With your permission, a Cheann Comhairle, I propose to make a short statement before taking the first amendment.
Finance (No. 2) Bill, 1971: Committee Stage.
Is the Minister saying he has to make so many changes that he wants to withdraw the Bill and introduce a new one?
Certainly not. The Bill got its Second Reading in the House on 10th November, 1971, and, in view of the length of time which has elapsed, I feel that it might be helpful to Deputies if I recalled very briefly the main outline of the proposals and summarised the principal changes which I propose to recommend in Committee.
The Bill provides for a value-added tax to replace the existing turnover and wholesale taxes at rates which correspond as closely as possible to the rates of the present sales taxes, so that there should be little or no disturbance of the level of prices generally. The value-added tax differs from a single stage tax, such as the turnover tax or the wholesale tax, in that each stage in the chain of production and distribution, from the manufacturing stage to the retail stage, will be liable to value-added tax at the appropriate rate but, at each step, the tax paid at previous stages is allowed as a deduction against the tax due at that stage, thus ensuring that there is no cumulative effect on final prices. The rates of value-added tax proposed in the Bill are—
5.26 per cent for items such as food, clothing, fuel, medicines, newspapers and periodicals, transport, drink, tobacco and petrol and for most services.
30.26 per cent for motor cars, television and radio sets, gramophones and records and the other goods at present liable to the higher (20 per cent) rate of wholesale tax.
11.11 per cent for dances only, and 16.37 per cent for the balance of goods and services apart from those being zero-rated or exempted.
In the course of my speech on Second Reading of the Bill I said that a number of minor changes, principally of a drafting nature, had been found to be necessary and that I proposed to introduce amendments for these on Committee Stage. Since then consultations with the various trading interests concerned have continued. I have considered carefully all the representations received and have decided on several important changes in the proposals as contained in the Bill. Official amendments in relation to these changes have already been circulated and I shall move these amendments in connection with the relevant sections, but since certain individual changes will require amendments in more than one section it will, I hope, be of assistance to the House if I give a brief outline of the significant alterations proposed.
As Deputies are aware, it is intended that the tax should commence on 1st November next. As I have promised trading interests that a preparatory period of three months will be allowed between the enactment of the Bill and the introduction of the tax, it is essential that the Bill should be enacted by the end of July at the latest if the 1st November date is to stand. It is necessary to delete the commencement date of 1st March, 1972, from the Bill and I have thought it better not to substitute any other date but to provide that the commencement date be fixed by ministerial order.
In the course of consultations, particularly with manufacturing interests, it has been strongly represented to me that the proposals in the Bill under which the taxable period would be a calendar month and the tax would be payable by the 19th of the following month would cause serious problems in regard to liquidity for some firms. It was suggested that either the taxable period should be increased substantially or that a longer period should be allowed for payment. In considering what changes should be made I was very conscious of the fact that the yield from VAT will be approximately the same as the yield from the present turnover and wholesale taxes and that, therefore, changes in liquidity should be very much a matter for adjustment between traders themselves. Any worsening of liquidity at the manufacturing stage is likely to be counterbalanced by an improvement at the wholesale or retail stage. In those circumstances, since it was not considered feasible to have different taxable periods or different due dates of payment for different classes of persons, I have thought it proper to strike a balance between the position of manufacturers who are requesting total relief for their liquidity problems and the position of many wholesalers and retailers on whom a substantial benefit will be conferred by the change to the VAT system. I am proposing, therefore, that the taxable period should be increased from one month to two, but that the latest due date for payment, that is the 19th day of the month following the end of the taxable period, should remain unaltered. This amendment should go a long way towards meeting the problems of manufacturers, and since it will at the same time improve the liquid position of most wholesalers and retailers it should make a considerable contribution towards the stabilising of retail prices.
The concession in regard to the lengthening of the taxable period will slow down the flow of revenue to the Exchequer and there will also be a once-for-all reduction in yield in the first financial year. In order to minimise these losses it is essential that tax be paid promptly and I am proposing that there should be a minimum interest charge of £5 for arrears of tax. The present interest charge of 1 per cent per month has been found in practice to be too small to induce certain traders to keep up to date with their payments. These traders will, in general, have their liquid position substantially improved through the lengthening of the taxable period and it is reasonable that if they default in payment, the interest charge should be sufficiently high to go some way towards meeting the costs of collection.
There have been further discussions in relation to the effect of VAT on agriculture and I accept that a case has been made for simplifying the provisions relating to unregistered farmers and fishermen. In this connection, I am proposing two major changes. First, I am proposing amendments to the Second Schedule under which a zero rate of tax will apply to processed animal feeding stuffs, to fertilisers and to fishing nets. Secondly, I am taking power by order to enable repayment to be made to unregistered farmers of tax suffered in relation to their farm buildings and to fishermen of tax suffered on purchase of their fishing boats. These two concessions will allow reduction to 1 per cent of the flat rates referred to in section 13 of the Bill which unregistered farmers and fishermen may pass on as tax qualifying for credit on their sales to registered customers.This rate will be sufficient to compensate the farmers and fishermen for the tax suffered on the balance of their input costs.
The zero rating for feeding stuffs and fertilisers will be restricted to sales in units of not less than 10 kilograms which is the equivalent of some 22 lbs.
I have already mentioned that I am taking power to enable repayment of tax to persons who fulfil certain conditions and I shall exercise this in circumstances in which it would not be feasible to exempt or zero rate the goods or services on which the tax was charged but in which, nevertheless, it would be right and proper to give relief to the individual to whom the goods or services were supplied. Examples of the type of case which might merit consideration for treatment under this provision are—television sets for the deaf, and guide dogs for the blind.
Apart from this, and to give greater flexibility in the operation of the tax, I propose to take power to reduce by order the rate of tax chargeable on the supply of any particular class of goods or services.
It has been strongly represented to me that the present rate of sales taxation on caravans and mobile homes and also on yachts, cabin cruisers and other pleasure craft has hampered the development of businesses concerned with the manufacture of these goods, and has had an adverse effect on firms which hire them to tourists during the tourist season. It has also been argued that the high rate tends to make this aspect of the Irish tourist business uncompetitive.I am satisfied that there is substance in these representations and, consequently, I am proposing that the rate of value-added tax applicable to the sale of these goods should be reduced from 30.26 per cent to 16.37 per cent. This will also have the effect of eliminating any element of tax which will not qualify for credit in regard to these goods. Short-term hiring of goods of the type mentioned will, however, continue to be liable at the rate of 5.26 per cent only. Thus, in the case, say, of a firm engaged in the short-term hiring of cabin cruisers on the Shannon, tax will be charged at the rate of 16.37 per cent on purchase, but this will be allowed in full against the liability of 5.26 per cent on the hire charges of the boats. The result will be that the only tax effectively suffered will be tax at the rate of 5.26 per cent on the hire charges.
In introducing a new tax such as VAT, certain transitional problems will inevitably arise and in this connection I have announced that I was considering setting up a consultative council, on lines suggested to me by the Confederation of Irish Industry, to advise me in regard to these problems. I have decided to set up such a body. They will be known as the Advisory Council on the Transition to Value-Added Tax and will be representative of industry, trade, commerce and agriculture as well as of consumers. The council will operate for a period of three months before and three months after the commencement date of the tax.
May I say, first of all, that it is useful to have this summary of the changes introduced during this interval but I do not accept one statement of the Minister that through the tax rates being kept as closely as possible to the present sales taxes there will be little or no disturbance in the level of prices generally. In fact, as I understand it, the Bill has the effect of extending tax to transactions at present not liable to tax. Finally, I hope in this debate the Minister will have regard to the fact that it is a very complex Bill and it is not at all easy for the layman to understand it.
I could not agree more with the Deputy.
I may need a good deal of assistance from the Minister in clarifying points where I may be very unclear as to what the intent and the effect of the legislation is.
This is a most unusual procedure. I think the Minister has in fact made a number of changes and we are now in the extraordinary position that the Minister has made a Second Reading speech, which we agreed to, on Committee Stage setting out not what is in the Bill but the way he proposes to amend it. This is a rather extraordinary situation when we are considering the speech made by the Minister in relation to the amendments. The right thing would be to do what another Minister did before, that is withdraw the Bill and put in something which will contain all the things the Minister considers should be in it. It would be a speedier way of doing it.
There has been a great lapse of time.
The Minister, of course, explained the reasons why he made the statement with the permission of the Ceann Comhairle.
I am not objecting to him making the statement. I am saying that I regret he did not decide to introduce an entirely new Bill. It will be terribly complicated to attempt to debate amendments to some things on which the Minister has made his mind up, which are included in his speech, which are not included in the Bill but are included in the amendments.
It will be time consuming.
It will be a mess. However, let us not waste any more time.
SECTION 1.
I move amendment No. 1:
In page 3, subsection (1), line 17, after "1967" to insert ", and includes a partnership".
This is a drafting amendment which is designed to remove any doubt that the term "body of persons" may not include a partnership. The main definition is contained in section 1, subsection (1), of the Income Tax Act, 1967, but when the term is used in sections 100 (3), 291 (1) and 371 (7) of that Act it is specifically provided that it includes a partnership. In these circumstances it is considered that the amendment is necessary to ensure that any reference to "body of persons" will include a reference to a partnership.It is thought that it is covered but this is primarily to remove any doubt about the matter.
I am not quite clear where the doubt arises. It is an extremely untidy form of drafting to say that word or words have the same meaning as in another Act and then to go on to state something which casts doubt on that immediately. If in fact they have the same meaning as in the Income Tax Act then it is unnecessary.If, in fact, these words are necessary then it raises the question as to whether they have the same meaning as in the Income Tax Act.
Would it not be much better to state what the meaning of the words is without reference back to another Act? In stating the meaning in clear terms one could then make this point clear. Indeed, if the Minister wishes to leave it in this very untidy form the word "and" seems to be inappropriate. The word "but" would be more to the point. This purports to be in a sense a variation of the definition in the Income Tax Act. Unless it is a variation there is no point. I recognise it is a question of clarifying a doubt but it is not the right way to clarify a doubt. I would prefer to see "either body of persons" defined here in whatever meaning the Minister wants to give to it, which is apparently the meaning in the Income Tax Act, but specifically including a partnership rather than in this form. If he wants to do it in this form, which I am not very happy about, I suggest that the word "and" is very inappropriate.
I believe this amendment makes confusion more confounded. I am not objecting to it. If the Minister insists on putting it in this way I would not be prepared to vote against it. I honestly believe it would be much better if the Minister did not proceed with this amendment but put in for the next Stage an amendment which would, as has been suggested, quote the terms in the Income Tax Act, 1967, and add to it: "including a partnership". This would be a far tidier way of dealing with it. Perhaps the Minister might consider this.
It is a long time since I did any partnership law. In fact, I never learned a good deal about it but I would say that automatically a body of persons is a partnership. However, as usual the people who want to be quite certain of what they are doing are the Revenue Commissioners. I never can understand why it is that so many people can cheat the Revenue Commissioners. I am told this is brought about quite simply. They study what is done in England to tidy up things, and then they say: "Those fellows have not done it. Provided we do what they have been doing in England, which has now been tidied up, we can get away with it here." I do not mind the Minister defining a body of persons as including a partnership.I say that any partnership is a body of persons. Therefore, it does not follow that any body of persons is a partnership.
That is a point. I do not think it could be taken that any body of persons is a partnership having regard to the definition of partnership, which, speaking from recollection is the Partnership Act of, I think, 1890.
It is the Act of 1890.
That is the basic one. We repealed that and we passed another one here some years ago but it is the same definition basically of a partnership. The basic difficulty here is that the problem arises in the Income Tax Act of 1967 where it has, as I said, the main definition, in section 1 (1) of that Act. In the other sections to which I referred it specifically provides that it includes a partnership, not in the main definition. This is why we have this difficulty here. I would think we are making the matter clearer by this amendment. If the House accepts it now, I will undertake between now and the next Stage to look at it again and see if it can be made still clearer on the basis of Deputy Tully's argument.
And mine.
I will undertake to do that, but as one finds very often when one tries to tidy up something like this, it is far better left as it is.
I should like Deputy Tully to know that I stake my claim to part of the credit.
Amendment agreed to.
Amendments Nos. 2 and 4 are consequential and amendment No. 3 is related. Amendments Nos. 2 and 4 may be taken together and No. 3 by agreement.
Agreed.
Agreed.
I move amendment No. 2:
In page 3, subsection (1), line 27, after "development" to insert "in relation to any land".
These amendments are designed to correct typographical errors. The amended definition of "development" would be the same as that contained in section 16 (1) of the Finance (Miscellaneous Provisions) Act, 1968, in relation to the charging of income tax on profits from developing land.
Except that it is a necessary clarification. I am not quite convinced it is a typographical error and my amendment arises out of lines 28 and 29 being so worded as to bring within the ambit of "development" very small acts such as putting a nail in a wall. Anything which involves any change of any kind involves an alteration. Through an error in my case of a semi-typographical nature, I have put the word "substantial" in the wrong place. It should come before "alteration". I am trying to ensure that if somebody makes small changes in a building, of no consequence externally or internally, it should not apply unless there is some substantial change made.
