Finance Bill, 1987: Committee Stage (Resumed).

NEW SECTION.

Minister for Finance (Mr. MacSharry)

I move amendment No. 23:

In page 13, before section 12, but in Chapter II, to insert the following new section:

12. —(1) Section 26 of the Finance Act, 1984, is hereby amended by the insertion, after subsection (1), of the following subsection:

‘(1A) (a) Notwithstanding the provisions of subsection (1), a qualifying company whose trade consists wholly or mainly of the carrying on of qualifying shipping activities within the meaning of section 26 (1) of the Finance Act, 1987, may have one or more subsidiaries which do not satisfy either of the conditions in paragraph (b) of subsection (1): Provided that the condition mentioned in paragraph (b) of this subsection is satisfied.

(b) The said condition is that the subsidiary or each subsidiary is a company which exists for the purpose of carrying on a trade consisting wholly or mainly of the carrying on of qualifying shipping activities.

"qualifying shipping activities" has the meaning assigned to it by section 26 (1) of the Finance Act, 1987, as if, in the definition of a "qualifying ship" for the purposes of the said meaning, paragraphs (a) and (b) of that definition were deleted, and

(d) In this subsection, the question of whether a trade consists wholly or mainly of the carrying on of qualifying shipping activities shall, with any necessary modifications, be construed in accordance with the proviso to section 16 (2).'.

(2) The Second Schedule to the Finance Act, 1984, is hereby amended, by the substitution for paragraph 1 of the following paragraph:

‘1. The shares issued by the qualifying company may, instead of, or as well as, being issued for the purpose mentioned in subsection (1) (b) of section 12, be issued for the purpose of raising money for a qualifying trade which is being carried on by a subsidiary (other than a subsidiary by virtue of section 26 (1A) (inserted by the Finance Act, 1987) or which such a subsidiary intends to carry on; and where shares are so issued subsections (1) (c), (4), (5), (7) (b) and (8) of section 12 shall have effect as if references to the company were or, as the case may be, included, references to the subsidiary.'.".

The purpose of this amendment and its related one, No. 18, is to provide that the holding of a foreign shipping subsidiary will not debar Irish shipping companies, being brought within the business expansion scheme under the provisions of section 11 of the Bill, from being qualifying companies for the purpose of the scheme. At present companies wishing to avail of the provisions of the business expansion scheme are precluded under section 26 of the Finance Act, 1984 from holding foreign subsidiaries unless such subsidiaries exist solely for the purpose of carrying on any trade which consists solely of any one or more of the following trading operations: the purchase of goods or materials for use by the qualifying company or its subsidiaries, the sale of goods or materials produced by the qualifying company or its subsidiaries or the rendering of services to or on behalf of the qualifying company or its subsidiaries. This condition is considered to be too restrictive in so far as are concerned shipping activities which can be carried on on a global basis, with ships constantly traversing international sea routes. It may be necessary for a shipping company to have foreign subsidiaries carrying on qualifying shipping activities which would not meet the existing requirement of the business expansion scheme — that the shipping activities should be carried on wholly or mainly in the State. The extension of the provisions of the business expansion scheme to shipping is one of a number of incentives for the maintenance and development of a strategic shipping fleet.

In those circumstances it has been decided that the holding of a foreign shipping company, as a subsidiary, will not debar a qualifying Irish shipping company from the provisions of the business expansion scheme if that foreign shipping company would — if resident in the State and operating a qualifying ship — meet the requirements of the provisions of the business expansion scheme by reason of the fact that it carried on qualifying shipping activities. Provision is being introduced into the business expansion scheme to prevent any money raised under the scheme by a qualifying shipping company from being used directly or indirectly for the benefit of such a foreign subsidiary. This qualification is considered essential to conform to and maintain one of the basic principles of the business expansion scheme, namely, that investment should be channelled into businesses operating within the State. If this principle were not rigidly adhered to in effect the Irish taxpayer would be placed in the position of subventing the expansion of employment opportunities abroad.

Mr. Noonan

(Limerick East): It is difficult to debate this amendment because it arises from sections we have passed already without debate. In that sense it places us in a somewhat awkward position. On the face of it I have no objection at all to the amendment. It seems to be one that we can welcome.

I welcome the extension of the provisions of the business expansion scheme to the shipping area and also the extension of the 10 per cent tax regime to shipbuilding, as announced by the previous Government.

There are a number of matters to which I will return on Report Stage in relation to the business expansion scheme and the later sections dealing with the shipbuilding industry. I am not too clear on how ships being built for the fishing industry will be dealt with. As I understand it one of the conditions of the business expansion scheme is that an appropriate grant will be given by the relevant grant-aiding authority, whether that be Údarás na Gaeltachta or the Industrial Development Authority. So far as I can ascertain ships being built for the fishing industry are excluded. It seems to me that it would be well worth investigating a proposition in which a number of people in one of the fishing towns on our coast could come together and invest for the purchase of a fishing vessel. I should like the Minister to clarify the position vis-à-vis the combination of this and the link with the grand-aid mechanism. Perhaps the Minister would say whether fishing vessels are excluded from the provisions of the business expansion scheme as a result of the tie-up which I suggest. If so, would he consider putting down an amendment on Report Stage allowing for the possibility of community-based investment in the fishing industry for the purchase of a vessel. There is a number of people who might be interested in becoming involved in this and it would be well worth investigating.

I am somewhat inhibited because I cannot revert to sections already passed but we will be returning to it on Report Stage. I have no enormous objection but there are two matters on which I want clarification and in respect of which I may be putting down amendments. The first is the issue I raised in regard to the fishing industry. The second is: does the Minister envisage any possibility of the business expansion scheme applying in this and other areas, within the provisions of the sections we have passed, in circumstances in which the appropriate Government agency do not grant aid? It seems to me that there are circumstances in which the grant aid mechanism, as a criterion, will be difficult to apply. There may be circumstances in which one of the grant-aiding agencies, when involved in consultancies, would be in direct competition with people who might want to set up consultancies under the provisions of the business expansion scheme, where consultancies would be investing in projects, or advising in projects, under the provisions of the business expansion scheme.

There is a whole area there about which I would like the Minister to say a few words but I am not opposing the amendment.

Mr. McDowell

I do not oppose the amendment either and I echo Deputy Noonan's sentiments in relation to the business expansion scheme.

Mr. MacSharry

If I might reply to a couple of the points Deputy Noonan has made, first, the ships that will qualify are defined in section 26 to which we will come later — but they are mainly cargo, passenger and sea-going ships. It excludes fishing vessels.

Mr. Noonan

(Limerick East): The fishing industry is excluded.

Mr. MacSharry

Yes, the fishing industry is excluded. The Deputy will appreciate, as will other Members of the House, that the fishing industry is fairly substantially supported at present by way of the grants system operated by An Bord lascaigh Mhara, FEOGA and so on.

The Deputy mentioned the question of qualification for grant. In the case of fishing qualifying under the provisions of the business expansion scheme, they would have to qualify for a grant.

Mr. Noonan

(Limerick East): As I understand it there are two different investment stimuli being given to the shipbuilding industry: one is the application of the 10 per cent tax regime and the other is linked to that so that shipping activity will be an appropriate investment for the business expansion scheme. I do not suggest that the 10 per cent tax regime should be extended to fishing vessels. There is merit in examining whether, even though there is an exclusion in section 26, the business expansion scheme should not be allowed to apply to fishing vessels so that there could be a Community involvement in the purchase of fishing vessels, and investment would come from the Community rather than the taxpayer, or at least there is an alternative other than putting in BIM grants, which are taxpayers' money, to get investment in Killybegs from people who are interested in Killybegs and the fishing industry. They would get the appropriate tax breaks.

Mr. MacSharry

It is a point that can be considered but in relation to what we are doing at present it does not arise, because fishing is excluded.

Mr. Noonan

(Limerick East): I will come back to that point on Report Stage.

Amendment agreed to.

