Amendment No. 111 is in the name of Deputy Cotter. Amendments Nos. 111, 113, 115 and 117 form a composite proposal and amendments Nos. 112, 114, 116 and 118 form an alternative composite proposal. It is proposed, therefore, with the agreement of the House, for discussion purposes to take amendments Nos. 111 to 118, inclusive, together. Is that agreed? Agreed.
Finance Bill, 1991: Committee Stage (Resumed).
Section 67 agreed to.
SECTION 68.
I move amendment No. 111:
In page 66, subsection (2) (a), between lines 10 and 11, to insert the following definition:
"‘chicken production' means chickens raised for human consumption and ‘chicken producer' shall be construed accordingly;".
This section provides for a rebate in excise duty and is specifically aimed at one sector, the horticultural industry. I find this somewhat unacceptable, although I welcome the fact that it applies to that sector. My amendment broadens the scope to include chicken producers. I will give a little background information.
In 1990, 45 million chickens, 4.25 million turkeys, 1.5 million ducks and 2 million fowl were produced in this country. My own county would be the leader in the field of fowl production. Therefore, it is extremely important to me that something should be done to ensure that an industry with a retail value of £300 million last year should be made a little more competitive and have better opportunities to develop in various directions. If the section is amended to include chicken production and chicken producers, it will do a great deal of good. The loss to the Exchequer would be quite small in national terms and would be in the region of a couple of hundred thousand pounds, but its effects would be quite meaningful to the industry in question.
My amendment is quite narrow in focus and when I compare it with Deputy Noonan's amendment I will withdraw it in favour of Deputy Noonan's because his amendment covers poultry production while mine was narrowly defined to include only chicken producers.
I hope the Minister will include Deputy Noonan's amendment rather than mine in the completed Bill.
Concessions to the horticultural industry estimated at £20,000 in a full year will rectify a long standing anomaly by putting LPG on the same footing as oil used by the sector. No such anomaly exists in the poultry industry. All heating oil and LPG bear excise duty at 17p a gallon. It is estimated that oil and LPG account for in excess of 20 per cent of production costs in the horticultural industry, in other words it is one of the main overheads of the horticultural industry whereas LPG accounts for little more than 1 per cent of such costs in poultry production. Consequently they are not comparable. Very little oil is used by this sector. It could be difficult to confine the excise duty relief to LPG for the poultry industry and it would inevitably give rise to pressure for similar relief to be granted to other intensive animal production processing operations and in turn open the door for those engaged in agriculture and industry to seek similar concessions for oil generally as well as for LPG. The anomaly existed only in the horticultural sector; it does not exist in the poultry industry, and consequently it represented 20 times more of an overhead in the horticultural industry. That is the reason I must refuse the amendment.
I very much regret what the Minister said. I come from a constituency which has a high proliferation of poultry producers and we have two major producers in County Limerick. The excise duty relief on LPG will give them some incentive. A great many poultry producers, at least in our area, are small farmers and this is an alternative enterprise for them. Indeed in the recent farm initiative announced by the Minister for Agriculture and Food, Deputy O'Kennedy, the Minister was encouraging people to go into alternative farming, such as rabbits or other enterprises that had not been considered in the past.
In this case we are dealing with an established industry and it is a pity the Minister's initiative on agriculture did not go far enough. I saw the extension of the excise duty relief on LPG to the horticulture industry as an incentive and as a form of compensation to small producers. I support Deputy Noonan's amendment.
I regret the Minister has turned down this amendment out of hand. In my county there has been great diversification into the poultry industry down the years. Given the nature of agriculture in my county where farm units tend to be very small, the poultry industry should be given as big a boost as possible in order to retain some semblance of population in the rural parts of County Monaghan.
I ask the Minister to reconsider his decision. In his response he gave us some figures and said that energy accounted for 20 per cent of the overheads in horticulture production whereas it accounted for only 1 per cent of chicken production costs. That may well be but given that the cost to the Exchequer is so small, and it has been evaluated as costing in the region of £200,000, and in view of the input the industry is making to the rural economy in my county, in particular, and chicken houses are being erected without any assistance or grant aid from the State. I urge the Minister to reconsider his position and allow the rebate to apply to this industry as well.
(Limerick East): Would the Minister consider the amendment between now and Report Stage to see if there is anything he could do directly or in an associated area to meet the submissions of the two Deputies?
I can appreciate what the Deputies are saying but as I pointed out LPG represents just 1 per cent of the overheads of the poultry industry as against the very high percentage of the overhead cost of horticultural production. It was an anomaly and now it will go. Every time you close a door three or four more open. Basically what I am saying is that I could not justify standing out against other sectors of the agricultural industry for a similar concession and that is the reason I have taken this stand. I will certainly have another look at this between now and Report Stage but I would not hold out much hope.
Is Deputy Cotter pressing his amendment?
I am happy with the Minister's reply.
Amendment, by leave, withdrawn.
Amendments Nos. 112 to 118, inclusive, not moved.
I move amendment No. 119:
In page 66, after line 47, to insert the following subsection:
"(3) (a) Section 21 of the Finance Act, 1935, is hereby amended in subsection (11) (inserted by section 18 of the Finance Act, 1940) by the addition thereto of the following paragraph after paragraph (1) (inserted by section 20 of the Finance Act, 1960):
‘(m) prohibiting the addition to or mixing with any hydrocarbon oil of any substance and prohibiting the importation, keeping for sale, sale, transportation or delivery of any hydrocarbon oil in which such substance is present.'.
(b) Regulations made under the said section 21 shall apply and have effect as if they had been made under that section as amended by this section.".
As part of an ongoing anti-evasion campaign the Revenue Commissioners intend to make regulations in the near future prescribing a marker and dye to be added to kerosene for consumption in the State. This will make it easier to deal with smuggled supplies of kerosene. Absence of the prescribed marker will provide prima facie evidence that the product has been smuggled. Marking will also help deal with the problem of evasion arising from the practice of adding kerosene to auto-diesel as an extender. There is a difference in duty of some 85p per gallon between the two fuels. However, to be effective marking must be accompanied by a ban on the importation of kerosene containing UK markers. The purpose of the present amendment is, therefore, to provide a legal basis for such a ban. The amendment will also have the effect of reinforcing the basis for the existing ban on the importation of diesel containing UK markers, that is, diesel for agricultural and heating use.
The introduction in 1989 of a distinctive green marker, together with the ban on imports of red diesel, has already proved most successful as an anti-smuggling measure in the case of marked diesel. The effect has been the virtual elimination of what was a very serious smuggling problem. Agreement has been reached with the oil trade on the marking of kerosene and it is hoped to introduce marking from around mid-year.
(Limerick East): Will this proposal add anything to the cost of kerosene?
I do not think so. Even if it does, it would be very minimal. This proposal has already been agreed with the trade.
Amendment agreed to.
I move amendment No. 119a:
In page 66, after line 47, to insert the following subsection:
"(4) Section 21 (15) (as amended by section 70 (2) of the Finance Act, 1983) of the Finance Act, 1935, is hereby amended in the definition of ‘motor vehicle' by the substitution of ‘or a vehicle referred to in paragraph 2 (b) of Part I (inserted by the Finance Act, 1991) of the Schedule to the Finance (Excise Duties) (Vehicles) Act, 1952' for ‘or a vehicle referred to in paragraph 4B (inserted by the Finance Act, 1983) of Part I of the Schedule to the Finance (Excise Duties) (Vehicles) Act, 1952', and the said definition, as so amended, is set out in the Table to this subsection.
TABLE
the expression ‘motor vehicle' means a mechanically propelled vehicle which is designed, constructed, and suitable for use on roads, but does not include a tractor which is designed and constructed for use for agricultural purposes or a road roller or a vehicle referred to in paragraph 2 (b) of Part I (inserted by the Finance Act, 1991) of the Schedule to the Finance (Excise Duties) (Vehicles) Act, 1952.".
This is a purely technical amendment. At the moment certain dump trucks are entitled to use marked gas oil as fuel. This is achieved by excluding them from the definition of a motor vehicle through a cross-reference to the law relating to vehicle road tax. As certain changes are now being made to the road tax provisions in section 69 of this Bill, a consequential amendment is necessary to ensure that dump trucks continue to be legally entitled to use marked gas oil as opposed to auto-diesel as fuel. Marked gas oil benefits from a rate of duty of 17 pence a gallon whereas auto-diesel attracts a rate of just over £1 per gallon.
Amendment agreed to.
Section 68, as amended, agreed to.
Section 69 agreed to.
NEW SECTION.
Amendment No. 120 not moved.
Section 70 agreed to.
SECTION 71.
Question proposed: "That section 71 stand part of the Bill."
(Limerick East): I should like to hear the Minister's definition of “hotel”.
Because of inadequacies in the existing legislation, an increasing proportion of the holiday accommodation sector which operates in competition with the VAT liable hotel and guesthouse sector has no VAT liability. The accommodation involved includes non-Bord Fáilte registered bed and breakfast and guesthouse establishments, time share arrangements, holiday cottages and apartments. This was giving rise to distortions in the holiday accommodation market as well as losses in the Revenue yield.
Section 71 will delete the existing definition of "hotel" in section 1 of the VAT Act. This definition could be replaced with a more exhaustive definition but it is felt that this would lead to problems in the future as the market develops with new forms of holiday accommodation coming onto the market. It has been decided, therefore, to replace this definition by a more general and broad statement of hotel and similar establishments liable at the 10 per cent rate. This definition will be included in the Third Schedule to the VAT Act. This is carried out in section 80 of the Bill.
A number of problems had been encountered in the hotel and related sectors regarding the charging of VAT. The main difficulty in this area is that persons who are in the hotel or guesthouse business are not treated as such for VAT purposes unless they are Bord Fáilte registered. This arises because the Revenue Commissioners consider themselves bound by a decision of the Circuit Court. Operators can, therefore, contrive to escape VAT liability by removing themselves from the Bord Fáilte register.
Another aspect of the problem has been encountered with the development of time share apartments where persons acquire the right to use holiday cottages and apartments for a set period each year over a number of years. Under the existing practice, these are dealt with as lettings of immovable goods and as such are exempt from VAT. While Bord Fáilte have extended their registration schemes for hotels and guesthouses to cover holiday cottages and apartments, these are not covered by the existing definition of "hotel" and are, therefore, treated as exempt with optional registration. There has been a considerable expansion in this area in recent years.
Tourist accommodation services which will become liable to VAT for the first time include hotels, bed and breakfast and guesthouse establishments which provide holiday accommodation and are not registered with Bord Fáilte, holiday cottages, holiday chalets, time share cottages and apartments. Registrations will only be required where the annual turnover threshold at £15,000 per annum is exceeded. These establishments whose annual turnover is less than that figure will not be required to register for VAT although they may do so if they wish. Accordingly, many seasonal guesthouses and farm and county homes will not have to register for VAT. There will, of course, be no change in the status of those establishments already registered for VAT. Flats, boarding houses, nursing homes and so on will not be affected. Voluntary and charitable organisations which provide temporary accommodation such as An Óige, Shelter and the Simon Community are outside the scope of this proposal and will not be affected either.
(Limerick East): I seek your guidance, a Leas-Cheann Comhairle on my amendment No. 128. This amendment comes in after the Third Schedule, which follows section 80. Can we discuss this amendment now or should it be dealt with after the Schedule? It seems to be relevant to this section.
