We were discussing amendment No. 7, section 11. You have before you the list which shows the related amendments. The amendment is in the name of Deputy O'Higgins, and Deputy FitzGerald was speaking. We have dealt with some points raised. There are other points to be discussed.
SECTION 11.
Debate resumed on amendment No. 7.
In page 14, lines 41 to 60, and page 15, lines 1 to 24, to delete subsections (1) and (2) and substitute the following :
" (1) Tax shall, subject to sub-section (2), be charged at whichever of the following rates is appropriate in any particular case—
(a) 11.11 per cent. of the appropriate amount of any consideration which relates to the promotion of dances and the delivery of goods delivered or services rendered in connection with dances, where payment of the consideration for such delivery or rendering is included in the consideration in respect of admission to the dance or is a condition of admission,
(b) 30.26 per cent. of the appropriate amount of any consideration which relates to the delivery of goods of a kind specified in the Fourth Schedule,
(c) 5.25 per cent. of the appropriate amount of any consideration which relates to the delivery of any other goods or the rendering of any other services, and
(d) zero per cent. of the appropriate amount of any consideration which relates to the delivery of any goods in the circumstances specified in paragraph (i) or (v) of the Second Schedule or rendering of services of a kind specified in that Schedule,
(2) Where goods which are of a kind specified in the Fourth Schedule and which—
(a) were imported, or sold in the State, before the 1st day of March, 1973, in such circumstances that wholesale tax was chargeable or would have been chargeable if that tax had been in force on the date of the importation or sale, or
(b) were imported or delivered on any previous occasion on or after that date in such circumstances that tax at the rate of 30.26 per cent. was chargeable in relation to such importation or delivery,
are delivered within the State on or after the 1st day of March, 1973, tax shall be charged at the rate of 5.25 per cent. of the appropriate amount of the consideration for such delivery."
—(Thomas F. O'Higgins.)
A number of different issues were raised. We had only discussed one of them.
We discussed whether the rates proposed were arithmetically the same as the existing rates.
Yes.
We were discussing the whole lot together.
I had read out certain figures. It was said that there was difficulty—understandably—in assimilating them. As I understand the point, if the calculations which have been put to me are correct, a problem arises because the taxes are now levied at a different stage from previously. As VAT is fundamentally a tax on the full value of the goods, collected at different stages, whatever the rate is, it is related ultimately to the retail value.
All the value, added up to and including the retail stage, is taxed at that rate, even where the previous taxes were levied at different rates. The wholesale tax was levied on the wholesale value of the goods. One cannot, therefore, add together the two previous tax rates, one levied at the wholesale stage and one at retail stage, and arrive at a figure and say that figure, if applied in the form of VAT—and consequently applied to the full retail value of the goods—will yield the same amount. It would appear to me it must yield a larger amount, because the new tax which will be applied, which is arithmetically the sum of the two previous tax levels, not alone to the wholesale value of the goods, but you will be applying the whole of this tax to the retail margin which was previously exempt from the wholesale tax.
That seems to me to be the reason why the procedure which appears to be adopted arithmetically in arriving at 16.37 per cent yields a larger amount of tax. This is a point which I failed to explain clearly yesterday. It is this which gives rise to the difficulty. In the example which I mentioned, the cost of the goods at the wholesale stage is, say, £100. We will take that figure as an example. Then, on the wholesale tax basis, on that £100 value 11.11 per cent is payable, which brings the figure to £111.11. If there is a 20 per cent margin at the retail stage that will bring the cost of the goods retailed to £131.1. If you add turnover tax to that at 5.26 per cent, you add another £6.8, which gives a total of £137.9. That means that the tax payable is a total of £17.9 on a retail price of £137.9.
Under the new scheme now proposed, it does not work like that. Take the cost of the goods as £100. You add 20 per cent profit at that stage. That is £120. You add £16.37 and this gives a tax of £19.64 on goods whose cost to consumers is now £139.64. The cost to the consumer is slightly higher by the difference in the tax rate, and the tax paid as a percentage of the retail price is also higher.
Although the retail price is increased by the same amount, when you relate the tax to the retail price, both increased by the same amount, the percentage relationship has been changed. You have a higher tax rate on the retail level, and an increase in the amount of tax on the same article, and an increase in the retail price.
That is the difficulty as I see it. If the various accountants and retailers organisations who have put forward these figures have misunderstood the position I would be glad if it were clarified. On the face of it, it appears that the taxation will be increased quite significantly. The amount of tax paid on the same article goes up from £17.9 to £19.64, which is an increase of about one-tenth. If the retail margin were 50 per cent, as it is on some goods, the increase in the tax to be paid would be as much as one quarter. In another example calculated in exactly a similar way, although there is a 50 per cent retail margin, the tax goes up from £19.5 at present to £24.5, a very big increase.
I accept that, because of applying the rate to the retail level—as distinct from what happens at present, which is one rate at wholesale level and another rate at retail level—there is an increase in taxation involved. But your calculations are that that increase in taxation amounts to approximately £3.5 million a year. This is the amount which will now be repaid to taxpayers, which is not repaid at the moment, on foot of the elimination of the double taxation that exists at present. This is largely on the basis of people being able to claim credits under VAT for tax on their inputs which they cannot do under the existing system. We estimate the amount of tax that will be refunded to the taxpayers under this provision to be approximately £3.5 million which is about the same figure as the increased yield expected, for the reason I have mentioned. Accordingly we expect the yield to be the same, so that, as far as the Exchequer is concerned, the figure works out at virtually the same amount.
It seems to me that different people are involved. It is not much consolation to somebody who has to pay extra tax that somebody else is getting tax back under this procedure. They would, I think, say to the Minister, were they dealing with him directly, " It is a matter between you and the people to whom you are repaying the tax but it is no reason for increasing the tax on us." I am not clear on either of these calculations. It would perhaps be helpful if we could have an indication of how the figures are estimated. It seems to me prima facie that the estimate of the extra revenue is low because, if you take the example I have given, which is a 20 per cent retail margin, there is an increase of one-tenth in the level of taxation in that case. Total taxation at the moment is more than £50 million; in fact it is £90 million. Therefore, if retail margins were 20 per cent, on average, it would seem that the effect would be an extra £9 million if those calculations were correct. If the Minister says it is only £3.5 million it implies a retail margin of something like 8 per cent. My recollection of retail margins is that they are very much more than that. I do not recall any average figure nearly as low as that.
If they are around 20 per cent we are being " done " right, left and centre on income tax.
Mr. FitzGerald
Not necesarily. They are not 20 per cent; I think they are lower but nothing like as low as the Minister's figure would imply. If I had to guess a figure I would say about £7 million or £8 million. The Minister is going to collect twice as much as he is giving back. I would have to check that out.
There is another angle to it. It is a fact that the Minister collects but will the retailer collect also? The retailer will collect quite a lot of tax, perhaps more than he needs to send in——
No. He gets the same amount.
Very well. Then the tax is cumulative even though it is not supposed to be.
No.
If, as Deputy FitzGerald says, the price includes the tax surely it means more is being collected than should be collected and if he is only entitled to add on the added value—or are you reckoning the additional tax as value also?
No, it is not a tax on the tax.
Is the Minister suggesting that the retailer will say: " This is the price of the article and this is the tax "? Does the Minister recollect that on Second Reading he did say that for handiness sake most retailers would, in fact, have an all-in price particularly on small items? Does it not follow that they will be showing a tax on the tax? They will not go to the trouble of segregating the tax.
No. For simplicity, assume we are dealing with the retailer who deals only in the 5.26 rate of goods. He will have a total amount of turnover. That will be what he received in the two-month period. He will say " 5 per cent of that is the amount of my tax " and 5 per cent represents 5.26 per cent on the price it would have been without the tax. It is not a question of his having charged a price for an item in which he includes tax and then charging tax on top of that again.
What I am trying to get at is that the manufacturer sells to the wholesaler and tax is collected. When the wholesaler sells to the retailer he adds on as part of the price the tax he has paid and on that there must be tax.
No. He shows that separately on the price of the goods.
If he does that, go from the retailer to the final sale to the customer. Is the Minister suggesting that this also will be shown separately on the goods as well as on the accounts?
