In this session we will deal with sections 73 to 105 in Part II of the Bill.
Finance Bill, 2000: Committee Stage (Resumed).
SECTION 73.
Question again proposed: "That section 73 stand part of the Bill".
I tabled amendment No. 158 to section 73. I understood from the timetable that this amendment would be taken first today. I would have moved it yesterday had I known that. It had not been made clear to me at the time that that was included in the cut-off point. If it cannot be taken now, I will re-introduce it on Report Stage.
It cannot be taken now because it referred to Part I which was covered by the guillotine yesterday evening. The Deputy has indicated he will re-introduce it on Report Stage and I am sure that can be acceded to.
The demarcation line was not clearly explained to me. In future, the cut-off point should be clearly explained.
Arising out of that, I want to indicate Report Stage amendments for further extensions of various tax relief schemes, including the upper Shannon scheme and some of the airport schemes.
Right.
I take it that, once I indicate it in this manner, that covers the amendments. Do I have to specify them?
It covers any amendment that was guillotined.
I am not talking about guillotined amendments but new amendments on Report Stage which deal with further extensions of the upper Shannon designated scheme, the rural renewal scheme and the airport designation scheme.
We will get clarification on that and respond to the Deputy.
Perhaps the Chairman will tell me also if I need to put anything else on the record. Amendment No. 138 concerning multi-storey car parks and partnerships has caused some consternation. Perhaps an appropriate official could have a chat with me during the break. I am advised that the effect of this would be to negate tax breaks for partners in multi-storey car parks.
Is it section 58?
It is the Minister's amendment No. 138.
We did not reach that yesterday.
We did not discuss it?
No.
However, it went with the general vote?
It did, yes.
People have been ringing me this morning in a state of agitation about it. The point they make would not be the one with which the Minister is trying to deal. The blade has been lowered another few inches and has caught people it was not intended to catch.
We will get someone to examine it.
The budget provided for an excise duty increase on tobacco products which, when VAT is included, amounted to an increase of 50p on a packet of 20 cigarettes, with pro rata increases on other tobacco products. This section confirms the budget day increases. The new rates are set out in Schedule 3. The increase is expected to yield £132 million this year. The estimated increase in the consumer price index is 0.756%.
In response to the increasing cost to the Exchequer caused by the adverse health effects of smoking, an amount equivalent to the extra yield from this increase will, with effect from 1 January this year, be paid by the Revenue Commissioners by way of appropriations-in-aid to the Department of Health and Children to help fund the national cardiovascular health strategy. It is expected that this significant increase of 50p will reduce projected cigarette consumption below what it would otherwise have been, especially among young smokers, who may be more price sensitive than other persons.
A number of issues arise in this regard. During the discussion on the budget, the earmarking of this tax for cardiovascular related illnesses was also extended to cancer related illnesses. Perhaps the Minister would confirm that. How will this be done from an accountancy point of view? Will it be simply an informal arrangement between the Departments of Finance and Health and Children? As I recall, there have been few earmarked taxes. Will it be formally earmarked so that future Ministers for Health and Children will know how much excess funds they will have other than what comes from the Department of Finance or what is voted to them by the Houses of the Oireachtas?
I will deal first with the last point about how it will be accounted for. This was covered in section 3 of the Appropriation Bill which went through the Dáil before Christmas.
It went through the Dáil without debate, did it not?
It normally goes through without debate. Sometimes it is debated. I cannot remember whether it was debated this year. Section 3 states:
In the year commencing on 1 January, 2000 and in each year thereafter, such sum as may be determined by the Minister for Finance, not exceeding one hundred and thirty million pounds, shall be paid to the Minister for Health and Children by the Revenue Commissioners, as appropriation-in-aid of the grant in the year concerned for the services and purposes elected for the performance by the second-mentioned Minister of his or her functions, out of moneys collected by the Revenue Commissioners in respect of the duty of excise imposed by section 2 of the Finance (Excise Duty on Tobacco Products) Act, 1977.
The note on the side says "Payment of certain excise duties on tobacco products to the Minister for Health and Children".
Is the estimated yield from this in a full year £132 million?
Yes.
So, if the yield increases, there is no mechanism in that section to increase the allocation to the Minister for Health and Children? It is kept at £132 million?
Yes, but that can be re-examined.
I understand.
Before the summer recess, the Minister for Health and Children at the time said at a press conference or in a statement that the Government intended to levy the tobacco industry for the effects of smoking on health. While it was not stated how exactly it would be done, there was a strong indication at the time that this was the way the Government would approach the matter. When it came to deciding the budget increase, notwithstanding the negative effects of higher rates of excise duty on drink or cigarettes on the consumer price index, we decided that the costs to the health service and, thereby, to the Exchequer of smoking related illnesses were so colossal that this was the proper way to proceed. Therefore, I increased the price of cigarettes by 50p and this is a new means by which it will go via the Revenue Commissioners to the Minister for Health and Children. This was done under the Appropriation Act.
I would like to pursue this a little further at policy level. When I was on the Health Council in Brussels with Mr. Flynn as Commissioner, the policy of some European countries was to discourage the use of tobacco by banning advertising. It was one of the great controversies that some countries, for freedom of information reasons, would not ban advertising. Another group of countries, especially the UK, did not agree with this approach and said that the way to discourage tobacco use was to increase excise and, therefore, price. There was a clear division between the two approaches.
It seems there has been a change of policy whereby, while we maintain our strictures on advertising, we are moving towards creating disincentives through price by imposing severe increases in excise. Was this a once-off decision to garner a pool of money to fund improvements in cardiovascular treatment, especially the new cardiac surgery units in the Mater and St. James's hospitals, or is it the view of the Government that there will be substantial increases in excise on tobacco every year and that, rather than simply putting a fund together for a specific set of diseases, the excise route will be used as the main Government strategy to discourage smoking? Is it a once-off or an ongoing change in policy?
We will revisit the matter again in the lead-up to next year's budget, but the clear intention of the Government when discussing the health strategy of the outgoing Minister for Health and Children was to make some bold initiative to give a signal that it wanted to discourage further smoking. It was felt appropriate that one way of doing so would be to increase prices. I am not as conversant as the Deputy would be with the debate in Europe about banning advertising as against increasing excise duties. I am sure those policies will develop in coming years.
The Joint Committee on Health and Children produced a comprehensive report on smoking by its rapporteur, Deputy Shatter. It stated that the elimination of under age smokers, reduction in numbers of adult smokers and the protection of the public forum environment from tobacco cannot be achieved by one single initiative. A comprehensive, multi-faceted approach with a mixture of strategies is required to put in place an effective tobacco control and elimination programme. The committee went on to say that a fiscal policy should be part of an overall health strategy to discourage smoking with increasing real prices. The Government approach to this will be a multi-faceted one, as the committee recommends. I am not expert enough to say whether price increases alone will discourage people from smoking. I would have thought that an increase of 50p on a packet of cigarettes would discourage many people from smoking, but I have yet to see its effect. Anecdotally, I am not sure whether it has had the effect I hoped for. I was a very heavy smoker up to six years ago. If this committee had met then I would have had to have a smoke every ten minutes. I would have thought that an increase of 50p would have a dramatic effect on consumption, although maybe it has and maybe people are not taking up smoking. I am unsure about getting existing smokers to stop.
The economic rule, as the Minister knows, is that if one increases prices demand goes down, but that rule does not apply in cases of addiction.
True. It might be better for those starting.
The price of heroin might go through the roof and people will just go out and rob the money for it.
The Deputy knows the other view. I am not going to determine what we will do with the price of cigarettes in future, but the price increase was quite substantial. From 1984 to 1985 the increases were 10p, 10p, 10.7p, then 4p for some years.
Within the context of the European debate, if we look at what is being done in Scandinavian countries the Minister's increase is small. They have gone very heavily on the excise side to get people off tobacco as a health measure. I am coming to the consumer price index effect of this.
It is very severe.
The CPI effect was about three quarters of a percentage point.
It was 0.756%.
I want to go back to something I suggested on Report Stage. If this is to be ongoing policy, and it seems regardless of whether the policy is reflected in the Department of Finance it is the ongoing policy of the health committee and the Department of Health and Children, there would need to be substantial increases well above the CPI rates on the excess on tobacco products. That being so, it seems the Minister is leaving himself open to economic distortions which will flow into wage demands when those are based on the CPI. I suggested that the Minister simultaneously reduce the price of fossil fuels such as petrol and diesel so he would get a balance in CPI. The Minister said that would give rise to other difficulties in tax, but it is still worth looking at the whole portfolio in the excise area to see if one can get a neutral CPI effect if, as seems to be the case, it is ongoing policy to increase excise on cigarettes. Some EU countries such as Belgium, which have adopted the policies now adopted by this Government, adopted it at an early stage and took the cost of cigarettes out of the CPI basket so that it is no longer in the calculation. There are strong reasons for doing this.
If future excise increases are dictated by health policy rather than Exchequer policy there should not be an Exchequer downside. In the same way that taxes can be ringfenced for a particular use, the consequences of this should also be ringfenced either in the way I have suggested or by consulting the CSO to have it taken out. It can always appear separately and there is no sleight of hand involved, but if we are to have excise increases of 0.5% to 0.75% each year for the foreseeable future it will have a distorting effect. The Minister knows he was under pressure to justify inflation figures of 4% and yet 0.75% was caused by this. If the Minister had balanced it by reducing petroleum excise it would have resulted in an inflation rate of about 2.7 %.
Last year I remember being asked why I did not carry out certain measures in the direct taxation area, including this one. I would have given the view that we had to take into consideration the effect on the CPI. Members should remember that Partnership 2000 was predicated on average inflation not being greater than 2.1% over the period. We had a hairy period when, in January 1998, economists predicted inflation would go through the roof the following year. We predicted that it would go up for a while and then come back. Therefore, when it has come to dealing with these matters in recent budgets. the main determinant for me and previous Ministers for Finance in not doing little or anything in this area, including on drink and petrol, was the effect it would have on the CPI. I own up on behalf of my predecessors. Much was made of our not hitting the price of drink for a long time, but to be truthful about that, one of the reasons was the effect that would have on the CPI.
Before my previous budget I thought long and hard about doing something with the price of cigarettes because it would give a boost to people in terms of preventing them from taking up cigarettes. Some friends of mine are heavy smokers and they asked me to put £2 on cigarettes, as they would then give them up. There is also the health argument that the consequences of smoking on Exchequer expenditure are enormous, as a former Minster for Finance would know. This year we decided to hit cigarette prices for health reasons and I considered possible balancing measures to negate the effect on the CPI. I thought about what could be done, but I could hardly reduce the price of drink.
Petrol.
If I reduced the price of drink people would have been up in arms though nothing has been done in that area recently.
It would have been an extraordinarily popular budget and would have cancelled out the difficulties with individualisation.
I did not think of it like that, but I will next time.
Coming into Christmas.
The big issue with petrol has been the environmental consideration with Brussels. We have ended up on the bottom of the matrix, having been on top of the matrix some ten years ago. The pressure in the energy directive is to move Ireland up and that will have an effect on other matters.