I will be guided solely by the precedent we adopted in the pleasant atmosphere which prevailed yesterday in respect of a request by Deputy Quinn to take his amendment No. 157 with an earlier amendment. If the House, and the Minister, are agreeable we can respond to your request. Amendment No. 129 is related to amendment No. 128 and amendment No. 160 is consequential. In those circumstances, and that being the findings of brains better qualified than the rest of us in the matter of interpreting what is suitable——
(Limerick East): I will wait until later. My only concern is that this point would go by inadvertently and I would not be able to return to it.
On the section, I understand the Minister's intention of extending VAT to self-catering accommodation, particularly holiday homes throughout the country and groups of holiday homes which have been built under the BES and other schemes. It also extends to farmhouse holidays and other forms of guesthouse accommodation which would not have been liable for VAT previously. People in the tourist industry who have such accommodation appreciate that they will come within the tax net if they fall within the limits of registration.
Because this measure was introduced in the Finance Bill and had not been signalled in the budget I put it to the Minister that travel agents have already sold holidays in the type of accommodation which will now come within the remit of the 10 per cent VAT regime. They have already taken firm bookings at a given price, and, consequently, will not be able to recoup the 10 per cent. I ask the Minister to defer introducing this provision until the tourist season is over. The introduction of the 10 per cent VAT on self-catering holidays should only come in on 1 March next year but even if the Minister were to agree to introduce this measure on 1 November it would be a help.
I have an amendment down on this issue.
(Limerick East): I know that but I am asking the Minister to defer the imposition of this measure until 1 November.
My amendment will defer it until 1 January.
(Limerick East): That is fine.
Perhaps the Minister would clarify the thinking behind including timeshare accommodation in the definition of hotels. He read into the record a range of categories of accommodation that would now come under the VAT regime. There is a view that somebody with a time share is in fact the owner of the property for the time they occupy it.
Two weeks?
Yes. That is the basis on which it is sold. Have the Minister for Finance and the officials in the Revenue Commissioners considered that? Could the Minister explain the full implications to tourism and operators of the Circuit Court action he referred to vis-à-vis the registration by Bord Fáilte of guesthouses? I am not clear about that.
What the court decided was that the Act applied only to those that were registered by Bord Fáilte. We had to correct a problem that arose here. I accept what the Deputy says, that time share involves ownership maybe for two weeks in the year, but they are being swopped around all the time and are considered to be part of competition with hotels and guesthouses. It was to put them all on an even keel that this is in. They are all part of the whole area of accommodation in the tourism area. That is why time share has been included.
There are about 7,000 unlisted guesthouses in the country as opposed to 3,000 registered ones. Standards have been upgraded very much in the last couple of years in the accommodation area of tourism. The ceiling of £15,000 would bring a lot of farmhouses into the VAT net and might have a negative effect of discouraging people from registering so that in the end we would have more unlisted guesthouses. That would be a negative step for the tourist industry in general.
I believe the Minister's decision to include self-catering time shares for VAT purposes will, in the long term, prove detrimental. Substantial investment is required in the first instance to develop this kind of business and the season for productivity from that investment is often very short. Inclusion for VAT purposes will be a deterrent and will certainly not encourage the further expansion and development that could take place.
To be successful in providing accommodation for tourists one must be registered with Bord Fáilte and be involved in national and international promotion. The volume of business done by nonregistered categories is extremely limited. It serves as a safety valve when festivals or gatherings of some kind take place. If such unregistered catgegories come under the same levels of VAT and taxation such people would be discouraged from becoming involved in tourism. They have proved to be a useful safety valve at times of overcrowding and are very much welcomed by local tourist bodies and organisations. The inclusion of these for VAT purposes would not be helpful to the expansion of the tourist industry as a whole.
(Limerick East): All of these amendments are confusing and I want to clarify one or two points. What amendment actually defers the decision to 1 January?
It is amendment No. 160.
(Limerick East): Is it the one with all the changes of dates, that is section 121, amendment No. 160?
It is amendment No. 160 relating to the commencemment date for VAT. It provides for a commencement date of 1 July for the application of 12½ per cent to jockeys' services in official amendment No. 129. Second, it defers the implementation of the changes in the treatment of hotels and related establishments from 1 July 1991 to 1 January 1992. This change is being made because many people in the tourist accommodation sector felt it should be.
(Limerick West): It says (d) of section 81 (1) shall take effect as on and from the 1st day of January 1992. I presume that is it.
That is it. The complaint I got from the tourist industry was not that they were being registered or anything like that but that the operative date was in the middle of the booking season when they would have commitments and bookings already taken. They were making a legitimate case and consequently I made this change to allow them to continue their bookings for the year. Anybody who registers gets it back, so I cannot see what the major problem is.
(Limerick East): That certainly is very helpful because the case being made was that if one was registered one had one's prices fixed for this year and probably had one's holidays sold and could not claim back. That meets it.
There are two other issues. First, when the term "registered" is being used here it is being used in two senses. There is ambiguity there and I would like the Minister to clarify the terms because being registered for Bord Fáilte purposes is not the same, I understand, as being registered for VAT. Would the Minister explain which use of the term he means. If we are talking strictly about registration for VAT, am I right in thinking there is a £15,000 limit on turnover?
That is right.
(Limerick East): It would fall into the £15,000 category for turnover before registration would be required?
They can register below that if they wish.
(Limerick East): That would apply right across self-catering holidays, guesthouses and self-catering farm-house holidays.
There is a third point that the Minister might clarify for me. If in a farmhouse or a guesthouse there was an alternative activity which was registered separately for VAT, would it be taken as a separate company and the £15,000 ceiling apply for that element of the turnover of the family activity of keeping guests or would the whole lot be rolled into one?
They could certainly operate separate companies if they wished but if they chose not to operate separate companies, then the one ceiling would apply. It is a matter of how they want to organise their business.
In County Wicklow we are trying to develop the tourist industry, not in the traditional way as in Kerry and Mayo and the like. Nevertheless a great effort is being made. Can the Minister now tell us if what he is doing means that somebody who has a spare bedroom during the summer months and accommodates a tourist to facilitate the overloaded guesthouse next door will now be liable for VAT? Not just the 10 per cent would be applied but that house would then become liable for local rates because they are now carrying on a business. I would like the Minister to confirm that such activity will not be discouraged in the future.
It is not being discouraged in the least. If somebody has a spare bedroom down in Wicklow and wants to use it on the occasional night or week in the year, unless they reach a ceiling of £15,000 in turnover for that odd bedroom, which would be most unlikely, then no change whatsoever takes place.
(Limerick East): Should we go along with it? Some of the new impositions introduced by the Minister are frequently justified by saying we are required under EC law to bring other activity under the VAT net. I do not think there is any requirement here that self-catering accommodation be brought into the 10 per cent regime. It is, so to speak, a local decision at the Minister's discretion.
Take the ordinary bed and breakfast at the moment for which the charge is £10 a night. This will be adding another £1, a significant increase. Irish rates on this kind of accommodation compared with, say, Germany will now be higher. We always think we are very competitive in the tourist industry. We advocate self catering as one of the most competitive areas and our tourist marketing frequently draws attention to the very high quality of Irish guesthouses and the very good value of the service they provide. That is all true, but it is also true that the 10 per cent imposition on present charges on average will bring us above the rates appertaining in Germany at the moment. With the downturn in the American tourist industry I understood Bord Fáilte's policy was to try to attract in French, Germans and some Italians; continental tourists seem to be the target market now. It is not an unlimited market; it is price sensitive and we are putting the cost of the accommodation beyond what German families would pay if they went holidaying in equivalent accommodation in, for example, the Black Forest region.
There is an obligation on every member state to remove any areas of distortion of competition within any sector of industry or business. Consequently, it is clear from what I have said that there was a distortion of competition here. Parts of the industrial sector were at a disadvantage to others, consequently in that context competition is being made fairer. The playing pitch is being levelled. The same applies to jockeys who were VAT free up to this time. The rate in the UK has to be changed also and brought up from zero to whatever the standard rate is to be. We are taking the first step on that transition road in this year's budget.
I welcome what the Minister has done in regard to VAT on services provided by professional jockeys. Members of the Turf Club, the Racing Board and I brought this matter to his attention. VAT is to be at 12.5 per cent for professional jockeys who provide services to a value in excess of the exemption limit. I welcome the Minister's amendment, but is VAT to be charged on contracts entered into by professional jockeys or is it to be extra VAT on professional jockeys fees? I know the Revenue Commissioners have had meetings with the chief executive of the Turf Club about the operation of this provision. There has been a great deal of to-ing and fro-ing and much writing about the operation of this system and how it is to be administered but have the Revenue Commissioners come forward with a scheme for administering it?
I hope I picked up what Deputy McCreevy was saying. Jockeys have to be brought on to standard rate and at the moment the amendment is providing for a transitional rate of 12.5 per cent on professional jockeys fees. The Deputy and others have represented that jockeys in England, because of the higher registration there for VAT, do not have to register until they have earned £35,000. They would not have the same opportunity in Ireland to earn £35,000 before they would be registered because the ceiling here is £15,000. That is why we are taking the transitional step of bringing them in at 12.5 per cent first and moving some time later to standard rate. They appreciate what we are doing in this area. I hope that answers the queries raised by Deputy McCreevy.
Have the Revenue Commissioners decided with the Racing Board executives how this is to operate? Is it to be just on professional jockeys fees? There would be only a handful on riding fees alone who would earn in excess of £15,000. That would mean it would be more expensive to get one of the top jockeys to ride for you than it would to engage one of the rest. It would create a distortion in the market. Is it to be only on fees?
Only on fees.
It is not then on prize money retained and so on?
It is not on prizes and prize money. I would say the Deputy would be at a disadvantage if he wanted to get Lester over to ride for him or keep Michael Kinnane in Ireland.
It is not the Minister's fault, he has to bring laws into line with the rest of the EC but I ask him to take into account the distorting effect it would have on some jockeys business. I thank him for bringing in the amendment.
Deputy Noonan (Limerick East) rose.
I am sorry, Deputy, I indicated your colleague. We come back to the supremo for the last word.
I do not want to be repetitive but I have to agree with what my colleague Deputy Noonan said. This will be a regressive step in a sense. The 10 per cent VAT on guesthouses and self-catering accommodation will have an adverse effect on competition. The prices will not be as competitive as they will be in continental Europe. It could mean £2.50 extra a night. In my part of the country a large number of people are involved in the business. This will bring them into the net of paying local charges and rates. That could be an extra burden on a very competitive area. I fear this is a regressive step rather than a progressive one.
(Limerick East): Arising out of Deputy McCreevy's submission I was going to point out that it seems anomalous that disc jockeys have to pay 21 per cent on their services and jockeys will be taxed at the lower rate.
It is only transitional.
(Limerick East): Has the Minister been in receipt of submissions from the entertainment industry——
No.
(Limerick East):——where live performers of all sorts feel they should be taxed at the lower rate rather than the standard rate of VAT? Will he have a look at that next year?
I will have a look at it.
(Limerick East): People in the entertainment industry, live performers in that industry, people who play music in small halls——
All this is extraordinarily interesting but it strikes me that we are moving some considerable distance away from the proposal——
(Limerick East): Jockeys.
A different type of jockey.
We never know where we will end up. The Chair is not giving a tip about anything, but we have a little distance to go.
(Limerick East): We are talking about VAT rates and an imposition of a new 10 per cent rate or, in this case, 12.5 per cent. We have been talking about the tourist industry. One of the attractions of this country is the quality of our musicians and live performers. It is worth pointing out that the live performers are being taxed at 21 per cent. Live performers are in employment. That is another example of what we have been talking about in the course of the debate on this Finance Bill. There is never an evaluation of the employment content of these measures. The guys go out three together, strumming guitars, singing songs and they are taxed at 21 per cent if they are within the net, as many of them are.