I do not know how valid or valuable the word "substantial" is. I want to raise with the Minister, however, whether his definition of "development" is extraordinarily broad. The section refers to any act which alters the character of the building. Anything that is attached to it or detached from it is surely an alteration and therefore do we not want to define "development" as something that has some substantial effect on a building. Of course, "substantial" may not be the right word to use and I should like to hear the Minister on it. I am convinced that "alteration" unqualified could bring within the ambit of the Bill acts which would be unreasonably small because they would not make any substantial change.
I feel the entire section is too loosely worded for a Finance Bill. Perhaps if I were to do the job myself I would not do a better one but we must be precise and I do not think either the Minister's or Deputy FitzGerald's amendment tidies the section up sufficiently. I think that what we need is a new Bill. Certainly I should not like to try to operate this one and I certainly should not like to be on the receiving end of it, endeavouring to defend somebody who had tried to evade its provisions, because almost anything can be included in the section. If the Minister has another look at it he may appreciate how terribly loosely worded it is.
If the meaning of the word, without the amendment proposed by Deputy FitzGerald, were as he fears I would agree with him. It would seem to me that if one were to use the word "substantial" it would give a more restricted meaning than we have here, and possibly a less definite meaning. The fact that we are using a definition which is used in the Finance (Miscellaneous Provisions) Act, 1968, which is operating at the moment under the income tax code, and because VAT and income tax are to be administered together, there is a great deal to be said for keeping the two together under the one definition. At least we can then go on the basis that as it is interpreted in relation to income tax so it will be in relation to VAT. If we depart from that we are going into new territory.
There is no evidence that I am aware of that under the income tax code this definition as we have it has led to the kind of situations Deputy FitzGerald fears, where the smallest little thing becomes the concern of the Revenue Commissioners. It does not operate in that way. Because it does not so operate, I think wisdom lies in sticking with what we know to work in a certain way.
When one looks at the words immediately underneath, one finds the alternative form of development:
The carrying out of any engineering or other operation in, or, over, or under the land to adapt it for materially altered use.
That suggests that the concept of unqualified alteration gives rise to difficulties and that it is necessary to qualify it by the word "materially". Where the verb is concerned in paragraph (b) and the noun is concerned in paragraph (a) it seems a similar word should be used. I may say I should be glad to amend my amendment to include "material alteration".
"Development" in relation to any land involves the land itself. A great number of other words are put into legislation, buildings and so on. I am well aware that in legislation "land" and "buildings" are interchangeable terms almost, but that is not good legislation because buildings are not the same as land and this is where this kind of thing walks one up the garden path. Quite frankly I see nothing wrong with:
"development" means—
(a) the construction, demolition, extension, alteration or reconstruction of any building on any land.
Let us accept that as being correct, but if you take the Minister's amendment the difficulty is that it suggests that people's minds are attuned to a certain approach. This approach is not correct, in fact, from a real point of view. My view of it is that development in relation to land means development of the land. That means drainage or the cutting out of scrub as happened when men were developing land in the Western Hemisphere or more recently in Australia. It is not correct to say that development of land is, in fact, building.
I admit that in this country today it looks like that, but this is not so in relation to any land. I do not believe that this is an improvement at all. This amendment is not necessary. I do not agree that, as the Bill is at present, it is really correct, but at least it has not this verbiage in it, which does not add anything to it.
I would suggest that Deputy FitzGerald might like to think about it, and if he wishes to put down an amendment on the lines indicated we can have a look at it on Report Stage.
Thank you.
(Dublin Central): Does that include mining in the definition?
It would.
Amendment agreed to.
Amendment No. 3, by leave, withdrawn.
I move amendment No. 4:
In page 3, subsection (1), line 29, to delete "on any" and to substitute "on the".
Amendment agreed to.
I move amendment No. 5:
In page 4, subsection (1), line 18, after "1941" to insert ", and includes a health board established under the Health Act, 1970".
This amendment ensures that the exemptions for services rendered by local authorities will extend to services rendered by the health boards. It was assumed when making the original draft of the Bill that the definition of local authority, in section 1, was sufficiently wide to include a health board. However, in some further discussions doubt has been cast on the accuracy of this assumption. To remove any doubt about this, I consider it desirable to provide specifically that reference in the Bill to a local authority shall include reference to a health authority.
I presume that to open up a discussion on the general merit of health boards on this occasion would be out of order.
Completely.
The Minister might possibly have added something to his statement as to where he got the idea that it did not cover health boards. If the Minister went through the amendments submitted by us he would realise that a number of them referred to health boards. I am glad to see that the Minister has picked out one which we missed.
Amendment agreed to.
Amendment No. 7 is an alternative to amendment No. 6. Amendment No. 82 is related to amendment No. 6. Amendments Nos. 6, 7 and 82 together.
I move amendment No. 6:
In page 4, subsection (1), after line 18, to insert the following definition:
"manufacturer" means a person who carries on in the State a business of making or assembling goods;".
This amendment was necessary to ensure that the provisions of section 15(2) (b) under which goods specified in the Fourth Schedule, motor cars, radios, television sets, et cetera, may be imported tax-free by registered manufacturers, will be confined to persons who manufacture or assemble such goods within the State. Thus, fully-assembled goods of the kind referred to, imported by an Irish branch of a foreign manufacturer, will be charged tax at the 30.26 per cent rate on importation.
It seems to me tidier to define "manufacturer" in the definition section, rather than to leave it a bit uncertain later on. I am in agreement with the introduction of the amendment. I am not happy that there is adequate definition. It may be that the word "making", which is the word the Minister has used—not the word "manufacturing" which he used in his statement just now—has a legal meaning running beyond its common-sense meaning, which would include the concept of "processing". A lot of activity in what is called "manufacturing industry" consists not just of making things, which involves creative activity, but in processing something, which is not quite the same thing in ordinary language. It may be that the word "making" has a legal meaning which includes processing. I thought it might be desirable to include "processing" in order to clarify the point, in case at some stage it should be claimed that somebody who is engaged in the processing industry is not a manufacturer, on the grounds that he is neither "making" nor "assembling" but "processing". From the point of view of clarification, it may be necessary to include the word, unless the Minister can tell me that it is legally established that "making" has this sense also.
May I suggest that after the words "making by hand or machinery" Deputy FitzGerald's word "assembling" could be included.
"Processing" is Deputy FitzGerald's word.
Put in the whole lot. That should satisfy even the Revenue Commissioners.
I am not anxious to include "processing". I do not want this definition to be too wide.
Did the Minister say "too wide"?
Yes.
I thought the Minister was narrowing it down.
No. I am extending it. I will explain. The VAT will apply in a special way to manufacturers or assemblers in relation to the goods specified in the Fourth Schedule— motor cars, television sets, radios. Deputies will remember that there are special arrangements provided for these items, whereby although the 30.26 rate applies to them, 25 per cent of that is trapped and only 5.26 per cent passes on from there. I do not want to have that special arrangement open to abuse by people who would not in the normal way be envisaged as coming within the categories we have in mind for these goods in the Fourth Schedule.
If we were to include the word "processing" it could cause some confusion by bringing within the definition certain wholesalers or retailers who merely perform some service in relation to the goods, as distinct from manufacturing or assembling. For the particular purposes of this Bill and the special arrangements in relation to the goods at the high rate, I am not anxious to extend the meaning, because some confusion could arise. We might have to come back again to amend the Bill in order to prevent evasion. That is why I think Deputy FitzGerald's amendment should not be accepted.
Would the Minister give us some idea of what he means by "processing" being something which would widen it too far?
It could mean something other than manufacturing on the one hand, or assembling on the other hand. That is what Deputy FitzGerald had in mind.
I understood that the intention of this Bill is to be global and that all transactions involved in adding value are to be covered by this Bill. There is obviously some technical point which I am missing, and which the Minister has in mind in connection with vehicle assembly. Given that the Bill is intended to cover all forms of adding value, the adding value consists of either manufacturing industrial activity, which involves making, processing or assembling or involves the provision of services. I am fearful lest there might be some confusion here and lest the Bill might make it possible for somebody engaged in the processing of foodstuffs to argue that he is not making them but processing them and therefore would be exempt from added-value tax or should not have to pay it. I do not quite understand the Minister's reply, through some defect on my part I am sure because I assume he intended "making" to cover processing. Why would one want to exclude food processing, but if you do intend to include it, how is it you are not agreeing to have the word? Could the Minister explain more fully what he has in mind? I think he is working on some technical point about vehicle assembly but I was not thinking of that at all but of the broader concept of manufacturing and we are just not ad idem on this.
May I say that "manufacturing" means by tradition to make by hand. In this Bill and in every other place nowadays, it means by machinery as well and therefore since we are apparently keen on having things precise——
Surely if we have the word "making" in and that includes by hand or by machine, is the Deputy not proposing to add in words which do not add to the meaning?
Manufacturing means making by hand, not by machinery.This is why I want to have it in.
In the original literal sense, I agree, but I do not think that today it means only that.
That may be, but since we are being definitive here, let us be definitive.
Could the Minister help us in this discussion by referring us to where in the Bill the word "manufacture" is used? I discovered it when going through the Bill but I seem to have lost it. The Minister keeps referring to the Fourth Schedule, but in the Fourth Schedule, the word does not appear at all so far as I can see, nor does it appear in the two subsections to which the marginal note refers us.
I think the Deputy took up the reference to motor assembly but missed the other references I made. The main items that are concerned in the Fourth Schedule are motor cars, radios and television sets. There are envisaged in the Bill special arrangements in relation to these items which can be described as the items subject to the highest rate of tax, the 30.26 rate, and these arrangements, broadly speaking, are that the kinds of goods specified in the Fourth Schedule become liable to the 30.26 at the manufacturing or assembly stage, but at the next stage, all that is passed on is the 5.26, the lowest rate, which is the rate on these goods thereafter up the line, so that when they come to the consumer at retail level, they are being dealt with in the same way as all the other main bulk of goods, 5.26. The balance of 25 per cent has been trapped after the first imposition of the tax at the high rate. This is a special arrangement which applies to these goods and does not apply to other goods or services.
For that reason because this is a special arrangement and brought in mainly for the convenience of the people who will be involved in the trade of these goods, I do not wish to make it easier for people to get in on the benefit, if you like, of this special arrangement, unless in fact they are the people who are concerned with the kind of goods mentioned in the Fourth Schedule. I believe that the words we use, which are "make or assemble", will cover all the kinds of people we envisage in relation to this special arrangement. That is not to say—and I appreciate the apparent contradiction which Deputy FitzGerald has touched on—that the definition excludes processors, but it does mean that it will be more difficult for people to get in on the special arrangement relating to Fourth Schedule goods, unless they are making or assembling. The kinds of goods we are mainly concerned with are motor vehicles, radios and television sets.
What the Minister is saying—he has not said it and it would be helpful if he did—is that the word "manufacture" occurs in the Bill only in the particular context of the Fourth Schedule. I think that is what he is trying to say.
I take the Deputy's point. It is true that this is its real relevance.A manufacturer who is a manufacturer of goods other than those in the Fourth Schedule is also involved but on the delivery of the goods and not just because he is a manufacturer. The Deputy is right in saying that the word "manufacture" has relevance really only in relation to the Fourth Schedule.
I think it is used only in relation to it. Could the Minister tell me where it is, in what section is it used?
In 12 (1) and the amendment to the proviso at the end of 12 (1) (b), and also in the original 15 (2) (b) at page 19.
May I point out that though I may not know much about manufacturing, in the Fourth Schedule there is a specific reference to radio sets. I have seen radio sets manufactured in this country and they are in fact, in so far as they are manufactured, manufactured by hand. They are not manufactured by machinery.
I appreciate that, but I am suggesting that the word "manufacture" includes both making by hand and by machine.
If you read the Fourth Schedule, you will see that there is a reference there to manufacturing in relation to radio sets. I am merely trying to save the Minister and the Revenue Commissioners.
May I sum up the position? The word "manufacturer" only appears once in the Bill and once in the amendment which the Minister wants to incorporate in the Bill. It is used only in relation to goods contained in the Fourth Schedule and the Minister wishes to define it in relation to those goods. As those goods are not processed—as far as one can judge they are either assembled or made—he wishes to narrow down the meaning of the Bill. I am not very happy about introducing into any Bill a definition of a word in common use, and in use in other legislation, which is different from the common use and the use in other legislation. The word "manufacturer" has a meaning. It means somebody who makes, processes or assembles. It is bad drafting to re-define it in this legislation in a narrower sense when it arises only in two sections.
Contrary to what I have said at the outset, now that I understand what the Minister is trying to do, I think it would be better not to include it in the definition section but simply in the two sections where it will occur when the Minister's amendment No. 69 is adopted, to put in the words "make or assemble". I do not see any advantage in introducing the word "manufacturer" into the Bill at all. If it had to be used frequently throughout the Bill, that would be another question. Since it occurs only in two places, to define it in the definition section giving it a special and restrictive meaning which it has not got anywhere else, and an unnatural meaning, rather than simply saying in the two places concerned "to make or assemble" seems to be the wrong way around. I withdraw my initial suggestion that it is a good thing to put in the definition section.I suggest to the Minister that he should reconsider this and avoid using the word in this very narrow and restrictive sense.