Mr. MacSharry

Before dealing with amendment No. 24 I would like, with your permission, to indicate at this stage my acceptance in principle of amendment No. 35 in the name of Deputy McDowell and amendment No. 36 in the names of Deputy Noonan and Deputy Desmond. It is possible that these amendments may not be reached this morning. These amendments propose that any regulation extending the list of accountable persons in section 13 should first be approved by a resolution of Dáil Éireann and I am agreeable to this. I am not fully satisfied with the wording of the amendments, however, so I will be bringing in an amendment on Report Stage to provide accordingly. I also accept the principle of Deputy Noonan's amendment No. 34 which I assume means that any extension of accountable persons should be confined to public sector bodies. I consider, however, that it is not necessary to provide statutorily for this, given that with my acceptance of amendments Nos. 35 and 36 it will be necessary for the Dáil to approve in advance any extension of the list of accountable persons. I assure Deputy Noonan that it is my intention that any extension of the list of accountable persons which I may propose in the future will be confined to public sector bodies.

Mr. Noonan

(Limerick East): That is very welcome. I thank the Minister. That improves the Bill. I ask him to incorporate an amendment, along the lines of amendment No. 34 in the text of the Bill. He will have noticed that The Workers' Party, in the names of Deputies Tomás Mac Giolla, Proinsias De Rossa, Joe Sherlock and Pat McCartan, have already sought an amendment to extend the withholding tax to the whole private sector. As the section is drafted, it is possible that the Minister, by order, could require, for example, John Sisk & Company to pay 35 per cent to the Revenue Commissioners on behalf of an architect or an engineer employed by them. I do not think that is the intention of the Minister. I can see that the Minister would want to apply the withholding tax to the new Bord Glas when it is set up, and that is not in the list of accountable persons.

I ask the Minister to make that change. It is a simple drafting change in the Bill so that the Minister, or any of his successors, does not have the capacity under this Bill to extend it by regulations to anybody who is paying a bill to anybody else. One could end up by changing the definition of "specified person" as well and one would have to withhold 35 per cent of what one would pay to the window cleaner and send it to the Revenue Commissioners. If we are to move along those lines it should be in primary legislation presented to the House in a Finance Bill. It should not be done by regulations. I welcome the Minister's acceptance of my amendment together with amendments couched in the same way by Deputy McDowell and Deputy Desmond. In accepting amendment No. 34 I ask the Minister to make the actual change on Report Stage because it is a serious issue and financial legislation should not be beyond doubt. While I accept the assurance of the Minister, I think he should make the change.

Mr. Desmond

May I thank the Minister——

An Ceann Comhairle

Sorry Deputy Desmond, Deputy Mac Giolla has offered.

Tomás Mac Giolla

I am a little confused as to the manner in which we are proceeding. The Minister has jumped ahead to amendments Nos. 34, 35 and 36. I agree with amendments Nos. 35 and 36 in regard to ministerial orders. I hope the Minister will accept that amendment in the wording in which it is put down, because it is positive wording. In other words, if the Minister wishes to make a regulation he must bring it before the House and it must be approved by the House. There is another procedure for this and the Minister may intend to reword it. A period of 21 days is given and if the House does not reverse the ministerial order in that time it goes through without being debated in the House.

Mr. Mac Sharry

On a point of clarification for the Deputy, that is already in the Bill.

Tomás Mac Giolla

That is the point I am making.

Mr. MacSharry

The point the Deputy is making about the 21 days is already in the Bill.

Tomás Mac Giolla

The Minister said he was not satisfied with the actual wording of these amendments as put down and I hope he is not changing the nature of the amendment. However, we will see that on Report Stage.

Mr. MacSharry

I assure the Deputy we are not.

Tomás Mac Giolla

In relation to amendment No. 34 in the name of Deputy Noonan to which the Minister has now jumped ahead and said he is agreeing to, the amendment in the name of The Workers' Party Deputies has been ruled out of order by the Ceann Comhairle.

Mr. Noonan

(Limerick East): I realise that.

Tomás Mac Giolla

However, the point about that amendment was that what is good for one employer should be good for all employers. The general intention of the withholding tax is to extend the PAYE principle to as many areas as possible. This is what we like about the withholding tax. A principle which has been applied for the past 30 years to workers on wages and salaries is now beginning to be applied to self employed people. If that principle is accepted for the public sector employers — the Civil Service, or semi-State bodies, or whatever — they are employers who pay fees to consultants or professional people in the course of their trade or business. If it is right for them to deduct a withholding tax — and I say it is a reasonable principle —why would the Minister not be allowed to extend it? He can wait to see how it operates this year and next year in the public sector and he should have full power to extend it to other employers as well. Deputy Noonan thinks the very idea is so appalling that it should not even be considered by the Minister.

Mr. Noonan

(Limerick East): I am saying it should not be done by regulation. If it is done it should be legislated for. That is my point.

Tomás Mac Giolla

I agree with that but if the wording in the amendments of Deputy McDowell, Deputy Noonan and Deputy Desmond were to be accepted the Minister would have to bring the regulation before the Dáil for debate and approval. That is why I agree with that amendment. The Minister should then be allowed the full scope of application. I also have an amendment down about the VHI, as has Deputy Desmond, and they should be included. The Minister might wish to include many others as time goes on and he should not be precluded from including employers in the private sector.

An Ceann Comhairle

I hesitate to interrupt Deputy Mac Giolla. I want to advise Members that while the Minister referred to certain amendments which we have not yet come to which he is accepting, naturally I allowed a brief discussion on that aspect of the matter but the Chair is obliged to proceed seriatim with the amendments before me. The next amendment before us is amendment No. 24 in the name of Deputy McDowell. We must proceed in an orderly fashion.

Mr. McDowell

I move amendment No. 24:

In page 14, subsection (1), to delete lines 3 to 9, and substitute the following:

"a sum equivalent to one-fifth of the amount of the relevant payment (excluding from the amount of the payment any value added tax);".

The substance of this amendment is to delete from the definition of appropriate tax to be withheld the standard rate of income tax which is now 35 per cent and to substitute for it 20 per cent, one-fifth of the amount of the payment, excluding VAT. This raises the issue as to what rate of deduction should be made if a withholding tax is to be implemented. I want to make it very clear that my party are totally opposed to this tax in principle and in its effects. Therefore, while I am suggesting a lesser rate, it is for the purpose of mitigating what I consider to be an undesirable tax. It should not be taken that I am going along with the principle of the tax. The rate of 35 per cent, viewed in any way, is penal to the point of absurdity.

It seems a logical error is being made by the Minister and is being accepted somewhat unquestioningly by some of the media — and Deputy Mac Giolla reechoed it again in error — that this is merely applying to the professional sector the same conditions as apply to the PAYE sector. It is doing no such thing. It is effectively putting the professional sector onto permanent emergency tax. It is no fairer to do that to the companies who are providing professional services than it is to do it to the PAYE workers. Deputy Mac Giolla would not ask that PAYE workers be put onto emergency tax. There is no excuse for saying to a company, all of whose directors are paying PAYE on a current year basis, that a withholding tax should be imposed at a rate which is very damaging to their cashflow, to their working capital and so on. The proposal here is simply to reduce the amount of the withholding tax, bad and all as it is, to a more manageable amount.

Like every other Finance spokesman in this House, I have been inundated with representations from various bodies — perhaps Deputy Mac Giolla has not been — in relation to this tax. They pointed out in detailed form the financial effect that the imposition of this tax would have on their viability. The Minister thinks they are exaggerating. I do not accept that but he is entitled to his view. In all the major cases of hardship and of danger to employment, as I see it, the margins of profit of large engineering companies, consultancy firms and architects firms are very much less than 35 per cent and in most cases they are between 5 per cent and 15 per cent.

I am proposing that we take into account that income taxation or corporate taxation has never in any other part of our taxation code been imposed on gross receipts because the very nature of corporation tax is that it relates to profit and income tax relates to the surplus a person has after all his legitimate expenses. If the general rate of profitability on the bulk of the services provided here is between 10 per cent and 20 per cent then it seems the withholding tax should not exceed the general level of the surplus or profit involved. In those circumstances the 35 per cent rate is penal, is confiscatory and is unjustified. On that basis, I suggest that the relation of the rate of withholding tax to the standard rate of income tax paid by an individual is wholly misconceived because we are not dealing here with profit for the purpose of income tax or corporation tax; we are dealing with turnover and that is a very different issue. I suggest the rate should be mitigated and reduced to 20 per cent which is more appropriate.

