I move: "That the Bill be now read a Second Time."
This Bill is designed to repeal, from 6th April, 1974, the 20-year tax exemption for profits arising from scheduled non-bedded minerals and to replace the exemption with effect from the same date by a special scheme of tax allowances.
Deputies are already aware that an interdepartmental committee was set up in 1971 to review the taxation and royalty arrangements in relation to the exploitation of our mineral resources. It was envisaged that this review would assist in the formulation of sound long-term fiscal policy for mineral exploitation which would give the State an equitable share of profits and which would at the same time be sufficiently attractive to the mining companies to ensure the continued development of our mineral resources in an orderly and efficient manner.
Following this study the Government concluded that the 20-year tax exemption was unduly generous by reference to comparable concessions elsewhere and that it was no longer appropriate in the light of the present state of development of the mining industry in this country. It was clear that the same economic benefits could be secured for the country, together with additional benefits from increased tax revenue, by less prodigal incentives.
World-wide changes have occurred in recent years in the climate of public opinion and in the framework of government policies within which the mining industry has to operate. Regardless of the terms of fiscal legislation when investments were first initiated, many countries have subsequently taken steps to increase their revenue from mining. For instance in Canada a new scheme of allowances applicable to mining is replacing the tax holiday; in the Philippines a percentage depletion allowance, which results in a reduced rate of tax, is being progressively withdrawn; and in Australia certain mining investment allowances have been repealed and the withdrawal of other allowances is being contemplated. There has also been a marked trend towards greater State participation, from part sharing to outright nationalisation in some places. Mining companies are conscious that they are operating in a highly sensitive area in exploiting the natural resources of host countries. It is clear from the mining press and journals that the industry recognises the universal and ineluctable character of these new attitudes and has, in fact, come to terms with them.
Apart from the international change in attitudes to exploitation of natural resources the difficulty in meeting sharply rising demand for base metals has led prices to rise to record levels with commensurate increases in mining companies' profits, which in Ireland have been completely free of tax up to now. World demand for base metals, the discovery of the Navan mine, which promises to be one of the largest of its kind in the world, and other mining developments and possibilities in Ireland have fundamentally altered the mining situation in this country and made realistic appraisal of the 20-year tax exemption imperative. It was inevitable in these circumstances that Irish public opinion should strongly react against the continued exemption from taxation of profits arising from the exploitation of irreplaceable mineral resources. The Government, for their part, were duty-bound to act by recasting the tax concessions available as respects non-bedded minerals in order to ensure that the fruits of exploiting our mineral resources would be applied to the greatest extent possible for the economic and social development of the country.
I wish to avail of this opportunity to emphasise that the special circumstances which necessitated a change in the Government's fiscal policy as respects non-bedded minerals do not apply to industry in general, particularly manufacturing industry. There is a vital distinction between the proper attitude to adopt to the exploitation of mineral resources, which are wasting assets, and manufacturing industry, which is intended to be permanent. When a profit making asset is wasting and irreplaceable, it must be taxed while it exists or it will pay no tax at all. Irish mining assets fall into this category. Unlike manufacturing industry, tax incentives are not required to locate mineral resources in Ireland; they are either here or they are not. On the other hand incentives have been recognised as necessary to attract foreign industrialists to Ireland to establish permanent industries which in the absence of tax incentives might not be set up here.
By virtue of the 20-year tax exemption which could be claimed once mining operations commenced before 6th April, 1986, most of the mining companies would never pay any tax. Manufacturing companies will pay tax when reliefs, such as those for exports, are exhausted and will confer a continuing benefit on the community. The changes in mining fiscal policy do not of course imply any intention whatsoever to change the tax reliefs in respect of export sales by manufacturing industry. Every Government since 1956 have continued the reliefs for manufacturing industry and there will be no change in policy in this respect.
Taxation is but one of many considerations to be taken into account by companies in deciding the allocation of resources between different areas and countries. In particular the growth of the Irish mining industry in recent years cannot be attributed solely to the tax exemption. This development was also due to relatively favourable and well documented geology, improvements in technology, good mineral legislation and the impetus given by the Tynagh discovery in 1961. It is indeed significant that all the mining companies which have made exploitable discoveries here were engaged in mineral exploration before the announcement of the 20-year tax exemption.
When the Government announced last autumn that it had been decided that the 20-year tax exemption for profits from the mining of non-bedded minerals should be withdrawn and be replaced by an alternative system of tax allowances, a statement of the proposed new allowances was issued and interested parties were invited to submit their views. Subsequently I discussed the proposed scheme of allowances during the course of a series of meetings with the mining companies.
I am grateful for the constructive manner in which these consultations were held. Following these representations the scheme proposed last October was modified in some respects. In particular it was decided that in addition to the reliefs already announced certain allowances should also be provided in respect of abortive exploration expenditure and the cost of acquiring scheduled mineral assets. The revised scheme of allowances is now set out in the present Bill.
The various definitions used in the Bill are described in section 1.