When I start to discuss anything when Deputy FitzGerald is here, one of my difficulties is that the totality of verbiage which he produces always sinks me. It is well known in legal matters that if you have a good point you stand on it. "To manufacture" means to make by hand. If the Minister sticks to his definition in the definition section. I see no reason why he should not put in "manufacturing means making by hand or machinery". I stand over that. I do not mind what the Minister and the Revenue Commissioners say about it. It is the right way to do the job. I do not care "tuppence" whether the Minister does it or not.
May I suggest to the Minister that he should drop the word "manufacturer", because he will never get away from Deputy O'Donovan unless he drops it.
I will not have as many words to say about it as Deputy FitzGerald.
I thought I was, for me, commendably brief.
I do not wish to keep repeating the same thing but I want to say again to Deputy O'Donovan that I think he is right in the sense that he is talking about the original meaning, from the Latin root, of the word "manufacture". Almost certainly in the English language it meant originally to make by hand.
It has a meaning here too.
Let me add that I believe that at present it means to make by hand or machine. To put in those words would be tautology in my opinion. Therefore I would not propose to do that.
I thought most legislation was full of tautology.
I will not attempt to deny that, but I do not think we should add to the store of it if we can avoid it. I see some merit in the point raised by Deputy FitzGerald that we might define "manufacture" in the sections for the purpose of the sections. I should like to examine that a little further and in the meantime I should like to have my amendment.
Of course. We accept that.
The Minister is having it both ways.
Amendment agreed to.
Amendment No. 7 not moved.
I take it I can put down an amendment for Report Stage?
No one can stop the Deputy.
I certainly cannot stop the Deputy.
Amendments Nos. 8, 13, 15, 22, 58, 60, 77, 96, 99 to 108, inclusive, 111 to 113, inclusive, 115 to 120, inclusive, form a composite proposal. Amendment No. 14 is an alternative to amendment No. 13. Perhaps these amendments could all be taken together.
It will be a difficult job. I had 187 amendments to a Bill before the House all of which said that a certain thing was not an accident. We went through them for days on end.
The House will appreciate that a date is mentioned which recurs throughout the various amendments.
Perhaps this is the more sensible way to do it.
I move amendment No. 8:
In page 4, subsection (1), after line 38, to insert the following definition:
"‘the specified day' means the day appointed by the Minister by order to be the specified day for the purposes of this Act;"
Basically, although we are dealing with quite a number of amendments, the matter is quite simple. What we are suggesting is that, instead of putting in the date which was in the original draft, we should use the expression "the specified day" and provide that the Minister may by order appoint the specified day for the commencement of the tax. The only other matter at issue in this discussion is the alternative in the name of Deputy O'Higgins.
On the question of having a specified day rather than a specific date, as I mentioned earlier, I have undertaken to the trading interests that there will be an interval of three months at least between the enactment of the legislation and the commencement of the tax. While I know that we can expect full co-operation from all sides of the House, nevertheless, as Deputy FitzGerald said at the beginning, it is a very complex and difficult Bill. Since previous dates were announced that could not be adhered to, I think it is preferable that we should operate on the basis of a day specified by order after the legislation has been enacted.
I may say that some people were, and maybe are, of the opinion that this Bill is necessary only because of our impending entry into the EEC. I have said before, and I want to say again, that if we were never going into the EEC we would be introducing a value-added tax. The existing turnover and wholesale taxes, which the value-added tax is designed to replace, were introduced on lower rates and on a lower level of operation altogether, and the machinery we used to operate them is being strained very much at present. The value-added tax would be inevitable even if we were not going into the EEC.
Therefore, I am anxious that it should be enacted and be in operation as soon as possible. The proposed date for operation is 1st November next but, for the reasons I have mentioned, I think we should do it by way of a specified day appointed by the Minister after the enactment of the legislation. I would not at all favour any unnecessary postponement of the operation of the value-added tax system which we need urgently.
Does the Minister need money that badly?
We will actually lose money by bringing it in, in the first year
Big joke.
The Minister has not made a cogent case for rushing it into effect in November of this year. I do not advocate in every respect the close harmonisation of our legislation with that of Britain. Indeed, in a number of instances I have complained about the extent to which we feel an obligation to do this, to a degree which seems to me to be somewhat incompatible with our claim to a cultural identity. If two countries which have such close economic and trading and social ties are introducing a new tax system at about the same time, for reasons to do with the EEC or otherwise, there seems to be some sense in introducing them on the same day. Because of the disturbance involved here and the extreme complexity of this legislation I have doubts as to whether a period of three months from its enactment is sufficient to prepare people for it. It has been remarked to me that, considering all the fuss made about decimalisation and the preparations that were made for it to get people to understand it, this is a far more complex measure and there does not seem to be a comparable recognition of the needs to prepare for it. There are very good reasons for postponing the implementation of this legislation until, first of all, the date round about when it will be necessary from the EEC point of view and, secondly, the date on which it will be brought in in Britain. I am not very happy with the Minister's suggestion of a specified day combined with the stated intention to bring it in in December next. Would the Minister, I wonder, reconsider his position in this? Mark you, we have a great deal of Parliamentary business ahead of us —the EEC legislation and the Finance Bill, inter alia, and I hope, 15 months or so after its first announcement, the Ministers and Secretaries Bill, plus the Estimates and I am not by any means certain it will get through by then but, even if it is through by then, the longest possible period is required to prepare people for it. On all these grounds I suggest the Minister should be willing to reconsider his position and be willing to postpone the implementation of this legislation until March of next year.
As I said earlier, I am by no means convinced the Bill merely provides the same taxes as at present. In some instances there are differences in the amounts, for various technical reasons. Rather, I should say, there are, for various technical reasons, differences in the amounts. I must not claim to understand too much about this Bill. In other cases the Bill extends to a range of activities which are not at present covered by turnover and wholesale taxes. I do not see any particular merit in these circumstances in implementing it in November next.
It is difficult to understand the reasoning behind this. I can understand the Minister's proposal to bring in a date later on, without mentioning a particular day. I am in favour of that. I told the Minister— he may remember this—when he mentioned two earlier dates that he had not a hope of getting them. I was right on both occasions. He has no hope of being able to introduce this on 1st November. That is my opinion. I was right twice. There is no reason why I should not be right a third time.
Deputy FitzGerald is, I think, confused.There is no reason why this has to be introduced because Ireland is going into the EEC. You cannot just change from one foot to the other. The position simply is that this is being introduced as a device because the Government feel they will be able to screw some extra money under a different guise out of the taxpayers. I was in the House when the original turnover and wholesale taxes were introduced. We heard all the wonderful promises and we were told the reason why they were introduced; in no case was any attempt made to raise extra taxation but each time, quite accidentally, extra taxation poured in. It was not the Government's intention at all. It just came and they could not turn it away. When decimalisation came along it was suggested it was a simple routine matter and it would not have any effect on prices or anything else. Again, it increased prices and it increased taxation. It increased the revenue to the Government. Quite honestly, I believe this is just another way of shuffling the cards in the hope that they will come up with a few extra millions. I believe they will.
Personally, I do not care what the Minister does about this because I believe, by putting it in this way, he will have the right to designate a day and that day will not be 1st November; therefore, it will have to be further back than 1st November and we will be able to breathe freely a little longer. As far as the date is concerned the Minister will decide on a date. Why, in the name of all that is good and holy, does he not decide to do it at the end of the financial year because of the chaos which will be created by changing the taxation system? If, as he says, the effort is to try to balance off—it will represent the same amount as the other taxes—why does he not allow it to run to the end of the financial year when he will at least be able to decide what it should take in and work on that basis? I do not believe it matters two hoots. The amendment is a sensible one but the reasons the Minister gave were nearly as logical as the ones Deputy FitzGerald gave and both were contradictory.
Will the Minister clarify the EEC position? I am confused about this. My understanding is that the obligation of the existing member countries is to introduce this value-added tax by 1st January next, this date having been several times postponed because the introduction of the tax was expected to create problems during a period of rapid inflation—a very good reason, incidentally, for not introducing it in this country for some time. In the Treaty of Accession, is it the case that there is some postponement and for how long? What compulsion are we under to introduce this tax by a certain date? It may be that I am wrong in thinking there must be legislation here for that purpose and I would be glad to have that clarified.
Before the Minister replies, I think the Minister made the same mistake as Mr. Maher made; he is now attempting to explain the EEC position with regard to something else and getting himself into a certain amount of hot water in the process.
There is no problem in that regard at all.
No problem!
Under the terms of our accession to the EEC we are required before 1st January, 1974, to change over to a value-added tax which accords with the EEC directives. Of the other nine countries all but Britain and Italy have value-added tax in force. Britain will introduce it on 1st April, 1973. Italy was due to introduce it on 1st July, 1972, but asked for a postponement to 1st January, 1973, and I understand this has been granted. I want to come back now to something I said earlier: If we were never going into the EEC I would want to see this system in operation.
I am sure the Minister would.
I would want it for quite a number of reasons. I do not want to go into a great deal of detail. I have tried to explain that the machinery designed to do the job with regard to turnover and wholesale taxes was not designed to do the job it is now doing. On Second Reading I expressed the view that there are many people paying turnover and wholesale taxes who want value-added tax introduced and many people who, if they understood what is involved, would certainly want to see it introduced——
And many who would not want to have it introduced.
——in order to ensure that people who are managing to evade these taxes would find it far more difficult to do so. If that were the only reason it would be a good reason for introducing value-added tax. But there are other good reasons. From the point of view of a taxation system, it is far more satisfactory than our existing system.What they are doing in Britain is really of no relevance to us. It is all very well to say that, if they are introducing value-added tax, we should introduce it at the same time. The fact of the matter is we have had turnover and wholesale taxes in operation here for a number of years and the system we operate is quite different from the British system and is far nearer to value-added tax than their system is. We have operated these two different systems and, when they introduce their value-added tax system, as planned, on 1st April, 1973, it will still, although the value-added tax basic structural system will be the same, be quite different from ours. There will be a transitional period for all countries before we get together but the question of operating on the same wavelength as Britain in regard to this is much more apparent than real. It is not really relevant to our purposes. I think we need this from the point of view of a better tax structure, from the point of view of fairness to those who are paying the existing sales taxes and from the point of view that further postponement would be likely to lead to confusion in the trade.
Deputy FitzGerald thinks that because this Bill is so complex—and I freely acknowledge that it is—it will present a great deal of difficulty. I do not think it will be like that: the actual operation of it is not nearly as difficult as some people think and the fact that the Bill is complex does not mean that the operation of the system is complex. A great deal of discussions have taken place with various groups and many of them are now much clearer on what is involved and see that the actual system of operation will not be enormously difficult.
I met a number of these groups, including some who were with the Minister, and they certainly were not very happy about it. The Minister met them very courteously, certainly, but they were not very happy about what was involved.
Many more of them now understand it than understood it six or nine months ago and those who understand it are far happier than they were when they did not understand it.
Why should they write to us, then?
They may have certain interests, which I think we shall come to in later sections which they would like to see changed.
They were pleased like the people who voted "Yes" in the referendum at being let off for a little while——
I think we are departing from the subject. I want to repeat that there is no good reason why we should delay the introduction of the value-added tax further than 1st November next, as has been announced, but in order to take account of the possibility, as Deputy FitzGerald said, of having a heavy parliamentary programme and anything going wrong I think it would be wiser to have an appointed day. I think Deputy Tully agrees with that. I feel it is in the country's interest to have this tax rather than put it off. We shall have certain difficulties I admit, but we shall have them in any case because we are obliged to introduce it. I think we should try to get these difficulties out of the way and get the tax operating as smoothly as possible for everybody concerned as quickly as possible.
I do not think we were obliged to introduce this system of taxation at all. We already had in our turnover tax the equivalent of the value-added tax system. I was coerced by the reasoning in the first White Paper produced into thinking that this is a superior system to the cascade system, but when I thought it over afterwards I did not find that was so. It is all right to say you do not add on percentages to the tax under the VAT system but, in fact, you do. The logic may be all right but the practice is entirely different. I think the Minister will agree that in quantity as we operate it, that is with taxation on food—unlike in Britain where they will not tax food; they are 100 per cent right—our turnover tax has all the merits of this system. When the Minister says that we are obliged to do this I am not clear whether he was thinking that he was coerced by logic or by the fact that we are going into EEC——
Or by the Revenue Commissioners.
The Revenue Commissioners may be difficult but they are logical and therefore I include the Revenue Commissioners in "logic".
My reference was to our obligation under EEC but I tried to make it clear earlier that even if we did not have that obligation I should still be pressing for this system.
The Minister can have it both ways but I want to make this clear, that there is no obligation whatever on us on going into EEC to change our present system. People may say I am always objecting to new things but on occasions I have been accused, as the Carthaginians were by the Romans, semper desiderant aliquid novae, of always desiring new things. This might seem strange but I have been accused of this. I believe that in our turnover tax we have everything that is in the other system.
My objection to it is quite simple. It took years for people, especially those in big business, to become accustomed to operating turnover tax. When I talk of big business I mean complicated businesses. They were concerned about it but another group of people were concerned consisting of the ordinary man who conducts his own business and has to do all the work in connection with the turnover tax. It greatly increased his work for the benefit of the tax-collector and nobody else.
I put this seriously to the Minister: when I was in the Civil Service I did many jobs and put in a great deal of work that was futile, nugatory; it had no result. It might well be that the Revenue Commissioners, being lords of the manor controlling their own destiny, so to speak, would object to the amount of work they had put into this. They have put a great deal of work into it, but I believe and, as Deputy Tully says, we have been told that there are people who are seriously concerned about this change. They have now got a grip on the wholesale tax and the turnover tax; they understand them and know how to work them. They have just got control of them and put them into operation and now they must change the whole thing and begin all over again.
