I move: "That the Bill be now read a Second Time."
Deputies will recall that in my Budget Statement I proposed a number of changes in the field of taxation. The Bill contains the provisions required to give effect to those proposals as well as provisions on a number of matters, notice of which was not given in either the Budget Statement or in the Financial Resolutions. I shall draw attention to these in the course of the review I propose to give of the contents of the Bill.
Part 1 of the Bill deals with income tax, including sur-tax. Section 1 imposes income tax and sur-tax at percentage rates corresponding to those for last year, but the reduced rate on the first £100 of taxable income is abolished under section 2. While this means an increased liability of under £12 a year for some taxpayers, the raising of the minimum earned income relief by £25 under section 6 will ensure, as I said in the Budget, that about 20,000 taxpayers are removed from the tax net and that many others will pay less tax than they did last year. Under sections 7 and 8 the "age allowance" and "small income relief" are increased commensurately with the minimum earned income relief.
Additional tax relief is provided for certain hardship cases and for persons eligible for social welfare benefits. Section 9 enables an unmarried mother who is working full-time and undertakes the care of her child to claim the ordinary "housekeeper allowance" and section 11 introduces a new allowance of £100 for a blind person and of £200 where husband and wife are both blind. The income limit for the purposes of the dependent relative allowance is raised by section 10 to £243 which is the annual equivalent of the non-contributory old age pension as increased in the Budget; while section 12 allows a deduction for income tax of that part of the contributions under the Social Welfare Acts which is referable to the new death grants and retirement pensions. Neither of these last two provisions was mentioned in the budget.
The only other provisions in Part I of the Bill dealing with matters not previously announced are in section 19. Some local authorities have been advised that they do not come within the scope of section 17 of the Finance Act, 1970, relating to the scheme of collecting income tax from sub-contractors.
Subsection (1) of section 19 removes doubt in this field by effectively requiring local authorities, housing associations, housing trusts or housing societies who have in fact deducted tax from payments made under construction contracts to sub-contractors since the scheme came into operation on 6th April, 1971, to remit the tax deducted to the Revenue. Where tax was not deducted from payments made since the commencement of the scheme, the body in question may be required by the Revenue Commissioners to furnish particulars of such payments and must make such deductions in respect of payments made after the passing of the Act.
Subsection (2) of section 19 imposes a 1 per cent rate of interest for each month during which tax deducted from sub-contractors after the passing of the Act is not remitted to the Revenue. The same rate applies to unremitted PAYE, turnover tax and wholesale tax.
I now come to the provisions designed to combat certain avoidance tactics. Section 3 ensures that, if on the cessation of a trade or profession in 1972-73 or a later year, the actual profits in the two years preceding the last year of assessment are greater than the profits charged in those two years, the actual profits will be brought into charge instead. Section 4 charges to tax foreign income of an Irish resident which is not remitted here but is applied abroad instead to repay a loan made on or after budget day and enjoyed by him in this country. Section 14 enables income settled by a parent on his child to be brought into charge where the child is under 21 and unmarried at the time of payment.
As announced in my Budget Statement, I propose to tighten-up the arrangements for the collection of income tax in arrear. In this regard, section 15 has three main features: first, the rate of interest on unpaid tax is increased to 9 per cent per annum; second, the interest-free period allowed for payment is reduced to two months; and third, a taxpayer will no longer be allowed an interest-free period up to the time an appeal he has made is finally determined, unless he has made an agreed payment, or a payment which, while not agreed, proves to be not less than 80 per cent of the tax involved, within two months from the due date and pays any balance owing within two months of the determination of the appeal. Where an agreed payment was made, section 16 enables repayments of overpaid tax to be effected with interest at the rate applicable to overdue tax.
Section 17, which is a follow-up to section 15, requires tax due in accordance with a determination of the appeal commissioners to be paid before the appeal is re-heard by the circuit court. If, as a result of the re-hearing, tax is found to have been over-paid, repayment under conditions similar to those in section 16 will be made.
Sections 15 and 17 will come into effect on the passing of the Act.
Where it is discovered that tax was undercharged because of fraud or neglect, section 18 enables interest to be collected at the rate of 9 per cent from the date the tax ought to have been paid. The section will not, however, affect tax chargeable for any year of assessment prior to 1971-72.
I announced a number of tax incentive reliefs in the Budget and these are also provided for in Part I of the Bill.
Section 5 treats as a business expense the cost incurred in obtaining, for the purposes of a trade, the registration, or the renewal of registration, of a trade mark. Under section 13, the enhanced industrial buildings allowance of 20 per cent is extended for a further two years up to 31st March, 1973.
Because of the need to expand the industrial sector of the economy and to increase the opportunities for employment of our people, it is essential to provide a strong stimulus to immediate further investment by all our industries. I am accordingly making provision, in section 24, to extend free depreciation to the whole country, so that the full cost incurred on acquiring new plant and equipment brought into use within the next two years may be written-off whenever the taxpayer chooses.