The other matter I thought about was reducing VAT, but I decided against it because it is very expensive and I did not feel that a change in VAT from 21% to 20%, which would cost the Exchequer a lot of money, would be passed on to the consumer. This has been discussed by the social partners - I may be leaving out some secrets in this regard - and though I may have many failings as a Minister for Finance, I had a pretty logical and well thought out approach on taxation even before I came to the hallowed halls of Merrion Street. I am committed to lowering personal income tax rates, I lowered CGT and have done something with CAT. We are also committed to changes in corporation tax. It is totally illogical to believe in reducing all direct taxes while reducing indirect taxes. The country must run on something. A departmental official told me that my views were similar to those of Karl Marx with which Deputy McDowell will be familiar. Marx also believed that people should not be taxed on their direct spending but on their indirect spending. This was news to me as I did not know I was in the same camp as Marx.
Is the Minister sure it was not Groucho Marx?
I felt uplifted to know I was in the same camp as Karl Marx. The problem is the hit on the consumer price index and that is what prevented Ministers for Finance from hitting indirect taxes.
As regards health, I hope this measure it will have some effect on the increasing numbers of people smoking, particularly young smokers. People of my age are trying to give up smoking yet increasing numbers of young people are smoking, particularly young women, and this is the case in my family. I hope this measure will reduce the numbers of younger people smoking and it might also encourage the older addicted population to give up cigarettes.
It controls wages. That is one of the big factors.
That is the big factor.
I supported the 50p increase in excise duty. It is normal for Opposition parties to vote against the first resolution on budget night and we had considerable difficulty in the Labour Party parliamentary meeting beforehand because, as far as I recall, the first resolution concerned the excise duty on tobacco. Traditionally we would have opposed this as an indication of our deploring the appalling budget. It is a measure of political correctness of politicians generally but we decided that we could not be seen to oppose a 50p increase in excise duty. Instead we opposed the abolition of the travel tax which, incidentally, was not based on any matter of principle either.
In his last comments the Minister hit the nail on the head. The reality is that any increase is unlikely to affect people who have been smoking for a long time but, I hope, it will make a difference. I was surprised to see statistics which suggested the ages at which people start smoking. The vast majority of smokers start before they are 21 or 22 years of age. That is at a time when people have less money and where an increase in excise duty is likely to make a far greater impact in deciding how they spend their money.
The Minister rightly stated that this is only one part of a package seeking to discourage people from taking up smoking. Nonetheless, it is an important part which will have to be pursued. People will get used to a once-off hit in a short period. However, if they get the sinking feeling that this is something that will be repeated year after year, I hope it will make some people stop and think before they take up smoking and perhaps it will stop others smoking.
I share the Minister's views on green taxes and taxes on petrol in particular. I am not sure that we can seek to reduce this in the current circumstances. I appreciate what is happening on this issue in terms of the European debate and if anything we are likely to be obliged to increase the tax.
If the directive goes through in any shape or form, and it has been whittled down considerably, we will have to increase excise in this area. Even with the recent moderate proposals we will still have to increase levels considerably.
I have views on the whole issue of green taxation and we might have an opportunity to discuss this later. It is clear that there is not an option of reducing the excise duty on petrol. In my Second Stage speech on the Bill I gave an analysis which was not too dissimilar from the Minister's in terms of inflation. It is important that there is an appreciation that this is having a significant effect but that it is still worth doing. It is important that public representatives say this, so that people understand that it is one of the reasons why inflation is as high as it is. The Minister has obviously calculated the likely return next year from the increase. Is that based on any reduction in consumption or has he assumed that consumption will continue as it is?
Consumption on duty paid cigarettes based on clearance of tax stamps increased by an estimated 3.6% during 1999 following a budget increase of 5p on a packet of 20 cigarettes.
Is that the number of cigarettes or the number packets consumed or purchased?
In all, consumption rose by almost 15% in the ten years to the end of 1999. The reasons are, increased purchases by Northern Ireland residents, the ending of the intra-Community duty free status and the success of a package of measures introduced in 1997 to combat the illegal trade in tobacco. The industry is thankful for the changes made by the Revenue Commissioners over the years as this has significantly reduced the level of illegal sales of tobacco. This is one reason for the increase in sales.
It is estimated that consumption would rise by 2% in 2000 in the absence of a budgetary increase. The explanation is that an increase of 50p will reduce projected cigarette consumption by 4.2% leaving a total underlying decrease of 2.2%. The increase of 50p represents a 15.7% change in the retail price of a packet of 20 cigarettes and brings the total tax content of the retail price to 79.8%.
No doubt someone in the Revenue Commissioners has done these wonderful graphs outlining demand and cost. The Minister cannot do this scientifically, but at what stage does he reckon we would get into diminishing returns in terms of the tax take?
In 1999 the excise duty on tobacco yielded £678.5 million. VAT on such products accounted for an estimated £180 million. VAT returns are not made exactly so the VAT return is an estimate. The total tax yield including VAT and excise duty is £858.5 million. For the current year, the excise duty yield is expected to amount to £770 million and VAT is estimated to yield £200 million. This gives a total tax yield from tobacco products of £977 million. This is a substantial figure.
There is a certain public cynicism that the Department of Finance will increase the excise duty only to a point where it ensures that the tax take will increase but that it will stop once the increase starts to reduce consumption to such a level that the tax yield goes down.
That is a fair point. One could argue that the Exchequer is spending a great deal of money treating tobacco-related illnesses while almost £1 billion is coming in from tobacco sales. It is legitimate to claim that we have a vested interest in this. The consideration regarding excise duty on cigarettes has always been related to the effect on the consumer price index. The dominant consideration in the budget section of the Department is the effect it will have on Partnership 2000 and its successor, and the effect it will have on inflation. Nobody in my time has said that if we go too far we will have diminishing returns. The great debate during the three budgets I introduced has centred on the effect on the CPI. In the previous two budgets I introduced a very small increase in the price of cigarettes, as did my two predecessors. However, early this year we made a decision to levy in some way the tobacco industry in order to identify the effect it was having on health expenditure.
Has an assessment been made about the point at which the issue of diminishing returns kick in?
We are now lower than the UK price. In the past consideration was about the illegal sale of cigarettes. We have not done any particular computations and no research has been undertaken regarding the level of increase necessary to bring into play the law of diminishing returns. I am told that, technically, it is not price sensitive.
I wish to make a few observations on the CPI versus the health aspects of the measure. Because the strategy has been well explained there has been widespread public acceptance of the measure with very few objections. The physical health of the nation is more important than our financial health. I would be extremely concerned that debates such as this might put the Minister off what he is doing. If there is general agreement to fiddle the CPI——
We dealt with that point. Deputy Noonan mentioned this during Question Time last week and I said it is possible to exclude certain items from the CPI. In reply to a parliamentary question I said that when Richie Ryan was Minister for Finance, at a time when mortgage rates were very high, he took mortgage interest rates out of the CPI. Other things have also been taken out, but the problem is that people want certain things included in the CPI. The basket of goods making up the CPI is based on household surveys of people's purchases and trade unions and others have insisted that the CPI should reflect this. Unfortunately, cigarettes have a considerable influence on the CPI. While I would like the CPI to eliminate the price of cigarettes - a figure is produced on the basis of excluding cigarettes - nobody is prepared to base demands on the basis of excluding mortgage interest or tobacco. There are subsidiary CPI figures, but people, particularly those making wage demands, want the main figure to include the entire basket of goods.
The public perception is that the Minister is simply fiddling the CPI. Deputy McDowell raised the point that we must deal with these things in an honest, up-front manner. There is no point in saying we will not do certain things because of the effect on the CPI. We must either fiddle the CPI or do nothing. The tasks facing us relate to the environment and health. I am on the Committee on Health and Children which is trying to provide leadership in this regard. We are targeting those who are beginning to smoke for obvious reasons. These people do not listen when we talk about their future health - like taking out a pension, they have little interest - but they will look at value for money. I am fascinated by the projected 4.2% drop in consumption and would like to see the background material in this regard.
It is important that we accept the principle of making decisions on the basis of the nation's health, not on the effect on the CPI. There is very widespread acceptance of the measure, particularly when the funding is ring fenced and the measure is carefully explained. Indeed, the same would apply to other health care measures. The environmental issues will have to be addressed by the Minister given the demands of Europe. I would fear that using an argument based on finance might result in officials or the Minister shying away from the measure.
The Minister referred to his predecessors not introducing——
Neither did I.
—— large increases over a number of years. Of course, before the euro it was impossible for a Minister to introduce serious excise increases as the 2% rate of inflation, the qualifying rate to join the euro zone, would be exceeded.
I was Minister for two years during that time.
Yes, and the Minister's predecessors also worked within this constraint for a couple of years while we were trying to reduce inflation. Therefore, policy on the euro was making it impossible for Government to pursue its health policies. I think we could arrive at a similar situation very shortly. There is no doubt that because of the increase in the excise duty on cigarettes, resulting in a rise of 0.75% in the rate of inflation, investors from outside will have an adverse view of the economy which is unjustified. The English and financial papers are talking about a bubble economy, which is unjustified. Much of it is based on an inflated CPI figure, principally inflated by the excise duty on cigarettes. Therefore, there are wider policy considerations in pursuing a health policy. Other EU countries have succeeded in taking excise increases on cigarettes out of the CPI as it is clear that the additional revenue is earmarked for health spending and is not a general attempt by the Government to collect additional revenue. I think it should be possible to arrive at a new base.
I know the cost of mortgages is included in the CPI, but the cost of houses is not and to that extent our CPI is seriously distorted given that one of the biggest costs facing young people and driving wage demands is the increase in house prices. The reason for the non-inclusion of house prices is that a house is deemed an asset and assets are not part of the CPI. I do not think we should continue to do things simply on the basis of how they were done in the past. Neither do I think a change in the base of the CPI is an attempt to massage the figures. Currently there is a very strong case for reassessing the entire basket of goods used to measure the CPI. Female constituents, who principally do the shopping, do not believe the price increases are as small as those measured by the CPI. Their view is that prices have increased in a number of areas in the past 12 months, but those items are not included in the CPI basket.
Let us take the changes in food consumption. Are people still buying potatoes by the stone or have potatoes been replaced by pasta, rice, etc? The CPI basket no longer reflects the way ordinary people live in modern Ireland, and it is time for a complete review. I am not talking about fiddling or massaging figures, but I would like to see a truer reflection of what is happening.
I can get some other information for the Deputy. The CSO carries out new household surveys every few years and decides on new weightings for the consumer price index. People's changing patterns of work should be reflected in the survey and ultimately in the consumer price index.
The Programme for Prosperity and Fairness contains a commitment to keep inflation below a certain level. Assets are not measured in the consumer price index but mortgages are. The household survey reflects the amount of disposable income people have. I am not aware of any European country which has an assets index and, as far as I am aware, the US does not have one either. When I was in Opposition, I recall asking my predecessor about the possibility of constructing one, and I think efforts were made in that regard some years ago but were unsuccessful.
I would welcome a general understanding of the wider policy considerations involved in the 50p increase in the price of cigarettes which has the effect of increasing the CPI by .756%. This was the first time that a decision was made without having regard to Exchequer revenue or the possible effects on the CPI. The price increase was deemed appropriate in view of health considerations.