I do not mind what the present Government party think of themselves in regard to being able to modernise the community. This is not modernising the community; this is just taxcollectors making a damn nuisance of themselves so far as the ordinary taxpayer is concerned. I do not believe that this change makes any difference. I agree with Deputy Tully that perhaps by changing it around and having different percentages the Government may get a few million pounds more into the Exchequer. That may be so, but personally, I believe it would have been very much better if we had stood on our own feet and said: we have here the equivalent of your value-added tax and we shall not move away from it. I do not believe the EEC Commissioners in Brussels would have said "boo" to us because in fact they have not said "boo" to the Italians for years. If we had said that, we would not be disturbing everybody by changing our taxation system when, as the Minister knows, we are getting a great deal of money out of the turnover and wholesale taxes.
I do not believe in continual changing and making life difficult for people who must earn a living. It is all right for the Revenue officials who are paid to do this kind of thing, but there are all kinds of other people on whom it is a great burden and particularly small businessmen who do their own work. They are the people it will affect really seriously. The big businesses can employ officials as the Revenue Commissioners do and do not have to worry. They can work any system. They just get a few people to learn how to operate it and that is that.
Now that this Bill has been resurrected, I think this is a fair point; I remember saying before Christmas, which is quite a while ago, that it would take the Minister quite some time to get this Bill through the House. I was quite genuine in that; I was not obstructionist—that was not in my mind at all. I believe you cannot continually change things. The turnover tax came in in 1963, wholesale tax in 1966 and now we are jettisoning both in 1972. This is not a good way to transact the business of the State. The State should be firm in its purpose and should keep on a straight track.
A one time leader of the Fianna Fáil Party said: "Keep to the straight road". I believe the State should keep to the straight road. This business of changing the taxation system in this fashion, unnecessarily—and I repeat unnecessarily—may be good from the official point of view, of doing everything in the right way as it appears, but in fact, it is extremely bad from a practical point of view because it upsets all kinds of people. They cannot conduct their business in the way they would like; they feel pushed around by the State. In any case they do not feel friendly to the tax-collector but they feel twice as unfriendly when they are pushed around. They do not know what their obligations are. They do not know how to carry on their business. Perhaps it is that I am getting old but I do not feel that this is the correct way to do the thing, especially when there is no need to do it.
Is amendment No. 8 agreed to?
Has the Minister no further comment to make?
No.
On one point: I notice that the date that was fixed was 1st March, 1972, which is a month before the end of the financial year. I notice he is now talking of 1st November.Was it the case that the 1st March date was fixed because of a relationship to the financial year and a problem of a lag of a month in payments? Was there any relationship between the two?
No. There are two factors that come into this. One is the convenience of business. At certain times of the year the introduction of this would be more inconvenient than at other times. It would be inconvenient of course, at any time to change a system but it is more inconvenient at some times than at others. That is one factor. The other factor is that there is a very substantial revenue significance in which month it commences, whether it is an odd or an even one.
They will just love the Minister for it if he introduces it two months before Christmas. The Minister was not thinking of that?
This was one of the things I had in mind. If it goes any later it will present difficulties and if it goes considerably later it will present difficulties also for the trade.
The Minister says there are certain times of the year at which it will create less difficulties than at others. He is most inexplicit as to what the seasonal factors are. The only one that occurs to me is that business is slacker at some periods than at others and, being slacker, people have more time to sit around and consider a new tax system. If that is what the Minister means he might be more explicit about it. The slack period of the year is, of course, after Christmas. This fits in with the fact that he did, in fact, fix 1st March, 1972, originally. November, on the other hand, is coming into one of the busiest periods of the year for business. Therefore, on his own argument, if it means what it appears to mean, if he is referring to the seasonal ebb and flow, November is a very bad time to introduce it. It means that there is a strong case for leaving it until after Christmas. I can see that there may be something to do with odd and even months that would enable him to introduce it on 1st March, which is as odd a month as November, if I may put it that way. All the indications are that it should be on 1st March, which was his own choice in a previous year, as the best time of the year. He had more or less free choice in choosing a month at that time. He chose March, for reasons which must have seemed good and sufficient to him, and those reasons must still apply.
Give me a reason as to why not 1st April?
I am taking the Minister at his word, that there was a reason for doing this.
There is no argument now as to date. We are only offering an opinion, because this does not set down a date.
Our amendment does. I am arguing for my amendment at the moment.
I had not noticed that.
Obviously, I have spoken with undue brevity if I have not explained that. I am arguing for 1st March, the amendment put down by Deputy Tom O'Higgins some time ago. The more I argue the more convinced I am becoming that I am right on this point. I would also point out to the Minister that as regards preparing people for this, although he says that it will not be as bad for the average person dealing with this as the Bill might lead one to think, because the Bill is extremely complex, it is, nonetheless, quite a complex change and it will involve businesses in a certain amount of upset.
The Minister has admitted this himself. If, in fact, the Bill does go through in July, I do not think that many businesses will be in a position to start absorbing the Bill and doing anything about it in July and August. That is a period when most people take holidays. Any educational campaign designed to get the Bill understood cannot really get under way until September. The Minister is allowing himself only six weeks to two months for preparation. Again, this is too short from every point of view. Both in terms of the time needed to prepare people, given that the legislation gets through in July, and in relation to the fact that the Minister himself chose March at the time, for, no doubt, very good and sufficient reasons to do with the slackness of business at that time, for both these reasons, it seems to me the date fixed should be 1st March and therefore our amendment is a wise one. I would ask the Minister to answer these points. He has been very vague in talking about some times of the year being better than others. He should tell us what he means by that.
The Minister cannot answer us all at once. May I just say that it is quite obvious that Deputy Tom O'Higgins in putting down this amendment was doing the rational thing? He realised the Bill could not come into operation on 1st March, 1972 and said: "OK I will put down 1st March, 1973". I take it that he accepted the Minister's argument that 1st March was put in for some rational reason. I want in all seriousness to push the point that Deputy Tully made—why not the beginning of the financial year, 1st April? As near as might be, it is the beginning of the income tax year. I cannot understand this kind of thing. The truth is that bureaucrats are all the same. Untold time spent on the work they are interested in does not bother them at all. I am afraid that Ministers when they get into the hands of bureaucrats are like putty; they are malleable. In all seriousness I want to put it to the Minister—I do not believe it will make a difference— why not put in 1st April, 1973, instead of 1st March? The Minister, I suspect, will end up by fixing that date.
Or 1974 or 1975.
It could quite easily be. I want to put the question, why not put 1st April, 1973, into the Bill and have done with the thing? I put it seriously to the Minister that anything that coincides with something else is desirable, especially in relation to a thing like taxation. Let me explain.I have nothing against the Minister putting in the specified day providing we understand from the Minister that, if this Bill ever comes into operation at all, he will, of course, give plenty of time to people to absorb these extremely complicated matters.
I have explained what I had in mind in regard to the specified day, that is, 1st November, and that I had undertaken to the trade to give at least three months time to elapse between the enactment of the legislation and the commencement of the tax. The question of 1st April is affected by an amendment which is coming up which extends the taxable period to two months from one month and the consequence of this and of taking 1st April would be a very substantial loss in revenue. However, I would prefer to look at this matter on this basis—
Would the Minister explain why?
On a once-for-all loss.
Only once-for-all.
Yes.
They would be up a month the next year.
It is very much bigger on an even month than on an odd month. I had to have it explained to me and I had to see a graph. I could not attempt to explain it in words to the Deputy but if he is in real doubt I can have it put down on paper for him if he wants me to do that.
I accept that offer. I am in very real doubt about the entire Bill.
Deputy FitzGerald is probably too young to remember the time PAYE came into operation and we, as taxpayers, lost a quarter of a year's income tax. They collected five quarter's income tax in 12 months.
The Deputy is being charitable about my age.
May I come back to the question of the date on which this should come in? I have given the reasons why I believe we ought to have value-added tax anyway, apart from the EEC. In my view, anybody who is arguing for a postponement has the onus on him to show why we ought to put it back. The onus is not on me to show why I ought not to go ahead on the 1st November.
I do not think we want the Minister's argument for the 1st November or any other date because his amendment says he has the right to name the date.
This is true but I have indicated to the House and I have indicated publicly that the intention is the 1st November.
He will come back and tell us he was wrong, as he has done twice before, and he will not mind.
I believe we need value-added tax and having regard to the time that is likely to be taken to enact the legislation and giving three months at least to the trade to complete their preparations, because many of them have already made quite a number of preparations for this, brings one to the 1st of November as a suitable date. I think anybody who wants to go beyond that has to produce a fairly overwhelming reason why we should go later. I have not heard any such overwhelming reason.
The Minister must not have listened.
Is amendment No. 8 agreed?
No.
Amendment put and declared carried.
With amendment No. 9 perhaps we could take amendments Nos. 10, 31 to 34, inclusive, 36, 37, 39 to 41, inclusive, 43 and 109. If amendment No. 9 is agreed No. 10 cannot be moved and if amendment No. 39 is agreed No. 40 cannot be moved.
I move amendment No. 9:
In page 4, subsection (1), to delete lines 42 and 43, and to substitute the following:—
"‘taxable period' means a period of two months beginning on the first day of January, March, May, July, September or November;".
This amendment proposes that the taxable period shall be a period of two months instead of the one month originally provided in the Bill. From the many representations which have been made it is clear that a taxable period of one month would substantially worsen the liquidity position of most manufacturers. The problem would be most serious for those who traditionally afford credit to their customers for two months or more and who are unable to shorten the credit period without disrupting their trade arrangements. Such persons would be forced to raise additional working capital in order to finance the operation of value-added tax.
The problem of liquidity arising on the introduction of value-added tax is one which arises between traders themselves, that is to say, a worsening of liquidity at the manufacturing stage is counterbalanced by an improvement in liquidity at the wholesale or retail stage. While this is so, I do not think it would be realistic to take the stand that traders should make their own adjustments because a particular manufacturer might find himself in a weak position and unable to resist the demand of his customers that existing credit arrangements should be maintained.On the other hand, since any extension in the taxable period will substantially benefit most retailers and many wholesalers, there is a case for striking a balance in regard to the demands of manufacturers for total relief for their liquidity problems and, on the other hand, the benefits that would be conferred on retailers and many wholesalers.
A taxable period of three months would meet the manufacturers' problems almost in full but this would, in effect, provide a subsidy of about £15 million for the retail trade at the expense of the State. In all the circumstances a taxable period of two months represents a reasonable compromise which will, to a large extent, meet the problem of the manufacturers without causing insurmountable problems in regard to State finance and tax yields. For this reason I believe that this amendment goes a long way to meet the difficulty of manufacturers but also has some regard to the requirements of the Exchequer and is, I believe, a fair compromise in face of the problem that looms up in regard to liquidity.
I am not sure what is meant by "compromise" here because we are not talking about a compromise between two different forces operating on the same person. The simple fact is that unless this is extended to a period of three months it will create liquidity problems for manufacturers. It is very little consolation to the manufacturer, already faced with considerable problems of liquidity, possibly, as many manufacturers are in the face of the pressure that is on them at present, to be told that his problems are balanced by benefits accruing to other people who are in quite a different position, to retailers and wholesalers. We must have regard to the pressures manufacturing industry is under at present, pressures of a kind that do not affect the other sectors in quite the same way. I know that in every aspect of our economy individual entrepreneurs face difficulties but in industry, where the pressure of wages and costs often bears more hardly than it does in the distribution sector, where increased costs can be more readily passed on, dealing as it is with the domestic market rather than exports which many manufacturers are concerned with, I think there is a special problem. To add to these problems by imposing a significant and critical burden on industry at this stage seems to me to be a mistake.
I was given some figures, which I have not got to hand, indicating what the impact would be and I was somewhat alarmed by the scale of the effect, even with the benefit of the Minister's amendment. I would press that a period of three months should be allowed rather than the two months proposed by the Minister.
I think I have probably seen the document on which Deputy FitzGerald could not lay his hands.
Has the Minister a copy available?
I do not think I can lay my hands on it but I have seen it. If we are speaking of the same document my recollection is that there is one particular firm on it which normally gives credit in excess of six months. You just cannot deal with the problem like this. This amendment, which will result in an annual loss to the revenue of about £250,000 goes a long way in meeting the bulk of manufacturers and their problems in this regard. I do not think it would be reasonable or possible to go any further without creating very considerable revenue problems. I admit there will be some manufacturers who, while they will be relieved by this, will not be fully relieved of their liquidity problems. However, most of them will be relieved of most of their problems. It is as far as I can reasonably go, having regard to the various factors involved, not least the question of the yield to the revenue which is involved.
There is a slight difference here. Since the tax is payable at each stage, people who buy goods will be paying to the Minister tax on goods for which they will not be paid for a considerable period afterwards. The Minister has been making the argument that each stage of tax involved only covers the increase in the value of goods. However, the person who manufactures and who sells the goods will pay tax. The person who buys first from him will pay tax on the difference in the value even though the person may have the goods in his store or on his shelves for a considerable period afterwards.