I do not want to be accused in any way of prolonging this debate but I want to make one thing very clear. I will conclude my remarks on this amendment because there is a lot to be done and that is because very little time has been provided for it. The reason for that is well known to Members of the House. It arises from the Order of Business which was determined yesterday. Nobody who supported that Order of Business, either implicitly or explicitly, in this House has any right to complain if any individual matter is put to the House or if a vote is insisted upon. If I am excluded from taking real part through my Party Whip in determining the Order of Business, I do not consider myself either morally or politically bound to accept unacceptable infringements on my right to put an issue before this House and to have the matter decided upon by a vote. Without trespassing into these areas, I believe it will not be possible to get through all the business on this Bill if we continue as we are doing. I am faced with the dilemma as to whether I should make way for other speakers or fail to move amendments because there are other people waiting in the queue. This issue is of such fundamental importance and the thinking behind the rate of 35 per cent is so wrong and so logically flawed that I have no option but to indicate that I will be pressing a vote on this discreet amendment.

Mr. Noonan

(Limerick East): We are all very anxious that the debate should proceed and that we will be able to comment on the major sections of this Bill. There were three hours allocated to the debate on sections 12 to 20 which include the withholding tax but the first hour and a quarter went on votes on the Order of Business and, therefore, the time is restricted.

I support the Minister on putting down a time motion. The practice previously was — Deputy McDowell may not be aware of it — that if there was not a time motion many amendments were front-loaded on the Finance Bill, the debate proceeded for three or four days, people did not get to discuss more than the first six or seven sections and the rest of the Bill was then voted on by one question. That happens no matter how much time is given to the Finance Bill as a whole. If the Deputy considers the number of amendments on income tax that were frontloaded before section 1 yesterday, he will realise that even if we had a week to debate this matter we would be still talking about income tax on Friday night. A time motion is absolutely justified in that there is no other way to debate the Bill properly.

An Ceann Comhairle

Since that matter has been dealt with I would prefer if it was not raised again and again. It is an Order of the House and the Chair will implement it.

Mr. Noonan

(Limerick East): I hope we can now proceed with an orderly debate. I and my party will be working on the basis that we will want a full debate on as much of the Bill as possible and we will not try to filibuster or try to keep people from speaking. I ask the other Deputies in the House to facilitate everybody and to give us all a fair crack of the whip.

I do not mind if the amendment before us is put to a vote. Fine Gael are opposed to the principle of withholding tax and we have put down a series of amendments to improve the administration of it because by tomorrow night we will be faced with a fait accompli. It is debatable if the amendment will improve the position. Obviously, 20 per cent is a lower rate than the standard rate of income tax but this is not as simple as that because it depends on the amount of the professional service which is concerned with the public sector. If 100 per cent of a person's activity is involved with the public sector that person pays 35 per cent of the turnover, or 20 per cent if the amendment is accepted. However, there are cases where 35 per cent of a person's activity in the public sector will be less than 20 per cent of somebody else's activity. I do not think there is a whole lot for the amendment and, in the interest of proper debate, if the Deputy would withdraw it with a view to submitting it on Report Stage he would make a lot of friends and give us another 20 minutes to debate other issues where the Minister might be more disposed to accepting amendments.

Mr. MacSharry

There is a difficulty in defining "public bodies". Companies like John Sisk, a public liability company, could be included if we have "public bodies" because of the difficulty of defining that phrase. I should like to tell Deputy Mac Giolla that we are dealing only in the non-commercial sector. The reason we are not dealing in the commercial sector is because of competition in that area. The alternative to leaving public bodies out would be listing everybody. That would be a very long list. It is my intention only to deal with public sector bodies.

I should like to tell Deputy McDowell that I cannot accept his amendment. What we are talking about in regard to the withholding tax is a cash flow addition of £25 million to the Exchequer this year. Acceptance of Deputy McDowell's amendment would immediately reduce that by £11 million. Such an undermining of the yield in the light of the present budgetary difficulties is unacceptable and I cannot accept the amendment for that reason.

A number of points have been made about the rate of reductions and why it should be 20 per cent instead of 35 per cent. The 35 per cent rate is the standard rate. It is the rate used in regard to the DIRT tax and deductions from the PAYE sector. We have all received representations from public bodies in regard to this. They were well organised and they pumped representations to us. I understand and appreciate their difficulties. Nobody likes to have additional impositions on them whether it is taxation, accountancy procedures or administration but this is the only way the Government could do this. I do not want to be jumping up and down and taking up the time of Deputies who may wish to make contributions. I will be brief at this stage.

There has been unfavourable comment in the impact of the withholding tax on professional firms whose employees and directors already pay tax under PAYE. It has been suggested that because of this situation such firms should be outside the scope of the tax. The point to be stressed here is that directors' remuneration and employees' income is not affected by the withholding tax scheme. In the case of a company, which is a separate entity, director's remuneration and employee income are items which are deducted in arriving at net profit on which a charge to corporation tax is levied. If the amount of withholding tax deducted under Chapter III proves to be excessive there is provision for the making of interim refunds if the conditions set down in section 18 of the Bill are complied with. This will modify the impact of the deductions and assure, so far as possible, that the tax deducted under the withholding scheme is related to the actual liability of the firm so that the withholding tax will not exceed the agreed and paid tax bill of the previous accounting period, a bill which, as indicated above, is based on net profits, that is after various deductions including directors' remuneration and so on. In these circumstances and provided that the claims are properly vouched, interim refunds of the tax will be made. In other words, where a firm incurs substantial outgoings in respect of directors' remuneration and employee wages this will be reflected in a lower corporation tax liability and as interim refunds are to be related to such reduced liability of the previous accounting period they will, therfore, come to be made all the sooner.

Mr. McDowell

I appreciate the Minister's position and also what Deputy Noonan has said. I do not wish to make enemies in the House but neither do I wish to succumb and bend my knee to the unfortunate effects of an Order of Business with which I did not agree, which I vehemently opposed and which Deputy Noonan vehemently supported. I must press the amendment.

Question put: "That the words proposed to be deleted stand."

The Committee divided: Tá, 76; Níl, 51.

Tá

Abbott, Henry.
Ahern, Bertie.
Ahern, Dermot.
Ahern, Michael.
Andrews, David.
Aylward, Liam.
Barrett, Michael.
Brady, Gerard.
Brady, Vincent.
Brennan, Matthew.
Dempsey, Noel.
Dennehy, John.
De Rossa, Proinsias.
de Valera, Síle.
Doherty, Seán.
Ellis, John.
Fahey, Frank.
Fahey, Jackie.
Fitzgerald, Liam.
Fitzpatrick, Dermott.
Flood, Chris.
Flynn, Pádraig.
Gallagher, Denis.
Geoghegan-Quinn, Máire.
Gregory, Tony.
Haughey, Charles J.
Hilliard, Colm Michael.
Hyland, Liam.
Jacob, Joe.
Kirk, Séamus.
Kitt, Michael P.
Kitt, Tom.
Lawlor, Liam.
Lenihan, Brian.
Leonard, Jimmy.
Lynch, Michael.
Lyons, Denis.
McCartan, Pat.
McCarthy, Seán.
Briscoe, Ben.
Browne, John.
Burke, Ray.
Byrne, Hugh.
Calleary, Seán.
Collins, Gerard.
Connolly, Ger.
Cowen, Brian.
Daly, Brendan.
Davern, Noel.
McCreevy, Charlie.
Mac Giolla, Tomás.
MacSharry, Ray.
Mooney, Mary.
Morley, P.J.
Moynihan, Donal.
Noolan, M.J.
Noonan, Michael. J.
(Limerick West).
O'Dea. William Gerard.
O'Donoghue, John.
O'Hanlon, Rory.
O'Keeffe, Batt.
O'Keeffe, Ned.
O'Leary, John.
O'Rourke, Mary.
Power, Paddy.
Reynolds, Albert.
Roche, Dick.
Sherlock, Joe.
Smith. Michael.
Treacy, Noel.
Tunney, Jim.
Wallace, Dan.
Walsh, Joe.
Walsh, Seáan.
Wilson, John P.
Wright. G.V.

