I move: "That the Bill be now read a Second Time".
In this Bill I am providing statutory cover for the taxation changes which I announced in the budget statement of 9 February. I am also availing of this opportunity to introduce further substantial changes, which will correct anomalies and improve the tax code. The emphasis is especially directed towards countering evasion more effectively and improving collection. Some of the new items in the Bill involve important changes in our tax legislation and I will make specific reference to these later.
Before I discuss the details of the Finance Bill, however, I would like to remind Deputies of the objectives set out in the budget and to comment on recent developments. The policies which I announced on 9 February centred on achieving a reduction in borrowing, improving our competitiveness and minimising the ill effects of the recession on the less well-off members of our community. I said then, and I repeat today, that this is the only course which will assure us of economic growth and higher employment. While individual elements of the budget have been criticised, I think it is fair to say that there have been few dissenting voices on the overall strategy.
In the three months since the budget there has been a wide public debate in relation to taxation. The unavoidably high tax rates, which are necessary to support a high level of public expenditure, have focussed unprecedented attention on the issue of tax equity. This has been the subject of discussions already in the Oireachtas and I do not now wish to go over the same ground again in detail. I welcome the new awareness of the need for a better distribution of taxation because I believe there is scope for considerable improvement. The provisions in the Bill before the House are first-hand evidence of this and I plan to introduce further substantial changes later. What is regrettable is that the new-found interest in tax equity has led to widespread confusion and exaggeration about evasion and uncollected taxes. It has also led to some unreasonable demands for drastic changes which could not possibly be implemented in a short period without seriously damaging the economy and which in any event would lead to new inequities.
Greater tax equity was identified as a priority in our Programme for Government and we listed specific measures which would assist us in achieving this objective. We are on course in this respect and the Finance Bill bears witness to the considerable progress that is already being made. The changes in legislation will be supplemented by administrative improvements. The Finance Bill, however, cannot open the way for early reductions in the levels of taxation. As I have said, it is designed to provide the legislative basis for this year's budgetary strategy. We can at the same time achieve a substantially improved distribution of tax but this alone will not allow for any sizeable reductions in tax. I want to emphasise this because it is at the heart of the present debate about tax levels.
I said earlier that I welcome the new-found interest in tax equity. At the same time — and I expect all sides of the House to support me in this — I condemn outright the practice of withholding tax payments as a means of highlighting concern about tax levels. It is pointless and selfdefeating and will only aggravate divisions within the community on the issue of taxation. It is also pointless and destructive to engage in other forms of industrial action as a protest against taxation.
I would here like to acknowledge the positive approach which the Irish Congress of Trade Unions have taken to the present situation. Many of their proposals to deal with tax evasion have considerable merit. The Government had decided in any event that a significant proportion of these should be incorporated in the Finance Bill. Deputies will be aware that a significant number of the measures which have been under discussion between myself, my officials and the ICTU over a number of weeks past were already provided for in the budget statement of 9 February. Other measures which have been identified as being useful in the context of countering evasion will be carried out by administrative action. I welcome the statement issued by the Executive Council of Congress on Tuesday last that the response by Government to their representations about tax evasion and avoidance is encouraging. I would think that that statement itself, the Finance Bill and the budget statement of this year together underline the fact that this Government are determined to make major progress in the area of tax evasion this year. As I have said already in this House and elsewhere, this year's Finance Bill could be described as revolutionary in terms of the progress that it makes in this area.
This Bill breaks a great deal of new ground in curbing tax evasion. I will deal later with the individual sections, both those that are concerned with evasion and those that relate to other items. Before I describe individual elements, however, I would like to say a few words about the overall anti-evasion strategy. The Bill incorporates all the measures which I listed in the budget statement except those that can be implemented through administrative changes. In addition, it strengthens the powers of the tax inspector in investigating malpractices, it increases penalties beyond what was envisaged earlier and it provides that in future tax appeal hearings in the higher courts will be held in public.
I have repeatedly acknowledged that there is much that is wrong with our tax code and I have already made it clear that I will promote major improvements. Legislation alone will not achieve the levels of improvement that are required; there must also be administrative changes and changes in attitudes towards taxation.