Unless there can be some type of arrangement made by which goods are not accounted for for a certain period. I can see dreadful difficulties arising with regard to the operation suggested by the Minister. Some of the people who came to see us—I think they also saw the Minister and indeed the other political parties—were perturbed about the effect this might have on them. While bigger firms with substantial overdraft facilities may be able to carry this, it will be difficult for the smaller firm to carry this particular operation.
Taxation is payable on the purchase of the goods. In addition to the price of the goods they must pay the tax to the person who had the goods previously.This seems to have been overlooked by everyone. The purchaser is paying the tax on each occasion and he cannot recover that until after he sells the goods. He carries the price of the goods plus the tax. He cannot even do what some people are doing at the present time and say he is not putting on the tax—he will be obliged to put on the tax. I should like the Minister to clarify what he thinks can be done to avoid this.
There are two points I should like to make about this matter. First, so far as retailers are concerned they can opt to pay on a cash basis; that is, they only pay on the basis of receipts. However, there is an important point here. Unlike the turnover tax which operates as the Deputy has described, VAT operates on the basis that each two months as the trader is paying tax he is also claiming credit for all tax he pays on his purchases. He is deducting what he has claimed from what he has to pay the revenue. The effect is that he is getting back the tax he has paid in a way he could not do under the turnover tax where he was obliged to wait until he sold the goods. Now he will get credit from the Revenue Commissioners even though he has not sold the goods. There is a substantial difference in the VAT system as against turnover tax. The case made in representations to Deputy Tully is true in connection with turnover tax but it is not so in connection with VAT. It is one of the advantages of VAT.
I am afraid I do not follow the Minister's argument.
At present the person pays no tax before he pays turnover tax. He does not pay any tax until he gets the money into his hands. This is the argument——
That is not true.
This is the argument that was put by the Revenue Comisioners in their first White Paper. This is the argument that is so coercive in logic but you find it is not true. It is not what happens. The Minister has said that this will be an advantage in VAT. However, at present the person does not pay any tax. He does not pay until he collects.
He certainly pays wholesale tax.
The Minister is dithering.
We were talking about one matter and let us stay with that. We were talking about turnover tax.
Deputies must not forget that VAT will be a substitute for both turnover and wholesale taxes. We must compare the existing system with what is proposed.
The Minister has been talking about turnover tax and I think we should stay with that point. I did not follow the Minister's argument. This may be due to my stupidity or perhaps the Minister may have made an error when he spoke about getting money back under the present system. Could the Minister clarify this point?
He gets it at the moment under turnover tax only when he sells the goods.
I have tried to explain that he has paid nothing. He collects it but I do not think we could say that he recovers it.
It is an extraordinary way of putting it.
We must not forget that he has paid wholesale tax. He pays this when he buys the goods and he is out of pocket on this all the time until he sells the goods because it is built into the price. It is only at that stage that he can recover the wholesale tax he has paid. Under VAT which encompasses both wholesale and turnover tax, he gets back, either by way of refund from the Revenue Commissioners or by deduction from the tax he owes the Revenue Commissioners, all the tax he has paid, irrespective of whether he has sold the goods.
I have made many representations on this matter to the Minister on behalf of various firms. This is a burning question and may I say to the Minister that he has given me a clear reply? So far as I can see there is a misunderstanding about this point raised by the three Deputies opposite. A firm at Clondalkin made the point that they would need more money, that they would have to go to the bank, in order to pay for VAT. I received a letter from the Minister this morning and I am grateful to him for the explanation he has given. There seems to be more misunderstanding about this point than about any other matter in relation to VAT.
I agree with the Deputy. I am still not clear on the Minister's argument. I think it is a defect in understanding on my part but I have difficulty in following exactly how the retailer is so significantly better off under this arrangement.I can see there is a change in the balance. The great majority of retailers who are handling foodstuffs which are not covered by wholesale tax are in the position, as are the small retailers, whereby they collect the money at the time of the sale of goods and have the benefit of it until such time as they pay the tax. Surely the Minister cannot suggest that they will be better off now.
They are paying more now.
The Deputy is talking only of small retailers who are not dealing in goods that are subject to wholesale tax.
The majority of retailers are dealing in foodstuffs that are not subject to wholesale tax. Surely, then, the majority of them are not involved at all in wholesale tax. Those people have the benefit of having the tax collected at the time of sale as a source of liquidity for whatever length of time elapses before they pass it on. I cannot see why these people should be better off as a result of this Bill. I can see that there may be some balance of advantage to people who are now paying wholesale tax. The minority of retailers in that position may be somewhat better off; but when one relates the bulk of retailers not paying wholesale tax to the minority who are paying wholesale tax and the manufacturers, I cannot see how there would be any net balance of advantage as a result of this Bill to the private sector. It seems to me that the Minister is imposing a very heavy burden on manufacturers, even with the amendment, and that he is imposing a disadvantage on the majority of retailers and may be leaving, no worse off but in some cases marginally better off, a minority of retailers.
I do not see that this justifies the imposition on manufacturers of the burden proposed because the average credit period in practice for Irish manufacturers is about three months. Of course, there are exceptional cases as suggested by the Dublin Chamber of Commerce in their submissions, for instance, traders dealing with farmers or licensed premises where credit may be required for a much longer period than three months. Therefore, to the extent that the period being allowed by the Minister is only two months, this will create liquidity problems for manufacturers and they are the sector who, already, are facing great difficulties. It does not seem desirable to put them under further pressure and to do so on the spurious grounds that this is offset by benefits to the retail trade which is of no possible interest to the manufacturer when, in fact, the majority of retailers will be worse off rather than better off, seems to me to be a rather curious argument and one I find very unconvincing. Perhaps the Minister will clarify the position a little in case I have misunderstood it.
On the whole I am in agreement with Deputy FitzGerald on this. Turnover tax is paid after it has been collected and, as the Deputy has pointed out, there is a delay. For the ordinary retailer—I have in mind the man retailing food because food constitutes 40 per cent of total retail sales—the new system will mean that he will be parting with his money. No matter what is said about the logic of the cascade system, if a man parts with money which has been paid already to the State he has to charge his percentage on it.
He does that now under the wholesale tax system.
Most retailers do not pay wholesale tax.
Perhaps Deputy O'Donovan would read the list of goods that are exempt. There are four pages of them.
I have here a publication listing the many kinds of goods that are exempt from turnover tax.
The Deputy had a good junior counsel to help him out.
My senior was very kind to me. Fundamentally, this is a very serious matter because, originally, when value-added tax was referred to in the White Paper, there appeared to be a coercive case, logically, that it was a more rational and fair system than the turnover and wholesale tax system. However, when one examines this new system, one finds that is not the case. The Minister is right in so far as are concerned transactions which at present bear wholesale tax but, relatively speaking, they are only a small proportion of the total transactions.
There is only one tax.
The man concerned in the final analysis, the only one we are talking of now, must pay for the goods including the proportion of tax involved up to the time of his transaction. He must part with cash which he only recovers after he has sold the goods. Deputy Burke may say to me that this puts him in a better position if he had been paying wholesale tax already. My answer to that is that the bulk of transactions do not bear wholesale tax.
If one looks at this list to which Deputy O'Donovan has referred, he will find mentioned there a wide range of goods. Among them are food, drink, medicines, clothing, textiles, leather used for the manufacture of clothing, fuels, motor vehicles and spare parts and accessories for them and various other goods. It seems to me that only a minority of retailers can be paying wholesale tax now.
When we go a little further into the Bill and get proposals to have one rate of tax, I hope that Deputies FitzGerald and O'Donovan will remember what they have been telling us, that is, that the vast bulk of people concerned are involved only with one rate of tax. We have been hearing about the great problems there will be for retailers in the handling of different rates of tax.
Can the Minister tell us what are the proposals?
Is that not the case that has been made by the Deputies?
I asked a question of the Minister.
The Deputy made his case before asking the question.
I said that my impression is that the great bulk of retailers are not paying wholesale tax and I asked the Minister to indicate whether I was right in that.
The Deputy is only asking the question now.
If I am wrong do not let us waste time.
The Deputy should have asked the question first and put his case afterwards. About 80 per cent of total turnover is not liable to wholesale tax.
That is not the point.
The next question is: what is the proportion of retailers who are involved in trade which is subject only to turnover tax? Virtually every retailer is dealing with goods which are subject to wholesale tax——
Of course he is, in this country where there is a mixum gatherum.
——but of this turnover about 20 per cent consists of goods which are subject to wholesale tax.
That is an answer but I suggest it is an over-simplification.
I am trying to answer the question that Deputy FitzGerald put and I think it is very relevant to the case which has been made and to the case that will be made later on.
It is not a very precise answer.
I should like to be clear on the answer. Is the Minister suggesting that all retailers will have to make returns for wholesale tax?
No.
I thought I detected an evasion in his reply. Could we have the true position?
The true position is, as I have told the Deputy, that virtually all retailers deal in goods which are subject to wholesale tax. Of their turnover approximately 20 per cent consists of goods subject to wholesale tax.
Henceforth they will all be subject to VAT.
The total retail turnover of the country?
Yes.
We are talking of the great bulk of retailers who, according to the Minister, may be handling some goods subject to wholesale tax, but the proportion in the case of the majority of retailers is presumably very small, much smaller than 20 per cent, because in the case of the retailers who are handling a wide range of goods in hardware and so on, it is a very wide proportion of the total.
No. The overall proportion is aproximately 20 per cent.
I know that. That is not quite the issue. If at present, over the country as a whole, only 20 per cent of all turnover of the retail sector consists of goods carrying wholesale tax, then for the great bulk of retailers who are, in fact, handling foodstuffs primarily and in some instances foodstuffs and clothing, the proportion in their case must be quite small, because there are a lot of shops obviously dealing in goods all or most of which are covered by wholesale tax. If you are to have an average of 20 per cent, they must be balanced at the other end by the majority of shops for whom, in fact, only a small proportion, 10 per cent, 5 per cent or even less of turnover is related to wholesale tax. For these shops the advantage they have at present of getting three to six weeks credit on the turnover tax must outweigh many times over any losses they may have on the very small proportion, 3, 5, 10 or even 20 per cent, of the turnover which relates to wholesale tax.
Therefore, the great majority of retail concerns, as I was trying to suggest before the Minister tried to take me off on a different track, at present have a benefit which they will no longer have in the same way and to the same extent with this new tax. Therefore, they will be worse off. The manufacturers will be worse off and worse off to a considerable extent. The number of people who will be better off will presumably be confined to that small proportion of retailers, a high percentage of whose turnover consists of goods now carrying wholesale tax and who may secure some net benefit or at any rate not be worse off. We have narrowed this down to the conclusion the Minister's proposals are ones that will be to the disadvantage of the great majority of retailers and to the disadvantage of all manufacturers. Proposals of that character which bear so harshly on the vast majority of people in both sectors are ones which this House should examine with great care and be very slow to accept or endorse. Therefore, we should deal with this problem by extending the period by three months rather than two months.
In a sense one can argue that this is all irrelevant, because, as I said at the outset, it does not help the manufacturer much to be told that the retailer is better or worse off. That is not relevant to him, but in so far as the Minister made the point as an irrelevant argument, that is, irrelevant to the manufacturer, it was a wrong argument anyway, because the vast majority of retailers will be worse off, not better off.
Under this Bill the Minister is introducing a new tax and abolishing all other taxes. In the countries in which this tax has been operating, especially Germany and Holland, it has been reasonably satisfactory.If Deputy FitzGerald were Minister for Finance and had to abolish the turnover tax and wholesale tax, what would he put in their place? There has been a misunderstanding about this tax and I was delighted to be here in time to hear this discussion and the Minister's explanation. If it has succeeded in Germany, where they have had wonderful financiers over the years, even in the days of Hitler, there is no reason why it should not succeed here. The Minister is faced with a very difficult position of trying to meet the requirements of membership of the EEC, and he cannot please everyone. There is difficulty in the fact that some people will be exempted and that the small manufacturers argue that they must have working capital. This legislation is needed especially when the Minister for Finance is asked to do so much at budget time for our people, to help our industries, and to deal with the capital budget and all the other matters that require attention.
The Deputy is getting away from the amendment.
I am just coming back to it. I cannot see how the Minister can do any more than he is doing.
I am sure the Minister was a little embarrassed by the arguments of Deputy Burke who started by explaining that it is because we were going into the EEC that we are so anxious to bring in this tax. The Minister has for quite some time been explaining that it has nothing at all to do with that. I thought at first Deputy Burke was going to lend his not inconsiderable weight to our side of the argument. I am not sure yet whether or not he is on our side. Perhaps some of the other Fianna Fáil Deputies are feeling the same way.
With us in spirit.
Perhaps they are with us in spirit. Whether they will go into the lobby when we challenge this to a vote is another matter entirely.
God forbid.
They could do worse.
Maybe the Deputy could do with a little support in the lobby now and again.