Níl

Allen, Bernard.
Barnes, Monica.
Barrett, Seán.
Barry, Peter.
Begley, Michael.
Birmingham, George.
Boland, John.
Boylan, Andrew.
Bruton, John.
Bruton, Richard.
Burke, Liam.
Carey, Donal.
Clohessy, Peadar.
Colley, Anne.
Cooney, Patrick Mark.
Cosgrave, Michael Joe.
Creed, Donal.
Crowley, Frank.
Cullen, Martin.
Deasy, Austin.
Deenihan, Jimmy.
Doyle, Avril.
Dukes, Alan.
Durkan, Bernard.
Enright, Thomas.
FitzGerald, Garret.
Flaherty, Mary.
Gibbons, Martin Patrick.
Griffin, Brendan.
Harney, Mary.
Hegarty, Paddy.
Higgins, Jim.
Hussey, Gemma.
Kelly, John.
Kennedy, Geraldine.
Kenny, Enda.
McDowell, Michael.
McGahon, Brendan.
Mitchell, Gay.
Molloy, Robert.
Naughten, Liam.
Noonan, Michael.
(Limerick East).
O'Brien, Fergus.
O'Keeffe, Jim.
O'Malley, Desmond J.
O'Malley, Pat.
Quill, Máirín.
Shatter, Alan.
Sheehan, P.J.
Wyse, Pearse.
Yates, Ivan.

Tellers: Tá, Deputies V. Brady and Browne; Níl, Deputies Kennedy and Harney.

Question declared carried.

Amendment No. 25 not moved.

Mr. Noonan

(Limerick East): I move amendment No. 26:

In page 15, subsection (1), lines 1 and 2, to delete "whether or not such services" and substitute "which".

This is an amendment to the portion of section 12 which deals with a relevant payment. Section 12 (1) (b) reads:

... "relevant payment" means a payment made on or after the sixth day of June, 1987, in respect of professional services whether or not such services are provided to the accountable person making the payment...

My amendment wants to exclude the words "whether or not such services are provided to the accountable person". I see two difficulties here and I should like the Minister to clarify them. The Revenue Commissioners have already suggested, and subsequently contradicted that this would allow them to apply the withholding tax to costs which would be awarded to people who litigate against the State or any of its agencies. A number of points arise here. Costs awarded to a litigant are the property of the litigant and not the solicitor. Even though they are transferred to the solicitor or barrister, they are done so by the litigant and the primary award is to the litigant and not to his legal team. One is deducting 35 per cent from a citizen to whom the courts have awarded costs.

I followed with interest the debate in the newspapers but I would like clarification here. It seems the Revenue Commissioners interpreted this as meaning that the 35 per cent would apply to legal costs but subsequently they said this would not be the case. Whatever the practice of the Revenue Commissioners will be in relation to legal costs, the section as drafted is putting a law on the Statute Book which allows a deduction of 35 per cent from legal costs. That is not the intent of the withholding tax and it is certainly unjust. I also suggest that it is unconstitutional.

One of the appropriate precedents would be the Sinn Féin funds case. It is definitely unconstitutional in so far as it applies to costs which were awarded before 6 June this year and which have not been paid by the appropriate agency of the State. If awards made prior to 6 June this year were to attract the withholding tax of 35 per cent, there is no doubt that this would be an interference in the judicial process and there are several precedents which would regard this as unconstitutional. This matter was raised by Deputy Shatter principally in The Irish Times. The point I am making is this: once we have a section in the Bill which can be interpreted along the lines I am suggesting, the Bill is open to challenge whether or not the Revenue Commissioners operate that section.

The Minister is aware of the intent of various professional bodies to challenge this Bill. I am aware of at least six professional groups who have got legal opinion from senior counsel, but I have no doubt that this section is unconstitutional so far as it applies to costs awarded in court prior to 6 June 1987 but which have not been paid.

The second point I want to raise is this. As the Minister and the House are aware from our ordinary constituency work, in the building of schools it is the practice for many chairmen of boards of management to hire their own architect. One has the option of hiring one's own architect or working with the Office of Public Works. This money is fully reimbursed subsequently by the Office of Public Works but the point is that the payment is not made to the architect; it is made to the chairman of the board. If this section is not amended the chairman of the board of management of a primary school who has retained an architect for an extension or for the building of a new school is liable for the full fees to that architect and the State, through the Office of Public Works, under this section will deduct 35 per cent. Will this be passed on to the board of management and the parents and will the local contribution for the building of primary schools be increased as a result?

To put the Bill beyond challenge and to clarify the points I have made about legal costs, school buildings and the relationship between the chairman of the board of management and the professional people he retains, I ask the Minister to accept this amendment. There may be other ramifications but the net point is that, as drafted, whether the professional service is provided by the accountable person or provided to the accountable person, if it is provided to third parties the deduction of 35 per cent can still be made if the accountable person is actually issuing the cheque to cover the cost at the end of the process. This section has very serious implications and the Minister would be well advised to amend it because, as it stands, it will not work and will be challenged.

Mr. Andrews

I have been a Dáil Deputy for a long time and during that time I have received correspondence on various issues which arise from time to time in the House but I have never received as much correspondence as I did protesting against the retention tax. I realise that I was elected to represent Fianna Fáil in the constituency of Dún Laoghaire-Rathdown and I have no difficulty in following the Minister for Finance into the division lobby on this or indeed any other issue in relation to the Finance Bill. However, as a result of the protests I received in relation to this tax, I took it upon myself to protest, with others, at the parliamentary party meeting when this issue arose. I also undertook, on behalf of the various people who wrote to me, accountants, surveyors, engineers and others, to reflect their views in relation to this tax and the amendment before the House. I studied the tax and came to the conclusion that it is unjust and unfair. It was thought up within the bureaucratic machine and then spewed out to become a section in the Finance Bill.

I realise that taxes must be collected and that people say all taxes are bad in the sense that they hurt some section of the community. However, the withholding tax is unusual — I congratulate the Government for taking a strong line on various economic issues and I support them 100 per cent in that regard but you must combine a micro-economic approach with compassion. I respectfully suggest to the Minister, to whom I have already spoken privately on this matter to express my concerns to him regarding this tax, that it is less than compassionate, with the greatest respect to its originators. ]I realise that the Minister has to accept responsibility for the tax but I strongly believe that he was not its author.

Mr. Shatter

On a point of order, I am most reluctant to interrupt Deputy Andrews because I agree with the views he expresses about this tax but when we are specifically dealing with individual amendments we should not make a Second Stage speech. As this debate will conclude at 1.30 p.m. I am anxious to have an opportunity to deal with specific amendments.

An Leas-Cheann Comhairle

The Chair agrees with Deputy Shatter and was about to advise Deputy Andrews in that regard.

Mr. S. Barrett

I hope the Chair will afford me the same opportunity to speak.

An Leas-Cheann Comhairle

We must confine ourselves to the terms of the amendment.

Mr. Andrews

In relation to the amendment before the House and the views expressed by Deputy Noonan, Opposition spokesman for Finance, I do not agree that the matter will be found to be unconstitutional. The Government can introduce whatever taxes are necessary and I reject the views, in a civilised fashion, of Deputy Noonan. He is entitled to make his point but I do not agree that the proposed amendment, if put to the courts, will be found unconstitutional. ]It is interesting to note that Deputy Noonan made the point that he has a number of opinions in relation to the proposed amendment and I should like to know whether these opinions are the same as those of the barristers.

An Leas-Cheann Comhairle

I must tell Deputy McDowell that we must avoid a general discussion on the section as there will be an opportunity for that later.

Mr. McDowell

I also read the report in The Irish Times and I am grateful to Deputy Shatter for crystallising the thinking of the Revenue Commissioners, however complex their final thought processes were on the issue and however unconvincing the final making up of their minds seems to have been. They seem to think that costs awarded against the State are not the subject matter properly of a withholding tax under the provisions of the Bill. If the State at any stage sues an individual in the wrong, if that individual pays his own lawyers to defend him and a court tells the State that the State will now repay what the man paid to his lawyers to defend him, to defeat the unfounded case against him, it is wholly and completely wrong and, as Deputy Noonan said, unconstitutional, for the State to say that they will not pay him everything, only 65 per cent, because his barristers and solicitors provided a professional service to him. In that context, when I read the report of the ruling of the Revenue Commissioners, I was surprised that they would interpret the Bill in this way.

