it out in the Bill.
If published, the Minister's statement will give great heart to the taxpayers of this country.
From quite a number of cases that have come to my notice, it does not conform with the public image of the Revenue Commissioners.
The Minister seems to be suggesting that the acceptance of the second half of this amendment would in some way interfere with the existing procedure. I am not trying to interfere with existing procedure but I am saying simply that if a taxpayer can show that part of the considerations relate to charges for service which are exempt he should not have to pay tax on that.
That means that an apportionment is essential in every transaction.
Obviously the onus is on the trader. The subsection says that the amount on which tax is chargeable shall be the total consideration. This must be superfluous because surely there would be no intention of doing the opposite to what Schedule I purports to do. Far from being superfluous the amendment appears to be very necessary. I accept that the onus is on the person concerned to show that some part of this consideration relates to services which are exempt. If he can show that, he ought, automatically, be exempt from tax. I am puzzled that the Minister should appear to challenge that.
If I understand the Deputy correctly, I do not think I am challenging what he thinks I am challenging.
The Minister has talked of transactions where the major part would be exempt and the minor part not exempt but I am talking about a case where the major part would not be exempt but where there is only a single consideration, some part of what that consideration is paid in respect of consists of a service that is exempted by the First Schedule. It seems to me that in so far as anybody can show that part of the consideration relates to such exempt service he must automatically be exempt from tax on it. The Minister seems to suggest that where there is a single consideration and even if it can be shown that in part a transaction relates to services that are exempt, tax must be paid on the full amount.
Would not that work in the reverse in the case of transactions of which the major portion are exempt but taxable in part?
If the Revenue Commissioners can show that part of it is taxable and if they wish to press the person on it.
Would they not, then, be letting one man off the hook?
Yes, but they would be charging another man.
The reason why I was saying that I did not think I was challenging the principle being enunciated by Deputy FitzGerald was that, as I understood the case being made, the Deputy was describing a situation in which, although there was a single charge for the transaction, the two elements in it—the exempt and the non-exempt—were clearly apportionable.
In such a case, there would not be difficulty but what is involved here is a case where they are not clearly apportionable and where some rule of thumb would have to be applied. In that case what I have described previously is the method that would be applied. I do not think there is a difficulty in the kind of situation envisaged by the Deputy; in other words, where, although the apportionment is not made exactly, it is clearly apportionable.
That means that if a proportion relates to an exempted service, so long as that can be shown, there is tax exemption in respect of it.
Yes, if he can show it.
And to that extent the amendment is, therefore, unnecessary. If he cannot show it the amendment would be ineffective.
That is correct.
What harm would it do to accept the amendment—the second part of it?
There are problems. There is one particular problem that looms up. One service that is almost inevitably bound up with most transactions is salaries or wages. That is exempt. You cannot charge value-added tax on that. It is at least possible that in the second part of this amendment the approach of the taxpayer would be to endeavour to identify the element of wages in the contract price and say that the tax does not apply to it.
In what contract?
That he would endeavour to identify the element of salaries or wages and say he should not be charged on that, because services in return for salaries and wages are exempt.
If they are exempt of course he should not be charged.
In virtually every service there is an element of salaries or wages.
Then they should be exempt.
That would mean that the ordinary consideration for services would not be taxable in full even for taxable services, because you would have to eliminate the element of it referable to salaries and wages.
Either you exempt salaries and wages or you do not. You cannot pick and choose about it. Perhaps you should not exempt salaries and wages. I do not know, but if you say you are exempting them and then turn round and say that anybody who can show that salaries and wages are involved should get the benefit of the exemption——
It is the recipient of the wage or salary who is not an accountable person and, therefore, does not pay tax on it. It does not extend to giving exemption to a consideration which includes an element of salaries or wages.
If that is made clear in the Act I do not see where the difficulty mentioned arises. It may be that the wording I have chosen introduces some element of ambiguity on this point, and I would be happy to have a qualification to my qualification if that is necessary. Would it not be agreed that the second half of this amendment, subject to any change necessary to ensure that it does not have the effect referred to, is desirable? We would redraft it in a form which would avoid the difficulty we have just been told about.
So long as it is accepted that no amendment of this would be designed to exempt from a charge for services any element in it attributable to wages.
I see the point that it is the recipient of the wages who is exempt.
Subject to that, I would certainly be prepared to see if some rewording of this might perhaps make the section more clear.
I accept that.
I move amendment No. 5d :
In page 13, subsection (3) (c), line 36, to delete all words after " received " and insert " such relief shall be given by repayment, or by way of credit against the next immediate tax liability of that person, at the option of that person ".