May I say the same to the Minister? From the comments of some of his colleagues today it would appear he may be needing a little extra support before very long. Perhaps my comments before this were a little bit uncharitable because this is one of those Bills which I feel is not really a political Bill. The Government have brought it in and are going to bulldoze it through. All of us are responsible for trying to have it improved if we possibly can. Possibly it should have been dealt with in the same way as the Income Tax Consolidation Bill was dealt with a few years ago. It was discussed by a committee outside the House before it was brought in here. It could have saved us a lot of trouble if this Bill were dealt with in the same way. Perhaps Deputy Burke might be interested in this. The Minister has decided to introduce one tax to replace two. The only difference is that the one tax he proposes to introduce is a tax which applies all round. He is replacing two taxes, one of which applies fairly generally and the other is a fairly specific tax. How anybody can claim that it is all right to introduce one tax, which will cover everything, to replace two which are not the same at all, is hard to understand. Might I go back to my original comment to the Minister? Perhaps he might reconsider this again. I believe that the taxpayer, the retailer who buys goods and must of necessity pay tax on them, whether he recovers it or not, before he retails them——
The value-added tax?
Yes, the value-added tax.
No.
He must pay the tax which has been paid by the person who sells the goods to him. The Minister must admit that that is so. If somebody buys something at £10 and sells it to somebody else for £12 and there is tax on that, the person who buys the article must pay the tax which has been paid beforehand. Of course, he can recover that at a later stage, but he is still out of pocket. If we want to know how many people who are not paying tax now will be caught by this, may I bore the House for a few minutes with a very brief comment on those who are exempt from turnover tax? Deputy O'Donovan said that those articles exempt from the turnover tax include agriculture plant, machinery equipment, basic building materials, commercial fishing gear, certain heavy plant machinery used in buildings, machinery plant used in transport, seeds, fertilisers, animal feeding stuffs, similar agricultural goods, tractors, lorries and so on and a lot of building materials, food, drink, medicines, other articles of a medical and spiritual nature, clothing, cloth and yarn, sole and upper leather, fuel, hydrocarbon oils, spare parts and accessories for all sorts of motor vehicles, accounting machines and equipment, books, tobacco and motor cars. With an exemption list such as that, how anybody can claim that it does not make any difference that these people will now be included for tax purposes is something I cannot understand.
The Minister gave certain figures to the House of the number of people paying tax, the number of people collecting tax. Surely the volume is what is important here, the amount of goods that carries tax, the percentage of the total which carries tax at the present time and which will in the future carry tax. The Minister says that it is estimated it will bring in the same amount, but I do not think that is so. I believe the Minister's own argument proves that it will bring in very much more and in the process of bringing it in I can see a number of reasonably small retailers being squeezed out of existence. Not enough attention has been given to this by those who frame the Bill.
If I might give an example of what I was referring to earlier, the McKenna duties. These duties were imposed by Mr. Reginald McKenna in 1916, during the first World War. That is a long time ago but we still collect them here—that is subject to correction—on parts of motor cars which are imported. In fact we collect on parts which go into the manufacture of motor cars. This is a cause of complaint by manufacturers.The rate is 22 2/9 per cent. That has been the position for 56 years.
The turnover tax came into operation in this country, and did not come into operation in either Northern Ireland or Great Britain, at the beginning of 1964. The legislation was passed at the end of 1963. The legislation covering the wholesale tax was passed in 1966 and the tax came into operation at the beginning of 1967. I would feel sore if I was a businessman that a few years after changing this whole system another very complicated system is introduced. A value-added system of taxation is extremely complicated.I am not saying that, give it five or six years, it will not resolve itself, that we will get used to it.
There was a great deal of adverse comment on this tax when it was first introduced into the EEC. Since we had the turnover tax system, why are we changing it now? In Britain they might as well introduce the value-added tax because they have no turnover tax system, but we are not in that position. We have already what I presume the Minister and his officials would call a sophisticated tax system. I do not understand why we should push everybody around to comply with a very complex EEC system of taxation. I do not believe the EEC people would object to us continuing our present system and therefore I cannot understand why we should have this new system of tax.
I know a great deal of hard work has gone into all this, but the people who did all this work have been paid for it. They got as good a remuneration for it, whether it goes into operation or not, although they may get more satisfaction out of their work if it goes into operation. I can see no advantage in introducing this new system of taxation and changing from our present system of turnover tax and wholesale tax which our business people and our manufacturers have only just absorbed. I could quote instances of manufacturers who have got themselves just right at the end of last year and now they are faced with a completely new system of taxation. These are the people the Minister is talking about who are subject to wholesale tax and retail tax.
The turnover tax system was ideal, as the Minister for Finance said in the House at that time. All that was really needed was a bank statement. You showed what you had paid into the bank and you paid tax on that. This was easy from the point of view of the retailer, assuming he did not draw any money out and lodged all he had taken in. It was very complicated for certain other people. When you have got people used to doing something one way it is a very bad business for no good reason to change the system. My colleague, Deputy Tully, pointed out that it does not matter what veneer the Minister puts on it: he expects to get more money out of this new system than he gets from the present system of tax.
He will.
When the decimal currency system was introduced we were told that it would not affect prices but we all know that it affected prices very seriously.
I have been listening to this debate for the last 20 minutes on this particular subject. Deputy Burke has suggested that there may be some misunderstanding between one side of the House and the other. Any small trader who has read the Bill will not have any misunderstanding about it. He will be in difficulties if this Bill comes into operation in its present form. In the last ten minutes the Minister admitted that while there is some advantage in that for many traders, for 80 per cent of the turnover trade there is disadvantage.
I did not say that.
No, but the Minister admitted there is disadvantage for many traders, although his figures declare it to be for only 20 per cent.
That is the Deputy's argument, not mine.
About 80 per cent of the turnover trade is exempt from wholesale tax but this Bill will impose a wholesale tax on the 80 per cent. The Minister should appreciate this and take account of the amendment before the House, in some way to compensate the small traders who are trading on the least percentage profit.
I am impressed by what Deputy O'Donovan had to say about the EEC Commission allowing alternatives. That is not the message he gave in the referendum campaign.
Is the Deputy calling the Minister a liar?
Some peculiar arguments were put forward.
We had some peculiar arguments from Ministers who did not know what they were talking about. We made it clear that the obligation was binding on us—that there is a specific obligation on us in regard to VAT because our present system is incompatible with EEC requirements.This should be said lest Deputy O'Donovan should try to convince people that the EEC is less onerous than it is. Of course Deputy Burke's warm human sympathy overflowed for the Minister because he felt there would be very little revenue flowing in the early days of the operation of VAT. The effect of this Bill, whatever its immediate impact will be, will be to increase tax revenue because it extends taxation to transactions not now covered. The Revenue Commissioners, in submitting material to the Parliamentary draftsmen, ensured that nobody now taxed would escape and that tax would be extended to many not now taxed.
That is not correct. There would be less tax in some areas.
I am very glad to be so enlightened but the Minister might tell us who will be less heavily taxed in the future. My impression is that quite a significant number of things not now taxed will be taxed. There will be a tightening up in regard to evasion, which is a good thing, but the Bill extends tax to areas not now covered.
Deputy Burke, in expressing sympathy with the Minister because he might lose in the first month, ignored the long term result to the Exchequer. The Minister should accept this three month proposal because in not doing so he is creating a real problem for the manufacturing sector and possibly other sectors of the community. This has been fully realised in Britain in the White Paper attached to the Bill there because the standard period is three months, with a month's grace.
On amendment No. 10, which I hope I will be allowed to discuss at this point, I should like to say there is a further aspect of the British system which from the Minister's point of view should be introduced here. There, the accounting periods will be so allocated that onethird of the three month period would be returnable once a month.
Here the Minister proposes to collect tax every two months and everybody is due to pay it at the one period of the two months. This will lead to an uneven flow of work in the Department and it will lead to an uneven flow of revenue. My amendment is designed in part to assist the Minister by defining the taxable period as three months, commencing at such times as may be determined under regulations by the Minister. The Minister's wording is a period of two months beginning on the first day of January, March, May, July, September or November, thereby tying himself to this timetable and to a fluctuating pattern which could mean an overburdening of work at one period and too little at another period, whereas a three month period as in Britain, which has a much stronger industrial structure than our fragile one, would mean a more even flow of work with consequent advantages. The Minister has not done that and although the problem is somewhat less acute in a two-month cycle than a three month one, nevertheless there is much to be said for having the latter, which would allow the Minister to determine that certain taxpayers would pay the tax in one month and others in another.
The Minister's original proposal was for a period of a month. If such a period operated he could have envisaged a system of operation in which staff would be able to get the job done within the month and get ready for the next month. Without making pro-vision to stagger the two months, it seems to me entirely correct to say that an uneven flow of work will ensue.We have argued cogently on this side for a three month period and I cannot see why the Minister will not accept it.
I considered the question of splitting the payments but found that although there were certain advantages, the disadvantages outweighed them. Deputy FitzGerald has spoken three times since I last spoke and he seems to have convinced himself that there are no advantages under VAT to the bulk of retailers.
The Minister's figures convinced me.
He is mistaken for a number of reasons. When he tells us that even the two monthly taxable period I am proposing will mean that a great many manufacturers will be in difficulties, what he is saying in effect is that a great many manufacturers will have to extend credit to wholesalers or to retailers over and above two months.
They do so at present.
If that is true it means a great many wholesalers and retailers will be in the position that as soon as they have been invoiced for the goods supplied to them, they get credit for the tax they have paid, but they will not actually have to pay for the goods or for the tax which they collect for at least two months. I wonder if Deputy FitzGerald follows the point I am making?
Nearly, but not quite.
Deputy FitzGerald will see that to the extent that his argument is true about difficulties for manufacturers, he is establishing that correspondingly there are advantages to wholesalers and retailers, which is a point I was making earlier. I do not think Deputy FitzGerald has realised that one of the features of a VAT system is that so far as retailers are concerned they are, under that system, going to be in a position to claim credit against their tax liability for items for which they cannot claim credit at the moment. For instance, on such things as wrapping paper, scales, or new fitments they pay tax at present and they do not recover it. Under the VAT system, they can recover the tax element in any of these things on which they pay.
Does that apply to cash registers?
Yes. It applies on all items necessary for their business.
How often do they pay for them? They will all be buying new ones now because although they have just changed over to decimals they will have to change again.
Whether on fixed or current outgoings, they will be able to recover in full the tax which they have paid on these items, which they cannot do at the moment. Furthermore, as I pointed out, to the extent that they get credit over and above the time they have to pay the tax, they have that much use of the money concerned. Under the VAT system, as soon as the trader gets an invoice he gets credit immediately for the tax which he has paid, and thereafter the goods which he has, he has them at tax-free cost. If they remain unsold he has them at tax-free cost. Although we have been arguing about the percentage of goods in which wholesale tax is involved, the fact is that for the vast majority of retailers—some to a great extent, some to a small extent, but almost all to some extent—there is at the moment involved for them the question of having to pay wholesale tax in the price which they pay for their goods, on such items as are subject to wholesale tax. Until they have sold those goods they do not recover the wholesale tax which they have paid out. Under the VAT system this will not be so. They will recover in full, on receipt of an invoice for the goods, credit for all the tax they have paid, whether it is the equivalent of the wholesale tax or the turnover tax. They will get that, irrespective of whether they have sold the goods themselves or not. It is quite clear, if one examines this situation, that there are considerable advantages which can accrue to wholesalers and retailers under the VAT system. If one takes into account especially the fact that it is now proposed to increase the taxable period from one month to two months, one can see that there is a considerable amount in additional liquidity, to put it no higher than that, for wholesalers and retailers.
Therefore, it seems to me that the argument which I have made for this amendment which is primarily designed to relieve manufacturers but, in fact, has the effect of being a bonus for wholesalers and most retailers certainly—this is the effect of it—has another affect which is to affect the income of the Exchequer. I believe, as I said earlier, having regard to all these factors that the two-monthly period is a reasonable approach to this problem. If it is said that it is not an answer to the manufacturers' problem, I think this is not true. It is the answer to most of the problem of most of the manufacturers.To the extent that it is not, then whatever about the situation of the manufacturers who do not benefit, the extent to which a problem remains is a measure of the benefit accruing to wholesalers and retailers.
That, as Deputy FitzGerald says, may not be much consolation to the manufacturers concerned, but at least let it be recognised that this is so. We should not imagine that what we are doing is of no benefit, or very little benefit, to wholesalers and retailers and of considerable difficulty to manufacturers, which is more or less how Deputy FitzGerald presented it. This, in fact, is not so.
From a long-term point of view and in this sense I use the words "a year or two", because I am not talking about ten years, it makes no difference whatever to the Exchequer whether it be every two or three months. I would admit that if you fix any system, for the first short period it makes a difference to you. We have had a good example of this in this country. We pay ESB bills every two months, gas bills every three months and telephone bills every three months. I seem to get bills that I pay every three months as frequently as the ones I pay every two months.
I know what the Deputy means.
From a long-term point of view, it astounds me that in the period we have gone through, during which a predecessor of the Minister, the late Dr. Jim Ryan, used to say "revenue has been buoyant", why we had continuously to do these niggling kinds of things. I do not understand it. From a long-term point of view it makes no difference whatever to the Exchequer.
I am afraid it does. I could not see it myself at first, but when I got down to it I found it did.
Does the Minister understand what I am suggesting?
I think I do.
Once you are in the system, once it is going, it does not matter at all whether it is every two or three months. To use an expression I do not like, the cash flow will be even, through time. It will make no difference. I will admit that it will make a difference in the initial period, sbut once you are in it it will not do so. This is one of the difficulties I see about all modern, trendy thinking. We are always involved in this kind of thing. What is the immediate effect? I am quite prepared to admit that the revenue will be out of money for a month in the first instance, but after that it is going to be an even flow and it does not matter whether it comes in every two months or every three months, once you are over the initial period.