As free depreciation is already available to the designated areas, I am making special provision in sections 20 to 23 for a 20 per cent investment allowance in respect of the cost of new plant and machinery for use in those areas. An industrialist in the West will, in effect, be able to write-off up to 120 per cent of such cost in the first year if he so wishes. The investment allowance will also be operative for two years up to 31st March, 1973. To prevent abuse, however, it is necessary to provide for its withdrawal if the assets in question are sold either without every being used in the trade or within two years of being brought into use.
Part II of the Bill relates to customs and excise. Sections 25 and 26 provide for the increases already announced in the customs and excise duties on beer and spirits. The provisions in section 27 and 28 have not previously been announced.
Section 27 removes the requirement that certain vodka of United Kingdom origin must be warehoused for at least three years before being delivered for home consumption. This requirement does not apply to comparable Irish-made vodka and the disparity of treatment is held to be discriminatory against vodka of UK origin under the terms of the Anglo-Irish Free Trade Area Agreement. The United Kingdom have already removed the disparity and it is proposed, under section 27, to take similar action here with effect from 1st July, 1971.
The introduction of modern techniques in customs control of large numbers of passengers and their baggage, particularly at airports, requires alterations in the existing legal framework which is based on the premise that each passenger coming into the country is questioned by a customs officer. Under section 28, individual questioning may, in effect, be dispensed with and a "self-selection" or "dual channel" system used instead. The basis of this system is that the passenger may choose to go through a "nothing to declare" channel, where he will be subject only to a spot check, or to go through the "goods to declare" channel. With the ever-increasing growth in passenger traffic, I am satisfied that the adoption of the dual channel system will facilitate the clearance of passengers without increasing the number of customs staff or opening the door to serious smuggling.
I now come to Part III of the Bill which deals with death duties. Section 29 is purely a technical provision designed to remove doubt in relation to the definition of the expression "death duties" and it does not impose an extra charge on any property or person.
Section 30 increases the rates of estate duty on estates over £55,000 as announced in the Budget. It is sometimes alleged that the liability to estate duty may influence wealthy individuals in deciding whether to take up residence here. Our highest rate was reduced in 1961 from 53 per cent to 40 per cent, as against a maximum of 80 per cent in Britain, but in the past 10 years there has been no evidence of an influx of wealthy persons. Even with the proposed maximum rate of 55 per cent, the rates on estates over £55,000 in Ireland will be significantly below the effective rates on corresponding estates in Britain. With the increased abatements of £1,500 for a widow and £750 for each dependent child now proposed in section 38, the rates of duty on estates in any range passing to a widow, whether or not with dependent children, will be much lower than the effective rates prevailing in Britain.
Section 31 provides, subject to certain exceptions, for an increase to 9 per cent, in the rate of interest on death duties in arrear in line with the rate proposed under section 15 in respect of unpaid income tax. The new rate of interest will not, however, come into operation for a period of four months after the date of the passing of the Act. The purpose of section 32 is to prevent loss of revenue by ensuring that, in addition to the executor, trustees, beneficiaries, surviving joint tenants and present owners will be accountable for estate duty in respect of property vested in them of which the disceased was competent to dispose.
Section 41 provides new penalty provisions, in lieu of those referred to in the Third Schedule to the Bill, for failure to comply with the provisions of the Acts relating to estate duty. The remaining sections in Part III contain anti-avoidance measures.
Section 33 is designed to prevent avoidance of duty through the exemption for objects of national, scientific, historic or artistic interest, while section 34 tackles the device known as "grant and lease back". Last year, we found it necessary to prevent avoidance of duty through the medium of private companies and, this year section 35 contains further provisions aimed at closing this avenue of avoidance. Section 36 prevents avoidance of duty by devices involving the purchase of land outside the State. Section 37 abolishes the reduction in the value for duty of gifts made at any time within five years before death and section 39 seeks to prevent avoidance by applying the market value, instead of artificial valuation, to agricultural land which is sold within six years of the death or date of the gift.
Section 40 restricts the existing exemption from estate duty of gifts made in consideration of marriage. This proposal has aroused a certain amount of criticism both inside and outside the House. I should like, therefore, to explain it in the general context of the anti-avoidance measures contained in Part III of the Bill. As Deputies are aware, the question of introducing a tax on wealth, or on capital gains, has been widely discussed in recent years and I have given it a good deal of consideration. Estate duty is, in effect, the only form of tax imposed on wealth in this country. Because of the methods of avoiding it which have been devised over the years by experts specialising in this field of taxation, estate duty has been stigmatised as a voluntary tax— one which you can easily escape if you want to. I have come to the conclusion that the first step to take in the taxation of wealth is to bring our present rates of estate duty up to a more realistic level and to ensure as far as possible that the tax is fully enforceable. Part III of this Bill is designed to raise the rates and to close off the avenues of escape which we know are widely used at present. While these measures are estimated to produce about £¼ million extra revenue this year and about £1 million in a full year which will, of course, be very welcome, the main purpose of Part III of the Bill is to counter tax avoidance.