I would like to comment on individual sections of the Bill. Rather than explain all sections on a consecutive basis, I will highlight the main changes which have not already been fully detailed in the budget statement. Detailed explanations of the individual sections are contained in the Explanatory Memorandum and I do not intend to duplicate them but mainly to highlight some of those sections which I regard as being particularly worthy of attention.
The first two sections provide for the changes in income tax exemption limits and rate bands as announced in the budget. I would like to draw special attention to sections 3 and 4. These have already received considerable favourable publicity following circulation of the Bill. The present law in relation to the treatment for income tax purposes of maintenance payments in the case of separated spouses is unfair to the couples concerned and there has been a succession of complaints about this. What is proposed here is to go as far as reasonably possible to provide the same arrangements for these couples as for married couples generally and to allow them the option of single or joint assessment. The effect of joint assessment will be that their combined after-tax income will be the same as if they were living together, and greater than it is now. The effect of the measures will be to reduce total taxation on the income of people who find themselves in those circumstances and bring it back to the level that applies to married persons.
The changes will apply in respect of new maintenance arrangements. They may also apply in respect of existing arrangements where both partners request them and I expect that many separated couples will be anxious to avail of this. When the Bill was published, I said that the Government regarded the present text as one option for change. It is the one which appears to me and to the Government as the most suitable at this point but if in the course of discussion of this Bill a better option emerges, I will be glad to take it on board.
I move on now to section 9 which makes significant changes in the tax appeal procedures. In future, applications for late appeals made later than 12 months after the date of the notice of assessment will not be considered for admission unless the tax charged in the assessment, together with any interest thereon, is paid and the necessary returns and accounts to enable the appeal to be determined have been submitted. Applications for rehearings of tax appeals in the Circuit Court are being used by some taxpayers to delay finalising their tax liability and I propose to restrict this right of a rehearing to genuine appeals. In future, where no returns or accounts are submitted, or the documentation submitted is inadequate to determine the appeal, the appeal commissioners, if an application for a further adjournment is refused, will dismiss the appeal. Where an appeal is dismissed, the original assessment will become final and conclusive. This section also provides that hearings by the High Court and by the Supreme Court of cases stated will no longer be held in camera. The effects of these provisions will be to remove the incentive that exists in the present system to use the full length of the appeals procedure simply to delay the payment of tax which, in many cases, is known to be properly due.
Chapter II of the Bill deals with the taxation of farming profits. The principal change is the extension of income tax liability to farmers who up to now have been excluded because of their low rateable valuations. This is something which arises directly from a court decision which held that we could no longer use rateable valuations for this purpose. Therefore, it was necessary at this point to introduce another means other than the rateable valuation basis, for deciding who would properly be in the tax net and who would not. At present approximately 35,000 farmers are liable for tax. An estimated additional 90,000 farmers will now come within the tax net. Of course, only a minority of these will actually pay tax, because most of the farmers concerned are on low incomes, and for this reason we should minimise the extra work involved both for the farmers themselves and the Revenue Commissioners.
Farmers who have not been liable for income tax up to now will be required to fill in details of their business and personal circumstances in a farm profile form with a view to the identification of those who would have a taxable income. The profile form will be a relatively simple document and its completion should present no undue difficulty for the farmers in question. I see no good reason why farmers should need professional advice in filling in the particulars required. In cases in which the completed farm profile form would suggest that a farmer may be liable for tax, he will then be required by the Revenue Commissioners to complete a tax return in accordance with existing requirements, which include the production of a simplified form of accounts.
We are working on examining a further simplification of income tax accounts for small businesses and farmers in order to relieve as far as we can the burden involved for small enterprises in producing the kind of information required, without reducing in any way the quality of the information and its usefulness in assessing tax liability. The position of the majority of farmers who will not be required this year to account for tax will remain subject to periodic reviews on a profile basis to identify those who might produce taxable incomes in future years. I consider that the profile fully meets the Government commitment to a system which will deal simply and fairly with the large number of small farmers newly liable for income tax.
I recently described the farm profile form as being like a radar screen where the profile itself would be the sweep, and in particular cases the sweep would identify cases where there might be a tax liability. Those cases would then be further examined by the tax inspectors.