Does the Deputy accept that there would be a once for all loss which would never be recovered?
All I can say to that is that I had a once for all loss when I was charged five quarters income tax in four quarters in 1959. I protested very strongly about it then.
Then the Deputy understands my point.
All I am saying is that it is long since gone with the wind and there is a big difference between paying five quarters of income tax in four quarters and collecting your money at the end of three months instead of two months. All it means is that at the end of the year, you have collected 11 months when you should have collected 12.
Yes, but there is one month gone forever.
Even with the present yield from these taxes, it is relatively small. This is what I am arguing.
I see the Deputy's point.
If it be a serious point, and I assume that people engaged in business do regard it as a serious matter, I cannot see why the Revenue Commissioners cannot accept this once for all loss, as the Minister calls it. Frankly, it is not worth talking about. It might upset the Minister's budget a little but it would not upset it nearly as much as borrowing £30 million for current expenditure in one year.
(Dublin Central): I accept that a Bill like this is very complicated and there are many other sections of it on which I will have something different to say, but this is a section which I welcome from the point of view of the wholesale and the retail trade. We have an extension from one month to two months. At the moment turnover tax is accountable every month and I believe that this additional month will be an advantage to the retail and the wholesale trade. I am not altogether sure that too lengthy a period would be a good thing for any trade and I doubt if I would welcome it myself—having turnover tax over four or five months and being faced then with an enormous bill for which one might not have the money. This period of two months is reasonable and I welcome it. It gives wholesalers and retailers an advantage as against the present system. It may not be to the same advantage of the manufacturers but I doubt if they will be very much out of pocket in their liquid cash. The whole system of the Bill in this regard will give an advantage in that we can claim back on fittings and other expenses incurred in the day-to-day running of a business, whether they be bottles, corks or glasses. It was not possible to claim wholesale tax back on these but now it will be an advantage to the retail and wholesale trade.
The Minister mentioned that where wholesale tax is charged it will be possible to claim the credit back, and I know this is so but how long will this take—from the time we get the invoice, which I presume is 15th of the following month, and this must be submitted then to the Revenue Commissioners for a refund. Will there be a long delay here? How is this credit operated? When wholesale tax is charged to the retailer, it will be charged in the invoice, I presume.
It can be set off as a credit—the Deputy is speaking now as a retailer?
(Dublin Central): Yes.
It can be set off as a credit against the retailer's liability to tax which he should pay to the revenue so that he will only pay the net amount. If by any chance the amount he is setting off exceeds the amount of tax he owes, so that there is money due back to him, the Revenue Commissioners will pay that about three weeks after the claim coming in.
That is something unique—to get a cheque from the Revenue Commissioners.
(Dublin Central): I was hoping that there would be no long delay in getting the money back from the Revenue Commission. I had one experience of that in the past but under different circumstances. This provision allowing two months is a reasonably fair provision and I personally welcome it.
I do not want to throw cold water on this enthusiasm but I am not yet fully understanding where the benefit lies. May I simply give a national example?
(Dublin Central): At the moment we pay turnover tax every month but now we will have the particular cash for two months.
Could I give a case and be told where the advantage lies because due to a defect in understanding on my part by reason of not having practical experience, I am just not with it? A retailer buys £100 worth of goods in month one and sells those goods a month or so later for £120, but because of the tax element he sells them for £126, turnover tax at 5 per cent having to be paid, so that he receives £126 in month two for what he bought but did not pay for in month one. He then has to pay his turnover tax and I take it he will pay it about a month later.
Is the Deputy describing the situation at the moment?
Yes.
Before value-added tax?
Yes, but if I am wrong in my timing because of lack of experience of the practical working of it, I shall be glad to be put right. About a month after he sells the goods, he has to pay the tax. It looks to me about three weeks in the typical case, looking at the cyclical pattern of the figures paid to the Exchequer week by week. He has to pay £6 in month three and with three months credit, has to pay for the goods originally bought in month four and he pays £100. That seems to be the typical present pattern. Think in terms now of the new tax— buying the goods in one month and selling them the next month. At that stage he recovers what he paid for them with his profit margin of about 20 per cent, and he will have to recover another £5 at that point—will he? I am afraid I am in difficulty in working it out. He must charge the same amount if he is going to pay the same amount of tax and he has to charge £126 to whomever he sells to.
The £126 would be the same.
He then is faced with recovering some tax and paying some tax. He can recover the tax which was paid at previous stages within a month or so of buying the goods so that he would get another £5 in the second month.
From whom is the Deputy recovering?
Recovering from the Revenue Commissioners that portion of tax that was on the goods before he bought them. I am sorry I have got this wrong. Let us start again. He pays £105 for the goods now—is that the position—including the tax which was borne at previous stages. Then he sells them a month later for £126 and recovers around the same time the £5 tax which had previously been paid. Then he has to pay his own tax on the Minister's scheme two months later. He has to pay £6 tax and he has to pay, at that stage, in month four, to the person from whom he bought the goods, the wholesaler or manufacturer, the £100 due. Is that roughly the position? Have I got it right?
Let us recapitulate. In month one he pays £105 whereas at the moment he pays £100. He is out of £5 at that stage compared with his present position.The next month he gets £126 by selling the goods and he gets back the £5 tax he paid, so that restores his position. He has been out of £5 for one month which he would not have been out but for this system. At the end of that month he is back in the position he was in before. He then has two months in which to pay the tax whereas, under the present system, he might have got one month in which to pay it, so he has the benefit of £6 for one month longer but he has been out £5 for one month previously.
The benefit to me seems to be extraordinarly marginal. The net benefit to him is to have available to him £1 which he would not otherwise have had for a period of one extra month. This does not seem to me to be an enormous benefit, if I understand the system correctly. I wonder is the Minister not exaggerating the benefits to retailers involved in a typical case? It may be that I have misunderstood it or got it wrong. I am open to correction but that is the position as I see it: the net benefit in a typical case of £100 worth of goods is that the retailer might have £1 extra for one month extra in credit. That will not get him very far. Compare that with the problem of the manufacturer——
Before the Deputy goes on to the manufacturer, in that example is he assuming three months credit? Is that right?
Three months credit from the wholesaler or manufacturer. Let us take it that it is manufacturer to retailer to simplify it, and leave out the wholesaler for this purpose.
(Dublin Central): That would lessen the advantage to the retailer.
Which would? Having no wholesaler?
(Dublin Central): Giving the three months extension.
We are talking of a typical case of credit for three months. We are told by the Dublin Chamber of Commerce, in their submission, that the typical credit period is about three months. It is on that basis that this amendment is put down and it is on that basis that the British have allowed three months. What I am trying to establish factually at this point is what exactly is the kind of benefit the average retailer will get by comparison with his present situation as a result of this Bill because the Minister has been extolling this benefit and telling us the difference it will make.
I may be quite wrong but my impression is that on a £100 transaction with three months credit the net benefit to a retailer is that he is out of £5 that he would not have been out of for a month during the first month, and he has the benefit of £6 for two months instead of one month once he has sold the goods and is waiting to pay for them. Therefore he has a net £1 for one month longer, if I have got it right.
For two months.
He has it for two months but he would have had it for one month anyway. He has £1 extra for one month longer. By comparison with that the manufacturer surely is out of £5 for an extra month. Again I am open to correction. The Minister is giving him two months to pay but, in fact, it is a three months period and he will be out of that £5 for one month. If I am right in that, and I may not be, it seems that any benefit to the retailer is tiny compared with the loss to the manufacturer. If I am right I do not think the Minister is giving a very fair picture of the equation between the loss in one case and the gain in the other. As I say, I may have misunderstood it. I should like to give the Minister a chance of clarifying the point and of putting me right if I am wrong in my notional example, or if there is any basic fallacy in my thinking.
(Dublin Central): I can see a point with regard to purchasing where you have a two or three months basis. There is a possibility here as regards purchasing that the retailers might only purchase every two months. This would save a certain amount of outlay. Can the Deputy follow my line of argument that if you purchase every two months there would be an advantage. You would not have an outlay of money over the two months period. I do not think it would be good practice but I could see people doing it.
Purchase every two months as against what?
(Dublin Central): I am taking the two months which the Minister has allowed. If you purchase every two months this might be a saving which people might try to develop and which I think would not be desirable.
Purchase every two months as against doing what?
(Dublin Central): At the current rate you normally have a turnover every month or may be every few weeks.
The Deputy is suggesting that the retailer might only purchase every two months as compared with doing what at present.
Roughly every month.
(Dublin Central): That would not be desirable but it is probably something that could be done.
If he does that he will lose a month's credit. He will be carrying stock for a month longer. I cannot see any advantage to the retailer in that.
I think I have a vague idea of what Deputy Fitzpatrick is getting at. Since he is a practical man of business I suspect that he probably knows a great deal more about this than Deputy FitzGerald and myself.
That is entirely possible.
If I have understood Deputy FitzGerald's example correctly I would say that this is the position. Under the present system the retailer would pay £6 in month two, £6 tax. Under VAT he would pay £1 tax in month two, that is, £6 less £5 credit which he would claim he had paid already. He would pay £5 in month three to the supplier. Does that mean anything to Deputy FitzGerald?
I am afraid it does not bear any relation to the picture as I visualise it. That may be my fault. I would have thought that having bought the goods but paid nothing for them he would recover £5 tax a month later by sending in invoices. In the second month, which I call month two, that is one month after the transaction started, in month two as against month one, he would get £5 back. In that same month he sells the goods for £126. He then has to pay the supplier and pay his tax. Am I right in thinking he pays the tax?
Is the Deputy talking about the present system or the value-added tax system?
I thought the Minister was talking about the value-added tax.
I tried to compare them. I said that under the present system in month two he would pay £6 tax. Under the value-added tax system in month two he would pay £1 tax. He would be due to pay £6 but he would be claiming a credit of £5, not having paid it but having been invoiced for it but, having been invoiced for it, he would claim it as a credit and then in month three on the assumption of three months credit he would pay £5 to the supplier. This would have been the credit he would have claimed in month two although, in fact, he did not have to pay it until month three. Does Deputy FitzGerald follow that? I am sorry, I am not expressing it very clearly perhaps.
The Minister is perhaps nearer to the reality than I was. I am not quite clear as to why he only gets credit for £1 in the second month because has he not got two months in which to pay the tax after he collects the money. Is that wrong?
Yes. In fact the position is rather better than I said because the figure I gave was based on the Bill without the amendment. If the amendment is accepted the position will be that he pays the £1 in tax in month four.
Month what?
Month four.
That is what I thought.
And he would pay the £5 that he is claiming as credit to the supplier in month three.
And pay for the goods, when?
In month three.
That is two months' credit, not three months' credit.
(Dublin Central): The way I see it is this is starting on 1st January and you order goods right through the month to 31st January; the statement for the goods will arrive roughly around 15th February; cash is expected then around the 31st day of February or sometime early in March.
Say the end of February rather than the 31st February.
(Dublin Central): It is not possible for the wholesalers to work it otherwise. You make payment for goods received in January roughly around 1st March.
That does not correspond to the credit period indicated by the Dublin Chamber of Commerce because that is an average credit period of one and a half to two months.
(Dublin Central): It is not, because some of these goods are supplied up to 31st January.
In which case you have a month to six weeks for that lot.
(Dublin Central): It is not possible for wholesalers to make up two statements. They must finish by 31st January. It is usually about the second week in February before they are in a position to send out statements so the retailer will receive his statement roughly around the middle of February.
Is the Deputy talking about a particular trade?
(Dublin Central): Generalising.
That is not my experience.I get accounts much earlier from tradesmen who are not included in the retail trade, and I pay them pretty promptly. Printers and people like that send out accounts pretty quickly.
(Dublin Central): The general pattern is you receive your statement in the second week of the following month.
Of the following month? But the Deputy is talking about the January account in mid-March.
(Dublin Central): The statement arrives at that time, but it is usually the end of February or early March before these accounts are paid.
This does not tally at all. The Dublin Chamber of Commerce says the general average and normal credit period would be about three months. The Deputy says that goods purchased and received between 1st and 31st January—therefore, on average mid-January—would actually have to be paid for between the end of February and mid-March—say, a quarter of the way through March. That is a credit period of one and three quarter months, not three months. I defer to the Deputy's experience. I have none. But I am puzzled by the divergence in his picture and that of the Dublin Chamber of Commerce.
(Dublin Central): The Dublin Chamber of Commerce speaks about the manufacturing business which gives a more extended credit.
It is the manufacturing business we are talking about.
Deputy Fitzpatrick is talking about credit being given by wholesalers.
(Dublin Central): Yes, and how it affects the retailer.
We are talking about the problem created for Irish manufacturers.
I thought we were talking about amendment No. 9.
So we are, and amendment No. 10 and many others. The problem we are discussing is primarily that of the Irish manufacturer faced with a situation of a three months' credit period in which he will have to pay his tax in two months. The situation may be different for wholesalers.We can discuss that later. The case we have been discussing is the problem of Irish industry.
The Deputy was also discussing whether there was any benefit for wholesalers in this. He is, I think, beginning to see that there is something in what I was saying. I was reassuring him.