One of the criteria for joining the euro was that a country's inflation rates should not be more than a certain percentage above that of the lowest three countries. Ireland ended up being the benchmark as all other countries were above us. That consideration was one of the primary reasons changes made to the CPI were minimal. The cost to the Exchequer of smoking-related illnesses is very substantial.
As a former eminent Ceann Comhairle said, this subject has been very well ventilated.
In the past, we have spent too much money on curative medicine and not enough on preventative medicine. I suspect that the percentage of GDP spent on preventative medicine is minuscule compared to curative medicine which has stood at approximately 40% for the past two or three years.
I welcome this departure. The Minister must be very careful about how this money is targeted. The Department of Health and Children stands to gain £132 million. If that funding will simply take the place of existing capital and current health board expenditure, it will not have the desired effect. I have seen numerous health education programmes in the past such as "healthy eating week" which have been a total waste of money and have not had the desired effects.
The provision of money is not sufficient in itself, it must be accompanied by a well thought out and targeted programme of expenditure. The Minister referred to the fact that members of his own family smoke. It is amazing how many young people smoke at primary school level and it is quite alarming to see the number of young people who smoke on street corners and in other places. The number of adults who smoke is decreasing but there is a difficulty in regard to primary and second level students. Teachers will tell you that school toilets are strewn with cigarette butts. Adults are sufficiently responsible and informed to make their own judgments on this matter but school children must be targeted.
Ireland is second only to Scotland in having the highest rate of cardiovascular illness in Europe. In spite of all the hype about fitness, we are becoming a nation of spectators rather than participants. Coming from a physical education and sporting background, I hold strong views on this matter. People get carried away with advertising campaigns and so on, but the Minister must ensure that the money is not wasted and that the manner in which it is spent is closely monitored. The money must be properly and specifically targeted and must produce clear results.
Question put and agreed to.
SECTION 74.
Question proposed: "That section 74 stand part of the Bill."
Is this the section which deals with duty on petrol and diesel?
No, this section confirms the budget date excise increases. The rate of excise duty on non-automotive kerosene, when VAT is included, amounts to almost 1.4p per litre. The decrease is expected to cost the Exchequer approximately £11 million in a full year. The effect on the CPI will be a reduction of 0.01%.
Which section deals with the excise duties on petrol and diesel?
As there have not been any increases on those products, there is not a section in the Bill which deals with them.
The issue of environmental taxes were touched on. We must consider that petrol and diesel emissions are one of the biggest contributors to pollution. I am aware of a major company based in Portlaoise which collects used oil from petrol stations and garages. I corresponded with the Minister on this issue and his officials met representatives of the company who were seeking a substantial reduction in the duty payable on recycled oil. Such recycling must be good for the environment but the costs associated with it are very high. A company such as the one to which I refer could not sell recycled product at a competitive price if it had to bear the cost of the full level of petrol and diesel excise duties. I urge the Minister to consider this matter in conjunction with the Department of the Environment and Local Government from an environmental rather than a revenue perspective. We should encourage the recycling of waste fuel oil.
I received a pre-budget submission from the company in question and I considered the matter. I decided against implementing its proposal for a number of reasons. I will outline the Revenue observations on the proposal: Revenue did not support the proposal and referred to section 105(1) of the 1992 Finance Act which provides that the production, processing and holding of excisable products where excise duty has not been paid shall only take place in a tax warehouse, that the excise duty shall be removed on recycled waste oil unsuitable for use on motor vehicles and that the recycling operation is no longer subject to Revenue control. This gives enormous opportunities for fraud through the possibility of laundering illegally obtained diesel. There are EU aspects to this as well. Article 2 of the Council Directive 92/81/EEC provides that mineral oils shall be subject to excise duty if intended for use or for sale or used for motor vehicle fuel. I decided not to do that on this occasion.
Section 84 of the Finance Act, 1997, introduces safeguards against such use for providing import taxation at the full diesel automated motor rate of duty, whereas if the tax incentive for recycled waste was at the zero rate of duty a further use would include heating.
The Minister has made my point. None of his comments referred to environmental issues.
I will come back to that issue.
It was not looked at from an environmental point of view. I would like the Department of the Environment and Local Government to have an input into that matter the next time.
I will look at that next year.
This relates to the sections which deal with fuel. It would be a useful opportunity for us to get some sense from the Minister as to where he sees the whole issue of green taxes going. A year ago Ireland and Spain were the only two countries which opposed the Commission proposal. I am not sure how matters have developed since then. Perhaps the Minister can give us information as to where matters currently stand and what his attitude is. I am not sure we were able to tease that out during Question Time.
I had a lot of representations from people to reduce the excess of LPG gas for motor vehicles. There seemed to be an arrangement with Dublin Bus to switch from diesel to gas, which would have considerably improved the environment. This does not seem to be reflected in any of the Department's proposals. Will the Minister comment on why he did not do something about this issue. On the face of it, it would seem to be a reasonable proposal.
Regarding the energy directive which has been in existence for many years, Spain and Ireland have opposed this more than any other country. In the past year I have somewhat watered down the Irish position of total opposition. It has been reported that we are willing to make some further movement in order to reach an agreement. Spain has withheld co-operation with the proposed directive. The energy directive causes us some difficulties because, as I said in the Dáil recently, it is fine to have great ideas on energy from central Europe and the Commission, but there is a big loch of water around Ireland. This means we must get to other countries by sea or air. Other countries can move throughout Europe by car or truck and obtain goods much faster. High rates of tax would have to be imposed on Irish producers in order to become more environmentally friendly and this would have to be balanced against environmental considerations, the cost of production and growth in the economy.
The energy directive is still on the agenda but I am not sure whether great progress will be made during the Portuguese Presidency. Between now and June, they will be concentrating on other matters. I am sure this issue will come up again because it will not go away. The range of proposals have been watered down considerably. At least this is an improvement. Under the directive there would have to be a new set of taxes on electricity, gas and coal and higher taxes on petrol, heating fuel and LPG. Deputy Noonan suggested that if I introduce anything controversial in subsequent budgets, perhaps I should decrease the price of drink. That would make everyone happy.
Another form of fuel.
If I decided in the budget, in order to comply with an EU energy directive, to impose new taxes on electricity, gas and coal, increase taxes on petrol, heating fuel and LPG and decrease the price of whisky, gin and the pint, I think there would have been a bit of a row. People might not appreciate the wonderful environmental considerations emanating from Europe in order to comply with the energy directive. These issues must be considered. To be frank with Deputy McDowell, this issue will not go away. Some form of energy directive will be adopted by the Council at some time in the future. Even though it will be a long way from the original proposals, it will mean new taxes and higher taxes on some products. This might be a little way down the road because there is no great movement on that directive at present.
Deputy Noonan mentioned LPG. I reduced the LPG on motor fuel some years ago and it is now just a little above the minimum EU level.
Apart from our status as an island nation and the fact that it takes a long time to get goods to market overseas, another consideration must be that we are not a mature economy. A lot of EU countries that are running the agenda are mature economies and they are talking about the conservation of fuel and energy from a very high base. To talk about conservation of fuel and energy in a country which is growing at plus 9% is a very difficult proposition. There are considerations about ongoing growth in the country which would have to be reflected in directives. While I would be very keen that we should comply with reduced emissions, if a policy is to be promulgated on reduced consumption of energy, it will be very difficult to fit that into the programmes for the expansion of the economy in the coming years.
The argument about mature economies has been the main argument advanced by Ireland and particularly Spain. One cannot apply the energy directive at it stands at present because economies such as Ireland and Spain are not growing at the same levels as Germany, France and Italy. Spain is very forceful in this argument. Pressure from environmental groups forces administrations and Governments to lessen their objectives on economic grounds and we must strike a balance. The problem is that the Irish economy is growing very fast. If we are to achieve our objectives in the next six years, enforcing an energy directive will not be easy. I do not think the problem will be solved during the Portuguese Presidency. France will take the baton on 1 July and I expect it will try to put an energy directive in place.
That is very well if 90% of electricity is generated by nuclear power.
Point taken.
While we are discussing the price of petrol and so on, will the Minister tell us how much tax is taken on every gallon of petrol? I think it is something like 70%.
I will go back a few years. In 1996 to 1999 the tax as a percentage of the price was 63.4%, 65.4%, 67.3% and 67.4% in 1999. In January 2000 it was down to 62.2%. The reason for the reduction in tax as a percentage of the price is that as trade has increased, presumably on account of the increase in the cost of oil, the percentage of the final price of petrol has come down. It is more than 60% of the final price.
The Minister will agree that with the increase in excise - while there was no increase in VRT - the Irish motorist must be one of the highest taxed in the EU? Has he any figures to say otherwise?
No. Tax, as a percentage ofthe retail selling price in Northern Ireland is80.92%. Ours is not as high as that.
The UK motor industry is facing revolution at this stage.
Apart from the UK, we have one of the highest tax regimes, anyway.
Surprisingly enough, Ireland, along with Portugal, Spain, Luxembourg and Greece pay the lowest prices for a litre of unleaded petrol compared with other member states. The UK is at the top.
When all taxes on the motorist are combined we rank fairly high.
The Danes pay higher VRT, higher VAT and petrol prices. There was a reference on the radio this morning to record car sales. I was a lucky man not to agree to make changes on VRT - it was like lobbying for oneself and one's party when I changed it in the last——
We put a good case.
A very good case.
Question put and agreed to.
Section 75 agreed to.
SECTION 76.
Question proposed: "That section 76 stand part of the Bill."
What gave rise to the decision to redefine dumpers so they are no longer considered to be motor vehicles?
I am told it is an anomaly——
Which builder came up with that one?
It is an anomaly. This section amends the list of definitions in the Mineral Oil Tax legislation in order to clarify the status of small dumpers for the purpose of excluding them from the requirement to use high-rate automotive fuel; to apply the new rate, as announced in the Budget, to non-automotive kerosene; to ensure that private pleasure flying to other EU member states continues to fully benefit from mineral oil tax relief; to clarify the definition of chemical markers added to oil for tax control purposes and to restrict entitlement to the low non-automotive rate of mineral oil tax to oil with a low sulphur content when used in trains.
This definition is amended to exclude small dumpers from the definition of a motor vehicle for mineral oil tax purposes. This amendment corrects an anomaly in the law under which only the larger "off-road dumpers" were excluded from the definition of a motor vehicle. The effect of this amendment is to allow small dumpers, which are also mainly used off the public road on building sites, to use low rate mineral oil in line with larger "off-road dumpers".
I cannot recall any builders approaching me about this but I am sure they have written to us. We spotted the anomaly ourselves, apparently.
This was all the work of the Minister and the Department of Finance.
It was, indeed, all my own work.
For the benefit of the committee, will the Minister distinguish between a small dumper and a large dumper?