Deputy Liam Kavanagh on section 71 please.
Since you have allowed latitude to Deputy McCreevy to talk about——
I did not allow it. I found myself in the position where I was overwhelmed by the Deputy's comments which were quite interesting. I allowed myself to enjoy it for a few minutes and I did say that I thought we should confine ourselves more specifically to what was in section 71.
I certainly would not like to abuse your ruling but since the matter has been raised, I want to ask the Minister if jockeys will be charged the 12.5 per cent for appearance money or if, say, Mr. Ballesteros and Mr. Woosnam, when they attend here on occasions and are paid attendance money over and above the possible prize money, would also be caught in this VAT level net.
I am afraid we are at the stage now where if all the year we are playing holiday, "to sport has become as tedious as to work". We must get back to the work.
You should finish the quotation.
It is a new source of revenue which I am sure the Revenue people will be glad to look at. It is precisely because of competition reasons that this provision was introduced, one sector of the industry was paying VAT while another was not. Comparisons are being made with southern Germany. The VAT rate in southern Germany is 14 per cent and it will probably rise in June. Our VAT rate is lower than that. It is very hard to accept from my namesake, Deputy Gerry Reynolds, that Leitrim would not be competitive with Germany in this day and age. Leitrim is one of the more competitive counties in Ireland in relation to tourism but would not have the market which, say, Kerry has. At present the Bord Fáilte listed guesthouses have to pay VAT while the unlisted guesthouses do not pay VAT. If somebody does not have a turnover of £15,000 they do not have to register and they do not have to pay VAT. For those who are in the business in a big way we are levelling the playing pitch, for those who are in it in a small way and earning less than £15,000 they will not be registered for VAT purposes.
Question put and agreed to.
Section 72 agreed to.
SECTION 73.
Question proposed: "That section 73 stand part of the Bill."
(Limerick East): This section deals with group registration for VAT purposes. It seems to me that subsidiary companies who are trading separately but do not have a very strong relationship with each other could be caught by this provision. It has even brought to my attention that the Revenue Commissioners already have been suggesting that in circumstances where there are two independent subsidiaries of a company trading separately, if one has a liability for VAT, and the other is owed a VAT rebate, under the proposals here they are not prepared to treat them separately and they are trying to offset the rebate against the liability. Can the Minister look at this provision because it seems to be causing problems even in advance of being passed into law?
That position exists already in companies similar to those mentioned by the Deputy where refunds are withheld. Recent developments in the commercial area have raised a number of practical issues in relation to group treatment. These revolve around the application of group treatment where individual groups comprise entities, some of which are engaged wholly or mainly in taxable activities, others only marginally so and others which are completely exempt. This is particularly so within the financial services sector where within a single group of companies there may be companies carrying out exempt activities such as banking and taxable activities such as leasing.
Competitive and market requirements have tended to make it increasingly desirable that enterprises reorganise themselves away from a single legal entity type of corporate structure and create instead, within a single group, a number of different legal entities dealing with particular segments of the market or with specialised operational or support functions within the group, such as the provision of computer services which is notionally taxable.
These centralised structures are also regarded as being desirable from the point of view of enhancing performance appraisal and management accountability. Each entity operates as a cost and profit centre, charging other members of the group for any services provided. This development has created demands for the extension of group treatment to financial services groups which are made up of mixtures of entities, some of which might be largely or wholly engaged in taxable activities, others less so or perhaps marginally so and others whose supplies would be totally non-taxable.
In the absence of group treatment, the provision of services within these groups could notionally expose them to VAT charges at 21 per cent on internal service type transactions, such as the temporary supply of staff or the supply of data processing services. Group treatment has been provided for since the introduction of VAT in 1972. The legislative basis in national legislation is provided for in section 8 of the VAT Act. The corresponding provision in EC laws is Article 4 of the EC6 VAT directive. Initially, group treatment could only be availed of by taxable persons. The facility was, however, subsequently extended to groups or persons wholly engaged in exempt activities such as insurance companies. The administrative practice has been to disregard, for VAT purposes, supplies or services which would be notionally taxable, provided by members of a group to one another. This practice was followed where the separate legal entities, within an individual group, had been established primarily for organisational reasons and where inter group services would not have been taxable if the members of the group had remained a single legal entity. Accordingly, it is considered that this administrative practice had not given rise to any loss of revenue since in real economic terms there had not been any addition to the VAT base. The Revenue Commissioners in response to these changing business structures decided to introduce a trial scheme from September 1989. This scheme modified in the light of experience gained since its introduction is now being given a legislative base.
(Limerick East): I do not have any problem with most of what the Minister has said, my difficulty is more specific. In the section as framed, section 73, line 25, the definition of those who would be caught by this section is as follows:
... two or more persons established in the State are closely bound by financial, economic and organisational links...
That definition appears to be sufficiently wide to catch a trading relationship between two companies which are totally different. If companies trade with each other they certainly would have financial links, economic links and organisational links so far as one set of people in one company deal on a day to day basis with a set of people in another company. Where there is no real legislative or establishment connection between two sets of companies, they could still be caught by this provision. I do not think the Minister envisaged, for example, that a VAT liability in a company could be offset against a VAT rebate due to a trading partner.
No.
(Limerick East): Can the Minister have a look at this provision between now and Report Stage and decide whether the definition is not too wide and would go beyond what he intends? Would he consider inserting, for example “two people closely bound by financial, economic and organisational links, other than a normal trading relationship.”?
We will be making regulations that will cover the point the Deputy has made. It is not beamed at the area the Deputy is talking about, in fact, we would lose VAT if we were moving in that direction.
(Limerick East): So the regulations will take in the detail.
Yes.
Obviously the regulations will clarify the operation of this section but there is no provision in the section for an appeal mechanism. The operative phrase is "the Revenue Commissioners are satisfied they may deem...". Is there an appeal section?
Yes, section 78.
Question put and agreed to.
Sections 74 and 75 agreed to.
NEW SECTION.
I move amendment No. 120a.
In page 76, before section 76, to insert the following new section:
"76.—Notwithstanding anything in the Value-Added Tax Acts, tax payable on motor cars imported by disabled persons for their personal use only, shall be zero-rated.".
In moving this amendment I am referring to a quadriplegic who is able to obtain a motor vehicle on loan, as distinct from purchase. I wrote to the Minister and I compliment him, the staff of the Revenue Commissioners and the staff of the Minister's Office, for their courtesy in dealing with this matter to date. However, the matter has been unsuccessful. The Minister said he is carrying out a review in regard to the importation of vehicles for disabled drivers and that in view of the ongoing review he is not in a position to make a decision. I have a file which I will give to the Minister this evening so that he and his officials can examine it. The person in question was severely injured in a sporting accident.
Is the VAT charge at the point of import?
Yes.
The trust should be able to get it back.
Can I explain?
Yes.
The Trevor Jones Trust Fund was set up by a man injured in a sporting accident. An article in The Daily Mail of Tuesday, 7 November 1989, outlines the details of setting up this trust fund. The Trevor Jones Trust will lend a vehicle to the individual concerned. The person in question has no power in his legs, limited power in his right arm, and slight power in his left. He is totally confined to a wheelchair. He needs full-time care and attention and must attend at a rehabilitation centre on a regular basis for physiotherapy. This person has been offered the use of this special car which would cost £22,500. The design of the car means that the disabled person can drive it without help. It includes a hydraulic ramp for a wheelchair and is operated automatically. The special seats enable the driver to swing himself out and transfer to a wheelchair perfectly unaided.
Section 92 (2) (a) of the Finance Act, 1989, and Statutory Instrument No. 340 of 1989 detail regulations. The person concerned qualifies under all the regulations which specify:
(a) persons who are wholly or almost wholly without the use of both legs;
(b) persons wholly without the use of one of their legs and almost wholly without the use of the other leg;
(c) persons without both hands or without both arms;
(d) persons without one or both legs;
(e) persons having the medical conditions of dwarfism......
The person qualifies in respect of everything but he will never have the finance to purchase this vehicle. Neither the health board nor anybody else is in a position to finance the purchase of the wheelchair. The trust fund have been very generous in offering this car which can be brought into the country for him. Since this is a specific car with a specific registration number it will not lead to widescale abuse. I am only looking for an exemption so that this person can obtain a car or some other facility to make life easier for him. This is a reasonable request.
The Minister has the goodwill, and that came across in the correspondence, but will he favourably consider this request for acceptance on Report Stage? I will facilitate him with regard to any materials I have. The Treveor Jones Trust have been in touch with a number of people in Ireland about this case. In fact, the British Embassy were interested because they know of the representations made regarding this matter. There is a lot of goodwill about and it is probably bureaucracy which is standing in the way. We should make every effort to resolve this problem. I thank the Minister for his help in the past.
There is a problem with this under the present reliefs governed by the regulations to which the Deputy referred. The reliefs under those regulations depend on the person owning the car, which excludes this case. This is an issue we can consider under the review which is taking place, rather than in an amendment here. I assure the Deputy that he will get my full sympathetic support in finding a resolution to this problem. These are circumstances which the House would want to meet if at all possible. The review taking place will involve the spokespersons from all the Opposition parties. We introduced these regulations with a consensus and undertook to review them in the same way. The problem can be sympathetically considered in that way. That will be my approach.
Section 114 of this Bill provides for an amendment in anticipation of the review because it was felt that there was a need to meet problems that were arising on the relief of excise duty and VAT for the adaptation of a vehicle. The full relief will now apply when this Bill is enacted where the cost of adaptation is not less than 20 per cent of the tax exclusive value of the vehicle. That amendment is covered in other areas. The case the Deputy raises will be taken into consideration in the review and we will try to find a solution to it. The only reason the case is outside the regulations is that the person does not own the car. I do not propose to address this by way of amendment.
I am aware of the section 114 to which the Minister referred. I am referring here to a specific agreed document in regard to the car in question. I will furnish a copy of the document to the Minister. I received a letter which indicated that time was marching on and it looked as if the prospect of the person in question obtaining the specially adapted vehicle was rapidly dwindling because eventually the charity would give the vehicle to someone else in the UK, if they have not already done so. The letter reiterated that the request would not cost the country a penny and if the Minister, Deputy Reynolds, really knew about this case he would move mountains to ensure that the red tape was cut. This is a very specific matter and I was asked to raise it in the House to try to have the red tape cut so that this car will go to a person who has been medically declared a quadriplegic. In that instance I would very strongly and earnestly request the Minister to accept my amendment. I would bend over backwards to try to comply with any reasonable amendment the Minister would make. At the moment a person suffering from incapacity of that nature has no way of getting out of the house unless there is someone there to help him get in and out of a car. The Minister is going to leave the matter for another year, and that is a long way down the road for such people. I urge the Minister to reconsider that issue which would be tied up in a legal document.
The Deputy's pleading is indeed good for the profession for which he was trained. Primary legislation is not the way to deal with the matter. I am excluded under EC law and under a VAT Directive from putting anything into legislation that has the effect of a zero-rating. As I said, I shall approach the matter under regulation. I shall stick my neck out here to say to all the experts I have here: find a solution to the case. Everybody in the House wants to find a solution, and I have little doubt that with all expertise available a way will be found to refund the money by regulation.
I might come back on the issue at some stage.
If I was the Minister, I would quit while I was still ahead.
Amendment, by leave, withdrawn.
Sections 76 and 77 agreed to.
SECTION 78.
I move amendment No. 121:
In page 76, lines 29 and 30, to delete "subparagraph after subparagraph (a)" and substitute "paragraph after paragraph (a).
This is a technical amendment that corrects a minor drafting error. Paragraph (a) of section 25 (1) of the VAT Act is incorrectly referred to as a subparagraph in section 78 of the Bill as initiated.
