Dáil Éireann díospóireacht -
Thursday, 21 Apr 1994

Vol. 441 No. 7

Ceisteanna—Questions. Oral Answers. - Tax Yields.

Proinsias De Rossa

Ceist:

7 Proinsias De Rossa asked the Minister for Finance if his attention has been drawn to claims made by the president of the tax officials branch of IMPACT (details supplied) that tax audits of 1,700 self-employed people returned on average an additional £22,000; if these figures are true; the total number of self-employed who are subjected to an audit each year; the plans, if any, he has to increase the number of such audits; and if he will make a statement on the matter.

Mr. B. Ahern

The figures quoted by the Deputy are not representative of the overall yield from the Revenue audit and investigation programmes in 1992. They ignore cases where the tax returns were accepted, as submitted, with no additional tax liability arising. In addition, the overall yield is distorted by a number of very large settlements in the period.

The total number of audits, covering both the self-employed and companies, completed under the self assessment audit programme for the calendar year 1993 — the latest period for which figures are available — was 2,537 yielding an average of £7,765 per case. This compares with audit figures of 770,1,496 and 2,482 cases for the three preceding years, 1990, 1991 and 1992.

Self assessment audits are only one element of the total Revenue audit programme which also includes PAYE employers, VAT, relevant contracts tax and investigation branch audits. Taking account of these additional programmes the total revenue audit programme for 1993 involved 24,000 cases, yielding an average of £4,250 per case.

Under the various Revenue audit programmes, cases are selected for audit and investigation following a detailed screening of the returns as filed. The selection procedures are based on certain perceived defects in the tax return and supporting accounts and/or by reference to information arising from external and other sources. The method of selection does, however, include a small proportion picked at random. This is considered necessary to further encourage compliance. Because of this inherent bias in the selection process, the results from cases audited or investigated cannot, therefore, be regarded as indicative of the overall level of compliance among the taxpaying community at large.

The Government and the Revenue Commissioners are conscious of the need for an active audit programme in the context of self assessment. The level of audits is kept under constant review to ensure compliance and to deter tax evasion. An indication of the commitment of the Government and the Revenue Commissioners to this end is the increase in the numbers of officers allocated to the various audit, investigative and compliance programmes from 212 in 1988 to a present level of some 600.

The number of cases impacted will vary from year to year depending on the issues involved and the types of cases forming the focus of the programmes in any particular year. Overall I consider the present audit/investigation programmes to be operating satisfactorily.

Mr. Rabbitte

The Minister said the figures are distorted by virtue of the fact that there were some large settlements but, as I understand it, the question relates to 1992. Is the Minister saying that the figure on average—I accept averages can be misleading—of £22,000 yielded as a result of the audits, is inaccurate? Is it not extraordinary that the new average figure for 1993 of £7,765, secured from self employed persons as a result of the audits, is still twice the average of that paid by the self employed? Can he give us any indication of the percentage of cases selected at random? Whether one takes my version or the Minister's version it seems to produce either twice what they are admitting they owe in tax or, if one takes the figure of £22,000 — the figure produced by the president of the tax officials union—it is six times what they are paying on average.

Mr. B. Ahern

The reason the figure of £22,000 is wrong is that it ignores cases where the tax returns were accepted as submitted, with no additional tax liability arising.

Mr. Rabbitte

Is that within the figure of 1,700 self employed people?

Mr. B. Ahern

In order to get the headlines at the conference the president of the tax officials union ignored those cases where there were no returns in order to raise the average figure but that is not correct. The detailed audit under the self assessment audit programme yields on average £7,765 per case. The audit programme has been in operation for four years. As the Deputy will be aware, there are 600 people working under the programme. Last year I promised that the number of officers would be increased substantially. My view is that it is better to have officials out investigating cases than sitting in offices. The self assessment audits are only one dimension of the total revenue compliance programme. It also includes the large number of other inspections, visits to premises, VAT checks and so on. Under the provisions of the self assessment audit programme inspectors have a period of six years to audit a return and any understatement of liability is subject to interest and penalty charges. With 600 officials working in this area — a few years ago we had only 100 — we will see a huge improvement.

As the Deputy will recall the self assessment system here was based on the US and Canadian systems. As well as focusing on areas where, for one reason or another, Revenue suspect are worth investigating, it is good to take a random selection. Of the 24,000 cases some few hundred would have been selected at random. The intention is to use the method of random selection because it indicates to everybody that the system is fair and that there is no witch-hunt. The self assessment audit is a generous scheme which allows people to be honest. People have to accept the detailed analysis and scrutiny carried out by Revenue when they follow up a particular case.

Mr. Rabbitte

There may be something in what the Minister said about the president of the tax officials union at the annual conference seeking a headline. It is a hell of a headline if one examines it in global terms. Will the Minister agree that the total yield from the spot checks was £107 million, a huge amount from 1,700 people? The Minister said the average figure is misleading because it does not take into account those who made declarations where no further sums were due. What proportion of those 1,700 people made such declarations?

Mr. B. Ahern

If one takes a certain period and the amount of money raised one cannot distort the calculations. If the calculation is done on the basis that the president would want it, he would have arrived at £7,765 rather than £22,000.

Mr. Rabbitte

Will the Minister of State at the Department of Finance, Deputy Eithne Fitzgerald, do the sums quickly? All one has to do is divide 1,700 into £107 million. The answer will be the average figure no matter what way it is dealt with.

Mr. B. Ahern

The Deputy is aware how the other calculation was carried out. A few large cases in 1992, and new legislation which permitted officers to follow up particular cases, resulted in higher figures. The total number of audits yielded an average of £7,765 per case.

Mr. Yates

Following the first stage of the audit process, officers proceed to a detailed audit and may decide to pick on 1992-93. Recently I asked an inspector of taxes to clarify the basis on which people are selected for audit and I got no information. Are there guidelines in relation to selection for audit? Do third party returns indicate that someone has a compliance problem? Are particular sectors of business selected or is it a case of investigating a person who is now driving a better car than would seem affordable from their income?

Mr. B. Ahern

First, there is the random audit. Sometimes Revenue decide on a sector for a particular year and then move on to another sector. If in their scanning of 30,000 cases they note that an area is out of line on the basis of the percentages and guidelines it is highlighted. Unfortunately there are not sufficient officers to go around checking the size of cars and so on.