What I am saying is that, as far as the retailer is concerned, whether he sells on the basis of a price which includes the tax on each item or sells the goods with the price and the tax charged separately—whichever way he does it—the net effect will be that he will have a total amount of money taken in during the two-month period and 5 per cent of that sum will represent 5.26 on a tax exclusive base.
But he is keeping an account and on that account he shows purchases and sales for return purposes and they will not coincide with what the Minister has just said. I should like to know where the difference will go because there must be a difference.
I fear I do not follow Deputy Tully's argument.
The tax is levied at 5 per cent on the final value of the goods.
Levied as far as the retailer is concerned and as far as the Minister is concerned. That is all right but where does the customer come in who will almost certainly be paying more than that?
It cannot be more than that. The retailer may push up the price more than he should and make more profit but as far as the customer is concerned he pays to the retailer exactly 5 per cent of that, no more or no less, and it goes back in tax, some of it having been collected earlier and some of it collected when he makes the return.
The .26 comes in here. It starts at £100 say and the tax is 5 per cent, that is £105 and 5 per cent of £105 becomes £5.26.
That is it. If a man sells goods at £105.26, to assess the amount of tax that he has to pass on to the Revenue Commissioners, he takes 5 per cent of it.
I am clear enough about that but I am not clear about the final transaction when it is broken into smalls. A figure of £100 is easy enough to deal with but something costing a few pence it not.
Divide that into 100 articles.
And retail them at a price.
You are talking about the amount by which the retailer jacks up his price to enable him to pay the turnover tax without reducing his margin. That is a separate question. He may jack up his price more than he should but whatever he jacks it up by, having done that up to 5 per cent, that goes to the Exchequer.
Why should 5.26 be taken from 105.25? There will be an element in this of tax on tax.
No.
No. It exists at the moment but VAT will eliminate it.
The Minister has no friend but me here.
Could the Minister not demonstrate one article which costs a figure right down from the manufacturer to the retailer?
That is all right on the £100. We can all follow that but we want to get down to the smalls.
Why should you charge 5.26 per cent on my sale of an article which I sold at £105.26?
No. We will take 5 per cent from that.
Why should you take a percentage of the tax element?
Because, by taking 5 per cent of £105.26, we collect precisely the same amount as is collected under turnover tax at the moment which is 5 per cent on a tax-inclusive basis. The VAT is on the tax exclusive basis. That means that if goods are sold at £105.26 and if you take 5 per cent of that as being the amount of the tax, in fact that works out at 5.26, which is 5 per cent. You get the same figure as you do at the moment. There is not an element of tax-on-tax in the value-added tax system.
If you are getting the same amount as you are getting today there is an element of tax in it. There is an element at the moment of tax-on-tax. If I am selling £100 of goods I am paying the tax of 5 per cent, which means I am paying tax twice on that. Is this being carried through to get the 5.26?
Yes, the Minister is raising the tax rate to 5.26 so that he can tell you that he is not collecting tax-on-tax any more.
Is it the very same result?
It is exactly the same result as regards the amount of tax paid on the particular item.
At present turnover tax is 5 per cent. On £100 your turnover becomes £105 because you are adding on the 5 per cent tax. When you come and take 5.26 per cent of £105 that is tax on the actual turnover.
Yes.
It is 5 per cent of £105 which is equal to 5.26. Is that not correct?
Another example may help. At present the retail selling price of an article is £100, that is on the tax inclusive basis. Where the article is sold for £100 it means that the £100 includes tax at 5 per cent which is £5, so that, excluding tax, the cost of the item is £95.
The item is sold at £100?
Under turnover tax at the moment. Under the present system, if an item is sold at £100, that means it includes £5 turnover tax. The actual cost of the item is £95 and the tax £5. Now, 5.26 per cent of £95, if anybody wants to work it out, is £5; so VAT gives the same result as at present.
It is exactly the same result. The goods are £95, you are adding £5 and you are paying tax on the last £5.
That is exactly it, so, in fact, you are paying tax on the tax.
Yes.
By raising the rate of taxation he will take the same amount of money while telling you that he is not collecting tax on tax.
I do not see the reason why we should have a complicated rate of tax of 5.26 per cent. Why not leave it at 5 per cent from the point of view of simplicity?
Which amendment are we discussing?
Amendment No. 8.
Are we discussing all the amendments together?
Yes.
I am not suggesting that Deputy Collins is not correct. I had forgotten that we were discussing them together. Are we now discussing all those amendments?
We are discussing all amendments related to amendment No. 7.
Deputy Collins has said if 5 per cent was correct in the turnover tax why was it decided to adopt this more complicated system? It is all right saying on £95 it is exactly the same, but every article which is bought will not be as evenly divided as that. Why was it not possible to say 5 per cent? One thing we could say about it is that everybody could make out exactly what the tax was.
The first thing to understand about it is that the VAT is assessed on a tax-exclusive basis whereas the turnover tax is on a tax-inclusive basis. Therefore, if you are changing from a tax-inclusive basis to a tax-exclusive basis—and you want to get the same result—you have got to change the nominal rate, as we have done by having 5.6 per cent.
Why did you do that if you are saying you are not putting the tax on tax. Calling it exclusive instead of inclusive will not make one bit of difference to the person who is paying the tax because he is paying the same amount.
It is only a technicality.
There is more to it than that. To work the system of VAT at all it has to be on a tax-exclusive basis, but we should not overlook the fact that by having a VAT system, as distinct from the one we have at the moment, it confers benefits on traders, as I outlined earlier, in the way they can get allowances for tax which they could not get under the present system. On the question of the awkwardness of the figure the matter is not as simple as it seems. Whatever figure you pick, it will be awkward. You may say 5 per cent is easy to calculate. This is true, but what happens then when the man is calculating his turnover tax? How does he arrive at that?
He has also only got 5 per cent.
Take it on the VAT basis. If it is 5.26 per cent which is added on to the goods that means 5 per cent for the retailer when calculating his liability for tax. If you make it the 5 per cent rate as suggested, then the calculation which he has to do for his tax is 4.8 per cent. Whichever way you do it, you end up with an odd figure. Making it 5 per cent does not simplify the thing as it would appear to do. Leaving aside the whole question of trying to maintain the rates as they are at present, which I regard as vitally important so as not to provide an opportunity for a number of changes, and therefore almost certainly increases in prices.
That brings me back to the point where I started. The Minister is not maintaining the tax at the same level and is giving every excuse for increases in prices. The Minister admitted that, in fact, 15.37 per cent represented an increase in taxation. He claimed it would only bring in £3.5 million. The Minister claimed that that is equal to the amount that would be repaid to other people through the system. It is an increase in tax. It is no good telling the retailer he has no excuse for increases in prices.
It is not an increase in yield.
The Minister says he does not want to give any excuse for an increase in prices. But what does he do? He tells the retailer he has no excuse for putting up prices because other people, such as builders, will get repayments.
No. Retailers are going to get repayments.
The repayments which the average retailer will get, which he does not get now, will be negligible. He will get repayments for expenditure on fittings, or sporadic expenditure.
It is only part of this. He is also getting a greater degree of liquidity than he has under the present system. On balance, I think the retailer will be at least as well off, or perhaps better off, than he is under the present system.
Has the Minister persuaded any retailer or any retail organisation of that fact?
I am not aware that any of them are seriously contesting it, because it is a fact.
Did the Revenue Commissioners find in any country in the Six this kind of figure of 11.11 per cent? Surely no sensible people would put this kind of thing into legislation? I can see no reason whatever for having a figure like 5.26 per cent.
I understand that France and Sweden have odd figures like that.
To two decimal places?
I do not know off-hand whether they have figures to two decimal places. I must repeat the reason for this. It is to ensure, so far as we can, that the yield and the incidence of tax is kept at the same level as it is at the moment. If we depart from the figures in the Bill, that is not the result which we will get.