Amendment agreed to.
Section 78, as amended agreed to.
SECTION 79.
I move amendment No. 122:
In page 76, paragraph (a), line 37, after "negotiation of to insert", or any dealings in,".
The amendment further clarifies the exemption provided for in subparagraph (c) of the First Schedule to the VAT Act. The inclusion of the words "or any dealings in" is designed to cover the assignment of receivables and more particularly to provide that the securitisation of amounts provided for in section 26 of the Bill will be an exempt activity.
The assignment of a receivable is the transfer of a right to receive or collect, usually, money due on foot of a contract to which the assignee was not a party. Such a transfer is exempt from VAT. The subsequent collection of moneys due under a contract so transferred may be taxable.
Securitisation is a process whereby a financial institution effectively sells a "package" of loans to investors such as pensions funds. The process is carried out through a company which is formed for that purpose. The sale of the package of loans is exempt from VAT.
Amendment agreed to.
I move amendment No. 123:
In page 76, paragraph (a), lines 40 and 41, to delete "paragraph for paragraph (g)" and substitute "subparagraph for subparagraph (g)".
This amendment is again a technical amendment that corrects a minor drafting error. Subparagraph (g) of paragraph 1 of the First Schedule to the VAT Act is incorrectly referred to as a paragraph in section 79 of the Bill as initiated.
Amendment agreed to.
I move amendment No. 124:
In page 77, paragraph (a), line 21, to delete "paragraph" and substitute "subparagraph".
This is another technical amendment to correct a minor drafting error. Subparagraph (gg) of paragraph 1 of the First Schedule to the VAT Act is incorrectly referred to as a paragraph in section 79 of the Bill as initiated.
Amendment agreed to.
Section 79, as amended agreed to.
SECTION 80.
Amendment No. 125 relates to the section. Amendment No. 127 is an alternative, and the two amendments may be discussed together.
(Limerick East): I move amendment No. 125:
In page 77, subsection (1), between lines 44 and 45, to insert the following:
"(i) meals;".
Section 80 is the Third Schedule in which those items that will carry a VAT rate of 10 per cent are listed. My amendment includes an additional item, meals. The intention of the amendment is that meals in restaurants and hotels and take-away foods would be charged at a VAT rate of 10 per cent rather than at 12.5 per cent, which seems to be the Minister's intention.
I am proposing the amendment because I understand that since the Minister made his announcement in the budget certain goods and services would carry a VAT rate of 12.5 per cent and would subsequently move up to whatever the standard rate would be after harmonisation. The EC Commissioner in charge of competition, Madame Scrivener, has recommended for policy in Europe that meals come into the lower VAT range rather than the standard rate. The decision taken on budget day by the Minister would put Ireland out of line with current intentions for meals in restaurants and hotels across Europe, which would be very serious indeed for an industry as competitive as the tourist industry.
Secondly, the difference is not a difference between 10 per cent and 12.5 per cent. The Minister, and, indeed, the Taoiseach on budget night when he took the Financial Resolutions, said that those goods and services that would move from 10 per cent to 12.5 per cent this year would in the next two budgets be moved up to carry whatever the final VAT rate was when full harmonisation took place or when the final decisions on approximation were made. Today at Question Time the Minister suggested that the range would certainly be between 15 per cent and 17 per cent.
That is the new minimum rate proposed by the Luxembourg Presidency.
(Limerick East): Is it the new standard rate or a new minimum rate?
The minimum of the second rate.
That is right.
(Limerick East): I take the point that is being made. We are not talking about bands. Indeed, the Commissioner in charge of competition has not been talking about bands for a very long time. The proposal of the Luxembourg Presidency brings the attitude of the political side of discussions in the EC in line with what Madame Scrivener has been saying since she was appointed to succeed Lord Cockfield. She has been talking about minimum rates all the time. Therefore there will be a minimum rate, whether or not it is reached, of somewhere between 14 per cent and 16 per cent. At any rate, the 12.5 per cent tax charged on meals will increase to the minimum rate at least, and probably beyond it, because Ireland would probably be 2 points or 2.5 points higher than the minimum rate. The rate on meals would probably be about 18 per cent or 19 per cent. The Minister knows well, and has said it himself, that there is very little distortion of international trade if VAT rates are within about 2.5 per cent of those prevailing at the other side of an international boundary. If the minimum rate is 16 per cent, the rate in Ireland will probably be 2 points or 2.5 points higher than that.
Thirdly, at Question Time today the Minister said that the lower minimum rate proposed by the Luxembourg Presidency was 5 per cent. It seems reasonable that Ireland's 10 per cent rate would have to come down to within 2.5 points of that rate to avoid distortions in trade. The position might not be the same when discussing VAT on fixed services such as those provided by the building industry, telecommunication services, or the ESB. It is conceivable to hold those services at a higher level because they are not internationally tradeable to the same extent as are mobile goods and services. The provision of meals is so fundamental to the tourist industry that we would be at a serious competitive disadvantage if the standard in European countries in relation to VAT on meals is somewhere between 5 per cent and 8 per cent and ours is between 16 per cent and 19 per cent. This is not idle speculation. Very recently the rate of VAT on meals was 25 per cent and in the Government of which Deputy Quinn and I were members, VAT on meals was brought down to 10 per cent. This measure was not only widely welcomed by the trade but by the tourist industry in general.
It is interesting to look at what happened in the tourist industry at that time and in the years following this reduction. The numbers of people employed in the hotel and restaurant industry went up dramatically. One could argue that, because two things happen at the same time, one does not cause the other — and it is always hard to establish a cause and effect relationship — but the fact that VAT was reduced stopped the closure of hotels and restaurants. For the next three years there was a very significant increase in employment.
As we go into the nineties the difficulties of the CAP and the GATT problems will mean that rural Ireland — indeed all Ireland — will be depending more and more on a tourist industry which not only generates income but also employment. The season will have to be extended so that the employment is not merely seasonal. Fundamental to our tourist industry will be the rate of excise on petrol and drink and the rate of VAT on food.
Our charges for meals seem to be out of line with those prevailing in other countries. A family in Ireland can go out to lunch and get good value which compares well with anywhere in Europe; you will get as fine a lunch in this city — or indeed any town — as you will anywhere in Europe and probably at a more competitive price. However, if you go out at night you will get the same menu with a few items added to give a larger choice and a better appearance of value but the cost goes up astronomically. We do not have the tradition they have in France of family run restaurants which charge a reasonable price at lunch time and much the same price at night. They do not have a vast jump in price between what you pay in the middle of the day and the evening. There is a differential, but it is not the big jump that exists here. We are not competitive when it comes to eating out in the evening; the higher cost cannot all be attributed to the cost of the wine on the bill. VAT rates of 16 per cent, 17 per cent or 18 per cent are a non-runner if we want to develop our tourist industry competitively. VAT will end up at the figures I gave if we impose a rate of 12.5 per cent this year. The Minister and the Taoiseach said as much on budget night.
I ask the Minister not to go ahead with the imposition of 12.5 per cent on meals; he should hold it at 10 per cent. I am sure there is a modest cost involved but it could not be an astronomical one. I know that most of the hotels and restaurants about which we are speaking are registered for VAT but, because there is no VAT on food, they would not be able to reclaim much of what goes into meals. If the Minister goes ahead in this regard he may be forced by the negotiations in Europe to change his mind next year. I understand why the Minister took the decision — he was reducing the standard rate and increasing the 10 per cent band. It was reasonable when doing so to consider all items at 10 per cent but, subsequent to his decision, another one was made in Europe, a decision which has been circulated widely in this House and through the hotel and catering industry. It seems it is the intention of the competition commissioner to press for meals in all European countries to be charged at the lower rate of VAT, somewhere in excess of 5 per cent.
I ask the Minister to accept this amendment. I know it will cost something but, in the totality of the budget and taking into account that the Minister has not conceded anything all day that would cost him anything——
The Deputy is always telling me I am overspending.
Concessions were made outside this House.
(Limerick East): This is a reasonable amendment and will do a lot more for the tourist industry than the restoration of the BES schemes for the hotels across the country which would cost £16 million or £17 million.
I should like, as forcefully as I can, to appeal to the Minister to reconsider his decision in respect of the additional 2.5 per cent in the rate of VAT on food consumed in hotels and restaurants. When the rate was reduced to 10 per cent from 25 per cent it meant viability and new life to these areas and equalled the returns to the Exchequer which prevailed when the high rate was in operation.
It is of particular concern at this time because, so far, 1991 has been a most disappointing year. Because of the colossal drop in the American tourist market there is grave concern regarding earnings this year. That area and the decisions being made in Europe in relation to tourist orientated industries will result in a minimum rate of between 5 per cent and 9 per cent. These targets are in the minds of people engaged in the industry. At this point the Minister's policy would not only be detrimental to the viability of restaurants and hotels, it would also be in direct conflict with the proposals emanating from the tourist sectors of the European Commission.
I ask the Minister to seriously consider having the 2.5 per cent readjusted to maintain viability and to keep our taxation policies in line with what is proposed as a minimum rate in the European Commission.
(Carlow-Kilkenny): I also appeal to the Minister to reduce the rate of VAT on meals. Today in the Irish Independent a survey showed that 60 per cent of our people intend to spend their holidays at home this year. In the long run, if there is an increase in the number taking home holidays perhaps the loss incurred by dropping the rates of VAT from 12.5 per cent to 10 per cent might turn into a gain because the higher rate would mean that fewer people would eat out.
As outlined already by Deputies Noonan and Moynihan, the tourist trade is very important and if there is a trend in Europe to impose the lower scale we should fall in line. We compete worldwide in the tourist industry and we should try to help it. For that reason, I should like the rate of VAT on meals to remain at 10 per cent.
I have been approached— as I suspect other Members in Opposition have been — by the Irish Hotels Federation who are among the more professional and persuasive lobbyists in the business. They presented to me, as they did to Deputies Noonan and Browne, a substantial document. Deputy Noonan was correct to focus on the difficulties we will face in the long term. We will face transitional difficulties in the short term but that is usual in any trading regime. They fear that meals, or perhaps the complete hotel package, will be subject to the higher of the two bands the Community is moving towards. As the Minister said earlier, the rate is likely to be somewhere in the mid-teens.
The Dublin branch of the Irish Hotels Federation state in a covering letter dated 2 May that Mrs. Schrivener, the EC Commissioner for Taxation, announced on 26 February last that she is in favour of tourism services being subject to the lower band. These would include all hotel services. Opposition Deputies do not have access to the information available to Government Ministers but we must clearly establish the status of that assertion. Does her opinion amount to a formal decision of the Commission and has that decision been ratified or accepted by the harmonisation Council? If that is so the tourism industry will face the kind of threat outlined by Deputy Noonan.
My colleague, Deputy Moynihan, a former Minister of State at the Department of Tourism, Transport and Communications has substantial hands-on experience in this area. He was brief in his contribution but he spoke to the point. We will not be the only peripheral region of the European Community which will diversify into rural tourism following changes in the Common Agricultural Policy in the next two to three years. Large sections of France, Britain and Spain will do likewise. If other costs are to converge and harmonise within reason will we have to ensure that our VAT regime will be of the same order.
I would now like to deal with the transitional arrangements. Quite frankly, the difficulties we will face in the long term are more serious. I ask the Minister to indicate what is the status of the assertion made in the Irish Hotels Federation document vis-à-vis the opinion of the EC Commissioner, Mrs. Schrivener. Is it correct, and if so, has he taken this into account. To be fair to him, it was made following the budget announced on 30 January.
