I want to take things a little further from last night. I have been thinking over what was said last night. I am not too happy with the position when I think about it. What was put to us last night was that these particular larger stores had had an advantage when the wholesale tax was introduced because, owing to the method by which they were required to operate, they did not have to pay tax on their stocks, whereas, it was suggested that smaller firms did have to pay tax on their stocks. As a result, for a period of a month or two afterwards, the larger stores were, it was suggested, at a financial advantage through either being able to sell cheaper or to make larger profits. Indeed, there was some little discussion as to whether they would have been likely to sell cheaper or to make larger profits. On thinking it over I wonder where there is any validity in this at all because, surely, the smaller firms who are non-registered, would not have paid tax on their stocks; they would, in all their subsequent purchases, have to buy tax-paid goods and, therefore, any purchases of theirs subsequently would be ones that would have paid tax and they would have, therefore, to sell at a correspondingly higher price. My understanding is that it is no more required of smaller firms, which are non-registered than of the larger ones which are registered to pay tax on their stocks and the suggestion that there was some kind of advantage which must now be compensated for does not seem, therefore, to have any validity if I am properly informed. In fact, what is now proposed, that is, to give a remission of wholesale tax on the difference between the stocks then and now, amounts to retrospectively requiring the payment of wholesale tax on stocks held at the moment the wholesale tax was introduced and requiring this only of the larger firms on whom this method of taxation was imposed, no such requirement being imposed on the smaller firms. This seems to me grossly inequitable, if I have got it right. Again, I do not want to waste time pursuing a line that could be wrong but I am informed and I have checked it out since last night to make sure that I have it right that what was put to us last night, the distinction between the larger and smaller firms as regards the payment of wholesale tax on stock-in-trade at the time the wholesale tax was introduced, is in fact incorrect; that when we were talking of how the benefit of that was passed on, how stocks were kept, it was all illusory, that, in fact, they were in no different position from the smaller firms. I wonder is that correct or not. If it were correct, it would of course transform again the position from the point of view of the proposal the Minister has made.
SECTION 34 (RESUMED)
I have here a document which was presented to the Revenue Commissioners and perhaps the Minister might tell us what the position was. This document does appear to have certain information—I do not know whether it is correct or not—in relation to this. It says:
The position of stocks during the transitional period will have to be watched carefully. There will be delayed tax credit for wholesale tax or turnover tax already paid on stock.
Who told them this or in what way will this be operated?
Depending on the tax liability under value-added tax this could distort buying patterns. It might particularly distort buying patterns in, say, buildings, plant and machinery if the Government agree to extend to these items any wholesale or turnover tax already embodied in them.
May I ask the Deputy what firms does that relate to? Is that the firms which are non-registered—retailers?
No; this is from the Dublin Chamber of Commerce.
Surely it relates to non-registered retailers?
No; why should it?
The application of section 34, as I understand it. Perhaps I am wrong.
I am not sure. I think Deputy FitzGerald may be right in what I am surmising is his point. Could I come back to what Deputy FitzGerald was saying? I do not like to repeat myself but I did make the point a few times last night—two points—and I want to make them again. First, I do not think the question of whether the firms we are discussing had a trade advantage or not is, strictly speaking, relevant. What we are discussing is their liability for tax and whether they are being taxed twice. What I am suggesting is that the method we have proposed to deal with this results, not in their being taxed twice, but in their being taxed precisely on the amount of turnover they had in relation to goods subject to wholesale tax. The other point I want to make is: Deputy FitzGerald has referred a few times to large firms having an advantage as against small firms. I want to repeat, there are a number of small firms in precisely the same position as the larger firms. Again, while it may be of some relevance in practical terms of considering whether there was a competitive disadvantage or not, I think if we could confine ourselves to seeing whether we are satisfied that the arrangements proposed are in fact operating on the basis of these firms, large or small, paying the amount of wholesale tax which is attributable to the amount of goods which they handled, then that is the right approach for us.
The arrangements which I described are not a device thought up by the Revenue Commissioners. They are a follow-up of the legislation which governs the operation of wholesale tax.
These people were legally operating on the basis of estimated figures. However, the period during which that could be done is coming to an end with the introduction of VAT. What is involved is correcting the estimate on which they have been operating in order to ensure that the right answer is obtained, because, clearly, it could have been an over-estimate or an under-estimate. I have here some figures based on the kind of example I gave last night. If I distribute them they might be of some help in clarifying the issue.