I deliberately brought in here the Estimates of receipts and expenditure. The turnover tax was up this year from £50 million to £53.5 million. The wholesale tax was up from £29.6 million to £35.5 million. I know the logic of this thing. It is the logic of the clerks. I was a clerk for long enough and I know all about it. The fact is that inflation is a powerful influence by comparison with this kind of thing. There is a figure of 30.26 here somewhere. The Minister has said that the apparent simplification is not real. It is important for people when there is a complete change in taxation that there should not be too much difficulty with the figures. It is all right for the clerks who are paid to give their time to the job. It is all right for the Revenue Commissioners to make people work as they have been making people work for the last 20 years. They have made people do work which they should have done themselves. They have done this regularly and systematically. I know this to be a fact. I said in the Seanad, when speaking on the income tax system, that more and more people are having to do more and more unpaid work for the Government. What the Minister says may be true—that this 5 per cent or 30 per cent or 10 per cent instead of 11.11 per cent might not be a genuine simplification but it looks simpler. It is surprising how much people are affected by how a thing looks, especially if they are going to have to do a lot of work on it anyway. The Revenue Commissioners may say that there will be ready reckoners. This does not still get rid of the objections. The apparent arguments about keeping taxation equal are all poppycock because of the huge inflation every year.
The question of inflation is irrelevant in this context. For the purpose of trying to ensure that the tax is the same, one must include inflation because, whether you change the rates or not, if you have inflation the yield will be increased.
The Minister is interested in keeping the yield the same. This does not matter a fig because, in fact, there will be an enormous increase in yield through inflation.
The Deputy is looking at this from a different angle. Suppose that instead of having 5.26 per cent and 16.37 per cent that we had a flat rate of 10 per cent would the Deputy consider what will flow from that, not from the point of revenue, but from the point of view of the consumer, and what would happen to the price of goods? This is what is primarily concerning me in this. The effect would be that, on the essential commodities, such as food, the tax charge would go up fairly substantially. We know from experience that not alone would there be an increase directly attributable to the increase in the tax rate but also, by reason of mark-ups and other reasons, more would be put on and the prices of essential commodities would go up very substantially. Nobody could honestly say that he believes that as some form of compensation for that, the reduction from 16.37 per cent to the 10 per cent on the less essential items would result in corresponding reductions in those prices.
That is not what I am suggesting at all.
I am saying this to illustrate why we have chosen these apparently odd figures.
I know why the Minister has chosen them, but I do not accept the arguments.
The Minister said that he did not have any great volume of opinion against the odd figures or that there was not evidence that many people were opposed to them.
I do not think I said that. My recollection is that Deputy FitzGerald asked how many organisations had accepted the argument that there would be an improvement in their liquidity.
No, not exactly. How many have accepted the argument that they would be better off?
Dublin Chamber of Commerce have written in and this is their submission to the Revenue Commissioners. I would like to quote from page 1, paragraphs 4, 5 and 6:
The suggestion to base the tax on a price excluding tax is welcomed. The proposed three rates of tax, 5.26 per cent, 16.37 per cent and 30.26 per cent, are not welcomed. These decimal rates would undoubtedly be awkward for firms who are ill-equipped to deal with such calculations.
The Chamber of Commerce recognises the difficulty of the Revenue Commissioners who wish to substitute the value-added tax precisely for the existing wholesale and turnover taxes. But the value of the precise tax substitution is outweighed by the awkward values of the proposed rates. Of the countries using, or proposing to use, the value-added tax on a price excluding tax (Luxembourg, Belgium, Germany, Italy, Netherlands, Denmark and Norway) only Germany has a rate other than a whole; even the German rate which is not a whole number is a simple fraction, i.e., 5½ per cent.
The impression we were given earlier—perhaps I misunderstood—was that this was a general thing which was being tailored for this purpose and therefore we should not be objecting to the odd numbers. It was stated as a suggestion that:
The rates imposed should be rounded to full numbers in such a way that the revenue is identical to that at present received from the wholesale and turnover taxes.
This has been submitted by the Dublin Chamber of Commerce to the Revenue Commissioners and it gives a very good reason why this is being operated in other countries in a certain way and we are out on our own in this.
In fact, we are not. The Deputy has mentioned Germany and I have already quoted France.
No, sorry. I have quoted Luxembourg, Belgium, Germany, Italy, the Netherlands, Denmark and Norway. They are all adopting whole numbers, Germany with 5½ per cent which is not exactly a whole number, but a reasonable fraction.
I think the Deputy is missing the point I am making. I never said in relation to these rates that we should have these odd-looking rates because other countries had odd-looking rates. The only reason we have them is because they are, as exactly as we can get, the equivalent of the existing rates.
What purpose is that supposed to serve?
As far as I can see the Minister's argument for these decimalised numbers is that it will continue the present system of taxation. Am I right in that?
Yes.
I do not accept that as a good argument for introducing peculiar numbers. The argument in favour of round simple numbers such as 5 per cent is that it is one-twentieth, 10 per cent is one-tenth and 30 per cent is three-tenths. That seems to me a far more reasonable and realistic approach. You will have many traders, large and small, making out invoices large and small every day, and surely, from the administration point of view, it is far easier to work in round figures. It may marginally affect the incidence of taxation but the administrative effect of round numbers is far more important and should be taken into consideration more than a marginal difference in the incidence of taxation.
The essential point I want to make, and which has not been grasped, is that I am not so much concerned with the yield of the tax. I would, of course, be concerned if there was any major difference in it, but a marginal difference—excluding the element of inflation which would only confuse the argument—a marginal difference in yield to the Exchequer is not my problem. My problem is : what will be the effect—and no Deputy has so far dealt with this point—if you change the rates of existing taxation? Suppose you have one flat rate. This illustrates the point I want to make. What happens to prices if you do that? That is the first thing you must consider. The second thing is that I have indicated that there are a number of continental countries which have peculiar looking rates. That is no reason why we should have them. The fact that other countries have even rates is no reason for it either. The reason we have these odd-looking rates is, as I have said, because they are the nearest we can get to the existing rates. We want to get the nearest equivalent to the existing rates to prevent the kind of things that could happen to prices if we depart from that.
I also want to point out that even in the Netherlands where they have even figures they have to use ready reckoners. One—and not the only—reason for this is the point I mentioned earlier, that when you have an even number as the rate you have a corresponding odd number when you are calculating the tax so that while it may appear to be an advantage to have the even rate, the fact is that if it is even in one place you have it odd in the other. You cannot avoid this. If you are faced with the fact of having an odd percentage is it not reasonable to have the odd percentage in the place where it will, as far as one can achieve it, ensure that there is not a change in the tax and, therefore, not have something that will set up a spiral of increased costs?
May I ask the Minister a question? He mentioned France as not having an even rate. Is it not true that that only applies to two rates out of four?
I think that is correct.
We had better have the facts. Two of them are even and two are not.
This is irrelevant. I am only dealing with this because the point was raised that other countries had even rates. I said that some have even rates but it is irrelevant to us whether they have or not. The reason we have them is the one I have given.
It appears that everybody is out of step except our Johnny.
No. One cannot say that when other countries have uneven rates. It is an irrelevance.
The Minister says the reason we must go into two decimal places is to preserve the existing tax rate and give nobody an excuse to increase prices. But the degree of accuracy of the two decimal places is very high but yet he is so far departing from this principle as to increase one of the rates to a level that will yield him £3.5 million extra which means he is adding on something not involving two decimal places or one decimal place but he is increasing by several places, rather between one and two places, the actual tax rates. It is not correct and is probably misleading to say that the Minister is keeping the tax rates the same even if he must go to two decimal places to do so.
If Deputy FitzGerald or anybody else suggests a better way I will accept it.
First, the Minister's statement is incorrect in that respect and the excuse is invalid. Secondly, I do not accept that if you increase taxation it will inevitably yield higher profit margins, thus causing an increase in prices. This may be believed by politicians in all parties but I did not think the Minister for Finance would fall for it. I was interested to note in the past couple of days here that he has. What evidence is there for it? Take the example of the turnover tax. I know it is believed by politicians in all parties, and my own particularly, that when it was increased prices rocketed. I recall examining with great care the consumer price index in respect of different items, a range of items, in the period immediately after that. I could detect no indication that there had been a disproportionate increase in prices. Certainly, the amounts by which prices rose by more than 2½ per cent was so small that it was less than the amount that one would normally have expected of a price increase at that time had there been no increase in taxation and no introduction of turnover tax. Therefore, there is no evidence of this phenomenon.