Section 76 (1) (a) reads:
"'dumper' means a vehicle not exceeding 3 metres cubed in capacity when level loaded, and that is designed and constructed for use on sites of construction works (including road construction and house and other building works) for the purpose of conveying concrete, rubble, earth or other like material, where the person taking out the licence required under section 1 of the Finance (Excise Duties) (Vehicles) Act, 1952, shows to the satisfaction of the licensing authority that the vehicle is used mainly on such sites, and on public roads-
(a) for the purpose of proceeding to and from the site where it is to be used (and when so proceeding neither carries nor hauls any load other than such as is necessary for its propulsion or equipment), or
(b) for the purpose of conveying concrete, rubble, earth or like material for a distance of not more than one kilometre to and from any such site,
I could see some official opening champagne tonight if this legislation went through.
Question put and agreed to.
SECTION 77.
Amendment No. 159 is in the name of the Minister. Amendment No. 160 is related and both may be taken together.
I move amendment No. 159:
In page 203, subsection (2), line 36, to delete "heavy oil" and substitute "hydrocarbon oil".
This is a technical amendment which corrects a drafting error.
The purpose of amendment No. 160 is to grant retrospection to 1 January, 1997 for claims made under the passenger road services fuel relief scheme, for the repayment of excise duty on diesel fuel used in passenger road services.
The amendment is necessary as the scope of the passenger road relief scheme is clarified in subsection (1) of this section to ensure that providers of school transport services and private operators carrying out services under contract to a licensed or exempted provider qualify for the relief.
Since March 1998 this scheme has allowed private operators under contract to CIE to claim the rebate which was previously limited to CIE and other licensed passenger road services. Claims by private operators under contract to CIE prior to March 1998 were refused only because eligibility had not yet been decided. Therefore, on equity grounds, retrospection to 1 January 1997, or such earlier date as the Commissioners may decide, is now provided for in this amendment.
A technical amendment under this section will possibly be put forward on Report Stage.
Amendment agreed to.
I move amendment No. 160:
In page 203, between lines 37 and 38, to insert the following subsection:
"(3) A claim under the said subparagraph (11) may be made-
(a) subject to subsection (2), in respect of hydrocarbon oil used after the coming into operation of this section, or
(b) in respect of hydrocarbon oil used at any time during the period commencing 1 January 1997, or such earlier date as may be prescribed by order of the Revenue Commissioners, and ending on the coming into operation of this section, provided that such claim is made on or before such date as may be so prescribed.”.
Amendment agreed to.
Section 77, as amended, agreed to.
Section 78 agreed to.
SECTION 79.
Question proposed: "That section 79 stand part of the Bill."
Will the Minister clarify the application to trains?
This section provides for restriction of the entitlement to the low non-automotive rate of duty on fuel to fuel with a low sulphur content when it is used in trains.
In addition, provision is made for an offence for use in trains, of fuel other than low sulphur fuel where the full automotive rate of duty has not been paid.
Powers are also provided for Revenue officers to sample fuel in the fuel tank of a train for the purpose of determining whether or not it is low sulphur diesel. The provisions of this section will have effect from a date to be specified by ministerial order.
What is its purpose? CIE is the only company which runs trains.
We require people to use low sulphur diesel to get a tax rebate. This is an anti-avoidance measure to ensure that is done. Iarnród Éireann is the only company that runs trains but it is necessary provide for all these matters.
Does that mean the requirement to use low sulphur content fuel will not apply to CIE?
That is the purpose of this. It will have to use low sulphur diesel when I make the ministerial order.
Is this more an environmental measure than an excise measure?
Yes.
Question put and agreed to.
Section 80 agreed to.
NEW SECTION.
I move amendment No. 161:
In page 205, before section 81, to insert the following new section:
81.-Section 104 of the Finance Act, 1995, is amended-
(a) by the insertion of the following subsection after subsection (2):
'(2A) Any person who is the subject of any of the following acts of the Commissioners:
(a) a refusal to approve a person as an authorised warehousekeeper or a premises as a tax warehouse under section 105 of the Finance Act, 1992, or a revocation, under that section, of any such approval that has been granted,
(b) a refusal to approve a person as a tax representative under section 108 of the Finance Act, 1992, or a revocation, under that section, of any such approval that has been granted,
(c) a refusal to grant registration of a trader under section 110(4) of the Finance Act, 1992, or a revocation, under that section, of any such registration that has been granted,
(d) a decision in relation to the registration of a vehicle, or the amendment of an entry in or the deletion of an entry from, the register referred to in section 131 of the Finance Act, 1992, by the Commissioners, or on their behalf, under that section 131,
(e) a determination of an open market selling price of a vehicle under section 133(2) of the Finance Act, 1992, or
(f) a granting, refusal or revocation of an authorisation under section 136 of the Finance Act, 1992, or a decision in relation to the arrangements for payment of vehicle registration tax under that section 136,
may appeal against such an act to the Commissioners.';
(b) in subsection (3), by the substitution of ’(1), (2) or (2A)’ for ’(1) or (2)’; and (c) in subsection (4), by the substitution of the following paragraphs for paragraphs (c) and (d)
'(c) the repayment of a duty of excise,
(d) the notification by the Commissioners of a refusal of a repayment by them of a duty of excise, or
(e) the notification by the Commissioners of the doing by them of an act referred to in subsection (2A),’.”.
Section 82 of the Bill provides for a delegation by the Revenue Commissioners to authorise officers for certain powers, functions and duties in relation to vehicle registration tax. As a counter balance to this delegation of authority, this section extends the scope for the formal system of excise appeals, including the right of appeal to the appeals commissioners, to include those areas of delegated authority.
In addition, the opportunity has been taken to provide for the right of formal appeal against a refusal by the Revenue Commissioners to approve a person as one of the types of trader who can participate in intra-community trade in excisable products or against the revocation of any such proposal.
What is the intention of this?
We delegate power downwards in section 82 to officers of the Revenue Commissioner to make decisions about vehicle registration tax. This amendment allows appeals against the orders of those delegates.
Is it intended to delegate outside the Revenue Commissioners?
No.
It enables the garage owner who imports second hand cars into the State to appeal against the decision of the Revenue Commissioners.
It was always possible to appeal but in the following section we are giving people lower down the scale in the Revenue Commissioners power to make decisions about VRT so this amendment will allow people to appeal against decisions made by those people as well.
Amendment agreed to.
SECTION 81.
Question proposed: "That section 81 stand part of the Bill."
This section inserts a new section 130B into the Finance Act and deletes section 131A(8) of that Act which is rendered superfluous by the new section. In so far as vehicle registration tax is concerned, the section allows the Revenue Commissioners to delegate their powers, functions and duties to their officers. Officers will, however, remain subject to the commissioners' direction and control. Section 130B(1) provides that functions of a routine administrative nature may be carried out by any officer.
Section 130B(2) provides that powers and functions which can potentially have more serious repercussions will be carried out by an officer specifically authorised in writing by the commissioners for that purpose. Authorisation will be required by an officer for deregistration of vehicles, determination of the open market selling price of a vehicle and refusal or revocation of a trader's authorisation. This section has effect from the date of passing of the Act.
In my time as Minister for Finance there have been very detailed legislative changes to this area. I have asked why this is so, and it is because people use all kinds of legal devices to avoid the consequences when they are caught. That is why legislation is so detailed. It is even more detailed than some parts of the income tax code. The amendment concerning delegation of powers and rights of appeal is very necessary because people find all sorts of loopholes to avoid these things.
Question put and agreed to.
SECTION 82.
Question proposed: "That section 82 stand part of the Bill."
This section amends section 131(5) of the Finance Act, 1992. Section 131 deals with the process of registration of vehicles by the Revenue Commissioners and subsection (5) requires that they issue a certificate of registration to each person whose vehicle has been registered. The purpose of the amendment is to make provision for the issue of the proposed new car passport document, a single vehicle identification document which will combine both the registration and licensing certificates which are currently issued separately by the Revenue Commissioners and the Department of the Environment and Local Government. The commissioners will retain full control over the registration process, which will continue to be a prerequisite for licensing for road tax purposes.
The amendment allows the Department of the Environment and Local Government to issue the combined registration certificate on behalf of the Revenue Commissioners. This new single document is a positive development for the motor trade and the motoring public and should remove any confusion caused by existing arrangements. It is expected that the new document will be available later this year or early in 2001. This section has effect from the date of passing of the Act.
Question put and agreed to.
NEW SECTION.
I move amendment No. 162:
In page 206, before section 83, to insert the following new section:
83.-Section 133 of the Finance Act, 1992, is amended in subsection (2)-
(a) by the substitution of the following paragraph for paragraph (c):
'(c) Notwithstanding the provisions of paragraph (b), where a price stands declared for a vehicle in accordance with this subsection which, in the opinion of the Commissioners, is higher or lower than the open market selling price at which a vehicle of that model and specification or a vehicle of a similar type and character is being offered for sale in the State while such price stands declared, the open market selling price may be determined from time to time by the Commissioners for the purposes of this section.’,
and
(b) in paragraph (d) (inserted by the Finance (No. 2) Act, 1992), by the substitution of ’may be determined from time to time’ for ’may be determined’.”.
This section amends section 133 of the Finance Act, 1992, which deals with the meaning and method of determination of the open market selling price, OMSP, of a vehicle. The open market selling price is the taxable base on which vehicle registration tax is charged. Section 133 requires manufacturers and distributors of new vehicles to declare to the commissioners the open market selling price of vehicles supplied by them. The commissioners may intervene and displace the declaration with their own determination of open market selling price if they consider it does not reflect the prices being achieved in the open market. They can also determine the open market selling price where there is failure by the distributor to make a declaration.
The purpose of this technical amendment is to clarify that the commissioners can intervene to displace the distributor's declaration of open market selling place with their own determination at any time after the declaration is made and before it is replaced by a revised declaration by the distributor or by a commissioner's determination.
The amendment also allows the commissioners to revise their own determination, should this prove necessary. The amendment clarifies that the commissioners can base their determination of open market selling price on actual sales of that vehicle in addition to sales of similar or comparable vehicles. This section has effect from the date of passing of the Act.
Amendment put and declared carried.
SECTION 83.
Question proposed: "That section 83 stand part of the Bill."
Is it possible to assess if the price of air or sea travel has reduced by the amount of the tax abolished?
We do not have that information.
This relates to the Minister's comments on the reduction of indirect tax and whether it is fed through the consumer in terms of price.
The competition in the air fare market is so intense that it may have led to reduced prices. We have no information at present.
The tax was never contained in the price, it was an addition. The point of sale additions would not be merged with prices. The tax would come off.
Deputy Noonan's point is that the passenger price went up a little. My information is that passenger service charges have been introduced by airlines to cover airport handling and so on.
Is that shown separately?
It is shown separately on tickets but sometimes it appears as if it was a tax.
Has it been introduced by the airport authorities or by the airlines?
By the airlines. I was not aware of this.
Has it been introduced by those operating out of Dublin Airport?
And others.
Other major airlines? Has Aer Lingus done this?
My official tells me they have.
And Ryanair?
Yes.
Is it roughly equivalent to £5, by any chance?
It is more in some cases.
Really? It would be good business.
It has been done since the middle of last year.
Question put and agreed to.
SECTION 84.
Question proposed: "That section 84 stand part of the Bill."