With regard to the parties who came under this agreement in 1966, the firms concerned were required to register for wholesale tax. A firm who sold goods to the value of £500 per month or more by wholesale was legally required to register and to be accountable for wholesale tax. Big firms who sell goods to smaller firms, who in turn resell them, generally are legally required to register for wholesale tax. The next question that might be asked was how could they operate the tax and a special arrangement was worked out for them. There were certain advantages in a firm registering and they appreciated it at the time.
By registration a firm can buy its goods free of wholesale tax whereas if it is not registered it would be charged a tax-inclusive price. That could be important and there could be a liquidity element in it depending on the period of credit the firm might obtain from the suppliers. Another substantial advantage at the time was that a registered firm could import all its goods free of tax without having to declare and segregate them at the point of importation and without having to pay the tax immediately, which it would have to pay if it were not registered.
Another consideration was regarded as important at the time. Where there were outstanding debts at the commencement of the tax, there was a statutory right, in the case of an unregistered person, on the part of the supplier to increase those debts by the amount of the wholesale tax at the commencement of the period. By registration the firm was able to avoid any addition to the debts at the commencement.
The true comparison seems to be not so much between the registered and unregistered person but rather between two registered traders, one of whom is accounting for tax on the legal basis, namely, the money received on sales, and the other who is accounting for tax on an estimated basis agreed for everybody's convenience in 1966. On that comparison, the adjustment of the stock-in-trade will take any inequality out of it. It will give approximately the same result as if the trader had accounted for tax on the cash received from sales during the entire period.
(Dublin Central): When the wholesale tax was introduced, did they give an estimate of the stock-in-hand, of goods subject to wholesale tax?
There was no obligation in this matter. It was not relevant at the time.
As I understand it, the firms who are required to operate in this way were ones whose turnover of goods in respect of which wholesale tax will be payable exceeded £100,000. In fact, by definition, they are the larger rather than the smaller firms. It could be divided into the larger firms with sales in excess of this figure and smaller firms whose sales were less than this figure.
That is a small point. I do not think that a wholesaler whose turnover is in the region of £100,000 would be regarded as being a large wholesaler.
The point is that this is the total in respect of retailers who are brought in because their sales exceed £100,000. These are relatively large retailers. There is a division between retailers of more than £100,000 sales and those with sales of less than that amount. I listened carefully to what the Minister said in reply but it did not seem to me that what he said adverted to the point I had made. He scouted around the question of whether there was a commercial advantage. I would like him to let me have a clear answer on this: is it not the case that as between a registered firm of retailers, retailers required to register because of this provision here, and a non-registered retailer, in both cases no tax was payable or paid on the opening stock when wholesale tax began?
That is true.
What is being done now is to say to the firm which, because their turnover exceeded £100,000 and because they were required to register on that account, "you are now going to have to pay wholesale tax on your opening stocks as they were when wholesale tax was introduced". That is the effect of saying they will have to pay tax on their stocks now but a firm which was unregistered and whose sales were less than £100,000 are not being required to pay wholesale tax on their opening stocks. That is a clear inequity. and imposes a very heavy burden selectively on people who are being brought within this scheme for the convenience of the Revenue Commissioners. I have heard no argument that justifies a retrospective position of wholesale tax on the opening stocks of firms. I cannot accept that we should now discriminate against them.
I do not like repeating myself but I have suggested on a few occasions that what is relevant here is whether the people concerned are being asked to pay more tax than, legally, they were liable for, or whether they are being asked to pay the correct amount of tax on their turnover. Deputy FitzGerald has not addressed himself to that question. I would suggest that the figures which I have circulated illustrate the way in which this operates and that what is happening is that over a period of years there has been, in effect, a growth each month as they increase their stocks, in the amount of tax which they overpaid. What we propose to do is to adjust the estimate so that they would now pay the correct amount of tax. If there is something inequitable in that I am not aware of it.
Can the Minister explain why he is applying this principle o one set of firms and not to others?
Because of the different method by which this was dealt with, the other firms have paid the tax on the goods each month.
Could the Minister explain how it is that one firm are now being required to pay on the opening stock and another not so required although both are paying appropriate tax on their sales?
Deputy FitzGerald may not be taking account of the different method by which the tax was assessed. In the case we are talking about here they were paying on an estimated basis while the other people were paying on an actual basis. The result of this is that the estimated basis, because of stocks increasing month by month, has accumulated during the years to give the kind of situation that we illustrated in the figures circulated.
I have looked at those figures but I do not understand the position. Recognising that one lot are paying on purchases while the other lot are paying on sales, and recognising that both should pay the same amount I wonder how it can be achieved that both would pay the same amount if one lot find that their opening stock is free of taxation now and in the future, while the other lot have to pay on their opening stocks since 1966.