So far as the great bulk of the retail trade is concerned very considerable competition exists. It is not universal. There are notable monopolies here and there where particular shops or groups of shops are the only shops in areas but there is a very considerable element of competition. Thirdly, even if the Minister takes the view that there are areas where there is not sufficient competition it is a remarkable admission of failure in price control that we have to have a tax system as complicated as this, going to two decimal places because of inability to control extortionate price increases by cartels and monopolies. If there is not a monopoly situation or agreement of some kind between firms to push up prices more than the increase in taxation justifies then these prices cannot by definition increase.
Is it the case that we are going to have the whole tax system bedevilled by the incompetence and inadequacy of our price control system? I do not think this is the case. I think our price control system is now operating fairly effectively and I am not at all convinced that we are incapable of controlling extortionate price increases following tax increases in the area in which cartels and monopolies exist, which are a small minority of the total area in any event. I think the Minister has fallen for this particular myth and that what he says is incorrect in this respect. Even if it were true, he invalidates his whole case by actually increasing the tax rate in one very important incidence by 16.37. He has admitted today what he denied the last day—I think the record will show this—that this rate, in fact, involves an increase in tax of such an extent that, although only a small minority of the £90 million is coming in the form of money at this rate—the extra 11 per cent on this—nevertheless £3½ million is being brought in by increasing this tax rate. Why is that acceptable in that incidence? Why is it that that will not produce price increases on the type of goods involved but that, in other cases, it is so vital to prevent even a movement from two to one decimal places in the tax rate lest price increases go up? I am afraid the Minister's case is totally inconsistent. Could I ask him, having said that——
Before the Deputy asks me anything would he answer the question I put to him. He has said a great deal but he has not answered the question I put to him. Would he suggest a better way of doing it?
I will come to that now and ask the Minister a question later on. When the Minister says a better way do I understand him to mean a system of tax rates which will have a similar incidence on the standard of living of different groups in the community, one that will not be more regressive?
I take it on the basis that the Deputy believes that a change in the tax rate would not mean any increase in the cost of goods other than that attributable to the increase in tax he could make a suggestion on how this could be done. I doubt if there is any other Deputy around this table who would agree with him.
Is there any Deputy here or anybody who can produce evidence or has seen evidence to the contrary in respect of any tax increase in this country? Has any economic study ever been done that showed this? As far as I am aware the contrary has emerged from any studies carried out so it is no good producing myths here which are believed by politicians. We have great fun with our myths but we are concerned here with realities.
Let us be clear here what Deputy FitzGerald is saying. What he is saying, if I understand him correctly, is that when the turnover tax was increased from 2½ per cent to 5 per cent there was no increase in prices other than the additional 2½ per cent plus normal increases which would otherwise have taken place.
Nothing that was measurable.
Anybody who agreed with that can accept what Deputy FitzGerald is saying.
Yes, and anybody who disagrees with it will, of course, produce the evidence and the information here.
The Deputy is doing a lot of talk and it does not make it clearer.
I would like to complete this particular point, with respect to Deputy O'Donovan.
I hope you hurry up.
I will take my own time.
All right. We will probably be here until Christmas if you do because I can talk too when I want to.
I am well aware of that. The Deputy is almost succeeding in putting me off my stroke. If we look at the census of distribution data there is no evidence whatever of a movement in gross margins that would sustain this belief that every time taxes go up the profit margins go up. There is no evidence anywhere for this thesis. The Minister has well equipped advisers here. If they have told him that there is evidence in some statistical form, census of distribution, in the consumer price index, that sustains his thesis let him give us that information and I will certainly accept it. I do not think we should be " codded " here by having tax going to two decimal places because of politicians' myths unsustained by any economic study or analysis whatever. If I am wrong and there is evidence to show I am let us hear it. If there is not evidence I hope the discussion will not proceed along those lines because it is simply a waste of time. Given, therefore, that there is no evidence to oppose that view, the question the Minister seems to be putting to me is: Is there a way of so arranging these tax rates that the same amount of money globally will be secured and that the incidence of taxation of these expenditure taxes on different social groups in the community would not be significantly changed? Is that the question the Minister is putting?
Substantially that is so.
I believe this is so. I believe by varying the incidence, by increasing the range of goods which are zero-rated in the category of necessities, such as foodstuffs, increasing the overall tax rate to a higher level and having a single tax rate the same result could be achieved. I am almost prepared to challenge the Minister that if I could come back to him with data based on the household budget inquiry showing a system of taxation with a single rate of tax and a range of goods zero-rated which had the same effect substantially on different income groups in the community will he accept that as an alternative?
If the Deputy can show to me as well that the consequence of that will be, for instance, that wage claims will not increase as a result of the proposal that he is suggesting.
If the Minister is asking me to say that workers will not claim increases in wages and that I should stop them in some way I certainly cannot guarantee that.
Will the Minister guarantee if the other thing happens that there will be no necessity for extra wage claims?
If the Minister would rephrase his question and ask me whether I was in a position to show that there would be no increase in wage claims I would be prepared to answer it but I am prepared to deal only in facts not in myths.
The Deputy is not dealing with facts if he is talking about the basis. I am dealing with the fact of what can happen in wage claims—that is a fact—whether they be justified or not.
They are always justified.
If there is a belief that the consequence of this kind of activity is to increase prices then there is a direct effect on wage claims, on the whole economy and on inflation. The Deputy knows that as well as I do and you cannot just excuse that.
The Minister wishes to deal in myths. A myth has been perpetrated already that VAT will increase the cost of living considerably. That myth is widespread and unfortunately the Minister has given substance to it by increasing one of the tax rates to get in extra money. In fact it is believed that prices will rise by much more than the amount involved. We know that kind of myth, from the case of the turnover tax, will be believed even when the evidence comes out afterwards that it is not true. If we are going to have our tax system governed by these kind of myths if we make any change in taxation, no matter how careful we are—as the Minister has been in respect of the 5.26 per cent rate—to do nothing that would justify the myth, if we are still going to have people believing in myths and if we are going to let that go in our tax system we are really in trouble. There is no good deciding that we cannot make any change because somebody somewhere might be so stupid as not to face the facts of it and to believe that although it is designed not to and can be shown not to have increased prices or the cost of living, nevertheless a wage claim is being made. If that is the level on which we are discussing this it is a hopeless discussion.
Deputy FitzGerald said earlier on that when turnover tax came in it only made a marginal difference. That was not the evidence I saw with my own eyes and it was not what I was told by my wife. I do not believe in those statistics which are produced.
Statistics are better than anecdotes. I prefer them any time.
Of course you would. Does anybody in this room believe that the cost of living only went up by 3.26 per cent, which is the calculation Deputy FitzGerald made in 1964, when the turnover tax of 2½ per cent came into operation?
The Deputy is descending to appalling trivialities.
I discussed this with many people.
The myth was widely perpetrated by politicians.
It was not perpetrated by any politicians. I discussed this with people who had no connection with politics and they all told me that there were differences of opinion as to whether the cost of living went up by 5 per cent, 6 per cent or 7 per cent. It certainly went up by at least 5 per cent and I do not care what the Central Statistics Office or Deputy FitzGerald produce.
I would be interested to know if the Minister shares the views of the Central Statistics Office or those of Deputy O'Donovan?
At the present moment you add 10 per cent on every £100 but with the value-added tax you will now be adding 10 per cent on £89 worth of goods. Up to now you are getting £100 at wholesale level from which you are deducting £10, that is 10 per cent. I think with the VAT you will be calculating 10 per cent on £89.
That is more than compensated by the retail tax having to be imposed on the level of goods after the margin has been added. If the Deputy would look at the first example in that document he will see how the net effect works out.
We see what 5 per cent does. You have to apply 5.26 per cent to get the same because you are applying it on £95.
If the Deputy would look at the example, it would be easier.
It is now on £100.
I am taking today's tax. Every £100 of the wholesale tax takes £10. On the VAT it will be taken on the goods at £89.
If the Deputy would look at the example, it would be easier.
I must say that I disagree with Deputy FitzGerald in what he said about our price surveillance system. I do not think it is as good as he says. The changeover to decimalisation proves this to a certain extent already. I am interested in what was said about broadening the number of items which would be zeroed, especially the necessities of life, and perhaps increasing semi-luxuries and luxuries. I would agree with that concept. Perhaps it is a concept which this Committee should discuss further.