I agree with what has been said on this matter. Like other Deputies, I received representations from hotel and restaurant interests. They presented me with a well-thought out and cogent argument in favour of accepting these amendments. As Deputy Noonan said, meals in Irish hotels in the evening are not competitively price as compared with most continental countries, in particular France. An increase of 2.5 per cent in the rate of VAT may not sound very much but, as we are all aware, sometimes when we are out for a meal something snaps and we come to the conclusion that it is too expensive. While £49 for a meal for two, including wine, may be acceptable £50 is not. That is not logical but then people are not always logical.
The hotel and restaurant industry is labour intensive. Given that there are almost 250,000 people unemployed surely we do not want to do anything which would reduce employment in this sector. There is little doubt that this increase will lead to a small reduction in employment in this sector. This may be imperceptible but it will happen. The Minister should not forget that each employee pays PAYE and PRSI. Instead of contributing to the Exchequer many people will find themselves on the dole queue and being paid by the State to do nothing as a result of the VAT increase. I ask the Minister to accept either of the amendments.
I want to dispose of the idea that the increase of 2.5 per cent in VAT rates is largely responsible for any increase in the prices charged by restaurants. It is a matter for the restaurants to decide whether their prices should be low or high.
With regard to the presentation by the Irish Hotels Federation to the various party spokespersons, I met them for a few minutes last Friday when I told them that the statement made by Madame Schrivener, to which they referred, was apparently made to a sub-committee of the European Parliament. No records of the meeting of the sub-committee are available. Therefore, I cannot confirm nor deny that the statement was made but if it was, let me make it clear that no proposals have been brought forward by the Commission or Madame Schrivener at any of the meetings that I or my officials attended. Indeed, Ireland has sought at all discussions to date to have meals subject to the reduced rate but we found ourselves in the minority.
It will probably be agreed that accommodation should be subject to the reduced rate but, unless Madame Schrivener, the Commission and other member states change their positions, it is most unlikely that food will be subject to the lower rate. I can confirm for the House that if the position should change I will take a different direction in next year's budget but I do not see this happening at this stage. I will say no more about it except that is the way the discussions have been going.
The approach I have adopted to tax approximation is to move downwards. I moved from a rate of 25 per cent to 23 per cent and 21 per cent this year at a cost of £125 million. The net difference in spending, having reduced the top rate and increased the 10 per cent rate to 12.5 per cent, is £37.5 million to the consumer. Consequently, there should not be any drop, in overall terms, in the amount of money available to consumers. I want to confirm that if there is any fall-off that will not be the reason.
On the question of tax approximation, I have never pretended that it is an a la carte menu even thought we have been criticised in the House during the past few years for not moving towards it. I have considered this matter to see which services, which are subject to the 10 per cent rate, may have to be moved to a higher rate. I have started this process. With regard to our competitiveness, the VAT rate in the UK — Northern Ireland — is 17.5 per cent while the rate in Denmark is 22.5 per cent. As far as we are concerned, the tourism industry will make a greater contribution to economic development as a job creator and as a good earner of foreign revenue. We will give it every possible assistance but we have to be realistic and consider what we will face in Europe.
If things should change and take a different turn between now and the next budget, so be it, and we would certainly have another look at it. The cost of dropping it at this stage would be £15 million and we would be back to where we were if we had to take the two jumps together. We have taken one step and that is the position. Unless the Commission makes changes that is likely to be the outcome.
If I may take up the Minister's last point first. According to the IHF, the estimated cost of reducing the VAT on food and beverages by 2.5 per cent, the cost of the forfeiture of the 2.5 per cent increase in VAT on the meals component in hotels, is approximately £4 million. The gap between £4 million and £15 million is clearly not an arithmetic error, and the Minister may wish to clarify this. However, what is more to the point is that if the IHF are working on assumptions which allow them to reach that conclusion and the Department are working on assumptions that produce the figure the Minister has given, then there is a grave discrepancy on the bases of figures — unless everybody is using electronic calculators and we are not allowing for arithmetic error.
This brings me to my second point. There seems to be a large discrepancy in the perception of the Department of Finance and the Minister regarding the overall optimum potential for the tourism industry and the perception of a component of the tourist industry, namely, the Irish Hotels Federation. They make the point in the document from which I quoted earlier:
The 1980s Experience:
VAT rates in the industry were increased rapidly from 10 per cent through the various levels up to 23 per cent, and in fact up to 25 per cent, in the first half of the 1980s. The effect on the industry was dramatic. More than 10 per cent of all hotels in the country closed and went out of business in the four years from 1981 to 1985. This, in turn, resulted in a serious downturn in employment in the industry.
As Deputy Noonan asked, can we attribute the closure of a great many small country hotels predominantly to variations in VAT rates? We do not know. The IHF are not saying that is the cause of the closures, but they are saying it is a component of the cause of the closures. If the people to whom the Government, through the Irish Tourism Federation, had given a primary role in promoting tourism and the product of tourism are at such variance with the estimates from the Department of Finance of what is needed to do their task and maintain the figures, which clearly cannot be maintained for a variety of reasons, there is a problem that is bigger than the net problem of getting the VAT rates together, and that is, the difference between the analysis that the Department of Finance are using and that of the major lobby group if such diverse conclusions are being reached.
I welcome the fact that as far as the Minister is concerned the statement attributed to Madame Schrivener has no status and as far as the Department of Finance are concerned no formal proposal has come from the Commission and clearly no Council decision has been taken in relation to these matters. Since that is not correct the consequential arguments fall.
The Minister used the apposite phrase that we cannot adopt an á la carte approach to this matter and that clearly the Community will determine whether meals are to be categorised in the higher band of VAT rates as distinct from the lower band. In view of the impact this will have on tourism, particularly in peripheral countries, what is the status of that decision. Is it finite? Has the decision firmed up yet?
What decision?
The decision to include meals in the higher VAT band?
Not yet, no.
Presumably when the Minister speaks with his colleagues from Spain, Portugal and Greece at the meeting to which my Priority Question referred, this might be one of the issues that could be referred to. Frankly I do not think we are in competition with the Danes for tourism. If they charge——
No, but we are in competition with the UK.
But not necessarily for the Northern Ireland market. I agree that we are in competition with parts of the UK, but we have to look at other areas where we will be in competition and compare VAT rates critically with those markets.
(Limerick East): The components of the normal family holiday are the costs of transport, accommodation, food and drink. That is about it. There is a conventional wisdom in this country that Ireland is a great value location for holidays, that things are low priced and one can stay in bed and breakfast houses and go out for meals and that holidays are dearer everywhere else in Europe. That is not true. In terms of accommodation it is much cheaper to book into a room in France than it is in Ireland because in France they charge for the room and not per person. In any small town in France a husband and wife and two teenage children can book accommodation and be charged for only two rooms and the cost will work out a lot cheaper per head than in Ireland. Indeed, if you go for a meal at night it will cost less because of the system they have of organising their restaurants. I do not know what their VAT rate is, but there is good value in food to be found in France. They also have very good value in drink because of the low cost of local wines.
However, if we are comparing ourselves to the UK, our hotel and bed and breakfast costs are similar. Their VAT rates are higher because their VAT on meals is 17.5 per cent while at present ours is 10 per cent. However, the big disadvantage until very recently was the excise rate on petrol and drink. There is a danger that we are organising ourselves in a way that would be very uncompetitive.
I understand from the Minister's reply that he would like to see a more vibrant tourist industry, a tourist industry that would play a larger part in our economic development. He acknowledges our concern about the CAP and the GATT, the reduction in economic activity in rural Ireland that might bring about and the need to replace that activity. One of the ways to replace economic activity and provide viable jobs in rural Ireland is through developing the tourist industry. Why does the Minister not hold the line in the negotiations in Europe? I know it is difficult, that every rate is negotiable and that each country has to push its own national interest as strongly as possible, but it does not seem to be a tenable negotiating position to be saying in Europe that meals must remain in the lower band of VAT rates and at the same time in this House making a decision, before the decision is made in Europe, that meals should fall into the higher rate of VAT. The Minister has already sold out his own case. There is not much point talking in Europe about meals being in the lower band of VAT rates when the Minister's colleagues around the table will be able to tell him that he did not practice what he preached and that in his last budget he had taken the first step to put meals into the higher rate of VAT.
I think the Minister should reconsider this. I am surprised at the figure the Minister has given us for the cost of implementing this.
It is typical of the Irish Hotels Federation that they only took their component of the industry into account.
(Limerick East): However, I am still surprised at the figure the Minister quoted. Is he saying that to reduce the rate of VAT from 12.5 per cent to 10 per cent on meals alone — and taking no other item into account——
Restaurants, cafes, hotels and the IHF are only giving the figure that applies to them because this figure would impress everybody.
(Limerick East): The Minister says it would cost £15 million, a significant amount of money which would have to be taken into account. Did he not concede an amount in excess of that when the pressure was exerted in regard to the BES scheme?
The arguments are not comparable. Does the Deputy want me to put small businesses out of business?
(Limerick East): If budgetary decisions are written in stone, they are written in stone across all the sectors, and then it is not á la carte on which you concede. The Minister weakens his own case when he concedes in his own area and not in another.
Deputy Dukes who has just come into the House brought down VAT on meals from 25 per cent to 10 per cent. We can argue about the degree to which this had an effect but it had an effect for the better on employment in hotels and restaurants. If the stimulation of the tourist industry is going to be a major plank of economic development of Ireland, increasing the VAT rate to 12.5 per cent — knowing well that in three years time it will end up at 17 per cent, 18 per cent or 19 per cnet — is not the way to do this.
We are repeating the same arguments at this stage. I intend pressing my amendment to a vote and we might as well put it to the test as to be repeating the same arguments.
(Carlow-Kilkenny): Will the Minister consider the question I asked him about a fall-off in income if the rate is increased to 12.5 per cent? Does he think that income from meals will be the same as it was when the rate was 10 per cent?
It is a matter of judgment as to whether it will be the same. All I am saying is that the VAT reductions I gave of £125 million and the increase from 10 per cent to 12.5 per cent in the VAT rate will leave a net gain to the consumer spend of £37 million. To take a general approach, there should not be any reduction in the consumer spend arising out of the increase in VAT on meals.
(Carlow-Kilkenny): Will people spend the same amount on meals?
I cannot make a judgment on what people will do.
I want to reply to some of the points made by Deputy Quinn about the number of hotels which closed down during that part of the eighties to which he referred. How many of these hotels closed because of the recession in our economy during that period? Anyone who tries to suggest that this Government are not fully committed to tourism are not facing up to reality. We have adopted a new tourism policy which seeks to double the number of visitors coming to this country, increase revenue and provide 25,000 jobs. We are on target towards achieving these objectives. Our tourist industry was dealt a death blow by the Gulf War which led to Americans not travelling abroad during that period. The fairly quick end to the war at the end of January gave us a chance of recovering some of that lost revenue. The tourism season has already started and from what we have heard it will be quite a good season. Perhaps it will not be as good from the point of view of the number of American tourists visiting here but a lot of business is coming in from Europe. As I have already said, we will ensure that our VAT rate on meals will be competitive with the EC norm. Deputy Noonan said that the cost of rooms in France is cheaper than here. VAT on rooms in France is 18.6 per cent while it is 10 per cent in Ireland.
I want to again make it clear that we cannot find any confirmation of Madame Schrivener's statement. Nothing has emanated from the Commission and no statement has been made at any of the meetings. As Deputy Noonan will be aware, the proposals in this area come from the Commission — they do not originate with the Government. We are very much in the minority in pursuing the question of VAT on meals. We have pursued this issue very strenuously. We will continue our efforts to try to change this proposal but there is no sign of any change at present. I am merely dealing with the reality as I see it.