My own view is that it is based on a legal misconception and that where one party to litigation is directed to pay another party's costs, the issue as I understand it is that he is merely indemnifying that other party for outlay made. He is not making a payment to anybody for professional fees. The manner in which the costs are computed and aggregated is no concern of his except to see that there is no injustice done. He is merely required to indemnify the successful party for the fact that the party had to incur those costs to defend the proceedings. ]In this case it would be wholly wrong for the Revenue Commissioners to interpret the Bill in a manner in which the barrister, solicitor or the other people involved in the costs, such as medical witnesses, expert witnesses and so on are taken as providing a professional service in such circumstances at the Bill defines. It is not a payment in respect of professional services, it is a court order indemnification which is substantially and qualitatively different. The Revenue Commissioners were wrong so, the point I made in amendment No. 30 to try to achieve the same position is redundant. Deputy Noonan's amendment is very widely cast indeed but I like it because it exempts a lot of people, apart from lawyers, from the provisions of the Bill. It would exempt the GMS because they do not provide the professional service to the State, dentists do not drill fillings in the mouth of the body corporate of the State, they provide these services to patients. So do doctors and many others. The amendment would exempt a greater number of people than was originally intended when the amendment was tabled to deal with the point raised by the Revenue Commissioners. I am happy, if the Minister's interpretation of the Bill is that it does not cover indemnification for successful parties' costs by the State, to withdraw amendment No. 30.

Mr. MacSharry

I can categorically state that costs awarded in court are not included. The Revenue Commissioners gave wrong information in the first instance which was corrected as soon as the personnel concerned were made aware of it. I fully agree with the interpretation of Deputy Noonan and Deputy McDowell of the position.

In relation to the amendment before us, its purpose would be to exclude payments for personal services, which are not provided in the accountable person making the payment, from the operation of the withholding tax. This would, if accepted, have the effect of removing important payments from the ambit of the scheme such as payments made to doctors by the general medical services payments board. A move of this kind would result in a decrease in the yield of some £7 million in respect of payments to doctors and chemists by the board. On cost grounds alone this cannot be considered. I see the reasoning behind the approach adopted by Deputy McDowell in amendment No. 30. Because of this hare that was raised a misinformation resulted in these amendments. ]I can assure the Deputies and the House that they need have no fear in that regard.

Another point was made by Deputy Noonan in relation to school grants to emphasise the case he was making, namely, that the architect working for the particular nun, priest, brother, group, committee or whatever would be involved. He is not. The grant concerned is a payment made and it is not in respect of professional fees. Therefore, withholding tax does not apply.

Mr. Noonan

(Limerick East): I am sorry, could the Minister repeat that?

Mr. MacSharry

The grant concerned is not in respect of payments for professional fees. It is an overall grant allocated to the project. The people concerned obviously pay their architect, whether it is out of the grant or from other resources, but grants like that mentioned do not come into it.

Mr. Noonan

(Limerick East): So the Minister is saying that a grant to a school manager which is inclusive of professional fees will not have any deduction taken from it?

Mr. MacSharry

That is right.

Mr. Boland

Does that mean that an architect employed on a manager's contract to design a primary school in one village will receive his fees gross whereas a colleague architect who is employed on a Minister's contract to design a similar primary school in an adjoining village will suffer the effect of this tax? If that is the case, will the Minister explain the perceived equity in two architects both carrying out the same task, one of whom would be subject to the tax while the other would be exempt from it?

Mr. MacSharry

In a case where a school employs professional services and that school pays for those services, embodied in an overall grant towards the overall cost of the school an element could be professional fees, but they are not subject to the withholding tax on that basis. If, on the other hand, there is an architect involved in the overall planning of the school paid from the Office of Public Works then he is involved in payment of personal fees.

Mr. Boland

May I make one comment on the concept of equity. Two architects are carrying out essentially the same task, each overseen by the Office of Public Works and funded by the State but in one case the architect will receive a gross fee while in respect of the other the architect will be subject to the effect of this proposal.

Mr. MacSharry

There is no question of equity involved here.

Mr. Boland

That is what I thought.

Mr. MacSharry

The question does not arise. Both parties are subject to tax.

Mr. Noonan

(Limerick East): They are not.

Mr. MacSharry

It is a question of timing payment of tax. In the placing of contracts, an option is given to the board of management to retain their own architect or accept the Office of Public Works' architect.

Mr. Boland

On the Minister's interpretation, if the Office of Public Works' architect designs the parish school 35 per cent will be deducted from professional fees but where the chairman of the board retains the same or a different architect 35 per cent will not be deducted. That seems to be ludicrous.

Mr. Shatter

It is clear the Minister recognises there is not a rational explanation or justification for the impact on the type of architectural work that is being referred to. I shall bring the Minister back very briefly to the legal costs issue. Let me make the point that whatever is the current view of the Revenue Commissioners on this issue — the commissioners presumably must properly operate under the powers conferred by legislation passed by this House. Equally the local authorities, health boards and others who are named as accountable persons are required to comply with the provisions of the legislation. I accept it may not have been intended that when costs are awarded against the State for a local authority or a health board or other bodies named here, in court actions, that 35 per cent would be docked from the sum in regard to costs in respect of which the individual litigant had been indemnified. ]I would put it to the Minister if that is not his intention then his provision requires amendment. There is no other logical interpretation.

If he takes the definition of professional services, that definition includes services of a solicitor or barrister and other legal services. It also includes services of a medical doctor and others. Relevant payment means a payment made in respect of professional services, whether or not such services are provided to the accountable person. If I am run over by a lorry owned by Dublin County Council and I suffer serious injuries, I take Dublin County Council to court and succeed in getting damages from them and I am indemnified from my legal costs. Dublin County Council is an accountable person. An order for costs is made in respect of legal services provided, which would be professional services within the definition of this legislation. Medical evidence whould have been called, medical services within the definition of this measure would have been provided for. The services would have been provided to me as the litigant but the fact that they were provided to me does not exempt them from being included within the concept of a relevant payment.

It would seem that any lawyer advising a health board or local authority in those circumstances would advise that under the provisions of this statute they would have to dock 35 per cent of costs awarded in such cases, be they concluded before or after 6 June. To my mind, if that is not done the local authority are at risk of the Revenue Commissioners demanding moneys and at risk of being held in breach of the terms of this measure. If it is done, the local authority are at risk of a constitutional action being brought against them. Whether or not it was the intention to affect legal costs in this way — and I accept the Minister's bona fides in saying he did not intend it — it seems clear that somebody in the Revenue Commissioners reading the section realised that it did have this effect and somebody else said that that could not be done constitutionally so it cannot be implemented. It would seem that this provision does require amendment in this context. I would suggest that this has not been fully thought out.

Deputy McDowell's description of the thought process behind this provision is probably right, that the effect was not properly understood. I have no doubt there are people who brought actions against the State on constitutional or other matters who if they find themselves affected by this will end up back in court. If either the amendment tabled by Deputy Noonan or that tabled by Deputy McDowell is not acceptable, this matter should be dealt with on Report Stage with an appropriate amendment to deal with this particular issue. I will guarantee, regardless of what Deputy Andrews says, that this would be one of the specific provisions of this Bill which would be held to be unconstitutional if there was a constitutional challenge to it. More importantly, it is a provision which seriously places at risk the civil and constitutional rights of every individual in the State to bring court actions and proceedings against central Government, local authorities and other State bodies in circumstances where their legal rights are infringed. It puts those people at risk of not being properly indemnified for any legal or incidental or medical expenses they might incur.

Mr. McDowell

The more I reflect on this and from listening to what has transpired here the more positive I am that the Revenue Commissioners first statement was wrong, that the Revenue Commissioners second statement is right and that an indemnity given to a person in respect of his costs is not a payment for legal services. Incidentally, I should say I have an interest in all of these matters. I suppose there are some cheques on their way to me which are going to be the subject matter of this——

Mr. Desmond

Two years late.

Mr. McDowell

——just in case people think I am speaking on a matter in which I have an interest without saying so. If the nature of costs is examined, they are not a payment by the unsuccessful party in respect of professional services. They are a payment by way of an indemnity to the other party to the litigation to compensate that person for their out-of-pocket expenses in relation to proceedings.

Deputy Noonan and Deputy Boland raised a point which is of great importance in this case. It now appears the Minister is saying that the State does not intend to disaggregate lump sums paid to individuals and that it does not intend to look to a lump sum paid by the State to, say, the promoters of a school project to see what portion of the lump sum paid out is or is not in respect of professional services. That is not apparent from the tenor of the legislation and it is most welcome if it is the case because it cuts back the effect of the Bill. Such an interpretation as is now adopted by the Minister, and surprisingly as far as I am concerned, will give rise to huge anomalies in that people providing effectively the same service will by the interpolation of a middleman, be it a grant receiver or whatever, be able to escape the effects of this statute. The net effect will be that totally artificial distinctions will be drawn between identical situations based on the question of whether or not the Department concerned imagine they are giving a block grant which all just happens to go for professional services or to an individual or whether they make payments through a middleman to various architects and the like. Where money is paid to a building contractor and he puts in his bill, including the architect's fee, on the Minister's account if the amounts are not disaggregated the architect is going to walk away with his gross fees. On the other hand, if one cheque is sent to the architect and another cheque to the building contractor the architect is going to have to pay. This is a very unsatisfactory situation which has now emerged. It is surprising that the Minister should conceive that the State is not going to disaggregate lump sums. This needs clarification. If the Minister would bring forward an amendment on Report Stage to clarify the question of lump sum payments it would avoid huge litigation in courts later on.