This is to ensure that where a person is entitled to a repayment he gets it promptly. The Bill seems to ensure that the Revenue Commissioners get payments due to them promptly and the purpose of the amendment is to ensure that this operates both ways. At the moment the wording in the Bill is that " such relief may be given by repayment or otherwise ". My amendment uses the words " shall be given " rather than " may ". That is the first leg of my double in this case. The second part provides that the repayment must be made promptly. I understand that, at the moment, if somebody has been over-taxed inadvertently, or has over-taxed himself, the questions of whether and when he gets it back are left open. Neither of these is satisfactory from the point of view of the public. This is a case of the goose and the gander. What is good enough for the Revenue Commission goose getting in the money should be good enough for the gander when they are giving it out.
The situation here is not similar to that under income tax, where some positive action on the part of the Revenue Commissioners is required in order to allow the relief in the circumstances envisaged here. This is not so under VAT. The taxpayer himself would be entitled to make an appropriate adjustment in his return for the taxable period in which the title to the relief arose. The procedures for calculating the relief, and for adjusting the return, will be set out fully in the regulations which we propose to make and in the guide which will be issued to every taxpayer. Therefore, as far as that is concerned, the taxpayer, if you like, creates his own relief by an adjustment of his own VAT return. If he omits to make this adjustment and fails to claim relief in that way, he may claim repayment or set off at any time within ten years from the end of the taxable period.
Does that mean that somebody who over-pays in the first two months can adjust that overpayment two months later by underpaying the appropriate amount?
Yes.
And if he does not do that, if he discovers the overpayment even within ten years he can reclaim it then?
Yes.
Would this apply in the case of a bad debt? Does he simply adjust his next return?
Subject to certain safeguards, in principle that is so.
If that is so in principle, why is this a relief that may be given? Surely it should be " shall be given "? If there is a bad debt he has the right——
This is a very old question. In these circumstances " may " is interpreted as " shall ". I often wonder why they do not use the word " shall ".
It is because of " by repayment or otherwise ". It may be done one way or the other. That is where the " may " element comes in.
Why not say " shall be given by repayment or otherwise "?
A thing shall be done in one way.
It may be done by repayment or it may be done otherwise.
There is considerable authority for saying that the word " may " in this context does not leave any discretion to the Revenue Commissioners. It means that they shall do so.
It used to be interpreted in a different way at one time by the Department of Finance.
(Dublin Central): I did not think it was possible to recover money from the Revenue Commissioners for a bad debt. If I have submitted my VAT on invoices and I have incurred a bad debt that is not the problem of the Revenue Commissioners.
It would be a proper relief for bad debts if they relate to turnover on which VAT was paid.
(Dublin Central): Does that exist at the moment?
There is provision for it and it will be spelled out in the regulations. It does not have to exist at present because turnover tax is chargeable on moneys actually received.
When does a bad debt become a bad debt from the point of view of the Revenue Commissioners?
This is a problem which relates to individual debts. In general it would be decided in the same way as income tax. Where one claims for a bad debt and gets credit or a refund, and it subsequently turns out to be a good debt, one becomes liable to the tax on that.
(Dublin Central): We had a case here in town recently during the second last bank strike where a particular trader was at the loss of £7,000 but, when he submitted his accounts to the Revenue Commissioners the following year, they told him he was accountable for their share of that bad debt. He had to go to court to get the problem solved although he was at the loss of £7,000 of a bad debt.
I move amendment No. 6 :
In subsection (8) (b), page 14, line 13, to delete " 60 per cent. and substitute " 50 per cent.'
I was slightly perplexed about what would be the position if the amount of the moveable goods and services came to 20 per cent of the total goods and the tax of 60 per cent was paid. This looks like an anomaly.
I do not follow the Deputy.
Does the subsection refer to the total delivery of the moveable goods?
I think I should explain the basis for this approach. At the moment, building construction as such is not liable to turnover or wholesale tax but certain of the items that go into the building are liable. It has been estimated that the tax element involved amounts to about 3 per cent of the cost of a building, inclusive of the value of the site. It is a rough and ready approach, but that is the sum that comes out. Our aim, as far as possible, is to preserve the incidence of taxation as it is, without increase or decrease, and charge a building contract as to 60 per cent of it at the rate of 5.26 per cent. One thus comes out with a charge of just more than 3 per cent, which is as near as we can get to the existing incidence of taxation in building contracts. That is the reason for the 60 per cent.
Does this substantially affect the person who is developing a building site or does it go back down to the suppliers?
It goes the whole way and is charged to the purchaser of the house. At the moment the purchaser of a newly-built private dwelling house pays approximately 3 per cent by way of underlying turnover and wholesale taxes and this arrangement of charging only 60 per cent gives almost the same effect and certainly has no adverse effect.