In this case it seems to me that both Deputy FitzGerald and the Minister are trying to achieve the same end but the question is whether this is being done.
It is a matter of fact.
From what has been said here this morning it appears that there is some danger that this will not be done. I would like a little more clarification from the Minister on it.
As a means of getting that clarification, could the Minister go over an example with us and take, first, the actual opening stock, purchases, sales and closing stock and tell us exactly what tax should be paid by a man who, originally, was unregistered and also by a man who was registered? Let us see, then, whether the amount would be the same.
This table represents a comparison between the two types of registered persons. It may be that the difference between us is that we are not comparing the same category of people.
I am dealing with a straight comparison between the man who is required to register because of his sales amounting to more than £100,000 and the man not required to register. If the Minister wishes to introduce some other comparison later, he may do so.
We are talking about liability for wholesale tax. Therefore it seems reasonable that we should compare the position of people who are wholesalers and who paid tax with other wholesalers——
With respect to the Minister I am raising a point in respect of firms which were required to register because, although they were retailers, their sales exceeded a certain figure and firms who were not required to register because their sales were below a certain figure.
I am not dealing with a different point. I am dealing with the point which I think is relevant.
It is different from my point which I think is relevant.
The relevance of the point I was making was this: there is nothing in the legislation on the lines of what Deputy FitzGerald has been following, that is, anybody with sales of more than £100,000 having to register. No retailer was required to register for wholesale tax because of the size of his turnover. Any retailer who was solely a retailer and who registered for wholesale tax did so because he chose to do so. Nobody was compelled to do so. That is why I say the comparison is valid.
"Persons who must register".
I am telling the Deputy that is not in the legislation and did not govern what was done. That is why the comparison between two types of wholesalers is valid.
This leaflet was issued by the Revenue Commissioners.
They read that and, accordingly, registered.
(Dublin Central): Whoever takes the opposite of the wholesale operations.
A retail firm is issued with this in December, 1966 and it says specifically: "Persons who must register: The following persons are accountable and must"—in black type—"register"; and the third category is "retailers whose purchases of taxable goods in value and character are such as are made in the ordinary course of trade by wholesale merchants; persons who carry on a purely retail business will not be regarded as coming within the category unless their annual sales of taxable goods exceed £100,000 a year. Any retailer whose sales of taxable goods exceed this figure should get in touch with the Revenue Commissioners".
"Should get in touch with the Revenue Commissioners"—that is the important phrase—and if he got in touch with the Revenue Commissioners he was told, "If you wish to register there are certain advantages and you register but we are not compelling you to do so.
This is the kernal of the point because, in fact, on page 9, paragraph (4): "Accountable persons and registration: Persons who must register", it says—(a), (b), (c)—"retailers whose annual sales are over £100,000". I am prepared to agree that this information might be wrong.
It is a bit late to tell retailers now.
What date is it?
This is December, 1966.
If the Deputy has the July, 1970 one he will find it confirms what I am saying.
Sorry. We are talking about people who did register. Is there anything in the 1970 one which says that those who did register in error then can withdraw or are not required to continue? We are not arguing over it. It is just a question of getting the matter clarified.
The fact is that even the earlier version said in the case of people whom Deputy FitzGerald and Deputy Tully are talking about that they should get in touch with the Revenue Commissioners.
Because they must register.
No, sir. What it says is, "persons who must register" and among the (a), (b) and (c) are "manufacturers whose sales of taxable goods exceed £150 a month in value; wholesalers whose sales by wholesale of taxable goods exceed £500. Persons who carry on a purely retail business will not be regarded as coming within this category unless their annual sales of taxable goods exceed £100,000 a year".
Nobody has any doubt as to the position.
"Any retailer whose sales of taxable goods exceed that figure should get in touch with the Revenue Commissioners at once, if he has not already done so".
Will the Deputy note the difference of approach in those cases from the other cases?
I am prepared to agree that such appears.
The facts of the situation are, as I said, that such people were not compelled to register. A number did register because it suited them. They were not compelled to, and even the wording of the earlier version confirms that they were being treated differently from wholesalers.
Will the Minister agree that anybody who read that "must register" could very well have registered because he felt he was obliged to?
On page 10 it says: "persons who may register: the following persons may apply for registration: manufacturers who use taxable goods of a value on an average exceeding £100 a month; (b) a retailer whose purchases of taxable goods do not exceed £100,000 a year in value but who is an accountable person for taxable goods". That copperfastens it.
The ones under £100,000 may register. That clearly implies that anybody over that must register. Nobody could read it any other way.