Mr. Noonan

(Limerick East): This has been well aired at this stage and I am not going to press my amendment but I will return to the issues raised on Report Stage. Time is limited and we should move on. There are four amendments, all in different names, which say the same thing and I wonder if the House would agree to take the next four amendments together?

An Leas-Cheann Comhairle

If Deputy Noonan is not pressing amendment No. 26, we will move on to amendment No. 27.

Mr. MacSharry

I want to reply to the points which have been raised because it is important that I emphasise the position. ]Deputy Shatter spoke about court awards generally. They are not regarded as payment in respect of professional services. ]I agree fully with what Deputy McDowell said and with Deputy Noonan's interpretation.

With regard to the question of disaggregating the various payments, I said where a school qualifies for a grant under normal conditions and they do all the business themselves they will get the grant and there is no question of withholding tax. If, on the other hand, they employ architects, engineers or whatever and there are special separate payments for professional services provided, then the withholding tax will operate.

Mr. Noonan

(Limerick East): That is a different thing.

Mr. McDowell

That is the point I made.

Amendment, by leave, withdrawn.

An Leas-Cheann Comhairle

Amendments Nos. 27, 28 and 29 are related and may be discussed together.

Mr. Noonan

(Limerick East): And amendment No. 30a.

An Leas-Cheann Comhairle

The Deputy will accept from me that amendment No. 30a is consequential on amendment No. 41a. Amendments Nos. 31a and 41a will be taken together. Deputy Noonan will find that is correct.

Mr. McDowell

I move amendment No. 27:

In page 15, subsection (1), lines 4 and 5, to delete paragraph (a) and substitute the following:

"(a) payments in respect of professional services which are made to a specified person, whether the specified person is an individual, partnership or company, where the individual or the partners or directors, as the case may be, and the employees of such person, are liable to pay tax or are paying tax on a current year basis, pursuant to the provisions of the Income Tax Act, 1967, and emoluments within the scope of Chapter IV of Part V of that Act, to which that Chapter applies, and".

I will be very brief in relation to this amendment. The purpose of amendment No. 27, Deputy Noonan's amendment No. 28 and Deputy Desmond's amendment No. 29 is to prevent the application of the withholding tax in situations where payments are being made to companies, partnerships or individuals who are in any event liable to pay taxation on a PAYE basis in respect of current year's income. The Act as it presently stands excludes emoluments within the scope of Chapter IV of Part V of the Income Tax Act, 1967. These are effectively payments in respect of employment and are the subject matter of PAYE as things stand. It is proposed in this amendment to take into account the situation of large firms of engineers, architects and surveyors all of whose members — be they directors, employees who are providing professional services or employees who are providing mere back-up services such as secretarial services, from the very top of the firm down to the bottom who rely on the income of that firm — pay tax by way of PAYE. It includes owner directors of the firms whose payments in their capacity as directors are subject to PAYE. It is grossly unjust to ask people who are paying taxation on a current year basis also to bear the weight of the withholding tax on their cashflow.

The Minister said — and he has gone a good way down the road to say it in press publicity — that he is trying to put people who are providing professional services on the same basis as PAYE payers. Where he finds PAYE payers providing these services he is now going to cripple them twice: not only will they have to pay PAYE but they will have to pay it out of a fund of money which has already been decimated by the effect of the withholding tax. That is a manifest injustice. If an architect's practice with four partners has incorporated itself and each of the four partners is classified as a director and they pay PAYE the same way as the cleaning lady in their firm pays PAYE, it seems monstrous to say that they should be now subjected to this system of taxation and to offer as a moral excuse for it the suggestion that they are being put on the same basis as other PAYE employees, a basis they are already on.

There is not much between the proposals of Deputy Desmond, Deputy Noonan and myself. The Chair can take his pick as to which is the nicest. The three amendments are genuinely aimed at exempting a group from the effect of this tax in circumstances where the imposition of it would be most unjust and would not have a moral force which the Minister has contended for, and which I reject, in relation to other people who are on a previous year's taxation. People who are paying income tax on the same basis as any PAYE employee are to be drastically affected by this Act. I am against it and the Minister cannot really defend it in view of the excuses he has given publicly for the introduction of this measure.

An Leas-Cheann Comhairle

Deputy Noonan. I would remind the Deputy, who has already referred to it, that we must put the question on sections 12 to 20 at 1.30 p.m. so I will be exhorting everybody to exercise whatever brevity they can.

Mr. Noonan

(Limerick East): I welcome the Chair's advice but there are more appropriate targets in the House for that advice. I am not one of the long winded Deputies in the House.

An Leas-Cheann Comhairle

The Deputy admitted his concern earlier on and I am endorsing that in the hope that the Deputy will give a good example and that people will follow it.

Mr. Noonan

(Limerick East): The three amendments would have a similar effect. A relevant payment is defined on pages 14 and 15 and there are two exclusions, one relates to payments to people who are employees of accountable persons who pay tax in the normal way and the second relates to people in the construction industry who have what is known as a C2 certification that their tax affairs are in order. My amendment is to make an exclusion of payments for professional services from the professional bodies who are paying tax on a current basis and whose tax affairs are in order. There are situations where one can get a design office where the directors pay themselves a monthly salary and they pay PRSI and PAYE in the normal way as do their employees. The tax in those cases is a 35 per cent withholding tax on the turnover of the company which accrues from public bodies. It is a double taxation which is most unfair and which will impose a penal imposition on the turnover of companies. The hardship clauses which allow for interim refunds does not meet the case at all. That will obviously drag on to a degree that interim refunds will not be made until the following tax year anyway. I would ask the Minister to accept one or other of these amendments.

Another way of excluding people such as we have here is to model this on exclusion (6) of section 12 and apply the same regime to professional services as is applied to the building industry. In circumstances where specified persons get a certification of authorisation from the Revenue Commissioners stating that their tax affairs are in order, they should be exempt from the implications of this tax. This is the most unfair element of all of this withholding tax. I understand that the Minister wants to get as many people as possible paying tax on a current year basis, but if people are already paying tax on that basis they should not be a target for this tax. The Minister may come back-and say that if we do this it will provide a loophole through which many professionals can escape, by incorporating themselves, but that is not so. Neither the legal profession not the medical profession can do it and if they did set themselves up as a public liability company they would be liable for tax as directors, on a current basis, for any payments they would make to themselves and their employees would also pay tax on a current basis. If the Minister does not want to accept these amendments he should model this on the consequential amendment, No. 30a to section 18, which we are not taking, and apply the exclusion already in the Bill for the building industry to professionals, under section 17 of the Finance Act, 1970.

Mr. Desmond

This is fundamentally a question of tax equity. I recall prolonged discussions at Government in the past four years, in endeavouring to rectify obvious anomalies in the collection of taxation. As a consequence we brought in an elaborate system of tax clearance certificates which have worked quite well and which by and large cleared up a good deal of the avoidance, evasion and late payments endemic, particularly in the construction industry. Where an architect, consultant, a quantity surveyor or an engineer is paying tax up front and where the directors of the companies are paying A1 class contributions of PAYE and PRSI and where all partners, principals and employees in such companies are on a par in tax treatment, unquestionably there should be an exemption. I can see some merit for this tax in the case of barristers where delayed payments are a tax issue, because they have to wait for 18 months or two years before payment. Nevertheless, in some professions people are paid up front. I have very strong views which I expressed in relation to medical consultants, for example. There is an anomaly, a gross unfairness which we are trying to incorporate into the Finance Bill, whereby an architect running a company paying his PAYE on a current year basis and where his staff and fellow partner are paying up front, can be double taxed.