What would be the position if the value of the moveable goods exceeded two-thirds? This came up the last day.
The subsection endeavours to lay down a rule of thumb by which one can return in these cases to the rate of tax specified in subsection (8) (c) (ii). There is provision for apportionment of the different rates. I am not sure I have answered the question asked by the Deputy.
What would be the position if the value of the movable goods supplied and/or services rendered exceeds two-thirds of the total consideration? That is the question I wish to put.
Where it is more than two-thirds it is deemed to be on delivery of the goods themselves, in which case there would be apportionment and a charge at the appropriate rates.
In relation to the development of land, assessment of the delivery of movable goods and so on, how will you analyse the inputs?
Let us take the steps leading up to it. There is undeveloped agricultural land. There is no tax charged at that point. There is no charge on undeveloped land. Then, for instance, someone digs drains and puts down sewers and incurs tax in relation to this. Having done that, he sells his holding to a builder and invoices the builder with tax at the rate of 3.16 per cent on the value of the charges. In turn, the builder will get full credit for the tax invoiced to him. Another instance would be of a builder who builds a house and sells to the consumer. The builder will be accountable for tax on the price he charges to the house purchaser, against which he will get a deduction for the tax charged by the land developer. If the purchaser pays £7,000 for a house, the tax element will be 3.16 per cent of £7,000—that is approximately the tax element at present.
In relation to a large scheme of houses or a large office block development there will be a heavy onus on the developer to be accountable in relation to the inputs.
It will be in his interest to be accountable. Otherwise he will suffer tax on the cement, pipes and various items which he has bought and he would not have any means of passing on the tax on those items. It is to relieve him of tax and to ensure that he can pass on the tax in the pipeline that it is in his interest to be accountable.
In relation to county council or corporation-type houses, I am in favour of lowering the tax in such cases.
That raises a new element.
That may be but it could possibly be recovered if you reduced the incidence of taxation on such houses.
I understand there are amendments down designed to do this, but I give notice now that I think it is raising a new element, I will not be inclined to go along with it. There are amendments now designed to do this in relation to local authority houses.
With regard to the point made by Deputy Collins, I have had this matter examined and for the ordinary developer and generally it appears to cancel itself out. However, I am informed by my advisers that the employment of labour to sort out this work and to present accounts in such a form in respect of my activities will account for five or six additional qualified people. They would be in the category of £2,500 to £3,000 per year. In a large building scheme, if a builder wishes to keep control over this matter it will cost him a considerable amount to employ the required additional staff. It would cost in the region of £10,000 to £12,000 per year by way of the actual engagement of labour alone in order to keep control of the work.
It would be double that amount if one takes into account office accommodation, pensions and other matters.
In relation to this matter, the National Prices Commission examined this matter and came to the conclusion that the cost of administration of VAT in relation to building operations would be minimal. I find it difficult to understand how there would be a real problem here for a large-scale builder. I could understand how a small builder might have some difficulties because he might not keep his accounts very accurately, but I am sure a large-scale builder would not survive if he did not have close control over his costings under the different headings. For that reason, I find it difficult to understand how this would present him with any real difficulties.
I am informed by accountants who carry out this work that it cannot be done with existing staff and that it will require additional staff.
I suspect this may be Parkinson's Law.
I have no doubt about that. I should like to quote here from the Manpower journal published in England. In this magazine it is stated that the Customs and Excise are opening more than 100 offices in England to cope with the expected flood of inquiries on VAT. The magazine states:
In less than a year, value-added tax will be a reality and yet few businessmen have a true idea of what it will mean in terms of additional administration and staffing costs.
The Government's proposed single rate VAT has led some observers to comment as to how simple the system will be. But simplicity in application does not promise simplicity in operation.
The fact that at least 6,000 extra people will be required to handle the system at Customs and Excise—representing a third of the current establishment—provides some indication of the effect it will have on business generally.
May I repeat what I have said a few times—I do not think the British model is one to which we should pay too much attention.
It is simpler than ours.
They have a far more difficult job than we have because of the change they must make.
They have made it much simplier but even then they estimate that an extra 6,000 people will be required.
Because their job is much more difficult from the administrative point of view than ours. It seems to me that from the point of view of administration it will be very difficult for them. However, for us the changeover is far less drastic and we have not got the kind of problems they are facing. Since the Deputy quoted from a document in connection with this matter, may I quote from the report of the National Prices Commission, Monthly Report No. 5, March, 1972.
All the companies covered by the sample survey will need to undertake additional work to analyse the VAT content in supplier invoices and to show the VAT content in their own invoices. Some other companies, for example, cash-and-carry wholesale merchants will be required to produce invoices for the first time. For the manufacturing companies in the sample, these additional costs did not exceed 0.05 per cent of turnover; for the construction companies they varied between 0.15 per cent and 0.3 per cent of turnover, depending on the complexity and number of contracts.