All I can tell the Committee is what happened and I am suggesting that the wording of both the 1966 and the 1970 version of the Guide to the Turnover and Wholesale Tax confirms, if it is examined closely, what I am saying; but what we are concerned with is what actually happened and what actually happened is that retailers, no matter how large their turnover was, registered only if they wished to. The Revenue Commissioners did not compel them to do so and, therefore, the comparison we should make is between wholesalers who were paying on one basis and wholesalers who were paying on another basis.
We are talking of fact. If that is the fact, the only way we can deal with it, I would suggest, is that as the Minister has given his word that that is so, we will have to accept that.
I accept that. But, we are not talking about wholesalers. We are comparing a retailer who happened to have a small amount of wholesale trade—as the Minister described earlier, some of these firms have—with a retailer who has not. Let us take that comparison. Here we have a factor of the retail sales of such person who has also a small wholesale business, which need not concern us here, because nobody is arguing about how it is to be taxed. Here is a retailer and these are the retail sales of the retailer, in one case a retailer who has also a small wholesale business and the other case who has not. In the first case he is forced to register. In the second case he is not. In the first case he is now being required to pay tax retrospectively on his opening stock. In the second case he is not. Will the Minister address himself to that and tell me on what grounds he makes the statement? Secondly, would he like to go over the example and tell us in regard to the two cases just how much tax the two would have paid?
In answer to the first question—on the grounds that this is the only way by which one can ensure that such people pay the full amount of tax for which they are liable. If this transaction is followed through—the accountancy principle involved—it will be seen that that is what is achieved by doing it this way.
Let us follow it through because I do not understand it and I would be glad to be convinced that the Minister is right.
The Minister went right through it last night. I had no difficulty at all in understanding it.
I still do not understand how in one case you charge tax, on the opening stock and in the other you do not. They are both put on the same footing. So perhaps we could look at this example which we have not had until this morning.
These are just words. The explanation we got last night was crystal clear and it was gone over twice in two different ways.
The Deputy has the advantage of me in that. We have not had this example up to now. In the first case the man was a pure retailer. He did not pay tax on his opening stock; he pays tax on his sales. Now he pays tax on £1,140. Is that right?
That is right—for a normal wholesaler.
The other man has a small wholesale trade and he is required to register. He was not required then to pay tax on his opening stock. He has been required since to pay tax on his purchases. He has by now paid tax on £1,340. He is now being asked also to pay tax on the £100 opening stock. He would have paid tax on £1,440. I have gone wrong somewhere possibly but that seems to me that he is paying more tax than the other fellow but perhaps I have left something out. The Minister is going to remit tax on the difference. That brings him down to £1,240. He still would have paid £100 more tax than the other man. Where am I wrong?
The difference is in the deduction which is made. The first person pays tax on £1,140. The second trader initially paid tax on £1,340 and, if no adjustment were made, he would have paid tax on £200 more than the first man. The proposed reduction is the difference between the closing stock and the opening stock, which is £200. If he gets that relief, it brings him down to a net liability of £1,140, which is the same as the other trader.
But I understood that he now has to pay tax on the opening stock also.
That is the third time it has been explained and three times is enough for anybody.
Deputy FitzGerald has been blinded somewhat by this talk about the opening stock and the closing stock. I did say that if you follow it through you will find that the accountancy effect is that the person concerned is paying the appropriate tax on his sales from the beginning of the period to the end. It does not matter whether you regard it as being on the opening stock and being on the closing stock and taking the difference. That is blinding. The real fact is that he is paying, in effect, on the actual turnover from the beginning of the period to the end. That has been illustrated just now in the figures. It comes out at precisely the same figure.
The Minister says he is not going to be required to pay tax on the opening stock as well as on £1,340 less £200.
The Deputy can interpret it that he is or he is not. It is the result that we are concerned with, that he is paying the same tax, which is the point we have been trying to get out all the time.
Let me hasten to add that as far as we are concerned, no retailer with a turnover of £100,000 has approached me to make representations for him. There may be some of them around. They have not come to me. Perhaps they have gone to Deputy FitzGerald. I would suggest that we have discussed this matter for a very long time and we have got certain assurances from the Minister and I would suggest to Deputy FitzGerald that possibly we will not succeed in getting any further with it no matter how long we may argue here and, if necessary, the matter can be raised at a later date. That is the simplest way to deal with the matter.
I accept that. I think we have got confused because of this reference to paying tax on the opening stock.
I concede this could be confusing, but if Deputy FitzGerald will look at how it was done he will find it would have been impossible to explain it without referring to the opening and closing stock.
As usual, I find the arithmetic example very helpful.
This might have been looked at from an accounting point of view. It is a matter of having experience of accounts and how to handle them.