The VHI payments are paid within one month of a claim being made directly to the subscriber who transmits it to the consultant. Indeed the level of bad debts in that area is not more than 3 or 4 per cent. A consultant may never declare that payment to the income tax people and the Revenue Commissioners cannot find out because the VHI are not legally obliged to tell the Revenue Commissioners what they have paid out. A consultant may pay some tax on it at the end of the year, whereas the quantity surveyor who might have had to wait for 18 months to get paid, will immediately have a 35 per cent clawback despite the fact that throughout that period he has to keep himself and his company going in a period of construction recession. I am very much of the view that auctioneers, estate agents, solicitors, barristers, dentists, opticians or veterinary surgeons should pay tax on a current year basis. I have no hesitation in advocating that and firmly pressing it through. However, there should be a specific exemption for those professions who are totally up front on payments. It is rough justice at the moment. There are doctors who will be getting GMS payment cheques at the end of this month and instead of getting their £3,000 cheque they will get a £2,000 cheque. It is pretty rough justice at the moment and many of them are going to find themselves in considerable cashflow problems in that area, but those who will find themselves worst off of all will be those who are being charged on, effectively their State turnover into their company, a straight clawback of 35 per cent.

Let me conclude by saying that the measure was rather a panic stricken one to find revenue. It was ill thought out but with a bit of finesse and thought it could have been brought in on a certificate of exemption basis just as we in Government brought in tax clearance certificates on the construction side which, although in terms of some home improvement grant procedures were fiddled, nevertheless, in their application were generally quite successful and meritorious. I ask the Minister to consider this on Report Stage particularly in relation to the construction industry. Maybe £3 million or £4 million will be involved in that immediate impact because there are unquestionably some who are not on a current tax basis. However, the vast majority are, and particularly in that area some exemption should be given because, apart from anything else, the hardship provisions and the interim refund provision are unlikely to meet the serious hardship which will be imposed on some professions in the immediate future, indeed in a matter of weeks.

Mr. G. Brady

I find a sympathy with these amendments and more than a sense of discomfiture with the concept of the withholding tax. As speakers have indicated to the House, it has been conceived out of immediacy of gaining revenue rather than as a practical operation. I worry about this and I doubt the machinery within the Revenue Commissioners to enable this form of taxation to operate. This is the kernel of the issue. Any delay in issuing refunds to people who are due refunds is going to result in strangulation of the cashflow and consequently a loss of employment. This would not be the Minister's intention, but I feel strongly that this taxation will lead to unemployment. ]That, of course, is most undesirable, certainly in professions that are very hard pressed. I am speaking particularly of those non-medical professions, those in the construction industry, quantity surveyors, engineers and so on. For the life of me I cannot see how people who are keeping their taxation up to date on a month to month basis, paying staff and so on are about to be levied with a 35 per cent taxation on gross turnover. How can that be? How can the concept of it be even justified? A case could be made where taxation level is measured for one calendar year and set off against the following year, and there would be a cut off point where a person would not be expected to pay withholding tax in a continuing year. To let this mount over a period of one year at 35 per cent could involve an enormous sum of money. I can see cases where the danger will be to construct a system of operating businesses, say, by way of a peak and valley system. Take the building industry where it is possible to take in so many contracts over a period of time and then let staff off; the pressure is then straight back to the Department of Social Welfare. These people could be re-employed when business picks up when the peak of the business year is reached.

I recent strongly the view being flouted about professional people not paying their tax and so on. In a sense this view is popular but certainly not founded on fact. If the Minister examines the position he will realise that very many people who are paying their taxes up to date will be levied with this extra form of taxation at such a high rate and that out of this rate staff costings, the running of practices costings and so on must be made.

Deputy McDowell made an interesting point about differentation between fees and services in what I might call inert professions where one is not dealing with human beings. It will be very necessary, if this taxation goes through, that the Minister set about some means of instigating within the Revenue Commissioners the highest standards of efficiency to cope with the payment of refunds and the immense hardship that the measure will cause. Like the previous Deputy who spoke on these amendments being put forward, I have been inundated with representations from varying professions, from the legal profession right down to chiropodists. That is not for one moment to imply extremes of professions, but it is one issue that has caused a great deal of informed representation, so to speak, and certainly not ill conceived notions or people saying that they are opposed to this tax, that that is the end of it. Certainly that was not the case, but to come in at such a figure as 35 per cent is blunt, to say the least of it and could even be termed a plunder on the resources of people. Where did this figure come from? Why not 5 per cent and let us at least see how the taxation operates? If it is a question of just gaining the projected £25 million, that might not have been the best approach. If we become tied up in legal strangleholds, as this House has indicated — with respect to the illustrious participation of many of the legal profession in this House — if we are to become tied up in the courts in cases as to whether something is deemed to be professional or not, it will be a lost cause. That would not be the Minister's intention.

I, for one, am opposed in principle to the withholding tax. It is a taxation working on gross income. It is not an accurate form of taxation, it is not within the spirit of taxation, and the only avenue open to the Minister if this form of taxation goes through is to give the House a guarantee that sufficient staff, sufficient measures and most undated, efficient systems of refunds will operate. I say without casting any eye to any particular Department that out there in the world at the moment, out there in business or in any profession at present, it is very difficult to make ends meet, that it will be difficult to cost this taxation. I appeal to the Minister to give a guarantee that a highly efficient system of refunds will operate for this new taxation. Perhaps the Minister could flesh out some system of innovation within the Department to ensure that there will not be a hold up. If there is a hold up of a refund this could necessitate an employer having to lay off staff and that would be highly undesirable.

An Leas-Cheann Comhairle

Might I remind the Deputy that the Minister will have very little time to reply.

Mr. G. Brady

I apologise but I had been waiting for some considerable time.

Tomás Mac Giolla

What is the time scale?

An Leas-Cheann Comhairle

The question must be put at 1.30 p.m.

Tomás Mac Giolla

I want to make it clear that we are in favour of the withholding tax. It is a good, innovative tax beginning to widen the tax net about which everybody has been speaking, particularly the Progressive Democrats, for quite some time. On Second Stage the Progressive Democrats had an amendment down to provide for reform of the system of taxation. In a small way I see this as the beginning of the reform of taxation. To aspire to alleviate the tax burden on workers, to halt the growth of the burden of income tax, and at the same time oppose the withholding tax seems to me to be contradictory. How can this be achieved if the tax net or base is not widened? I would pose the question to those opposing this tax: what taxes are they in favour of? It appears, none. We saw the introduction of the deposit interest retention tax by the last Government vigorously opposed by Fianna Fáil. That tax also broadened the tax net, affording an opportunity to reducing tax on personal incomes particularly on the part of the PAYE sector.

I would ask the Minister to be very careful about these amendments. As I see it, they will open up a whole new area of avoidance. If the Minister concedes these amendments it could lead to a system under which any partnership, company, group or individual could arrange to make payments — say, of figures of £5,000 or £6,000 — just to remain within the PAYE system. Then one is excluded from liability to withholding tax and one can pay the balance by way of profit-sharing, expenses or by a whole series of other devices by which one can allocate oneself the balance of one's money. The point I am making is that once one remains within the PAYE bracket one can avoid liability.

I would ask the Minister to examine these amendments very carefully. It is my contention that they would erode the whole purpose of the withholding tax because of the manner in which they would open up avoidance possibilities.

Mr. S. Barrett

Everybody on this side of the House is in favour of equity in the tax system. I do not regard this as anything to do with equity. This is a confiscation of earnings.

Tomá Mac Giolla

So is PAYE.

Mr. S. Barrett

It is being taken from people simply because they work on behalf of the State. It has nothing to do with equity. I am all in favour of people paying their taxes at the right time but this amounts to a confiscation of earnings. I would contend that not alone should the Minister not accept these amendments but that he should throw out the whole principle of this tax altogether. Not alone does it amount to confiscation of earnings but to phoney money. All it does is bring forward into this year what the Exchequer would receive next year anyway. As has been outlined by our party spokesperson on Finance, it will also cripple a number of well established firms and practices here who engage in work on behalf of the State, who have developed to a stage at which they can compete for work abroad. I envisage a break up of these firms and practices as a result of that confiscation of earnings.