The figure of £15 million incorporates everything. I suspect that the figure of £4 million given by the hotels' federation, who are very good at lobbying the various political parties, represents their sector of the industry and that the balance is made up from restaurants, cafeterias, take-aways, etc. They make it look like a small problem from their point of view but, as everyone knows, one cannot draw lines through various sectors of the business. The figure I have given is the correct one. There is not any great divergence of views on this issue. As I said, I met the hotels federation for a short while last Friday to tell them that they have circularised everyone on the basis of a statement from Madame Schrivener. We cannot find any confirmation of this statement; there is certainly no official record of it. There has been no sign of such thinking emanating from the commission at either the representatives of Ministers level or ministerial level. We will continue our efforts in that regard between now and the finalisation of that rate. It may well be finalised under the Luxembourg Presidency. We will ensure that the Irish tourism industry market remains competitive with EC norms in the future.
As the Minister said, the tourism industry have outlined to him the seriousness of the imposition of this extra 2.5 per cent VAT on meals. It is all right for the Minister to say that an extra £37 million will be made available but this industry are facing very severe problems this year. The Minister referred to the Government's plan for the industry. This plan was going fine until the 1991 budget when it was decided to curtail the BES scheme and introduce VAT on certain types of accommodation from 1 July this year. The Minister did a U-turn in regard to the introduction of VAT on accommodation which will not now be introduced until 1 January 1992.
The industry are losing confidence in the Government's commitment to tourism. A former president of the hotels' federation said to me no later than today that he believes the Government do not want visitors to have meals in hotels and the extra costs incurred by visitors to Ireland are putting holidays here out of the reach of the visitors Bord Fáilte are trying to bring into the country. The Government should make a further commitment to tourism, which is the major earner for this State. Unfortunately, the two major U-turns by the Government in regard to tourism over the past four months have done away with much of the confidence which existed in the industry.
The Minister said that the Gulf War had affected the number of American visitors coming here. This is only part of the problem. There is no coherent policy——
Deputy Farrelly, I do not like to interrupt you but you will appreciate that we cannot discuss at length here the policy of tourism because it is not the responsibility of the Minister; it is the responsibility of another Minister.
I accept that but——
While understandingly there will be reference to it——
——but the Minister made reference to it. I did not hear you interrupting the Minister to tell him——
I was not here but if I were here I would have interrupted him.
You were in transit. I would ask the Minister to reconsider this proposal.
He referred to the statement from Brussels. How is it this information is available to everyone in the industry but it is not available to the people who represent us in Europe? I ask the Minister to consider the serious consequences these proposals will have on the industry, taking into consideration the cost of holidaying here compared with other European countries.
That was the most exaggerated speech I have ever heard about possible repercussions. The Deputy should not try to blame me for the short-falls which may arise in the tourism industry this year — I have nothing whatsoever to do with this. I have done more for the tourism industry in the past three budgets than any Minister for Finance did for a number of years. Not alone did I not allow an increase in the price of drink, something the people in the business continually complained about, but I reduced VAT by 4 per cent.
I want to refer to the things that matter to the tourism sector as well as to every other sector. Our unit wage cost has been improved by 18 percentage points and our inflation rate is the lowest in Europe. These are the things, and not the sort of things the Deputies are talking about here, which matter.
I was complimented by the same people the Deputy talks about for making the adjustment in the BES scheme. Why? Because we had small operators in the west, in the south-east and the south-west who had contractual commitments to do jobs on their own small hotels and they could not stand the repayment charges to financial institutions. Because their season is so short the hotels federation came in and pointed out a certain number of these. There were other big players in the BES that could well stand on their own feet. I have no hesitation in saying that neither I nor the Government are in the business of putting small people out of business. The Deputy can call that a U-turn; he can call it what he likes. As far as I am concerned I do not mind what he labels it because I will approach anything in a practical manner and I am not in the business of putting small people out of business. I want them to be able to carry on.
Speaking of small people, I think Séamus Brennan won that one.
I will quote the Deputy what he said on the BES when we come to it. The Deputy will not like to be quoted one bit. That is the position in relation to the BES. I went to Kerry and the first hotelier in Killarney stood up and said: "Minister, thank you very much because if you had not taken the action you took on budget day the small people like me would have no money from the BES because all the big players would have taken it anyway". Deputies can paint it any way they like but that is the reality.
The Minister should have stood over the action he took on budget day.
No. I make no apologies to the Deputy or anybody else. The Deputy can name it a U-turn if he likes. I know the small people who were affected by this, people who had contractual positions and would be put out of business, themselves and their families. I do not think Deputy Rabbitte stands for that either, or maybe he does, because The Workers' Party are trying to change so fast from where they were to where they are. Maybe the Deputy is in that business. I do not know but if he is I am not.
(Interruptions.)
The Minister is encouraging interruptions by addressing Deputy Rabbitte. If he speaks through the Chair he will get a far more sympathetic ear.
I like to point out double standards when I get the opportunity.
The Minister was not here on the night of the budget when the Taoiseach gave a commitment to change——
I was not far away. He did not give any commitment that night. I read every word of that debate. That is where I found out Deputy Rabbitte. The Deputy should not make statements about what the Taoiseach said or did not say because I know what he said too, and he made no change. I read the debate.
Would it be in order to remind the Minister——
Does Deputy Noonan wish me to put the question? I think that would be devoutly wished.
Would it be in order for me to explain how consistent I have been?
Deputy Rabbitte, I know that what you are about to say is not all that important. It is only that you are responding to this tete-a-tete that I curbed. There will be another time for that.
On the BES I have been consistent from budget night to today and ever since the Comptroller and Auditor General's report was published.
Amendment put.
The Committee divided: Tá, 61; Níl, 68.
Tá
- Barnes, Monica.
- Barrett, Seán.
- Barry, Peter.
- Boylan, Andrew.
- Bradford, Paul.
- Browne, John (Carlow-Kilkenny).
- Bruton, Richard.
- Byrne, Eric.
- Connaughton, Paul.
- Connor, John.
- Cosgrave, Michael Joe.
- Cotter, Bill.
- Creed, Michael.
- Crowley, Frank.
- Currie, Austin.
- D'Arcy, Michael.
- Deasy, Austin.
- Deenihan, Jimmy.
- De Rossa, Proinsias.
- Doyle, Joe.
- Dukes, Alan.
- Durkan, Bernard.
- Farrelly, John V.
- Ferris, Michael.
- Finucane, Michael.
- Flaherty, Mary.
- Flanagan, Charles.
- Garland, Roger.
- Gilmore, Eamon.
- Gregory, Tony.
- Harte, Paddy.
- Higgins, Jim.
- Hogan, Philip.
- Howlin, Brendan.
- Kavanagh, Liam.
- Kemmy, Jim.
- Kenny, Enda.
- Lowry, Michael.
- McCartan, Pat.
- McCormack, Pádraic.
- McGahon, Brendan.
- Mac Giolla, Tomás.
- Nealon, Ted.
- Noonan, Michael
- (Limerick East).
- O'Sullivan, Gerry.
- O'Sullivan, Toddy.
- Owen, Nora.
- Pattison, Séamus.
- Quinn, Ruairí.
- Rabbitte, Pat.
- Reynolds, Gerry.
- Ryan, Seán.
- Shatter, Alan.
- Sheehan, Patrick J.
- Sherlock, Joe.
- Spring, Dick.
- Stagg, Emmet.
- Taylor, Mervyn.
- Taylor-Quinn, Madeleine.
- Timmins, Godfrey.
- Yates, Ivan.
Níl
- Ahern, Dermot.
- Ahern, Michael.
- Aylward, Liam.
- Barrett, Michael.
- Brady, Gerard.
- Brady, Vincent.
- Brennan, Mattie.
- Brennan, Séamus.
- Browne, John (Wexford).
- Calleary, Séan.
- Callely, Ivor.
- Clohessy, Peadar.
- Connolly, Ger.
- Coughlan, Mary Theresa.
- Cowen, Brian.
- Cullimore, Séamus.
- Daly, Brendan.
- Davern, Noel.
- Dempsey, Noel.
- Dennehy, John.
- de Valera, Síle.
- Ellis, John.
- Fahey, Jackie.
- Fitzgerald, Liam Joseph.
- Fitzpatrick, Dermot.
- Flynn, Pádraig.
- Harney, Mary.
- Hillery, Brian.
- Hilliard, Colm.
- Hyland, Liam.
- Stafford, John.
- Treacy, Noel.
- Tunney, Jim.
- Wallace, Dan.
- Wallace, Mary.
- Jacob, Joe.
- Kelly, Laurence.
- Kenneally, Brendan.
- Kirk, Séamus.
- Kitt, Michael P.
- Kitt, Tom.
- Lawlor, Liam.
- Lenihan, Brian.
- Leonard, Jimmy.
- Martin, Micheál.
- McCreevy, Charlie.
- McDaid, Jim.
- McEllistrim, Tom.
- Morley, P.J.
- Noolan, M.J.
- Noonan, Michael J.
- (Limerick West).
- O'Connell, John.
- O'Dea, Willie.
- O'Donoghue, John.
- O'Hanlon, Rory.
- O'Keeffe, Ned.
- O'Leary, John.
- O'Rourke, Mary.
- O'Toole, Martin Joe.
- Power, Seán.
- Quill, Máirín.
- Reynolds, Albert.
- Roche, Dick.
- Smith, Michael.
- Walsh, Joe.
- Wilson, John P.
- Woods, Michael.
- Wyse, Pearse.
Tellers: Tá, Deputies Flanagan and Boylan; Níl, Deputies V. Brady and Clohessy.
Amendment declared lost.
Amendment No. 126 is consequential on amendment No. 130. It is proposed, therefore, to take amendments Nos. 126 and 130 together for discussion purposes. Is that agreed? Agreed.
I move amendment No. 126:
In page 78, subsection (2), to delete lines 43 to 45 and substitute the following:
"(2) The Third Schedule (inserted by subsection (1)) to the Principal Act is hereby amended——
(a) in paragraph (ii) by the substitution of ‘paragraph (xiib) (b) or (xiv)' for ‘paragraph (xiv)', and
(b) by the substitution of the following paragraph for paragraph (vi):".
This amendment is necessary because doubts have been expressed regarding interpretation of paragraph (ii) of the Third Schedule which is inserted by section 80.
It is being contended that the routine or "contract" cleaning of buildings is in fact "the maintenance and repair of immovable goods" within the meaning of paragraph (ii) and accordingly liable at the 10 per cent VAT rate.
It was never the intention that such cleaning should benefit from the 10 per cent rate which extends to building services generally and such services should be taxed at the 12.5 per cent rate by virtue of paragraph (xiib) of the Sixth Schedule to the VAT Act.
This amendment, in conjunction with official amendment No. 130, is designed to remove any possible ambiguity in this matter.
Amendment agreed to.
Amendment No. 127 not moved.
We come now to Amendment No. 128 in the name of Deputy Noonan. Amendment No. 129 is related and amendment No. 160 is consequential on amendment No. 129. I propose, therefore, for discussion purposes to take amendments Nos. 128, 129 and 160 together.
(Limerick East): I move amendment No. 128:
In page 79, between lines 10 and 11, to insert the following subsection:
"(3) The provisions of subsection (2) shall not come into effect until 1st March, 1992.'.".
The Chair will recall that he allowed me to debate this matter on section 73. The Minister pointed out that while he was not deferring the budgetary decision until 1 March to impose a VAT rate of 10 per cent on self-catering holidays, he was deferring it to 1 January 1992. As far as I am concerned we have adequately dealt with it and I thank the Minister for meeting the point.