This section amends section 78 of the Finance Act, 1980, to provide for the removal of the reference to stamps as the means of collecting the excise duty on these licences and authorisations. These licences are issued by the courts which collect the excise duty on behalf of the Revenue Commissioners. The existing law provides that the duty is collected by affixing stamps to the relevant application forms. As Revenue no longer produces stamps the law is being changed to ensure that there is no longer a reference to stamps as a means of payment of excise duty. Paragraph (a) substitutes a new subsection (6) for the existing subsection (6) in order to remove the reference to stamps as the means of payment of the excise duty. Paragraph (b) substitutes a new subsection (7) for the existing subsection (7) to remove the reference to stamps and to copperfasten the requirement that a licence covered by the section shall not be granted unless the relevant duty has been paid in accordance with subsection (6). The section will have effect from the date of passing of the Act. Section 85 is similar.
The procedure is the same. One simply does not use stamps.
Question put and agreed to.
Section 85 agreed to.
SECTION 86.
Question proposed: "That section 86 stand part of the Bill."
Which institutions or national cultural institutions have licences?
The institutions listed in the National Cultural Institutions Act, 1997, are as follows: Chester Beatty Library; Crawford Gallery; Hugh Lane Municipal Gallery of Modern Art; Irish Museum of Modern Art Company; National Museum of Ireland; National Library of Ireland; National Gallery of Ireland; Hunt Museum, Limerick; and Royal Irish Academy.
To date only two institutions have applied for and been granted a liquor licence, the Irish Museum of Modern Art Company and the Crawford Gallery.
The total take by the Exchequer is £400.
If the National Gallery served drinks as part of a function, no licence wouldbe required. However, if drinks were sold onsuch a once-off occasion, would a licence be required?
This section provides in subsection (1) for the imposition of an excise duty of £200 on liquor licences issued to national cultural institutions as defined in the National Cultural Institutions Act, 1997. The excise duty is also payable on the renewal of such licences. Excise duty is chargeable on all other types of liquor licences. The licences in question permit the institutions to sell intoxicating liquor to visitors to the licensed premises.
Subsection (2) provides that the licences will expire each year on 30 September and will be renewable on 1 October. The section has effect from the date of passing of the Act. Until now, a national cultural institution could have a licence to sell liquor but was not required to pay excuse duty on the licence. This section brings these institutions into line with everybody else.
Would there be any advantage in redefining the Houses of the Oireachtas as a national cultural institution?
That is very creative. Whatever about being cultural, it is creative.
One of the absurdities of the licensing laws is that we were required to introduce those provisions so that the few specified institutions of this kind could be given liquor licences. For example, interpretative centres cannot be granted licences. They are governed by the same provisions as any licensed premises. However, that is a matter for another day. I hope the Minister for Justice, Equality and Law Reform will deal with it.
May I read another note as I am learning as I go along.
The liquor licences granted to national cultural institutions are retailers' on-licences which are the same licences as those issued to publicans. The minimum charge for this licence is £200. When these new licences were legislated for it was the intention that they would be subject to the same terms and conditions as applied to all liquor licences. Accordingly, it was decided that the excise duty on these licences should be set at the minimum rate of duty on publicans' licences, which is £200.
For a publican, the rate of duty relates to the annual turnover of the premises but the minimum rate is £200 and this rate applies to national cultural institutions, irrespective of turnover.
Question put and agreed to.
Sections 87 and 88 agreed to.
SECTION 89.
Question proposed: "That section 89 stand part of the Bill."
This is also a redefinition section. Its only impact is to include in the definition of telecommunications services things such as access to Internet servers and so on.
Yes. This section amends section 1 of the VAT Act which defines words and expressions used in the Act. The definition of telecommunications services which currently covers telephone services, mobile phone services, fax transmissions etc. is being revised to include within its scope access to global information, essentially the Internet. This revised definition is fully in line with the definition for telecommunications services contained in Council Directive 1999/59/EC. These networks are currently treated administratively as telecommunications services by agreement between the member states so this amendment will not involve a change in practice. The section has effect from the date of passing of the Act.
In real terms the VAT imposition would be on traffic passing over it. Is VAT imposed on the installation.
I am not an expert in this area. Tax applies, as always, to fees charged for access to the Internet. This is a service and there is no reason to treat it differently from other services of telecommunications companies. However, at present hardly any companies charge fees for access to the Internet. This section brings the provision of Internet access within the definition of telecommunications services so that VAT can be charged. At present very few companies charge for Internet access. This measure ensures that fees charged for Internet access will be subject to VAT. Additional services supplied on the Internet are not covered by this measure.
As part of the great debate on e-commerce, it is proposed in the United States, at governmental if not presidential level, that VAT should not apply to transactions conducted on the Internet. This proposal is intended to encourage commerce on the Internet. The Minister has not imposed VAT on transactions conducted on the Internet.
No.
If I buy something on the Internet I will not be charged VAT. This section does not change that.
Normal purchasing rules apply to purchases on the Internet.
The purchase may carry a VAT liability but I am not sure if it would be complied with.
This is a very big issue which is being discussed at European level and with the United States. For sales of consumer goods over the Internet there is undoubtedly a problem. For people who wish to claim back VAT there is no problem because they will receive VAT invoices. There are ongoing discussions in Europe but no emerging solution.
What I am trying to establish is that section 89 does not impinge in that area——
No.
——and that the Minister is changing a definition——
Yes.
——so that a fee is chargeable in accessing the Internet in the same way as a fee is chargeable on a service provided by a solicitor.
Exactly.
Question put and agreed to.
SECTION 90.
Question proposed: "That section 90 stand part of the Bill."
It is hard to let a section go through which refers to investment gold. Is there something we are missing?
This section amends section 6A of the VAT Act which deals with the special scheme for investment gold which exempts all transactions in investment gold from VAT in line with the VAT treatment of financial services which are also exempt. The first amendment to the section is a technical one and clarifies that all investment gold, whether in its physical form or represented by paper transactions such as securities, is covered by the special scheme for investment gold. The second amendment is to provide for the identification of buyers of investment gold in excess of a value of 15,000 euros. This is necessary to give full effect to Council Directive 98/80/EC of 12 October 1998, known as the gold directive. This section is effective from the date of passing of the Bill.
Question put and agreed to.
SECTION 91.
Question proposed: That section 91 stand part of the Bill."
I am not certain that I understand this section. Why is there an advantage to somebody in cancelling immediately after they have purchased a holiday home?
This amendment deals with the VAT treatment of persons who elect to register for VAT in respect of the letting of holiday accommodation and subsequently cancel the registration. The new rule provides that persons who elect to register for VAT in respect of the letting of holiday accommodation must in certain circumstances pay a cancellation amount to the Revenue Commissioners when they cancel their election to register. The cancellation amount is calculated on the basis of the amount of VAT deductible on the property used for holiday lettings and the length of time for which a property was let before cancellation. No cancellation amount is payable if the time involved exceeds ten years. This section will be effective from the date of passing of the Bill.
Let me give an example to show how someone could obtain a VAT free home under the old rules. All he or she had to do was buy a house and elect to register for VAT in letting it as holiday accommodation. He or she could claim VAT back on purchasing the house. He or she paid VAT on the rental income and then cancelled the election to register after a period of, say, three years and nine months. The input tax did not have to be repaid to the Revenue as it was no longer part of the equation.
Therefore to take that advantage he or she would have had to pay VAT on rental income.
What was happening was that if persons registered for VAT let a holiday home to a friend, they were allowed to claim back the VAT payable on solicitors' fees, for example. After letting it for a period of, say, three years and nine months at a nominal amount they cancelled the election to register.
They are now being caught.
Under the new system it will be apportioned over a ten year period. No cancellation amount will be payable where a property is retained for a period of ten years. A pro rata amount will be payable if he or she cancels the election to register after, say, four years.
He or she will have to refund 60% of what he or she received.
Yes.
Question put and agreed to.
SECTION 92.
Question proposed: "That section 92 stand part of the Bill."
Will the Minister remind us how this is computed when an increase is justified? What effect will the increase from 4% to 4.2% have on a gallon of milk or the sale of a bullock at a mart?
This section amends section 11 of the VAT Act which deals with tax rates. It confirms the budget increase in the rate of VAT on the supply of livestock, live greyhounds and the hire of horses from 4% to 4.2% from 1 March 2000. It has been the policy of successive Governments in recent years to compensate unregistered farmers in full for VAT incurred on their inputs. The rate is reviewed annually in accordance with EU law by reference to macro-economic data for the preceding three years, agricultural production and inputs and the deductible VAT content of such inputs.
The amount of flat rate is arrived at by calculating the VAT payable on agricultural inputs as a percentage of agricultural sales. The Revenue Commissioners have calculated that a flat rate of 4.2% is now needed to achieve full compensation. While VAT rates for most goods and services have remained unchanged since 1993, there has been an upward trend in the flat rate which is primarily accounted for by the rate of growth in the value of agricultural inputs far exceeding the rate of growth in agricultural sales. The actual flat rates for each of the years concerned, including this year's calculation, were as follows: 1997, 4%, 1998, 4.2% and 1999, 4.3%. In 1997 the unrounded figure was 3.9744%, in 1998, 4.1938%, and 1999, 4.3207. As an average is required by EU rules governing the calculation, the 2000 flat rate derived from these figures is 4.2%.
The principle underlying the scheme is to compensate farmers for all the inputs, to effectively refund all the VAT payable on feed and so on.
My official assures me that the principle underlying the scheme is to keep farmers out of the registration scheme. Most of the farmers who register in my part of my country are involved in the corn business in which the VAT payable on sprays and agricultural machinery is substantial. The normal farmer would not pay the administrative costs involved in registering for VAT.
The rate is achieved at the point of sale of produce.
Yes. From a total of approximately 109,000 farmers approximately 4,000 are registered for VAT.
Why do we do it in this way, at the point of sale of produce? Why do we not ask farmers to calculate the value of their inputs and compensate directly?
The directive allows us to do it in this way. It is an EU arrangement. One has to register as a trader for VAT purposes. Only 4,000 out of a total of 109,000 farmers do so. In my professional experience they are mostly involved in the corn business. At 12.5% the VAT payable on sprays and machinery is considerable. VAT of 4.2% is payable on the goods delivered to the grain merchant. This has to be placed on one side of the VAT return. The value of inputs is placed on the other. The person concerned ends up with a refund. It would be an administrative impositon on other farmers to register.
Can the Minister tell us what it is worth in practical terms?
The overall cost to the Exchequer of farmers' flat rate compensation for the calendar year 1999 was in the region of £103 million.
That is 2.5% higher.
Farmers' incomes are boosted by a factor of £103 million. This based on the yearly calculations agreed with the European Union.
What I am trying to establish is where the rebate takes place. It is reflected in the cheque from the co-operative.
The scheme sets out a percentage amount known as the flat rate addition. Unregistered farmers add this percentage to their price when selling to VAT registered businesses, co-operatives, meat factories, etc. The VAT registered business treats the flat rate amount as a normal business input in its periodic VAT return.
From 1 March 2000 the flat rate compensation for registered farmers is 4.2%. For example, when a registered farmer sells goods worth £100 to a meat factory the flat rate addition means that he can increase his price to £104.20. The factory claims back the £4.20 flat rate addition as a VAT credit if there is non-return. There is no impact on the price of goods to the final consumer due to the flat rate addition.