I do not see why we should apply one rule to somebody who engages in work on behalf of the State and another to those who engage in work on behalf of a private company or individual. I envisage also that, resulting from a severe cash flow problem being experienced by a number of such firms and practices, a number will be forced into a position in which there will be delays in the payment of their PAYE and PRSI contributions. They will not have the money to make payments rightfully due to the State. As a result of a confiscation of 35 per cent of their earnings they will not have a sufficient cash flow to pay their PAYE and PRSI contributions when due. What the Minister may think he will get from the imposition of this tax he will lose in another direction as a result of delays in payment of PAYE and PRSI contributions. ]I contend that the State should not request anybody to engage in any work on its behalf unless that person can show they are up-to-date in payment of their taxes and have a clearance certificate from the Revenue Commissioners.

Mr. Boland

I support the concept contained in these amendments. When commenting on the principles perhaps the Minister would explain what would be his attitude to the effect of implementing what is outlined in amendment No. 30a and the related amendment whereby partnerships or firms up-to-date in their payments would receive, as do contractors in the construction industry, a certificate of authorisation which would eliminate the cumbersome and unworkable procedure outlined in relation to refunds as matters stand at present. It seems absolutely inequitable that firms in respect of whose employees all relevant tax is being paid on a current year basis. on an up-to-date basis, will be subject to the rigours of endeavouring to recover through the cumbersome refund system any withholding tax that might be deducted from them. When the concept was introduced in relation to the construction industry it worked well. It also has the effect of encouraging firms and partnerships to bring their tax affairs and those of their employees up to date, on a current year basis.

If the intention of the withholding tax is as the Minister says it would appear that the introduction of the system outlined in Deputy Noonan's amendment, No. 30a and his related new amendment, No. 41a to section 18, would constitute an equitable way of achieving this.

My concern relates particularly to firms who supply specialised services to the construction industry. The Minister will appreciate that that is an industry which has gone through a very difficult period. Bearing in mind the attitude of the present Administration regarding public sector capital contracts it is likely that such firms will experience continuing difficulty in ensuing years. It appears to me that a number of such firms who rely heavily at present on public contracts for the major part of their turnover will not be in a position to continue in operation without a largescale shedding of staff, many of whom will be non-professional people, staff who provide the support services. It appears to me that firms like that, who endeavour to comply with all of the provisions of the law, should not have their continued existence threatened by the manner in which it is envisaged the imposition of the withholding tax and the refund system would operate under the provisions of the Bill as drafted.

Mr. Enright and Mr. O'Dea rose.

An Leas-Cheann Comhairle

If the House is to have the benefit of the Minister's remarks, we might call on him now.

Mr. Enright

I will give way to the Minister.

Mr. MacSharry

It is interesting to hear Members' contributions on these amendments. The facts are that, if any of these amendments were accepted, payments to individuals, partnerships or companies that had even one part-time worker up to date with their PAYE contributions, would be excluded from liability to withholding tax. Having said that, Deputies must appreciate that it would not be possible for me to accept these amendments.

We have had the same sort of argument advanced on this withholding tax as we had at the time of the introduction of PAYE, PRSI, VAT at point of entry, deposit interest retention tax and so on. Nobody likes additional taxation. Equally nobody likes to have to pay tax earlier than the date on which they have become accustomed to paying it. It is not a question of there being the same reasons for the introduction of the C2, in relation to the construction industry, which was to eliminate the possibility of evasion or avoidance as had obtained in that area. This is a mechanism to bring forward tax payments earlier than they would normally become due. Its impact will not be anything like what has been described by the media or by Members of the House provided all concerned are up to date administratively, when the relevant interim refund and hardship clauses can be implemented.

I can give a positive assurance so far as the Revenue Commissioners are concerned that they will be doing their utmost to ensure that where interim refunds or hardship repayments are involved they will be given immediately. It is no harm for all of us to realise that, while this is not an anti-evasion or avoidance measure which is being introduced but a measure to bring forward certain payments, at this stage, 17 June, about 40 per cent of the taxpayers concerned in the withholding tax have not finalised their tax liabilities for 1986-87. If the measure does no more than speed up that process it will be of benefit to all concerned, to the Exchequer and to all taxpayers, particularly the PAYE sector.

An Leas-Cheann Comhairle

As it is now 1.30 p.m. I am required to put the following question according to the resolution of the House of 16 June. The question is: "That amendment No. 42 in the name of the Minister for Finance is hereby made to the Bill and in respect of sections 12 to 20 inclusive, that the section or, as appropriate, the section, as amended, is hereby agreed to."

The Committee divided: Tá, 78; Níl, 60.

Tá

Abbott, Henry.
Ahern, Bertie.
Ahern, Dermot.
Ahern, Michael.
Andrews, David.
Aylward, Liam.
Barrett, Michael.
Brady, Gerard.
Brady, Vincent.
Brennan, Matthew.
Briscoe, Ben.
Browne, John.
Burke, Ray.
Byrne, Hugh.
Calleary, Seán.
Collins, Gerard.
Conaghan, Hugh.
Connolly, Ger.
Coughlan, Mary T.
Hilliard, Colm Michael.
Hyland, Liam.
Jacob, Joe.
Kirk, Séamus.
Kitt, Michael P.
Kitt, Tom.
Lawlor, Liam.
Leonard, Jimmy.
Lynch, Michael.
Lyons, Denis.
McCartan, Pat.
McCarthy, Seán.
McCreevy, Charlie.
Mac Giolla, Tomás.
MacSharry, Ray.
Mooney, Mary.
Morley, P.J.
Moynihan, Donal.
Nolan, M.J.
Noonan, Michael J. (Limerick West).
Cowen, Brian.
Daly, Brendan.
Davern, Noel.
Dempsey, Noel.
Dennehy, John.
De Rossa, Proinsias.
de Valera, Síle.
Doherty, Seán.
Ellis, John.
Fahey, Frank.
Fahey, Jackie.
Fitzgerald, Liam.
Flood, Chris.
Flynn, Pádraig.
Gallagher, Denis.
Gallagher, Pat the Cope.
Geoghegan-Quinn, Máire.
Gregory, Tony.
Haughey, Charles J.
O'Dea, William Gerard.
O'Donoghue, John.
O'Hanlon, Rory.
O'Keeffe, Batt.
O'Keeffe, Ned.
O'Leary, John.
O'Rourke, Mary.
Power, Paddy.
Reynolds, Albert.
Roche, Dick.
Sherlock, Joe.
Smith, Michael.
Stafford, John.
Treacy, Noel.
Tunney, Jim.
Wallace, Dan.
Walsh, Joe.
Walsh, Seán.
Wilson, John P.
Wright, G.V.

Níl

Allen, Bernard.
Barrett, Seán.
Barry, Peter.
Begley, Michael.
Birmingham, George.
Boland, John.
Boylan, Andrew.
Bruton, John.
Bruton, Richard.
Burke, Liam.
Carey, Donal.
Clohessy, Peadar.
Colley, Anne.
Cooney, Patrick Mark.
Cosgrave, Michael Joe.
Creed, Donal.
Crowley, Frank.
Cullen, Martin.
Deenihan, Jimmy.
Desmond, Barry.
Doyle, Avril.
Dukes, Alan.
Durkan, Bernard.
Enright, Thomas.
FitzGerald, Garret.
Flaherty, Mary.
Flanagan, Charles.
Gibbons, Martin Patrick.
Griffin, Brendan.
Harney, Mary.
Harte, Paddy.
Hegarty, Paddy.
Higgins, Jim.
Higgins, Michael D.
Howlin, Brendan.
Kavanagh, Liam.
Keating, Michael.
Kelly, John.
Kennedy, Geraldine.
Lowry, Michael.
McCoy, John S.
McDowell, Michael.
McGahon, Brendan.
Mitchell, Gay.
Molloy, Robert.
Naughten, Liam.
Noonan, Michael.
(Limerick East).
O'Brien, Fergus.
O'Keeffe, Jim.
O'Malley, Desmond J.
O'Malley, Pat.
O'Sullivan, Toddy.
Pattison, Séamus.
Quill, Máirín.
Shatter, Alan.
Sheehan, P.J.
Taylor, Mervyn.
Taylor-Quinn, Madeline.
Wyse, Pearse.
Yates, Ivan.

Tellers: Tá, Deputies V. Brady and Browne; Níl, Deputies O'Brien and Flanagan.

Question declared carried.

Sitting suspended at 1.45 p.m. and resumed at 2.30 p.m.

Dáil Éireann díospóireacht - Wednesday, 17 Jun 1987

Finance Bill, 1987: Committee Stage (Resumed).

Tá

Níl

Tá

Níl

Dáil Éireann díospóireacht -
Wednesday, 17 Jun 1987