Amendment, by leave, withdrawn.
Question proposed: "That section 80, as amended, stand part of the Bill."
(Limerick East): Section 80 lists those activities which in future will be rated at 12.5 per cent for VAT purposes. It is quite clear what is involved but there is one specific point I would like to ask the Minister about. Will silage contracting be exempt?
It is refunded through the flat rate — 12.5 per cent.
(Limerick East): It is refunded through the flat rate to farmers who are not registered for VAT but for farmers who are registered for VAT will the VAT rate on silage contracting be increased from 10 per cent to 12.5 per cent?
It is, and they can reclaim it as an input.
(Limerick East): Will the Minister tell us what other farming activities will be increased from 10 per cent to 12.5 per cent? Will it be a sufficiently large tranche of farm activities to justify an increase in the flat rate rebate?
Field work, reaping, mowing, threshing, baling, harvesting, sowing and planting.
Minister, the House was not giving you the attention you deserve.
Agriculture services consisting of field work, reaping, mowing, threshing, baling, harvesting, sowing, planting, disinfecting and ensilage of agricultural products, destruction of weeds and pests and dusting and spraying of crops and land, lopping and tree felling and similar forestry services; services of an auctioneer, solicitor, estate agent or other agent directly related to the supply of immovable goods used for the purposes of annex A activity, farm accountancy or farm management services.
(Limerick East): I should like to thank the Minister. It is correct to say, therefore, that farmers who hire contractors, whether tillage contractors or silage contractors, will be liable for an increase in VAT from 10 per cent to 12.5 per cent. If a farmer is registered for VAT he will receive his rebate at 12.5 per cent. If the farmer is not registered for VAT he will still have the old level of flat rate rebate. There is an additional cost increase for the majority of farmers because when they get the Bill from the contractor the VAT will be increased from 10 per cent to 12.5 per cent. Is that what the Minister is telling me? They will not be able to claim it back because they are not registered.
Flat rate adjustments are calculated retrospectively. There will be no increase this year.
This is the motion we take on budget night?
(Limerick East): I have not made my position clear. I am not asking about a change in the rebate in the flat rate of VAT. What I am trying to establish is what happens on the ground. Many farmers are not registered for VAT, some are registered, and the Revenue Commissioners are pursuing a number of them at present. If the Minister is trying to find a group of people who are very upset at present he should speak to silage contractors and other agricultural contractors. The VAT rate they will charge to the farmer will be 12.5 per cent so that the farmer will be paying an extra 2.5 per cent on this year's silage. He will not be able to claim it back if he is not registered. The vast majority of farmers are not registered and the Minister has no intention of changing the flat rate rebate. That is the position.
If he is registered he gets back his VAT as I have already said. The flat rate is adjusted by reference to the VAT input over the previous three years and, consequently, the flat rate will be adjusted. It will not be adjusted this year because it is always adjusted in retrospect. There will be a negligible increase in costs.
Question put and agreed to.
SECTION 81.
I move amendment No. 129.
In page 79, between lines 18 and 19, to insert the following:
"(c) by the insertion of the following paragraph after paragraph (xiic) (inserted by the Act of 1986):
‘(xiid) services supplied in the course of their profession by jockeys;',".
This amendment provides for the reduction in the rate of VAT on the services of jockeys from the standard rate of 21 per cent to the 12.5 per cent rate.
Amendment agreed to.
I move amendment No. 130.
In page 79, between lines 25 and 26, to insert the following subsection:
"(2) The Sixth Schedule (inserted by the Act of 1985) to the Principal Act is hereby amended by the substitution of the following paragraph for paragraph (xiib) (inserted by the Act of 1986):
‘(xiib) (a) services consisting of work on immovable goods, other than services specified in—
(i) subparagraph (b) or paragraph (xiv), or
(ii) paragraph (ii) of the Third Schedule,
or
(b) services consisting of the routine cleaning of immovable goods;'.".
Amendment agreed to.
Question proposed: "That section 81, as amended, stand part of the Bill."
(Limerick East): This is one of the sections which arises in a Finance Bill and makes a significant change in taxation. This is a significant widening of the tax net. The changes in stamp duty are so wide that in certain respects they almost amount to a new tax.
May I interrupt the Deputy? We have already discussed amendment No. 160 and I want to tidy it up and put it into the section.
Normally, we deal with these amendments seriatim. We discuss an amendment but we would not formally move it until we come to it. That is what is required.
Section 81, as amended, agreed to.
SECTION 82.
Question proposed: "That section 82 stand part of the Bill."
(Limerick East): Before we move on to Part IV of the Bill I am giving notice that Deputy Deasy and I will move an amendment to allow certain tax breaks to be restored in respect of multi-storey car parks which are not within the designated area, with specific references to a plan which Waterford County Council have for Dungarvan. If I do not refer to it, my amendment on Report Stage will be ruled out of order.
The section with which we are now dealing puts us ahead of time and I would like to know how we should proceed because the time motion was to run to 7 p.m. I am happy to proceed. My only concern is that there are other Deputies in the House who participated in our time motion agreement. I do not want a situation to arise where amendments in the names of Deputies who are not present, who did not expect them to come up until 8.30 p.m. will be taken before they come in. That would not be fair.
Is Deputy Noonan suggesting in deference to the consideration he has expressed that we suspend business until 7 o'clock?
(Limerick East): Seeing that we do not reach an amendment in the name of a Deputy other than the Minister until we get to section 104, we could proceed until 7 o'clock without infringing on anybody's rights. I am happy to take the amendments in the Minister's name.
I agree.
(Limerick East): I would like to hear the Minister's comments on stamp duties. This is more than just an amendment to the Finance Bill. This is so far reaching that it amounts to almost a new tax. It is a significant widening of the scope of stamp duty and the tax base. This area did not get much attention on budget day and there has not been much public debate about it. Up to now, it has been possible to avoid stamp duty on a wide range of documents either by executing them abroad or simply by ignoring the technical liability on documents executed within the State. While the legal requirement is there, there was not a financial penalty if one ignored the legal requirement. The payment of duty on most documents has been more or less voluntary and it has been usual to pay it mostly on documents which were needed to obtain registration of title to Irish property, or on documents which might have to be produced in court. The Finance Bill proposes to change this to make it compulsory to pay duty in 30 days of execution of all documents. The conditions are that they are executed within the State if they apply to Irish property or if they relate to any matters done in the State or to be done in the State. The penalties for non-compliance are quite severe — up to 30 per cent of the unpaid duty, and on top of that there will be an interest payment of 15 per cent per annum of the amount outstanding.
Stamp duty goes on written documents. The documents liable are those which are within the First Schedule of the Stamp Act, 1891. I have been supplied with a list of them. Stampable documents include loan agreements, including mortgages, notation agreements, letters of credit and bond and debenture issues at a rate of 0.1 per cent up to a maximum of £500; debt factoring agreements are stamped at a rate of 6 per cent as are securitisation agreements, partition agreements and declaration of trust on sales; there is stamp duty of 1 per cent on share transfers; 6 per cent on conveyancing of land, on the sale of receiveables, on contract for sale of business, on contract for sale of goodwill, on assignment of trade marks and patents and intellectual property and on creation of options.
While the items on that list which directly relate to the transfer of property were always part of the law and the stamp duty is compiled with, many of the other items were not and there is now a very significant de facto tax imposition on these measures. There is an ever growing list of financial products arising from activities in the Financial Services Centre in Shannon and elsewhere which will be liable to stamp duty, for example, swaps and forward rate agreements, financial futures and options, forward currency agreements, caps, floors and collars to use all the technical terms of the financial markets. It seems that it is technically possible that these will also attract stamp duty. I would like the Minister to tell us the scope of this.
I am advised that this could have huge implications for taxpayers particularly in the financial services sector. Stamp duty is not a tax to which we have given much attention in the past but if it is applied under this section as widely as I am advised it might be, we are not looking at a minor amendment to the imposition of stamp duty but a very far reaching reimplementation of stamp duty to a degree that almost amounts to a new tax.
Will the Minister confirm that this is an accurate interpretation of the position? Will he tell us what is expected yield from the series of documents which will now have to be stamped to comply with the law? Will he tell us if it applies to the whole new range of activities which will be backed up by documentation which would require stamps in the financial services industry? If that is so, will he give us the total expected tax take and the breakdown across the areas I have listed?
(Wexford): As we seem to have time on our hands, the Chair might allow me to raise an issue which I could not raise last night. I will draw the Minister's attention to a small issue with which he may be able to deal in the context of the current Finance Bill.
Deputy Browne, I thought you were going to indicate to me something in the nature of that which Deputy Noonan had indicated, and something on which I had an indication earlier from Deputy Sherlock. Perhaps, against our better judgment, we had accepted that reference to a matter, even though it was not related to the amendment to the section being discussed, might be accepted as being adequate on Report Stage. If the Deputy is proceeding to do the same, we will listen to him, but if he is going to ressurrect something that is in the aimsir caite we will not wait too long to hear what he is saying.
(Wexford): The issue is very important. It relates to the fact that a parent's incapacitated child allowance is reduced pound for pound with any income of the incapacitated child over £720 a year. There is a good reason for the Minister to increase the figure of £720.
Is the Deputy indicating that he wishes to table an amendment on Report Stage?
(Wexford): Yes.
The Chair has taken note of that. When the Deputy submits that amendment it can be dealt with. It will qualify for submission on Report Stage, but I could not allow the Deputy to proceed with a discussion on that matter when it does not refer to section 84.
(Wexford): We have time available.
The fact that time is available does not change anything.
(Wexford): It would take very little time for me to ask the Minister to consider the matter on compassionate grounds and increase the figure of £720 to £1,500 to cater for the parents of handicapped children. That is a very important suggestion.
Deputy Browne is now making life difficult for the Chair.
(Limerick East): I suggest the Chair give him three minutes.
(Wexford): I raised the matter in the House before, during my speech on the budget and at other times. I should have been here to speak last night, but I could not attend.
Deputy Browne, I shall give you one minute to indicate your point to me. That is all I shall allow, because you are not in order in raising the matter now.
(Wexford): I shall be very brief. I raised the issue on budget day. I made the point to the Minister that at present——
Deputy Browne, I must insist that the order is the order, and it applies to both sides of the House.
(Wexford): I am not speaking outside the order. As Deputy Noonan said, we are running a head of time.
No, the Deputy has more or less indicated the point to which he is alerting the Minister. I have indicated to the Deputy that he can put down an appropriate amendment on Report Stage, which in itself is a concession.
(Wexford): I may not need to table an amendment. I am appealing to the Minister's compassion, in the interests of parents of handicapped children, to increase the figures of £720 to £1,500 so that there will not be the tax reduction of pound for pound.
The Deputy has made that plea. I am sure every Member is sympathetic to any appeal made on behalf of the handicapped but, however brutal it might sound from the Chair, it is not in order to proceed with any further discussion at this stage.
(Wexford): I thank you, a Leas-Cheann Comhairle, but I ask the Minister to consider the appeal seriously.
I got that impression.
I wish to be disorderly for 30 seconds, and say that I will take the issue on board for Report Stage and try to determine what can be done.
Section 87, together with all other sections up to section 101, contains several provisions which reform the collection and enforcement of stamp duties. It is not a minor amendment; it is a complete reform of stamp duties.