So it is an extra 20% on £100 of produce - 20p.
No. It is £4.20. It is extra this year.
Question put and agreed to.
NEW SECTION.
I move amendment No. 163:
In page 210, before section 93, to insert the following new section:
93.-Section 12 of the Principal Act is amended-
(a) by the insertion in paragraph (a) of subsection (1) of the following subparagraph after subparagraph (via) (inserted by the Act of 1999):
'(vi b) the residual tax referred to in section 12C, being residual tax contained in the price charged to the taxable person for the purchase of agricultural machinery (within the meaning of section 12C), by means of documents issued to that person during the period in accordance with section 12C(1B),’,
and
(b) by the substitution of the following for subsection (4):
'(4) (a) In this subsection -
"deductible supplies or activities" means the supply of taxable goods or taxable services, or the carrying out of qualifying activities as defined in subsection (1)(b);
"dual-use inputs" means goods or services (other than goods or services on the purchase or acquisition of which, by virtue of subsection (3), a deduction of tax shall not be made) which are not used solely for the purposes of either deductible supplies or activities or non-deductible supplies or activities;
"non-deductible supplies or activities" means the supply of goods or services or the carrying out of activities other than deductible supplies or activities;
"total supplies and activities" means deductible supplies or activities and non-deductible supplies or activities.
(b) Where a taxable person engages in both deductible supplies or activities and non-deductible supplies or activities then, in relation to that person’s acquisition of dual-use inputs for the purpose of that person’s business for a period, that person shall be entitled to deduct in accordance with subsection (1) only such proportion of tax, borne or payable on that acquisition, which is calculated in accordance with the provisions of this subsection and regulations, as being attributable to that person’s deductible supplies or activities and such proportion of tax is, for the purposes of this subsection, referred to as the “proportion of tax deductible”.
(c) For the purposes of this subsection and regulations, the proportion of tax deductible by a taxable person for a period shall be calculated on any basis which results in a proportion of tax deductible which correctly reflects the extent to which the dual-use inputs are used for the purposes of that person’s deductible supplies or activities and has due regard to the range of that person’s total supplies and activities.
(d) Subject to paragraph (e) and regulations, the proportion of tax deductible may be calculated on the basis of the ratio which the amount of a person’s tax-exclusive turnover from deductible supplies or activities for a period bears to the amount of that person’s tax-exclusive turnover from total supplies and activities for that period but only if that basis results in a proportion of tax deductible which is in accordance with paragraph (c).
(e) Where it is necessary to do so to ensure that the proportion of tax deductible by a taxable person is in accordance with paragraph (c), a taxable person shall-
(i) calculate a separate proportion of tax deductible for any part of that person's business, or
(ii) exclude, from the calculation of the proportion of tax deductible, amounts of turnover from incidental transactions by that person of the type specified in paragraph (i) of the First Schedule or amounts of turnover from incidental transactions by that person in immovable goods.
(f) The proportion of tax deductible as calculated by a taxable person for a taxable period may be adjusted in accordance with regulations, if, for the accounting period in which the taxable period ends, that proportion does not correctly reflect the extent to which the dual-use inputs are used for the proposes of that person’s deductible supplies or activities or does not have due regard to the range of that person’s total supplies and activities.’.”.
The amendment amends section 12 of the VAT Act which deals with the deductibility of VAT. There are two parts to this amendment. Paragraph (a) repeats the original section 93 of the Bill as published. It is part of a package of measures which deals with the deductibility of VAT on the purchase of agricultural machinery by a garage. Paragraph (b) replaces the existing subsection (12)(iv) of the VAT Act. This subsection deals with the amount of VAT deductible on the purchase of goods or services which are used by a business for both VATable and non-VATable purposes. I am advised that VAT is only deductible to the extent that the inputs are used in making VATable supplies. This amendment deals only with businesses that make both VATable supplies and carry on other activities. The major business concerned is the financial services sector. Essentially this subsection provides that the VAT on the purchase of goods or services which are not directly attributed to either VATable or non-VATable supplies is apportioned. The taxable person is only entitled to deduct the VAT which is deemed to be related to his or her VATable supplies. The section has effect from the date of passing of the Act.
Amendment agreed to.
Section 93 deleted.
Sections 94 to 96, inclusive, agreed to.
SECTION 97.
I move amendment No. 164:
In page 211, lines 11 to 16, to delete paragraphs (b) and (c) and substitute the following:
"(b) by the substitution in subsection (5) of the following paragraph for paragraph(a) -
'(a) Where, due to a mistaken assumption in the operation of the tax, whether that mistaken assumption was made by a taxable person, any other person or the Revenue Commissioners, a person -
(i) accounted, in a return furnished to the Revenue Commissioners, for an amount of tax for which that person was not properly accountable, or
(ii) did not, because that person's supplies of goods and services were treated as exempted activities, furnish a return to the Revenue Commissioners and, therefore, did not receive a refund of an amount of tax in accordance with subsection (1), or
(iii) did not deduct an amount of tax in respect of qualifying activities, as defined in section 12(1)(b), which that person was entitled to deduct, then, in respect of the total amount of tax referred to in subparagraphs (i), (ii) or (iii) (in this subsection referred to as the “overpaid amount”) that person may claim a refund of the overpaid amount and the Revenue Commissioners shall, subject to the provisions of this subsection, refund to the claimant the overpaid amount unless that refund would result in the unjust enrichment of the claimant.’,
(c) by the substitution in subsection (5)(d)(i) of ’a loss of demand for those goods or services, for the period for which the claim is being made’, for ’a loss of turnover’, and
(d) by the substitution in subsection (5)(d)(iii) of ’loss of demand’ for ’loss of turnover’.”.
The amendment amends subsection (5) of section 20 which deals with unjust enrichment. The proposed amendment is intended to cover cases which are not covered by the scope of the current provisions. Unjust enrichment occurs where a taxable person would get a windfall gain if repaid the overpaid tax. This would arise because the cost of overpaid tax has been passed on to, and paid by, the person's customers in the price charged to those customers for goods or services.
The amendments in paragraphs (c) and (d) are clarifications. In both instances the words “loss of turnover” are being deleted and are being replaced by the words “a loss of demand for those goods or services”. This reflects much more clearly what the trader is being compensated for.
The section deals with modifying the method of refunding VAT.
It has to do with unjust enrichment in refund cases.
Amendment agreed to.
Section 97, as amended, agreed to.
SECTION 98.
Question proposed: "That section 98 stand part of the Bill."
Was there consultation with the professional bodies on this section?
This section amends section 22 of the VAT Act which deals with estimates of tax due. This amendment allows Revenue to issue VAT estimates on an annual basis in cases where the taxpayer is authorised to make an annual return but fails to do so. This amendment is linked to those in sections 99 and 100. The section will have effect on the passing of the Bill. We discussed this section with the tax practitioners.
And they are happy?
Yes.
Question put and agreed to.
SECTION 99.
Question proposed: "That section 99 stand part of the Bill."
My question is the same on this section. Was it discussed with the experts?
Yes, it was all discussed with the tax people.
Question put and agreed to.
Sections 100 to 103, inclusive, agreed to.
SECTION 104.
Question proposed: "That section 104 stand part of the Bill."
Will the Minister explain the logic of this section? I understand it allows tax not to be paid, or zero rates, on alcohol sold for consumption in aircraft or on ships but not if it is taken off the ship. What is the thinking in that regard?
I am told that is the case but I will read the note on it. This section amends the Second Schedule to the VAT Act which lists the goods and services that can be zero rated for VAT. The first two amendments relate to duty free sales and, confirm in the VAT Act, the changes that were made in regulations last year. The third amendment confirms that directories are excluded from the scope of the zero rate. Directories are specifically provided for in paragraph (xii) of the Sixth Schedule and, accordingly, are liable to VAT at the 12.5% rate. The first and second amendments are effective from 1 July 1999. The third amendment has effect as and from the date of passing of the Bill.
What is the logic of this measure? I do not understand it.
Can we go into private session to discuss this with Mr. Bradshaw?
The Select Committee went into private session at 11.57 a.m. and resumed in public session at 11.58 a.m.
The Minister will recall the row at one stage about VAT on childminding facilities and crèches, all of which would require to be rated now.
Yes.
The Minister decided not to put any VAT on them. I have had submissions requesting them to be zero rated so that they could reclaim VAT on the inputs.
I am told that cannot be done under the Sixth Schedule of the 1991 directive. We cannot have two new zero rate categories if there was not a zero rate category prior to the Sixth Schedule of the directive which came in in 1991. They are the rules on adding to the zero rate categories. If someone was in the zero rate category prior to that, they can be included but if they are not, they are out.
As we are about the leave the VAT issue, what is the scope permitted in terms of the standard rate of VAT? Is there not a lower and upper limit that we have to observe?
The lower limit would be15%, and one can go as high as one likes.
Question put and agreed to.
Section 105 agreed to.
Sitting suspended at 12.05 p.m. and resumed at 2 p.m.
NEW SECTIONS.
I move amendment No 165:
In page 212, before section 160, but in Part 4, to insert the following new section:
"106. - Section 157 of the Principal Act is hereby amended by the deletion of 'or oath' and the insertion therefor of', oath or affirmation'.".
This is self-evident. I think we have done this on a number of occasions before and it seems to have been accepted.
The Schedule to the Interpretation Act, 1937, provides that the word "oath" includes affirmation and for this reason, it is not necessary to make the amendment sought. The Revenue Commissioners have also advised me that the recently published guidance notice in the Stamp Duties Consolidation Act, 1999, refers to the relevant definitions contained in the Interpretation Act, 1937. I know the Deputy has raised the question of oaths before and I am trying to be accommodating.
Section 157 currently sets out the persons before whom statutory declarations, affidavits and oaths may be made for the purpose of the statute legislation. By conceding the amendment, all that would be achieved would be to add "affirmation" to the list. To achieve what I think is the purpose behind the Deputy's amendment would involve each of the sections which contain oaths being amended individually to include affirmation. That was the reason for opposing the Deputy's amendment. However, I will ask the Revenue Commissioners. If the Deputy insists on it, we will look at it before Report Stage or, if not, we will do it before next year's Finance Bill.
Amendment, by leave, withdrawn.
I move amendment No. 166:
In page 212, before section 106, but in Part 4, to insert the following new section:
"106. - Section 21(3) of the Principal Act is hereby amended by the insertion after 'assessment,' of 'or such longer period as would be allowed in relation to an appeal under the Taxes Consolidation Act, 1997,'.".
I am advised that the normal law under the consolidation Act is that, while an appeal should be made within 30 days, the time for that can normally be extended and this amendment is intended to make that provision.
Section 21 of the Stamp Duties Consolidation Act, 1999, provides that a taxpayer, who is dissatisfied with a stamp duties assessment, may appeal against that assessment in 30 days after the making of the assessment. The income tax appeal procedures also provide for a 30 day period in which to lodge an appeal. However, they also provide that a late application may be made if there is reasonable explanation why the appeal was not lodged in the normal time limit of 30 days. The Revenue Commissioners advised me that they are not aware that the 30 day period for lodging stamp duty appeals is causing any difficulty for taxpayers. The Deputy might be aware that it is causing some difficulties.