Is it the Deputy's view that if that was done in such a way that the total level of taxation is maintained, and that the actual tax burden on each income group were maintained, whether he would not feel that the psychological effect of food prices going down and other prices going up might not be beneficial in regard to wage claims, rather than otherwise? If you keep complete neutrality, the effect will be beneficial rather than otherwise.
I had a number of amendments suggesting that the top tax could be rounded up in order to zero-rate a number of items, including foodstuffs. I was surprised to see they were ruled out of order.
This is a Committee of the House, and this is in substitution for the Committee Stage of the Bill. I would have assumed that the format of the Bill was decided at the Second Stage—how this was going to work was decided at the Second Reading. It was decided that this would be the method of operating the VAT. If we are to upturn the whole Bill, let us upturn it. I did not realise that we were in this position at all. I would have assumed that the purpose of this Committee was to decide how these various taxation rates would be operated. I still do not understand, in spite of all the talk for the past 40 minutes, the objection to this flat rate. There is a tremendous psychological advantage in it. I stand over my point that, in fact, the inflation, if, in fact, the Minister did not want to alter the rate of tax and wants to get the same yield in spite of his assurance——
Mr. Coffey
I modified that a bit.
——that he was not interested in the yield, but I feel it would be worth a small sacrifice of tax. My point is that inflation is enormous. The small rate of 5.26 per cent is the biggest rate effectively. A reduction of 0.26 per cent to 5 per cent is small. It is about one-twentieth. It is a lowering of yield on that particular figure. Before this becomes law, that will have been dealt with by inflation.
I see the Deputy's point in regard to the amount of yield involved. It would be £2.25 million. Over the whole amount this could be tolerated. The point the Deputy has not grasped is the effect on prices of altering the yield.
And reducing the tax?
Deputy FitzGerald is arguing that there is an increase in yield anyway. He is talking about an increased yield of £3.5 million spread over purchases of about £1,000 million.
£3.5 million on £90 million.
So far as the overall impact on the consumer is concerned I am concerned with what the effect will be on sales amounting approximately to £1,000 million. It represents an increase of £3.5 million. I have pointed out that there is a refund of about £3.5 million involved also in the VAT system. So far as the revenue are concerned there is not an increased yield at all. To say that, because of this factor, spread over £1,000 million, that therefore the principle is conceded, is not realistic. You can not change all the rates without any real effect. It is just a debating point. I am not in the position that I have to argue with Deputy FitzGerald to any great extent on the question of whether or not a change in the rates is going to lead to an increase in the cost of living over and above the actual change in the rates. As Deputy O'Donovan suggested, past experience has shown it did, and Deputy FitzGerald said it did not. It does not matter which argument is correct. The point, so far as I am concerned is—and Deputy FitzGerald has conceded this although he calls it a myth—that it is commonly believed by every man, woman and child in the country that there will be an increase in yield. It is believed by them and if it is, then, of course, it is going to have the effect I talked about in wage claims. Deputy FitzGerald may say that this is reducing the level of discussion to a farce, because it is a myth. If past experience is to be believed, it is a reality. There is an effect on the whole economy.
If not, Frank Sherwin is the most unfortunate man in Ireland.
The Minister asserted it as a fact on several occasions.
I do not need to argue with the Deputy on the point.
Would the Minister let us know the evidence?
Why? How relevant is it to our discussion here?
It is a serious matter if, instead of trying to eliminate a myth whose effect on public policy is clearly so adverse and dangerous, the Minister has attempted to perpetuate the myth by asserting it as a fact, without producing the evidence. I would say that his responsibility as a Minister carrying out his duties is that he should produce evidence, or evidence to the contrary should be produced. Various people have told him that this is true, but the evidence produced to him would be to the contrary. It is the Minister's duty to put that evidence before the nation and maybe the nation will believe him.
I would suggest that it has very little effect on the issue before us here. Some of us do not agree with Deputy FitzGerald. We will not be able to carry the argument along with him, even if he is right.
I conceive my responsibility as a Minister to be such that if this myth to which Deputy FitzGerald has referred—whether it be a fact or a myth, if it is commonly believed, it is something that will affect our whole economic situation—my responsibility as Minister, in my view, is to take account of that fact and avoid a situation in which our whole economy will be affected by this belief whether true or false.
If the Minister accepts that I understand that and if he thinks that it is so widely believed that any increase in taxation will be dangerous from an inflationary point of view, he would be wrong to increase tax. That does not mean that he is right to assert what is false is true and perpetuate and strengthen the myth. That is an act of irresponsibility. That is my point.
May I intrude? Does the Deputy remember the Supplementary Budget of 1968 and the effect it had on prices?—a 1 per cent rise per month in the new index at 100 in 1968.
I think the Deputy's concept of post hoc ergo proptor hoc is not one that most economists would accept.
May I come back to the point I made originally, that bringing back the rate to units, complete units, would be a great help? I do not think the Minister has dealt with that.
And if it involved reducing the rate it would scarcely have an inflationary impact. I am afraid the Minister will not accept that.
The point I want to stress is that invoices will have to be made out daily, millions and millions of them, and it would be far simpler if on those invoices the tax rates were simply one-tenth or one-twentieth or three-tenths. That would help industry enormously.
Let us examine that point a little more closely——
Wait now, there are two further points I want to make. The first relates to the loss of revenue caused by reducing the 16.37 to 10 per cent which is something around £10 million. I would be in favour of reducing it to 10 per cent and increasing the luxury tax from 30.26 per cent to 33.33 per cent. I should like to know the increased revenue under that heading. That would be one-third. I understand the Minister's main objection is, first, incidence and secondly, that at some point along the line traders would have to recreate different rates anyway. I suggest to the Minister that a trader may change the price marginally. I suggest he should be allowed in calculating profit margins to add the units five, ten or 33 1/3. That would only marginally affect the incidence of taxation and marginally affect prices and in the bulk of the revenue the marginal effect would not be inflationary.
First, I have not the exact figures at hand as to what would compensate us if we made it 5 per cent instead of 5.26 per cent and 10 per cent—I think the Deputy suggests the latter—instead of 16.37 per cent but I understand there would be a loss to the Revenue of about £13 million. There is another aspect and the Deputy can understand why: the base for the lowest rate is much wider than the base for the highest rate. Another point that must be borne in mind, and that is that when you are dealing with a very high rate any increase could well have the effect—one must always examine that when there is any question of changing the rates of tax—of making non-viable some industries, which are just marginally viable at the moment, and closing them down. Offhand I think that an increase in rates at high levels could very well have the danger of producing that result. I do not think the Deputy has adverted to the point I made previously, that even if you have whole numbers you are producing a problem at the other side, of uneven numbers.
The Deputy may say that the operation of calculating the tax will have to be done far less frequently by the trader than when he is putting it on while selling. That would be a reasonable argument. But let us examine it a little more closely. What is the difficulty involved for the trader in operating, say, a 5.26 rate instead of 5 per cent? As we said earlier, he is already issued with a ready reckoner by the Revenue Commissioners which will enable him to see at a glance what the precise figure is in respect of whatever the charge is for the item. We know from experience that, within a very short time, he or his employees will get to know these by heart and in actual practice the difficulties involved in the uneven rates, which I admit appear on the face of it, to be very great, are not merely as great as they seem to be. Speaking offhand, and recollecting the representations made to me by deputations from various groups who made the point about having a whole figure rather than broken percentages, they did not place very great stress on that. Their stress was much more on other aspects of the tax because they recognised that in practice the difficulties inherent in having these uneven numbers are not nearly as great as might appear at first sight.
When people are rendering invoices for goods they are delivering they calculate the tax on the price at which they are selling the goods, is not that right?
Yes.
They will have to calculate that tax at 5.26 per cent on these invoices?
Yes.
Would it not be the case that from the point of view of the work to be done, far more work has to be done in calculating on the invoices that are submitted than in sending in a single figure on your turnover and that, therefore, it is much more important to have the round figure at the level at which you are calculating tax on invoices than it is to have a round figure on the turnover? I should much prefer the position where I had to do my calculations on the basis of 5 per cent on every invoice and not 5.26 per cent and on my total sales I would then do the one calculation at 5.26 per cent.