These duties are governed primarily by the Stamp Act, 1891. Many of the features of stamp duty are out of place in a modern tax system. As structured at present, stamp duty is to a great extent a voluntary tax. It cannot be directly enforced, as can all other taxes. Enforcement to date has depended upon the fact that an unstamped document cannot be used as evidence in court proceedings and is useless for many purposes such as the registration of title. These provisions have been reasonably successful in causing the payment of duty on the great majority of stampable documents. However, the collection and enforcement powers and the structure of the tax as provided in the 1891 Act are inadequate to deal effectively with evasion and avoidance of duty and are a liability for the Revenue Commissioners in administering a tax which has yields of a similar order of magnitude as corporation tax or income tax under Schedule D.
The Bill also updates the penalty provisions in respect of stamp duty. Many of those provisions have not been changed since 1891. The provisions are designed largely to compensate for the erosion of monetary values since then. Evasion and avoidance of duty are tackled by specific provision, the overall aim of which in the case of avoidance is to close loopholes and in the case of evasion to increase the risks inherent in such conduct for all taking part to such an extent that these risks are not worth taking.
Deputy Noonan referred to a variety of different documents when talking about instruments. The matter is one for the House to consider, but, perhaps, we should discuss sections 87 and 88 together.
Strictly speaking we should confine ourselves to section 82 and we have not dealt with that section.
I am drawing to the attention of the House the fact that an amendment deals with some of the issues raised by Deputy Noonan.
Discussion on that matter can take place presently. I ask the Minister to deal with the question before us, "That section 82 stand part of the Bill."
(Limerick East): It is just a definition section.
Yes, but the Deputy elaborated to the point that he was encouraging the Minister to follow on.
(Limerick East): Can one not make a Second Stage speech on a definition section?
No, not exactly. Contributions heard to date were not very much in order.
Question put and agreed to.
Sections 83 to 86, inclusive, agreed to.
NEW SECTION.
I move amendment No. 131:
In page 81, before section 87, to insert the following new section:
"87.—Stamp duty shall not be chargeable on—
(a) a licence granted under section 8,9 or 19 of the Petroleum and Other Minerals Development Act, 1960, or
(b) a lease granted under section 13 of that Act, or
(c) an instrument for the sale, assignment or transfer of any such licence or lease or any right or interest therein.".
The aim of the collection and enforcement provisions for stamp duties contained in the Bill is to improve tax collection through better compliance. The stamp duty legislation which makes stamp duty a voluntary tax dates from 1891 and is very much a product of the Victorian era. A voluntary tax has no place in a modern taxation system, particularly for a tax that in 1990 yielded £271 million. The voluntary character of stamp duty has also created several ambiguities that in turn gave rise to practices such as the keeping of documents off-shore. Because stamp duty was not mandatory, the pressure that would otherwise have developed to keep the structure of the tax, and particularly its charging provisions, in line with modern practices and developments was absent. The proposals in the Bill have now brought these issues into sharper focus. There is now an opportunity that I intend to avail of to bring clarity and certainty to this area of taxation and to bring the impact of these duties on the financial services sector into line with the realities in the marketplace.
The Government have for some time pursued a policy of fostering the growth of an international financial services industry in Ireland and developing the international financial services centre. The Government's commitment to that policy is unambiguous. Companies are already doing business in that centre and those who have committed themselves to doing so made their decisions on the basis that financial instruments could be sheltered from stamp duty. It would not be practical or reasonable to alter that situation.
The international financial services industry operates generally on very low margins. The industry is very mobile. Competition in the industry is intense, not just between different companies but also between different countries. Given the very tight margins in the industry, and its mobility, stamp duty liabilities, financial transactions and instruments would seriously undermine the competitiveness of Ireland as a place in which to do such business. Accordingly, it is my intention that the financial services industry, both in the international financial services centre and in the country generally, will not under a revised stamp duty regime be obliged to pay duties on financial instruments which, in practice, they have not been obliged to pay to date. The purpose of the amendment is to give statutory effect to this intention.
However, because of the technical complexity of the instruments and the rapid pace of innovation within the industry, it would be very difficult to do this by way of specific exemptions in the primary legislation. The difficulty arises because stamp duty is a tax on legal documents or instruments, not on transactions. Not only do the industry engage in a wide range of transactions, but the types of instruments used are continually changing. Indeed, rapid product innovation is a vital feature of this industry.
Careful preparation of the legislation is required to deal with this situation and to preserve the existing tax base while ensuring that the instruments which are currently untaxed on a de facto basis will remain so legally under the new legislative framework. I consider that the power of the Minister of the day to make orders relating to stamp duty, as provided for in this amendment, is the appropriate mechanism. Following the enactment of this amendment, officials from my Department and the Revenue Commissioners will have detailed consultation with the finacial services industry to flesh out in the form of relieving orders, the commitment which I have given here. I will then make the necessary order before 1 November 1991.
None of the provisions in the Bill relating to the enforcement and collection of stamp duty will come into effect until that date. The process of consultation will be ongoing so that the duty regime can be tailored to take account of the evolution of the financial services industry. As proposed, this provision strikes an appropriate balance between the need to respond quickly and flexibly to perceived negative effects of taxation and the ultimate responsibility of the Oireachtas for all legislative matters, including taxation. The provision in subsection (2) limits the power to make orders.
Instruments over which a Minister would have discretion represent only a tiny proportion of total stamp duty yield. The instruments which can be the subject of ministerial orders yielded less than £1 million in 1990. The Minister will not have any power to amend, by order, the legislation affecting the main sources of the stamp duty yield, such as the duty on land and houses.
In addition, subsection (5) provides that any orders made must be laid before this House. To further safeguard the role of the Oireachtas in legislative matters any orders made must be ratified subsequently by the Oireachtas, effectively in the next Finance Act, otherwise they would cease to have effect. This amendment is a considered response to the detailed consultations which officials have had with representatives of the financial services industry. It does not in any way relieve that industry of an existing taxation burden; it creates a mechanism where the status quo can be given to a coherent, legislative basis and where the stamp duty regime can subsequently be adjusted to take account of subsequent innovations in the financial services industry.
(Limerick East): I take it that the Minister has been speaking on amendment No. 133.
The Minister did not appear to be talking——
I was speaking to amendment No. 131. As a result of the temperature in the House, we are beginning to lose concentration.
Can anything be done about the temperature in the House?
I thought I had a temperature, it is not very nice when you are here all day. Amendment No. 131 would, if enacted, exempt from stamp duty any subsequent transfer on the sale of leases and licences issued for the purpose of oil exploration. This exemption will not lead to any revenue losses. It is not the practice at present to pay stamp duty on such transfers. Transfers to date have been executed abroad, thus escaping the charge of stamp duty. Under the revised collection and enforcement provisions contained in this Bill, this will no longer be possible. As a result, the transfer of leases and licences, or any interest in them, will be subject to duty of up to 6 per cent of the sums paid.
As a very high cost, high risk industry, oil exploration needs to attract investors and one way in which this is achieved is by the sale of part of the rights and interests conferred by a lease or a licence to explore for oil. Stamp duty at 6 per cent would act as a significant disincentive for such investment. Because of this Government's commitment to the development of this industry and the fact that the exemption would merely preserve the status quo in this area, I proposed this amendment.
Will the Minister clarify whether documents executed prior to enactment are dutiable or does that apply only from the date of enactment of the legislation?
(Limerick East): No date of enactment is specified.
It will be 1 November this year and there will be no retrospection.
(Limerick East): The Minister's amendment just maintains the status quo and I will not oppose it. However, out of curiosity I should like to know why he specifically moved an amendment to exempt activities in oil exploration and associated areas because, in the next amendment, he gives himself power to include or exclude any or every activity. Is it because the specific amendment was tabled before the general amendment?
The amendment in relation to exploration was clearly and easily defined. The others relate to financial instruments which can change ever week and if they were put specifically into legislation the legislation would be out of date in a month's time. We need to be able to move with the changing instruments which the industry uses from time to time.
Amendment put and agreed to.
SECTION 87.
We now come to amendment No. 132 in the name of the Minister. I observe that amendments Nos. 134, 135, 141, 144 and 147 are cognate. Amendments Nos. 148, 150, 151, 152, 153, 154 and 155 are related. I suggest, therefore, that amendments Nos. 132, 134, 135, 141, 144, 147, 148 and 150 to 155, inclusive, be taken together. Is that agreed? Agreed.
I move amendment No. 132:
In page 81, line 22, after "is hereby amended" to insert "as respects instruments executed on or after the 1st day of November, 1991,".
Section 87 of the Bill places the collection and enforcement of stamp duties on the same footing as other taxes. Other sections of the Bill follow through on that changed basis for stamp duty collection and enforcement by setting out who is accountable for paying tax, by revising interest and other penalties for late payment and evasion and by giving powers of investigation to the Revenue Commissioners in respect of stamp duties.
On publication of the Bill, one of the concerns expressed by many interested individuals and bodies was the potential in the Bill as drafted for some provisions to have retrospective effect, to which Deputy Rabbitte referred a few months ago. I want to remove any doubt about this. The provisions of the Bill relating to the changed basis for stamp duty, collection and enforcement, revised interest and penalty provisions and the revised powers of investigation will apply only to instruments executed after 1 November 1991. These amendments have been tabled to achieve this amendment.
Amendment agreed to.
Section 87, as amended, agreed to.
NEW SECTION.
I move amendment No. 133:
In page 82, before section 88, to insert the following new section:
88.—(1) Subject to the other provisions of this section, the Minister for Finance may—
(a) by order vary the rate of duty chargeable on any instrument specified in the First Schedule to the Act of 1891 or may exempt such instrument from duty, and
(b) make such order in respect of any particular class of instrument,
but no order shall be made under this section for the purpose of increasing any of the rates of duty.
(2) No order shall be made under this section for the purpose of varying the duty on any instrument or class of instrument where—
(a) such instrument or class of instrument relates to—
(i) any immovable property situated in the State or any rights or interest in such property, or
(ii) any stock or share of a company having a register in the State, or
(iii) any risk situated in the State in relation to the Heading ‘INSURANCE' in the First Schedule to the Act of 1891,
or
(b) such instrument or class of instrument is a bill of exchange or a promissory note.
(3) Notwithstanding anything to the contrary contained in subsection (2), the Minister for Finance may make an order in respect of an instrument which is executed for the purposes of debt factoring.
(4) The Minister for Finance may by order amend or revoke an order under this section, including an order under this subsection.
(5) An order under this section shall be laid before Dáil Éireann as soon as may be after it has been made and, if a resolution annulling the order is passed by Dáil Éireann within the next 21 days on which Dáil Éireann has sat after the order is laid before it, the order shall be annulled accordingly, but without prejudice to the validity of anything previously done thereunder.
(6) Every order under this section shall have statutory effect upon the making thereof and, subject to subsection (5), unless the order either is confirmed by Act of the Oireachtas passed not later than the end of the year following that in which the order is made, or, is an order merely revoking wholly an order previously made under that subsection, the order shall cease to have statutory effect at the expiration of that period but without prejudice to the validity of anything previously done thereunder.".
(Limerick East): The Minister already spoke on this amendment and I will not ask him to go back over it. This section is very unusual because the financial services industry in respect of a major tax imposition will not be taxed in Finance Bills or by actions of this House. It will be taxed by the Minister taking to himself the right to include or exclude any particular activity and impose stamp duty on that activity.
I agree with most of the Minister's arguments but I ask him to again recite how he sees the checks and balances and the involvement of the House. When he was reading rapidly I understand he said that any order he makes under this section would have to come before the House. Will such an order have to be approved or will a motion have to be put down within 21 sitting days?
It will have to be laid before the House and confirmed in the succeeding Finance Bill.
(Limerick East): Therefore we would be given an opportunity to debate it even though that debate would be retrospective?
That is correct.
(Limerick East): That is reasonable.
Amendment agreed to.
Progress reported: Committee to sit again.