No, I am not. If Revenue is satisfied it is not causing any difficulties and it is not an issue, I will be happy to withdraw the amendment.
I am told that the income tax procedures will apply for stamp duty. I remember the incomes tax rules that one can make late applications if one interprets what the section says.
In that event, I would be happy to withdraw the amendment.
Amendment, by leave, withdrawn.
I move amendment No. 167:
In page 212, before section 106, but in Part 4, to insert the following new section:
"106. - The Minister for Finance may from time to time by order amend any monetary threshold referred to in Schedule 1 to the Stamp Duties Consolidation Act, 1999, having regard to changes in the value of money and property.".
This is a more substantial matter in the sense that it substantially changes the law. I proposed this during the Stamp Duties Consolidation Act discussion and it was pointed out, quite rightly, that it is a substantive change which would not have been admissible in a consolidation Act. The intent, although it does not explicitly say so, is that the thresholds should be indexed in the same way as CAT thresholds, for example, over the last number of years.
As the Minister will know, for many years the thresholds for stamp duties were unchanged and this led to a substantial anomaly, although an increase in take for the Revenue. It created a substantial anomaly in that houses and properties were being caught at a much higher rate of stamp duty than was the intent when the thresholds were originally set. It would be reasonable, in the circumstances, to allow for indexation. The amendment allows the Minister, by order, to set the thresholds which is not specifically what I intend. I intend that, on an annual basis and in keeping realistically with the increase in house prices as opposed to the CPI, the thresholds should be increased.
I am grateful to Deputy McDowell for trying to extend my powers under the stamp duties legislation. It is not obvious from the text of the Deputy's amendment that such an order would necessarily only be used to increase the thresholds to take people out of the tax net. In the unlikely event of prices decreasing, there is nothing in the text of the amendment to say that the order could not also be used to reduce the threshold amounts to bring people back into the tax net.
In light of this, I find difficulty in the rationale for giving me a power to amend the various monetary thresholds contained in the First Schedule to the Stamp Duties Consolidation Act, 1999, particularly when the Deputy, in another amendment, proposes to repeal section 3 of the Stamp Duties Consolidation Act, 1999, to withdraw the less offensive and more limited power given to the Minister under that section.
In dealing with the amendment on the repeal of section 3, the normal way to change rates and thresholds is by way of the annual budget and Finance Bill and that continues to be the case. In preparing for the budget and the Finance Bill, I take account of existing stamp duty thresholds. Where there is a need to amend thresholds after the annual Finance Bill is out of the way, this can always be done by having a second Finance Bill. The Deputy will be aware that this happened in 1998 in the Finance (No. 2) Bill. Consequently, I must oppose this amendment. I know what the Deputy is trying to achieve. He is trying to give automatic indexation to the stamp duty threshold.
How is that effected under the CAT legislation?
It is done automatically by the CPI, as far as I am aware.
It is provided for in the initiating legislation.
It was not provided for in the original CAT legislation. This was done subsequently around 1990. It is quite recent.
What does that legislation do? Does it enable the Minister to do so by order?
It increases automatically in line with the CPI.
So there is no need for an order.
No. I thought it was Deputy Dukes who did this when he was Minister, but it was Deputy Albert Reynolds who gave automatic indexation to the threshold.
There is nothing in principle to prevent that happening.
No. Parliamentary questions have been tabled by Deputies from my party and from Opposition Deputies about changing the stamp duty limits, whether first time buyers of second hand properties would be exempt and so on. The best way to make such a change is to review all these things close to the budget. If I thought, for whatever reason, it was worth doing, I would do so in the context of the budget and the Finance Bill.
My predecessor, Deputy Albert Reynolds, probably gave automatic indexation to the CAT thresholds because nothing had happened since 1978, except the changes made by Deputy Dukes when he exempted the spouses in the 1985-6. It was decided that an increase would be made every so often. I am more inclined to stick with the——
We have had a similar experience with stamp duty. I am not sure that the thresholds had been changed for quite some time before they were changed last year, with the exemption of the 9% introduction when RPT was abolished.
That is correct.
Amendment, by leave, withdrawn.
I move amendment No. 168:
In page 212, before section 106, but in Part 4, to inset the following new section:
"106. - Section 3 of the Principal Act is hereby repealed.".
I moved this amendment during the discussion on the consolidation Bill largely to tease out the legal situation because I had some advice that there may be a constitutional difficulty with the existing section.
Section 3 of the Stamp Duties Consolidation Act, 1999, formerly section 95 of the Finance Act, 1991, allows the Minister for Finance, by order, to exempt certain instruments from stamp duty or to reduce the rates of stamp duty on certain instruments, mainly instruments used by the financial services industry. This section was only used once. The only order made was the Stamp Duty Variation Order, 1991, Statutory Instrument No. 277 of 1999, operative from 1 November 1991 which effectively exempted certain financial instruments from stamp duty. The order was revoked by section 211 of the Finance Act, 1992, and the provisions in the order were re-enacted in the Finance Act, 1992.
During the passage of the Stamp Duties Consolidation Act before Christmas, my colleague, the Minister of State at the Department of Education and Science, Deputy O'Dea, said in response to Deputy McDowell that he proposed to have the constitutionality of section 3 considered in the Finance Bill. The Attorney General's office has advised that all that is required of an item of primary legislation is that the principles and policies are clearly set out in legislation voted by the Oireachtas. The follow up is then done by secondary legislation. As there is no unequivocal advice that the section would not withstand a constitutional challenge, I do not propose to repeal the section in question.
The Deputy may be reassured that the power in this section is very curtailed because it applies only to certain documents and only applies to allow me to lower a rate. The fact that it has been used only once in nine years is indicative of its limited use over the more usual referred method of reducing rates via the annual budget and Finance Bill processes. Accordingly, I must oppose the amendment.
I am grateful to the Minister for putting his advice on record. I will withdraw my amendment.
Amendment, by leave, withdrawn.
Section 106 agreed to.
NEW SECTION.
Acceptance of amendment No. 169 involves the deletion of section 107.
I move amendment No. 169:
In page 212, before section 107, to insert the following new section:
107.-(1) Section 81 of the Principal Act is amended:
(a) by the substitution of the following subsection for subsection (2):
'(2) No stamp duty shall be chargeable under or by reference to the heading "CONVEYANCE or TRANSFER on sale of any property other than stocks or marketable securities or a policy of insurance or a policy of life insurance" in Schedule 1 on any instrument to which this section applies.',
(b) by the substitution of the following subsection for subsection (6):
'(6) Subsection (2) shall not apply to an instrument unless it has, in accordance with section 20, been stamped with a particular stampdenoting that it is not chargeable with any duty or that it is dulystamped.',
(c) by the substitution of the following subsection for subsection (7):
'(7) (a) If and to the extent that any person to whom land was conveyed or transferred by any instrument in respect of which relief from duty under this section was allowed-
(i) disposes of such land, or part of such land, within a period of 5 years from the date of execution of the instrument, and
(ii) does not replace such land with other land within a period of one year from the date of such disposal,
then such person or, where there is more than one such person, each such person, jointly and severally, shall become liable to pay to the Commissioners a penalty equal to the amount of the duty which would have been charged in the first instance if the land disposed of had been conveyed or transferred by an instrument to which this section had not applied, together with interest on that amount as may so become payable charged at a rate of 1 per cent per month or part of a month from the date of disposal of the land to the date the penalty is remitted.
(b) Where any claim for relief from duty under this section has been allowed and it is subsequently found that a declaration made, or a certificate contained in the instrument, in accordance with subsection (3)-
(i) was untrue in any material particular which would have resulted in the relief afforded by this section not being granted, and
(ii) was made, or was included, knowing same to be untrue or in reckless disregard as to whether it was true or not,
then any person who made such a declaration, or where a false certificate has been included, the person or persons to whom the land is conveyed or transferred by the instrument, jointly and severally, shall be liable to pay to the Commissioners as a penalty an amount equal to 125 per cent of the duty which would have been charged on the instrument in the first instance had all the facts been truthfully declared and certified, together with interest on that amount as may so become payable charged at a rate of 1 per cent per month or part of a month from the date when the instrument was executed to the date the penalty is remitted.',
and
(d) in subsection (9) by the substitution of ’31 December 2002’ for ’31 December 1999’.
(2) Subsection (1) shall apply and have effect in relation to instruments executed on or after 1 January 2000.”.
Deputies will be aware that in my budget speech I announced that I was extending the stamp duty relief for transfer of land to young trained farmers for a further three years until 31 December 2002. This amendment is contained in section 107.
Since the budget announcement and arising from discussions on the Programme for Prosperity and Fairness, I have further decided to extend the relief from the current two-thirds relief on the duty payable to full relief on the duty payable. The relief currently costs £4 million in a full year and with this further change it is estimated that giving the full relief will cost an additional £2 million, bringing the total cost in a full year to £6 million. Both changes were effective from 1 January 2000.
Is that in line with commitments given at the partnership talks?
Yes. I announced in the budget that I would maintain the existing relief for another three years and during negotiations on the partnership talks it was agreed to give 100% relief. This amendment provides for 100% relief.
We can agree that amendment.
Amendment agreed to.
Section 107 deleted.
Section 108 agreed to.
SECTION 109.
Question proposed: "That section 109 stand part of the Bill."
I wanted to use the opportunity presented by the two previous sections to ask about a matter that is not covered by them, the stamp duty on share transfers. The Minister will be aware of a campaign mounted by the Stock Exchange, in particular, to have that stamp duty reduced or eliminated. The Minister might let us know his view on the matter.
I received representations during recent years on this topic. I considered it again before this year's Finance Bill. The case being made is that the Irish Stock Exchange has some difficulty in this area vis-à-vis its counterpart in the United Kingdom. In the United Kingdom the rate of stamp duty is 0.5% and here it is 1%. As our Stock Exchange is smaller than the UK Stock Exchange, it is claimed it finds it difficult to attract business and that reducing the rate would help it attract more business.
While I have some sympathy with its view, I considered the matter and apropos our conversation this morning on direct and indirect taxes and so on, and the fact that we must have money to run the State, I decided not to make any changes in respect of the stamp duty in this Bill. Up to November 1999 the cumulative yield for that year was £171 million. The outturn for the year was £178.3 million which is a fairly substantial amount of money. The projected yield from shares for 2000 is £233 million, which is a fairly substantial increase.
I have considered the matter and I have been lobbied about it. The changes I made to the capital gains tax code assisted the Stock Exchange to a great extent. I remember giving some figures at a meeting of a committee last year or the year before on the increase in the volume of transactions from October-November 1997 and immediately afterwards the volume of transactions increased substantially, which would have led to a greater yield from stamp duty. I considered this matter again and my mind is not totally closed to the representations I received, but we have to marry such proposals against competing objectives. This stamp duty brings in a substantial amount of money.
The case made by the Stock Exchange that a lowering of the rate would attract more business to the Stock Exchange is a matter of opinion. I am sure representations to make changes in this area will be made to made to me in the run up to next year's budget.
I am sure they will.