Is the Deputy referring to a retailer or a wholesaler?
I am saying that I do not think any retailer will object if, as the Minister has told us, he has to do a single calculation of his turnover at 5.26 per cent and if he gets all those invoices in batches at different rates which are all worked out for him. I think the retailer would be quite prepared to do the 5.26 calculation on the single figure if all the other figures he is dealing with were at 5 per cent and if all the manufacturers and wholesalers had the benefit of the straight 5 per cent. Am I wrong in that?
No. I think if the Deputy continued his argument the rate returned to the Revenue Commissioners could also be 5 per cent. Why not? Take the manufacturer: he can put 5 per cent on his price to the wholesaler. The wholesaler can put 5 per cent on his selling price, which is one-twentieth and he can calculate the figure to the retailer. The retailer has his figure and he can put 5 per cent on to his selling price. Why not have that system of adding 5 per cent at each stage?
He cannot fix the rate at the delivery side and at the retail side.
The only argument I can see is that this change was made so that it could be said that it was not a tax on a tax which is what was being suggested here. But it comes to the same thing in the end.
It simplifies it.
Provided all the invoices are for £100 or for £1,000.
If you are to get 5 per cent and you get an invoice for £169.72, 5 per cent of that is got by simply moving the decimal point and dividing by two.
I do not think the Deputy will convince any of us that 5.26 is any easier to calculate than 5 per cent.
I think my argument is valid all along the line.
May I point out that, at the moment, in dealing with turnover tax a retailer has to calculate 5.26 per cent on the price that he is charging for the goods in order to recover turnover tax?
That is no argument for putting it in here.
But the Deputy is telling me about the extreme difficulty this would mean. Actually, the retailer is doing it at the moment.
I put a point to the Minister as to whether there is not a much great simplification by doing it the other way round. Am I right or wrong?
I dealt with that point earlier when I said it could be argued—in response to Deputy Collins—that it is far easier to have the even or the whole number as the figure to be added on to the cost of the item in the shop because you have far more transactions there.
No, there is only one transaction which is to take out your tax.
No. Perhaps we are at cross-purposes. I am saying it could be argued that a retailer who, say, has to price 500 items in his shop—let us assume for simplicity that they are all at the lowest rate—each of those 500 items may have a different price and he has to calculate what is the tax on each item. It could be argued, therefore, that he has to make 500 calculations under the present system at 5.26 per cent whereas 500 calculations at 5 per cent would be simpler. If he only had to calculate 4.718 per cent, or whatever it is, to calculate his tax it would really only be one transaction he had to do at this difficult calculation of 4.718 per cent.
I am no more familiar than the Minister with the actual working of the retail trade but his concept of how retailers work surprises me.
I am simplifying the thing to strengthen the argument but Deputy FitzGerald is not listening to me. I am simplyfying it in order to strengthen the argument which Deputy Collins and Deputy FitzGerald made and take the worst possible view of the situation. That is what I was doing when I answered Deputy Collins and said it could be argued in this way. The fact is, and I went on to explain, that in practice this is not how it works out. It does not present the difficulties it appears to present. I pointed out that at the moment the retailer is obliged to calculate 5.26 per cent.
Let us clear that up now because I think that is wrong. Would the Minister explain where this question of 5.26 per cent has arisen now because I do not think the Minister is correct?
If a shopkeeper, as many of them are, is selling goods under turnover tax on a tax-inclusive basis, in other words, if the price is marked, say, 20p, that is the price you pay. It includes the tax.
That is not the way they operate.
Many of them operate on that basis. The question is how do they arrive at that figure of 20p.
I am not interested in how they arrive at it, but when I go in to buy anything, except in the case of certain articles which are on a flat price, the turnover tax of 5 per cent is added.
I am talking about a retailer who sells his goods on a tax-inclusive basis, in other words, who does not add on the tax separately.
(Interruptions.)
There is no good in everybody talking together, and there is no good in people stating it does not exist if the person stating it is actually operating it himself. By all means make a statement but there is no good in a person saying it does not exist when the person who says it exists is operating it as he says he is.
First of all let us consider how you run a business. The element of running a business successfully or otherwise is that you have your material, your labour, your overheads and all other costs even if they include taxation, such as turnover tax and wholesale tax. These all go into your liability. You fix your profit at a fixed margin. That is your selling price whether it is in the factory, the wholesale level or the retail level. That is the simple basic principle you adopt. If you send a traveller out on the road selling goods you tell him exactly the margin you have and you give him a degree of flexibility with good customers, bad customers, or dicy customers or depending on the size of the order. When turnover tax first came in I believed it was a simple 2½ per cent turnover tax, that there was no element of tax on tax. When this 5 per cent came in I believed it was an absolute 5 per cent on sales. Now, I find the 5 per cent is contained in the retail price. The Revenue Commissioners come along and say : " There is the price you sold it at, which includes 5 per cent and we want 5 per cent of the total." This is where your 5.26 per cent arrived in the matter. Even the labour involved has been included somewhere in the retailer's, wholesaler's or somebody's overheads already as a normal overhead charge. You cannot get away from the simple factor that there is an economic level necessary in business. If you get below that you will lose the confidence of the banks and you will be liquidated. If you go too far you lose your customers. I hope that is some help in clearing up this matter.
You go into a supermarket and they always add 5 per cent on to the price. Are you telling me that the Revenue Commissioners insist on collecting the 5 per cent on the price?
Yes.
I was not aware of this.
We are talking about £100 but it is on £95 where the catch comes in.
It is 5.26 per cent on the £95.
Take goods costing £60 and add on 35 per cent profit. On £100 I must pay 5 per cent. Would I be getting 35 per cent profit when the Deputy makes up that figure?
I do not understand that.
You add your £35 on to the £60.
There is no wholesale tax on this?
Take goods at £60, add on £35 profit and £5 for the turnover tax. Will that yield you 35 per cent?
It will. If you add £5, which is adding 5.26 per cent on your £95 you get it.
That is the point I am making. I said at the moment retailers have to calculate 5.26 per cent on the items they are selling. We are being told that this is an impossible problem but I am saying they are doing it at the moment.
Deputy Gallagher's point is that it does not operate like that at all. People do not fix their prices by the process of the original cost of the goods and adding on different things for overheads and then adding on the tax. Anybody who is in business has his costs for labour and materials. He then has to have a profit margin and it is out of the profit margin that tax has to come. The Minister's concept of this does not bear much relation to the ordinary way in which business operates.
Deputy FitzGerald cannot have it both ways. I tried to put it on a simplified basis to illustrate what is involved. If Deputy FitzGerald is now saying that, of course, they do not do this then he cannot say they have to do it under VAT.
This is exactly how you do it.
The Minister has missed my point. Under VAT they have to write out an invoice and the invoice has to have the VAT shown on it.
Who has to do this?
The supplier who is delivering goods to the retailer.
We are talking about the wholesaler?
Yes.
I thought we were talking about the retailer.
We are talking about the whole process of this tax.
Are we talking about the wholesaler or the retailer?
We are talking about the manufacturer, the wholesaler and the retailer. Let us look at the whole process under the VAT.
To whom is the retailer delivering an invoice?
I did not say he was delivering an invoice.
The Deputy said he was a moment ago. That is why I asked was it a wholesaler.
I must not have made myself clear on that. You start off with the manufacturer. He has to have an invoice. That invoice has to have calculated on it 5.26 per cent of the value of the goods. The wholesaler has to add on his margin. The retailer gets the goods and decides on the gross margin he needs to cover his overheads, depreciation and tax, and how much he can get away with. He has to decide on what will be the loss leader. He does not normally go in for figures like 5.25 per cent. He has to ensure that his total business makes money. He is not involved in that calculation. He is involved every two months in writing down the figures for turnover and calculating the figure on that. The question is whether it is more difficult to do that at 5.26 per cent or 5 per cent. On the Minister's basis of doing it, it means that everybody who has to calculate an invoice has to do a difficult job with a figure of 5.26 per cent, so that the retailer should not have to do a terrible job on one figure. The difficulty arises with all the invoicing, not with the retailer.