(Dublin Central): In effect, you are not paying the 5 per cent passed on until two months later when you are submitting your turnover tax, which will now be value-added tax. There is an advantage there.
The Deputy is taking a more realistic case, which is that of the wholesaler who is the collector.I was taking a somewhat simpler case, a case I would have some hope of understanding, but I am still not entirely clear why there is such an advantage to the retailer. The Minister has given me some indications of some possible advantages, but I am by no means entirely clear about this and I would like some further clarification before conceding the point. The problem we are concerned with is the adverse effect on the Irish manufacturer.Unless, in some peculiar way, the retailer will finance the manufacturer by extending credit backwards to him, I do not see what advantage it will be to the manufacturer to be told that the retailer is going to be more liquid. I do not see how the benefits of that liquidity will accrue to the manufacturer except by a shortening of the period extended by the manufacturer to the retailer. Perhaps that will be one of the benefits, but I am not sure that it is what we want to achieve.
I did refer to this. It would be unrealistic to expect the manufacturer would simply shorten the period, whether it was the wholesaler or retailer he was supplying, because he was getting a better liquid position. This will, I think, happen in some areas, but there will be some areas in which the manufacturer will not be in a position to do this because the competition will be too great and a customer who is told: "We are cutting down your credit period" will simply say: "We will deal with someone else who is not cutting it down." I recognise this; I said so at the outset. The point is I do not think we should take it that the average credit period extended by manufacturers is three months. If that was the case they made to Deputy FitzGerald——
It was. The words used are: "The general average and normal credit period for Irish manufacturers will be about three months."
I know, as I said earlier, there are some cases in which it is six months. In one case it is nine months. But these are exceptional cases and cannot be taken into account.
I agree. Might I say there is a certain confirmation of that in the Act that the British have; they allowed three months? I doubt if the British are allowing more than is necessary to ensure liquidity and if they have, with a much stronger industrial sector, allowed three months, I cannot see the wisdom of our making it two months.
It is a question of delay in getting cash in. If he has to wait three months for it, does that mean an extra month's shortage of revenue? Surely, so long as you establish a pattern, then if you get the money within the financial year, deciding how to expend it is simply a question of book-keeping.
It does not quite work like that.
At the end of 12 months you get the same amount of money anyway.
No, you do not.
Yes, you do. If you get a three-monthly cycle you must get the same after the first year.
Once you get over the initial problem the money flows in regularly.
There are two aspects. One is you have the once for all loss which you never recover.
We accept that.
That is one. The other aspect is that you have a continuing loss which depends on the extent, whether it is one month, two months or three months. On the present basis of two-monthly periods as against the present monthly period, this will give us an annual loss of about £250,000 because of the slower flow of tax revenue. In effect, it is the interest on the money. That is a continuing loss and, of course, it is bigger if the period is three months. You have this permanent loss all the time and you have a once for all loss.
That quarter of a million pounds is the interest on the once for all loss?
No.
Once you have the once for all loss, the money is flowing in regularly. There are no gaps but of course the Minister will have to borrow presumably to meet that. But he should not double-count.
No, six months' tax is a month late.
The fact is that there is a once-for-all loss.
No.
The difference between the two months and the three months would be an extra month in each period during which some interest would have to be paid.
But once the money starts flowing in?
If it were irregular that would be so but if it is regular?
The fact is that once the Minister has the system going, he is paid for every month but his problem is that there is an initial loss because of the postponement of the additional month for receiving money. He is changing the system and in the beginning he is out of revenue for one month. He has to borrow as a result of that and that borrowing would have to be remunerated over the continuing period thereafter. But we must not double-count this.
I am not double-counting it. The argument about the British, as I tried to indicate before, is not, I think, relevant. The British situation is quite different from ours. They are trying to introduce a system which is quite new to them, quite far removed from their present system. Ours is not. Their problems are quite different: they have to sell it as well as make it work.
You should have a commission on penal taxation sent over here.
But it is new to the manufacturers here.
Yes.
But since it is new to the manufacturers the Minister is not giving them much assistance.
While the manufacturers would not be expected to say that they are completely satisfied with this amendment they would, I think, say that it goes a considerable distance to meet their difficulties.
Half-way.
No, considerably more.
Two is half way between one and three.
I do not accept that the average for them is three months. There are two months plus the 19 days. We provide for payment not later than the 19th day of the month following the two-monthly period.
That only affects the beginning. In the next one it is the same period between payment and payment and so on after that. This only applies the first time you do it.
If that argument is true you might as well say, once you make it one month, it is the same every month after that.
No, it is two months or three months, whichever you wish to have, from the 19th day of one month until the 19th day in the next second or third month.
No.
(Dublin Central): The turn-over taxation at the moment is £84 million payable once every month. Let us assume £80 million for a round figure. That is about £6 million a month. If you extend that to three months would that not mean that £12 million would be continuously going on carrying interest?
Just once.
(Dublin Central): No, it is there all the time.
Deputy Fitzpatrick is correct. It can only happen the first time.
(Dublin Central): Would that be right, Deputy FitzGerald?
If there is a month during which no money comes in for this tax as a result of the change from one tax system to the other—if that is the case and I am not convinced because I do not understand it—then one's month's tax is missing and that sum of money will have to be replaced somehow by borrowing. The Minister could then say that he is burdened with an extra sum for interest on that indefinitely thereafter.
(Dublin Central): But this will be continued.
If he has to borrow to replace one month's loss of revenue presumably the interest will be continuing.
(Dublin Central): If we accept this amendment it would be two months and in effect it would be carrying a continuous interest in my opinion.
That is correct.
(Dublin Central): I am assuming a round figure of approximately £84 million for turn-over tax at present——
I am sorry, but it is not——
(Dublin Central): I know it is not but taking it as an example——
We shall not end up with a correct figure if we start off with something incorrect.
The figure does not really matter.
(Dublin Central): I am just taking a round figure as an example. At the moment we are paying it every month. Deputy FitzGerald's amendment would make it every three months. I believe that on my figure, which is roughly £7 million a month, the Exchequer would always be at the loss in interest of £14 million.
That is provided they were short £7 million, that they did not write it off at some stage.
(Dublin Central): No. The Revenue Commissioners should normally have that £14 million. They have not got it. They have to pay interest on it.
I think the Deputy is right on the hypothesis that they do lose a whole month's revenue but the Minister has not persuaded me that this happens. Therefore, the conclusion from the hypothesis does not seem to me to follow. In fact, the Minister himself mentioned a figure of £250,000. If the figure of interest cost is £250,000, at a reasonable rate of interest at the present time, that suggests being out of about £3 million, which is a great deal less than one month's proceeds of wholesale and turnover tax. It is only about half the proceeds. This suggests that the Minister thinks he will be out of a fortnight's tax, not a month's tax. That is why I am very suspicious about his statement about losing a month's tax.
And if he is right he should think of the unfortunate local authorities who must wait for the State to pay them at the end of 12 months.
That is in reference to the previous Bill, the Local Elections Bill. Could the Minister explain a little more clearly where he gets the £250,000? It does not relate to being out of one month's tax.
The Exchequer cannot be out of money. Whether it accrues in the second month or in the third month they will get it. The only thing they will be out is the interest they will have to pay because of not getting the money on the dot. This will happen once.
It will be continuous.
No, it will not be continuous, only once.
We are all at loggerheads. It seems to me that if they are going to be out of any amount of tax revenue any month they will have to find that somewhere and money will have to be borrowed and interest will be payable on that indefinitely. Perhaps I have misunderstood this and am making the position worse than it is because I do not understand where the £250,000 comes from.
That is the interest which has to be paid by the Exchequer for the amount it does not get in in the first month.
But it does not tally with the figure for losing a month's revenue. Can the Minister help us there?
On the assumption of a two-monthly tax period, there would be six months' revenue, one month late.
Where does the six months' revenue come from?
There are six two-monthly periods and in each one——
That is the mistake I was making earlier. I think the Minister is wrong in that. It is not three-monthly intervals. Every month, the return is being made.
The money is rolling in.
The money is coming in every month and, therefore, it is a once and for all loss.
May I suggest that Deputies, in the quiet of their own homes, should write it down, taking it month by month, not doing it theoretically, and they will see that it works out in that way? I did not believe it at first and I asked and had it put down on paper and saw how it worked. Having taken it for the 12 months you have to follow right through on paper and see what happens.
If he gets in £15 million —I am exaggerating the amount—on 19th April and £15 million on 19th May and £15 million on 19th June, could the Minister explain to me where this loss will recur? It must occur the first time. It is once for all. It does not occur again. It cannot occur again. If it were three monthly periods, which I thought at first we were talking about, instead of two monthly, it would mean that there would be a break of one month in each series but once it starts it is being paid every month. There must be a return every month, even though it is three months behind. There is only one loss and that is the first one. At least, that is as I see it.
Only the difference between the extended period and the first month.
Yes.
No. It continues right through. Put it down on paper and you will see it.
On 1st November value-added tax is coming in. The first cheques for that will arrive on 19th January. Is that correct?
Whatever month you pick.
February. For the goods sold in November they will get two months, December and January. They will pay by 19th February. If you extend it to March you only lose interest once on the money that you do not have between 19th February and 19th March, because on the 19th of every subsequent month the cheque will arrive. In April, the December cheque will arrive, in May, the January cheque, and so on.
(Dublin Central): I believe it will be continuous. Let us take a round figure of £6 million. At the moment we pay it monthly. Now it will be two monthly. Deputy FitzGerald has an amendment suggesting three months. In February there is £6 million due, assuming £6 million is owed for January. Deputy FitzGerald wants it extended to February and March. There is £6 million for February, £6 million for March. Will that ever be recovered? It will be recovered, but three months later. That is continuing all the time. It will be always three months later. There is bound to be interest accruing.
Perhaps what we have forgotten is this: Deputies may be thinking as though there was a trader who was one month late with his cheques but he pays it up one month late and that is the end of it. That is the way they are thinking. That is not, in fact, what is happening. Remember, at the moment the tax is paid at the end of every month. If we make this at the end of a two-monthly period it means that in every two monthly period there is a month's tax late. If it is a two-monthly accounting period, you have, in fact, got six months revenue one month late and if it is a three monthly accounting period you have a year's revenue one month late, because it continues in each taxable period. If the Deputies go home and put it down on paper they will see it.
Perhaps the Minister could tell me where you get the money originally to extend it. Would you borrow that? If you never repaid that I can see that the interest will be there all the time on that.
That is the point.
If you do repay it then it is only a once and for all thing.
Under the Minister's scheme you get paid in February, April, June and under my scheme you get paid in March, May, July, et cetera. That means that there is an initial deferment of one month of these regular payments and you have to borrow for that one month. Having deferred by that one month, you then get paid at the same——
Deputy FitzGerald is falling into the trap the Minister is falling into. There is not a three months period. There is a payment every month. You are two months behind or you are three months behind.
Under the Minister's scheme, unlike my scheme, the payments are related to periods of January, March, May, July, September, November—amendment No. 9.
No.
I must suggest that Deputy Tully has not grasped this. He is still thinking in terms of somebody being a month late. That is not what is involved. If there is a two monthly taxable period, tax is paid, not every month, but every second month.
If the tax which is due for November and December is paid on 19th January, when is the next tax payable?
19th March.
That is right.
No, because the tax that is paid on 19th January is the November tax. There is always a month in between.
The Deputy has not grasped that we are talking here about making it a two monthly period instead of one monthly.
Of course you are, but even with a two-monthly period it is still once only because the next time it comes around you will be paying it at regular intervals.
Of two months.
It does not matter.
You are paying tax in respect of a two months period of transactions and you are paying it at an interval after that. You then have to wait two months for the next two months period to elapse to incur liability which is paid at an interval after that and the tax is paid only six times a year. Is that right?
That is right.
What difference does that make?
I do not think it makes any difference at all.
The Deputy is saying that the tax is coming in every two months, which it is not.
To get back to my point, whereas under the Minister's scheme the tax is paid in February, April, June, under my scheme it is paid in March, May, July. There is a deferment of one month which has to be financed.
A deferment of one month as compared with the present system or what?
I am talking about my three months as against the Minister's two months. The Minister is objecting to my three months.
A deferment of two months for the revenue because at the moment it is at monthly intervals.
I appreciate that, of course. The Minister is objecting to my amendment and I am trying to argue in favour of it. I am concerned with the difference between me and him, not with the difference between him and the Revenue Commissioners.
That is what I want to deal with.
There is a deferment, by my scheme, of one month in the first instance. He has to find finance for that. Having found finance for that, the money thereafter flows in at exactly the same two month intervals as previously and he has had to find finance for one extra month. Then every two months money comes in. I do not see that there is anything more than one extra month deferment of revenue and the interest on that, but perhaps I have it wrong.
That is right, in each taxable period.
No, in the first taxable period at the very beginning.
No, in each taxable period.
No. Once you have found that money and started a month later, everything happens in exactly the same two monthly intervals thereafter as under the Minister's scheme but you do start one month late. The whole tax payment starts a month later and it goes on then at exactly the same interval.
Take the first taxable period of three months. In respect of that the Deputy agrees that one month's revenue would be late. The first month would be two months late. The second month would be one month late. That is the first taxable period.
Progress reported; Committee to sit again.
The Dáil adjourned at 10.30 p.m. until 10.30 a.m. on Wednesday, 31st May, 1972.