Under section 2 of the Bill immediate allowance is provided against any mining profits of a person from working a qualifying mine for the full amount of exploration and development expenditure as it is incurred, on or after 6th April, 1974, in any part of the State. Deputies will note that all exploration expenditure, whether successful or abortive, will qualify for immediate allowance against mining profits. Where however abortive expenditure is incurred on or after 6th April, 1974, by a person commencing mining operations, relief will be limited to abortive expenditure incurred within seven years prior to the commencement of mining. This seven-year restriction will in practice apply only to persons starting to work a qualifying mine after 6th April, 1981.
Section 3 will in certain circumstances enable abortive exploration expenditure incurred before 6th April, 1974, but not earlier than 6th April, 1967, also to be set against mining profits. The qualifying term of seven years for abortive exploration expenditure is considered reasonable in the interests of the Exchequer and the mining industry. In the absence of such a time limit there could be claims in respect of abortive exploration expenditure incurred in different parts of the country and regardless of when it was incurred— perhaps over periods of ten, 15 or 20 years. Since the 20-year tax exemption, which is now being terminated, commenced on 6th April, 1967, it is considered that this date would be an appropriate starting point and it gives a qualifying term of seven years. Provision is also made in section 3 to prevent persons arranging matters so that successful mining companies would take over unsuccessful exploration companies in order to set their abortive expenditure against the taxable mining profits of the successful companies.
In addition to the reliefs which I have referred to, special provision is made in section 2 of the Bill to enable companies already carrying on mining operations before the withdrawal of the tax exemption to claim an immediate allowance of any unallowed balance of exploration and development expenditure incurred before 6th April, 1974, which qualified for relief under existing law. Section 7 accords similar relief in respect of any unallowed balance of capital expenditure incurred on plant and machinery brought into use before 6th April last.
As an encouragement to higher investment in new plant and machinery by the mining industry, provision is also made in section 7 of the Bill which will, in effect, allow 120 per cent of that expenditure to be set-off as it is incurred against mining profits. The relief in question will apply to expenditure incurred on or after 6th April, 1974, to new plant and machinery used in connection with the mining of scheduled non-bedded minerals in any part of the country. No terminal date will apply in the case of this relief. As a further incentive to encourage exploration for non-bedded minerals, section 6 provides for a special investment allowance of 20 per cent of expenditure on exploration incurred on or after 6th April, 1974. This is in addition to the 100 per cent allowance for exploration expenditure allowed under section 2, to which I referred earlier.
I am satisfied that these provisions will afford adequate incentive to further prospecting and exploration so as to ensure the continuation of a satisfactory level of development of the country's mineral resources.
Section 4 is designed to cover the case where exploration expenditure is incurred by one company in a group of wholly-owned subsidiaries and mining profits are earned by the parent company or by another subsidiary in the group. In such cases the exploration company may elect to have its exploration expenditure, whether successful or abortive, attributed to any other subsidiary in the group or to the parent company so that the exploration expenditure may be set off against mining profits wherever they arise within the group.
Section 5 provides relief for exploration expenditure incurred by a person who finds a scheduled mineral deposit and then sells the assets to another person who develops and works the mine. In such a case the latter will be able to claim in respect of the exploration expenditure incurred in connection with the mine.
As regards the cost of acquiring deposits of scheduled minerals, section 8 will enable this expenditure, where incurred on or after 1st April, 1974—the date of circulation of this Bill—to be spread over the life of the mine or 20 years if shorter. The allowance will also be given to persons commencing to trade on or after 6th April, 1974, where the expenditure in question was incurred before that date, since such persons would have received no benefit whatever from the tax exemption provisions. It would, however, be invidious to allow gains from sales of scheduled mineral deposits to escape taxation because the owners elected not to work the deposit but to dispose of their interest. Consequently, section 11 imposes a charge to income tax, and section 12 imposes a charge to corporation profits tax in the case of a company, on the proceeds of sales of scheduled mineral deposits occurring after 31st March, 1974.
Sections 15 and 16 terminate, with effect from 6th April, 1974, the exemption from income tax and corporation profits tax, respectively, of profits from the mining of scheduled minerals. Section 10, however, ensures that relief will be provided for marginal mines which might otherwise cease to operate because of the potential tax burden.
Sections 13 and 14, which relate to the tax treatment of dividends paid on profits previously entitled to exemption, are consequential on the repeal of the exemption. In particular, provision is being made to ensure that dividends paid, after the repeal of the tax exemption, but out of profits which fell within the exemption period of 20 years will carry the benefit of the income tax exemption.
Whatever misgivings, real or imaginary, may have been expressed at the time of the announcement of the intention to end the tax-free holiday on mining profits, all the indications since demonstrate that interest in mining in Ireland is not only continuing; it is on the increase.
I am satisfied that the new scheme of taxation for mining dealt with in this Bill, together with the other advantages of operating in Ireland, will ensure the ongoing development of mining here to the benefit of the mining interests and the people of the country as a whole. Because of the generous allowances now being provided, the gain in additional revenue to the Exchequer in the next few years from the new tax arrangements may not be significant but, over the next 20 years, it is estimated that the likely tax yield on the basis of present information, will be of the order of £125 million. I commend the Bill to the House.