The Deputy is talking about manufacturers and wholesalers, and not retailers. If we are talking about manufacturers and wholesalers we are talking about them issuing invoices at 5.26 per cent instead of 5 per cent. I am saying that when you analyse what is involved for them in this, the problem is not enormous at all, especially on the basis of what they are doing at present and the fact that they will be equipped with ready-reckoners. Retailers will not issue invoices but they will be calculating how much they have to add on to recover the amount of the VAT which they are going to have to pay to the Revenue Commissioners.
Is this done on every article every day?
The Deputy misunderstands the point. Either they do it, in which case you have to accept the argument that they are doing it at the moment, or you accept that they will not do it. Let us stop arguing about the terrible job for retailers.
The wholesalers and manufacturers will be involved in a complex operation on every invoice, and the only gain for that is that once every two months the retailer will be able to use 5 per cent instead of 5.26 per cent.
Is Deputy FitzGerald saying " omit the retailer and there is no problem "?
I am not saying that, because I have my name to one amendment and I am not saying we should omit the retailer.
Deputy FitzGerald seems to want to do that——
(Interruptions.)
There will be a problem with invoices.
I want to pursue the amendment down in my name. Deputy Collins has a similar amendment down.
I am pursuing it on your behalf.
If you are pursuing it on my behalf, please do not.
I proved your case to the hilt.
A problem will arise for the retailer. By and large, the articles he sells will be repetitive. He will have to do his calculations at 5.26 per cent. Very few traders have a different supply each morning. They stock the same articles.
At the present time if I go into a supermarket I notice that the prices change from day to day. On occasions I have gone into a supermarket with my wife. She buys goods and pays for them at the checkpoint. I am wondering what is likely to happen with regard to the little girl doing the checking, because with the change of prices up and down—the Minister recommended the charge should be on the prices on the shelves but this has been frowned on at the present time—the little girl at the checkpoint will have to calculate not alone the range of prices, but also the range of taxes.
On that basis dealing with the retailer, what difference is there between what the retailers would have to do in the supermarket under VAT and what they do at the moment?
At the moment most of them have a sign up saying " no tax collected ". I will ask the question whether we are going to see " no VAT collected " on the windows of the supermarkets and, if so, what will be the effect of this being done?
The Deputy has argued about what is going to happen at the checkpoints in the supermarkets. I am asking what difference the Deputy sees between what will happen there under the VAT system and what happens at the moment?
The girl who is checking knows there is only one rate of tax and that is 5 per cent, and so far as she is concerned she puts it on. I have checked myself, and it is 5 per cent. What happens to the 0.26 per cent I do not know, but it is 5 per cent at present.
The 0.26 per cent is on the prices on the shelf.
(Interruptions.)
Presently it is 5 per cent turnover tax. The girl goes down through the list and gets a sub-total. She presses a button and has a sub-total, and she presses another button and gets 5 per cent more on that. Presently the consumers are paying turnover tax. The actual money goes into the till. This is what I was trying to get at in the beginning. The £100 becomes £105. It is on the actual turnover.
The 0.26 per cent is being absorbed.
Do they bear the 0.26 per cent themselves?
The Revenue Commissioners are losing money by that particular system.
The Revenue Commissioners are not losing a penny.
In the supermarkets, taking a figure of £100 there is a 5 per cent on that.
The girl is getting a sub-total. With the type of machines they have, she presses a button and gets a sub-total and then presses another button and puts 5 per cent on that.
We receive complaints from time to time. People find that 5.25 per cent is added on and they complain about it. They think they should only pay 5 per cent. It is not always just 5 per cent which is added on. If only 5 per cent is added on, either the shopkeeper suffers a loss of 0.26 per cent or he has covered it earlier in the shelf-price.
Mr. Collins
But if he adds only 5 per cent in the clearly mathematically perfect set up, the trader's margin has been reduced by that 0.26 per cent.
That would be so.
At present a housewife sees a price and she accepts a shelf price and buys at that price and she pays 5 per cent tax on that price. That is how it operates at present. If the 0.26 per cent has been added on she has accepted that price. Under this system the situation will be that the tax will be added on afterwards. Is that the present suggestion?
Not necessarily.
This will be very important because then she will be accepting a price and then the machine to give the sub-total will have to be altered and beyond the sub-total it will have to be altered to give 5.26 per cent.
On some articles.
On a rate. This is where the difficulty will come in because it is on one range of tax. Earlier the Minister mentioned Sweden as not having an even number.
Yes.
How many rates of tax has Sweden?
One.
One. I am not accusing the Minister exactly of giving untruths but he gave two figures here where we only got half the facts.
No. The Deputy is missing the point.
I am not.
I said at the time that I did not believe that either the countries that had odd numbers or the countries that had even numbers were relevant to our problem——
Sorry, may I come in to this extent? We have a range of three taxes and we are uneven. Every other country with three taxes or more are even except France where two of them are even and two are not. Sweden has only one tax which is even.
Actually, we have only two rates. Nobody will be dealing with more than two rates.
No retailer?
Yes. No retailer will be dealing with more than two rates unless somebody buys a television set at the same time as he buys a 1b of butter.
The Minister has not indicated how the retailer is going to deal with two rates at the checkout.
Perhaps the Minister would tell us that. It is a very relevant point.
There are different ways of dealing with it. One of the methods of dealing with it would be that the goods which are at the high rate of 16.37 per cent would have built into them on the shelf the equivalent, 11.11 per cent, and then there is added on at the checkout point only the 5.26 per cent.
In the same way as it is done with soap powder and so on at present.
Is there anything to prevent a supermarket which is now advertising goods with no turnover tax from advertising no value-added tax?
I think they can still do that and it will still be as accurate or as inaccurate as it is at the moment.
Coming back to the supermarket operator, keeping his tax separate as he is doing today, say he is selling £100 worth of goods and he makes returns on a weekly basis with the tax built in. The supermarket is selling £100 worth of goods and he is separating the tax from it completely. At the end of every day the tax is separate from the goods. This is a supermarket system. That is the tax due on the goods sold without the built-in 5 per cent. This is how the yield is lower. You get a lower yield from that type of system than you get from the system whereby a man makes up his receipts at the end of a week.
At this stage, and it is not that I do not wish to deal with the point raised by Deputy Fitzpatrick, but I wonder could we stop and think where we are getting in relation to the Bill before us? It seems to me——
No, that is not correct because we have a whole bundle of amendments hanging on this point and the decision on this will affect them.
May I suggest that we seem to be spending a good deal of time in discussing whether or not under the present system of turnover tax, for instance, as Deputy Fitzpatrick suggests, there is a loss in revenue or not? May I suggest that while it is interesting it is irrelevant.
I think it is relevant because it is a strengthening of the argument which the Minister is making that this is necessary to ensure that there is no loss of revenue under VAT.
I think Deputy Fitzpatrick is suggesting something that is not relevant to the point made by Deputy Tully.
May I put it, Mr. Chairman, that there are really two issues which arise out of these amendments and which, perhaps, we have not segregated in any way. One is the issue of the rounding-up of the tax to a round figure which we have been discussing recently and the other is the separate point implicit in the major amendment of the elimination of the 16.37 rate. Perhaps we can segregate the two and discuss them in sequence?
It might help.
We are jumping a bit from one to the other and it is a bit difficult for the Minister and for us all.
We have dealt to a great extent with the rounding-up of the figure——
Could we round that discussion off?
I wish we could and then we could make some progress. If we go on tonight as we are now I think we would start from scratch all over again tomorrow. Perhaps we should keep to No. 7 and round it off once and for all.
The rounding-off is not, in fact, in No. 7.
In Nos. 7 to 14.
It is not in No. 7.
Nos. 8 to 14 then.
Perhaps, Mr. Chairman, we could deal at this stage, in relation to Nos. 8 to 14, only with the question of rounding-off.
That would be a good idea. Could we come back to the point I made and would the Minister concentrate on this for a moment? It appears that as most of the work of calculation of the percentage on goods is on the invoices rather than on the making of a tax return at the end of the two-monthly period, it seems prima facie that the rounded rate would be more useful at the invoicing level rather than at the tax return level. That being so, there seems to be a strong case for the amendment, a case which I did not appreciate until I heard the discussion here tonight. Would the Minister be prepared to think about that between now and the next meeting?