Nevertheless it is a sizeable charge that must come out of profitability.
I do not see any conflict between what Deputy Gallagher and the Minister have said—the two figures seem reconcileable. I am not aware of the exact scale of Deputy Gallagher's activities but there is nothing surprising in the Minister's figures. They seem to confirm what Deputy Gallagher has said. I regard 0.3 per cent of turnover as a considerable additional cost to account for, it is a reorganised method of paying taxation as a percentage of profits. After all, the profit margin in turnover in firms is often in the range of 7 per cent to 10 per cent, in which case we are talking of cutting profits by 3 per cent or 4 per cent.
They said it would range between 0.15 per cent and 0.3 per cent.
A figure of 0.3 per cent turnover would be between 3 per cent and 4 per cent of profit. The figures given show that the cost of accountancy here is very high, with a perceptible effect on profits.
My only reason for giving this information is that it will mean engaging additional staff.
These figures are estimates of the additional cost in relation to VAT, but they do not take into account the reduction in cost arising out of VAT—the additional claims for credit against liability to tax which will operate under VAT but which do not exist at the moment.
Benefits for whom?
For builders, for instance. They suffer tax at the moment on a number of items. They cannot recover this tax but under VAT they will be able to recover it.
(Dublin Central): For example, office fittings.
I imagine they would willingly pay turnover tax on, say, stationery, rather than to have to employ six extra accountants.
A large builder who would build a central premises might well have to pay tax on all the elements involved. At the moment he cannot get this back but under VAT he would be able to recover it. Therefore, there will be benefits that will reduce the cost.
Benefits for some.
(Dublin Central): The bigger a man is, the more benefits he will get back.
Instead of trying to minimise this it might be better for the Minister to claim that the Government were making a great contribution to increasing employment in the country by the creation of extra jobs.
I would like to be able to claim that but it would not be true.
(Dublin Central): If I were to employ Deputy Gallagher to do the job for me, he would use certain materials in respect of which he would charge me tax. As the registered person, I would be entitled to recover the amount charged. Perhaps, through the Chair, Deputy Gallagher would tell me how he would apportion the amount of tax in the estimate he would give me, that is, the amount of tax that I could recover?
I would have to add it to the price.
(Dublin Central): Would the Deputy particularise it?
Yes, of course.
In the normal way, there would not be any apportionment at all. It is only applied where the value of the moveable goods supplied under the agreement exceeds two-thirds of the total consideration and that is not a normal building contract. On a normal building contract there would be a straight amount, approximately 3 per cent.
(Dublin Central): In the case of certain fittings that would be subject to a higher rate of tax, is it not the position that he would be entitled to reclaim the tax?
Yes but the question of apportionment would not arise in shop fitting contracts because the value of the moveable goods would not normally exceed two-thirds of the total consideration. The two-thirds figure is designed to try to achieve a situation where the normal contract would not require apportionment.
(Dublin Central): Would not such fittings as wallpapers and carpets carry the higher rate?
That would depend on the type of contract the Deputy has in mind.
(Dublin Central): If the contract included such items as wallpapers and carpets, there would be entitlement to reclaim the tax paid on them.
If one were a registered trader one would be entitled to reclaim whatever was paid in VAT.
(Dublin Central): I was wondering what system a contractor would have for the purpose of getting rebates.
I do not know of any builder who supplies such furnishings as carpets and wallpapers. Can the Minister say whether the 10 per cent will apply to building contractors in respect of offices?
Yes, it has nothing to do with VAT or turnover tax. That is stamp duty.
(Dublin Central): The Minister mentioned that cash-and-carry sales will now have to issue invoices.
Special arrangements have been made with them regarding the type of invoices they will use.
(Dublin Central): At the moment all this is done by way of cash registers.
Special arrangements have been made so as to make the matter simple for the traders.
(Dublin Central): At the moment supermarkets have two plates on cash registers one of which is carrying the higher tax. What they give the customer is merely a slip and is not an invoice as such.
It will be accepted by the Revenue Commissioners.
In view of what has been said and because of the complexity of the presenting of a builder's case to the Revenue Commissioners and especially in view of the position regarding council houses, I would maintain that charging tax on the basis of 50 per cent of the total consideration would, in some way, alleviate the expense involved. I take it that the Minister is anxious not to present a hard case in relation to taxation?
In so far as reduction in relation to local authority housing is concerned, the Deputy's amendment would not achieve that in this section but, as I said earlier, there are amendments to the Schedule which are designed to do that.