The restriction proposed in section 40 forms part of this general design. The main criticism directed against the proposal is that it is anti-social as it will discourage elderly parents, and farmers in particular, from transferring their property to their children when they marry. I think this criticism is not well founded. In the first place, I believe that parents who wish to give their property to their children will do so irrespective of the estate duty position. In the second place, I consider that the unrestricted exemption which at present exists in favour of marriage gifts is not, in fact, as strong an incentive to parents to effect early transfers of property to their children as some people would have us believe.
Estimates of the numbers of gifts disclosed to the Estate Duty office during the years 1966 to 1968 indicate that an average of 1,000 gifts a year were made and of these 81 only were in consideration of marriage. The fact that such a transfer, if made within five years before the parent's death, will come within the scope of estate duty should, I believe, encourage parents to make the transfer at an earlier stage than they would in our present situation. In other words, it should have an effect directly opposite to that suggested by the critics of the section, by encouraging earlier transfers of property from parents to their children.
In removing the total exemption of marriage gifts and making them chargeable to estate duty if made within the five years before death, I am putting such gifts on the same footing as other gifts of property. This is, in fact, the situation which obtains in other countries such as Australia, Canada, New Zealand, the United Kingdom and the United States which have estate duty systems similar to ours.
I am, however, proposing a special concession in relation to gifts on marriage which in recent years have, as I have said, averaged 81 a year. The first £5,000 of such a gift made by a parent or remoter ancestor to a child or remoter descendant, will be totally exempt from estate duty irrespective of the time at which the gift is made. This exemption will also apply to a gift from one party to a marriage to the other party. The first £1,000 of a gift made by any other person in consideration of marriage will likewise be exempt from estate duty. As the bulk of gifts made in consideration of marriage do not exceed £5,000, I consider that these exemptions, together with the total exemption for all gifts made earlier than five years before the date of death, amply take care of any possible cases of hardship.
There is one further point I should like to make in refutation of the exaggerated statements about the dire effects this proposal will have in relation to agricultural land. It is this — that the artificial basis of valuation referred to in section 39 will continue to apply in relation to agricultural land unless the land is sold within six years from the date of death or date of the gift. This system of valuation is, together with the special abatements for widows and dependent children, of such enormous value to persons with agricultural land that out of an average of 2,560 estates paying duty in each of the years 1966 to 1968 less than 4 per cent are estimated to have been farmers. The number of farmers who will be affected by the present proposal will, therefore, be very small.
Some concern was expressed in the House on Budget day in relation to a farmer who makes over his land to his child on marriage and thus qualifies himself for an old age pension. Such transfers will not, of course, be brought within the charge to duty unless the farmer dies within five years of the transfer. If he did so die, the first £5,000 of the gift would be exempt; moreover, the artificial basis of valuation would be applied in respect of the land. If, despite these reliefs, there were still a charge to duty, I would remind the House that there would have to be substantial other assets in addition to the land. This would mean that the farmer, during his lifetime, would have had a worthwhile tax-free income from the farm, followed by an old age pension from the State when he transferred the farm. I do not think anyone will claim that such a man was unfairly or harshly treated.
Part IV deals with stamp duties. The purpose of section 42 is to extend the general exemption of ships to aircraft and, in particular, to ensure that no question may arise of charging stamp duty on certain instruments relating to the sale of aircraft by Aerlínte last October. Section 43 provides an exemption from stamp duty, similar to that in force in relation to remittances of PAYE, wholesale tax and turnover tax, in respect of cheques drawn on forms supplied by the Revenue Commissioners where tax deductible from sub-contractors is being remitted. None of these changes was announced in the Budget.
With the exception of section 44, Part V of the Bill which deals with corporation profits tax, is consequential on income tax amendments in Part I. The exemption from corporation profits tax of certain public utility companies, building societies and the Agricultural Credit Corporation is extended under section 44 for another year, pending the outcome of the current investigation into the operations of building societies by an interdepartmental working group.
Section 45 enables free depreciation and the investment allowance to apply for corporation profits tax purposes on the same terms as are provided for income tax in sections 20 to 24 of the Bill. Sections 46 to 49 apply, for the purposes of corporation profits tax, the interest provisions applicable to income tax in sections 15 to 18 of the Bill.
Finally, I come to Part VI of the Bill: Section 50, which is an annual provision, fixes the annuity for the redemption of the debt incurred on voted capital services in 1970-71 and 1971-72. Section 51 increases the excise duty payable by firearms dealers from £1 to £25, except that the duty payable by dealers in ammunition for "sporting" guns will be £3. This is a new provision which was not announced in the Budget. Its specific purpose is to induce as many dealers as possible to confine themselves to dealing in "sporting" ammunition and it effectively forms part of the measures that have been passed by the House under the Firearms Bill, 1971, to secure a tightening-up of the existing statutory controls on firearms. Sections 52, 53 and 54 are self-explanatory.
I commend the Bill to the House for a Second Reading. The detailed provisions are summarised in the explanatory memorandum circulated earlier but I shall be glad to deal with any points on which Deputies may require further information or clarification.