No. I am sorry, but I would not. As I understand it Dr. FitzGerald is suggesting that there would be a rounding-off so as to give a whole number in the case of the tax added on by the manufacturer or the wholesaler.
We could substitute, for example, 5 for 5.26, which would have the effect that they would be adding on the 5 per cent when they invoice and not 5.26 per cent and the manufacturer and, indeed, the wholesaler and retailer in making their tax return would make a return on the basis of 4.7 per cent or something like that.
He can make a return of 5 per cent.
No, he cannot.
It may not be mathematically perfect but it is not too mathematically imperfect.
I think it would introduce considerable distortion.
Could I suggest that Deputy Collins for the moment anyway should leave that argument out of it and concentrate on the other?
Wait until he nails me first.
I suggest the consideration which must be borne in mind in that proposition is, firstly, what is the effect on the revenue and, secondly, what is the effect on prices? Having regard to the argument which I made earlier and repeated, and which has not been accepted by Deputy FitzGerald but which, I think, has been implicitly accepted by most other Deputies who have spoken and which is that a change in the incidence——
An increase.
No, not even an increase. A change tends to create a situation in which it is believed that prices go up unnecessarily.
I wonder if the Minister is right in saying that any Deputy here believes that if you reduce taxation it will lead to price increases? That is straining our credulity a bit. I could accept the other proposition that many people believe that if you increase taxation it will push up prices proportionately but surely if we are talking of rounding 5.26 down to 5, whatever that does it cannot give an excuse for increasing prices? It is a very strong case for reducing them.
May I suggest to the Deputy that the likely consequence of reducing from 5.26 to 5 per cent in the context in which we are talking is this : as far as the general public are concerned they will say: " It is 5 per cent at the moment so what difference is it?" Some people like Deputy FitzGerald would explain at great length and with great erudition that in fact it was different. The net effect would be that they would believe there was a change in the rate of tax. I regret to say that our experience is that when there is a change in the rate of tax—admittedly this argument is much stronger if the rate is going up—people, not just shopkeepers but others, in the chain of manufacture and distribution, utilise a change in taxation to coincide with a change in their price in order to get rid of some of the odium which they feel might attach to them because of the change in price and pass on as much of the odium as they can to the Government because of the change in the tax rate. I will admit that the argument is much stronger if the rate is going up than if it is going down. I am suggesting that a marginal decrease which comes to the general public as appearing to be 5 per cent, the same as it was before—though they thought there was a change—has this effect.
It is like a stone in the shoe.
The essential thing to bear in mind here is if you are talking about rounding the rates you are talking about a change in the incidence of taxation as it is at present. If you are talking about a reduction in the tax, if the reduction is of any substance, then from the point of view of the Exchequer it has to be made up somewhere. My objective here is to change over to value-added tax with the minimum possible change as far as the incidence of tax on the public is concerned. I have pointed out, as far as the £3½ million we talked about arises in the way we discussed, this is £3½ million spread over sales amounting to about £1,000 million and, as far as the Revenue Commissioners are concerned, is not an increase of £3½ million because it is being given back in another way. While it is arguable that there is a change here it is so marginal overall that it will make virtually no difference. If you get to the area where you are making changes which are far more substantial than this then you are running the risk I talked about in regard to prices. If it is substantial enough it means there has to be some other form of taxation to make up the yield to the Exchequer.
Let me put the other side of the argument? Why is it suggested that we do this? For convenience to the manufacturers and to the wholesalers. Analyse the amount of the convenience that they gain by doing this and you will find that while there is some convenience it is marginal. Certainly if you take any reasonably large-scale wholesaler or manufacturer the methods by which they operate, by which they prepare invoices and so on, are such that the difference for them in doing a calculation of 5.26 per cent as against 5 per cent is really minimal. It is a question of either machines or the ready reckoner. There is practically nothing in it. I am talking about manufacturers.
How do you feel on a small item the .26 will be added to the price because the .26 will be in most cases less than the smallest coin we have got. Does it not follow that the smallest coin will be used if a price is to be put up?
Due to this Government's decimalisation policy.
I think the Deputy has now gone back to the retailers.
It will work out on the retailer at the finish up.
I am talking about the case as put forward by Deputy FitzGerald, which is the manufacturers' and the wholesalers', the people who are getting out these invoices. The number of these who will be affected to more than an absolute minimal extent can only be those who are in a small way of business
Would the Minister explain why that is because even if you are doing it with a calculating machine it takes longer to do 5.26 than to do 5? Why does it only affect the small people? To me 5.26 is always more difficult than 5 no matter who is doing it, how big they are or what machines they have.
For a machine it is not.
It is because you have got to type out three figures. The machine takes longer whizzing and whizzing.
It is one key.
It is done by one key. I take it they adjust the key.
It is done by one key.
What has it got to do with the size of the firm?
You have to change the rates.
I would have thought that was obvious. The larger firms will be equipped with machinery with one key to do this. It is conceivable that the smaller ones may not be so equipped. Therefore, they have a problem. If they are not so equipped they have got the problem of a clerk or clerks operating on this with a ready reckoner, and operating it in a way which gives them the thing at a glance as against the 5 per cent. Remember what I said earlier that in the Netherlands where they have even whole numbers they still had to issue ready reckoners.
It shows how difficult it will be for our unfortunates.
It seems to indicate that the margin of advantage that would be involved for manufacturers and wholesalers in rounding the figures is quite small, so small that I do not believe it could be said to outweigh the disadvantages which I have outlined both as regards possible effects on prices and as regards perhaps having to impose some other form of taxation to make up the loss of yield.
Let us take a decision.
I am afraid it is still far too complicated. This is the kernel of the Bill and if we have to spend a long time on it it is well worth while. I believe the remainder of the sections will go reasonably fast.
I do not want to rush the meeting although naturally I want to get it over as soon as possible. As I see it if we could finish tonight with the rounding-off part of it we would have made progress. We are inclined to spend a lot of time on scoring debating points and I think that is a pity.
It is a very useful discussion.
The Minister has not really dealt with my objection to it, that is that people are frightened off this type of figure of 5.26 and 16.37.
Does the Deputy appreciate that the argument I have been making has been related to manufacturers and wholesalers?
I appreciate it.
In that case I am sure he will agree with me that those people are unlikely to be frightened off by 5.26 per cent.
They will not like it.
Does the Minister agree that it applies to all retailers who are delivering goods on invoice on a credit basis, of whom there are many thousands in this country? I suspect there must be quite a high proportion of total retailers who operate on credit.
He would have to be delivering to a registered customer.
I think Deputy Fitzpatrick is right. He may have to calculate, although Deputy FitzGerald says he does not do it that way, but he has to include it in the price he charges but does not have to show it to the unregistered customer.
I should like to deal with the Minister's point about the number of people who will be fully equipped and have the type of mechanisation that will do these calculations. I admit that whilst they exist they are small in number and, indeed, in proportion to the total turnover of the country I would say that the small fellows nearly equal them in volume. Take a manufacturer with five, six or ten people. He will hardly have an accountant much more qualified than somebody who has done bookkeeping and typing. It is all right for other firms who have the mechanised means and who run their business on a proper organised basis. I know from experience, and I do not want to put the case for the Chamber of Commerce here, that traders all over the country subscribe to the simple method of rounding-off figures rather than a difficult calculation, if it has to be done by a leaving certificate person, maybe a girl who is not very good at mathematics and has not done mathematics or by a bookkeeper who has to do a lot of calculations.
I submit that they know what they are talking about and when they recommend a rounding-off they are doing it in the best interests of the operation of this scheme. The alternative is—and I am afraid to say this because I know the Minister will not particularly like it—that they round these figures off to the nearest even and easy to calculate figure. It would be easier to calculate the figures. This will be done upwards, rather than downwards in its application, I would say.
I have to take a question on the adjournment in the Dáil this evening, and would like to prepare for it.
We will finish up now. We have arranged to meet from 2.30 p.m. to 5 p.m. tomorrow.
The Committee adjourned at 10.5 p.m. until 2.30 p.m. on Thursday, 22nd June, 1972.