Does the Deputy McDowell consider it would be a good idea to accede to its request?
The Stock Exchange has many difficulties, but I am not sure this is the element that is preventing growth within it.
I might agree with the Deputy on that point.
On an associated question related to section 107, did any of the Minister's officials consider the so-called Tobin tax proposal? Has the Minister a view on it?
Yes. Parliamentary questions were tabled on that matter. It was discussed by the Committee on Foreign Affairs. My officials came before that committee, chaired by Deputy O'Malley, and spoke about this matter. That committee had sought a briefing on this matter. Deputy Gay Mitchell was present at the meeting. When it was explained to the committee what that proposal would involve, my officials concluded that the proposal was off-the-wall, so to speak, in that it would not work. That was the general assessment of it across party lines and that is more or less the view on it in my Department.
The Tobin tax relates to foreign exchange transactions. Unless there was worldwide agreement on how these matters could be policed, it was felt that the proposal would not work. That would be the view of my officials and that was also the view of the Committee on Foreign Affairs when it considered the matter approximately three weeks ago.
Has it ever been raised at European level?
No, not at a formal or informal ECOFIN meeting, unless it has come up at official level. Commissioner Bolkestein who took over from Commissioner Monti was asked a question in the European Parliament on this matter last week and he answered more or less in line with what I said, that unless agreement could be reached worldwide on how these matters could be regulated, there was no possibility of the EU going that route. That would be the view not only of the Department of Finance but of the Committee on Foreign Affairs when it considered it a few weeks ago.
Will the Minister arrange for a copy of that reply to be forwarded to me? It would make it easier for me to reply to some outstanding correspondence in respect of which I thought I would have to contact the county manager.
I have replies to parliamentary questions on this matter. Perhaps the minutes of that meeting of the Committee on Foreign Affairs committee could also be forwarded to the Deputy.
The Minister did some injustice to the proponents of the tax when he said it was off-the-wall.
It is off-the-wall in terms that it would not work.
I accept there are difficulties in implementing it and that it could not be done without a degree of consensus which seems unlikely.
In case I am picked up on what I said in years to come, I said it was off-the-wall in the sense of thinking that one country or the EU could implement it alone because that would not work. I had better make that correction, otherwise I could be in trouble.
Question put and agreed to.
Sitting suspended at 2.29 p.m. and resumed at 2.52 p.m.
Question, "That section 110 stand part of the Bill", put and agreed to.
NEW SECTION.
I move amendment No. 170:
In page 215, before section 111, to insert the following new section:
"111. - (1) The Principal Act is amended by the insertion of the following section after section 88:
'88A. - Stamp duty shall not be chargeable on any conveyance or transfer of assets in respect of which no chargeable gain accrues by virtue of section 739A (inserted by the Finance Act, 2000) of the Taxes Consolidation Act, 1997.’.
(2) This section shall apply and have effect in relation to a conveyance or transfer executed on or after the date of the passing of this Act.".
This amendment arises out of the taxation changes made by section 47 of the Bill to the existing tax regime which applies to domestic collected funds. These are investor units such as unit trusts. Because of the new changes and to facilitate the changeover to the new regime, section 47(c) allows a domestic collected fund to dispose of some or all of its assets in exchange for the issue of units in another such undertaking without a CGT charge. The purpose of this amendment is to exempt those same exchange assets from a stamp duty charge.
Amendment agreed to.
Section 111 agreed to.
NEW SECTION.
I move amendment No. 171:
In page 215, before section 112, to insert the following new section:
"112. - (1) The Principal Act is amended in Part 8 by the insertion of the following section after section 120:
'120A. - The statement required to be delivered pursuant to this Part in respect of a transaction specified in section 116(1)(c) shall, in any case where, within the period of 4 years immediately before the date of the transaction and on or after 4 August 1973, there has been a reduction in the issued capital of the capital company concerned as a result of losses sustained by the company, be charged at the rate of zero per cent in respect of so much of the amount determined in accordance with section 118 as corresponds to the reduction in issued capital or to so much of the reduction in issued capital to which the rate of zero per cent had not been applied in respect of an earlier transaction occurring since the reduction in capital.’.
(2) This section shall apply and have effect in relation to transactions executed on or after 15 December 1999.".
This is a technical amendment resulting froman error made in the Act consolidating thestamp duty code which was enacted in December last.
Section 71(6) of the Finance Act, 1973, allowed a relief from companies capital duty - by way of duty being charged at 0% - to a company where there is a transaction to increase capital within four years of a reduction of capital as a result of losses. Both the reduction and the transaction to increase must occur on or after 4 August 1973. This subsection was purported to be repealed in error by the Stamp Duties Consolidation Act, 1999, and is now accordingly being reinserted with effect from 15 December 1999, that is, the date of the passing of the Stamp Duties Consolidation Act, 1999.
Amendment agreed to.
Question proposed: "That section 112 stand part of the Bill."
Will the Minister explain why there is an increase from £6,000 to £15,000? Was nothing done for years?
This section gives effect to the budget proposal to increase from £6,000 to £15,000 the annual rent threshold below which a lease of a dwellinghouse or apartment for any investment term or any term not exceeding 35 years is exempt from stamp duty. Where the annual rent exceeds £50,000, such a lease will realise the stamp duty at the rate of 1% of the annual rent. A technical amendment for rounding up to the nearest pound the duty payable on the transfer of property between relatives is also included in the section. The measure will cost £0.75 million in 2000 and the same in a full year. I cannot recall when it was last increased.
We are looking at a rent of approximately £300 a week or £1,200 a month?
When I made the decision, I decided to increase it by a substantial amount rather than tricking around with it. The organisation, Threshold, recommended that it be increased to £12,000. However, I increased it to £15,000.
Was it confined to the residence, house or apartment or would it include the rent of property within the curtilage?
Any dwellinghouse, part of a dwellinghouse or apartment at a rent not exceeding £6,000. There is no definition of dwellinghouse.
What would happen if there was a farm of land included?
I will come back to the Deputy on that.
It is not very high anyway. Is it 1%?
Yes.
Question put and agreed to.
SECTION 113.
Question proposed: "That section 113 stand part of the Bill."
What is outstanding in relation to residential property tax? I thought it was out of the tax code at this stage.
Yes. The residential property tax did not apply as and from 5 April 1997. When people sell their houses the conveyancing solicitor will get clearance. The purpose of what I have done is to make it easier for that to happen.
There is no liability attaching to the residents?
It is part of the conveyancing documents and so on. This section increases the threshold below which a residential property tax clearance certificate is not required - for between £200,000 and £300,000. The revised threshold will apply after 6 April 2000. Even though residential property tax will no longer apply, we are still getting money. This arises when people sell their houses and fill in the details.
It is like the letter from the local authority stating that property complied with planning permission.
Yes. Residential property tax is one element. In 1997 we received £3.1 million; in 1998, we received £1.43 million; in 1999, £1.4 million and this year it is estimated we will receive £1 million. Residential property tax was abolished under section 131 of the Finance Act, 1997. The last valuation date in respect of which tax was payable was 5 April 1996. The clearance certificate was left in place to enable the Revenue Commissioners to collect unpaid tax on residential properties. A clearance certificate is required for any property sold, the value of which exceeds the relevant threshold.
Where a vendor fails to produce a clearance certificate, the purchaser is obliged to deduct a specified amount from the purchase price and remit it to the Revenue Commissioners. The specified amount is the difference between the sale price of the property and the current exemption threshold multiplied by up to five. We are still receiving money from it.
Question put and agreed to.
Sections 114 and 115 agreed to.
NEW SECTIONS.
I move amendment No. 172:
In page 217, before section 116, to insert the following new section:
"116. - The Second Schedule to the Principal Act is hereby amended in paragraph 1 in the definition of 'appropriate Table' by the insertion after 'spouse,' of 'parent,'.".
This proposes to treat inheritances to a parent from a child in the same way as the other way around - as inheritances to a child from a parent - and to apply the same threshold to them. This typically only happens in circumstances where a child dies early; therefore it would not happen all that often but it does seem equitable in the circumstances that when it does arise we should make a provision of this kind.
There are a couple of these amendments I put down last year for discussion on Committee Stage and many of them were guillotined so I put them down again for a proper discussion this year.
The objective of this amendment is to provide an inheritance taken by a parent from a child who qualifies for the group one threshold, currently £300,000, rather than the class two threshold, currently £30,000. Since section 116 of the Finance Act, 1991, provides for a class one threshold for inheritance taken by parents from their children, section 124 of this Bill brings the provision contained in section 116 of the Finance Act, 1991, into the Second Schedule of the Capital Acquisitions Tax Act, 1976, and applies a group one threshold of £300,000 for qualifying inheritances.
There are two conditions attaching to the provision - one, the interest taken by the parent or parents must be an absolute interest and not a limited interest and, two, the inheritance must be taken on the date of the death of the child. In view of the group one threshold provided in the Second Schedule of the Capital Acquisitions Tax Act, 1976, there was no requirement for any further provision in this regard. Prior to the introduction of section 116 of the Finance Act, 1991, the question of extending this application to include gifts was considered, where the scope for tax planning that, to such an extent, one would have opened up, militated against including gifts in the provision. For example, gifts of £100,000 from one brother to another could avoid a charge tax if made via a parent acting as an intermediary. Accordingly, I oppose the amendment.
What the Deputy has in mind is that in the 1991 Act - and my official can correct me if I am wrong - provision was brought in where, say, in the tragic circumstances a parent having bequeathed assets or inheritance to a child, and the child dying within a short period. . . . ..
The committee went into private session at 3.04 p.m. and resumed in public session at 3.05 p.m.
On the amendment, in the tax policy my party published on this, we proposed that there should be two class thresholds rather than three and that effectively one class should consist of all relatives, nominated in class one and class two, and the other class would be for non-relatives so that in effect there would be a simpler system. It is difficult enough to justify why an inheritance from an uncle or someone like that is treated so onerously and why the threshold is so low. It is not as if there is a relativity now between the Minister's new proposed threshold in class one and class two of £30,000, whereas it is £300,000 in the first group of relatives in the direct line of descent or ascent.
It is onerous and while the Minister is making such serious reforms of the code he should consider doing this between now and Wednesday. There is no drafting difficulty. One can just amalgamate those relatives in class two into class one and there could be a different regime for strangers. I agree with a more onerous regime for strangers. If the man on the Clapham omnibus decides to leave somebody his lottery winnings they are very fortunate and should pay tax on it but there is a different case to be made for an uncle.
We are now coming to thinking about the Capital Acquisitions Tax, about which I have particular views which Deputy McDowell would probably know because I have stated them before. I saw Deputy Noonan's proposed Fine Gael document. I promised in the previous budget that I would make substantial changes and when I was going to make such substantial changes I said to myself that I should go the whole hog and do what is proposed in Deputy's Noonan's document which is to have two thresholds. However, I ruled against it simply because of Exchequer costs. The largest amount of money by far in the Capital Acquisitions Tax comes from class two thresholds which was a surprise to me. I was not aware of that. I thought it would have come from the other class but when one thinks about it, with all the exemptions, it probably is not.
You can plan the first one. You may not plan on good fortune.
I went just so far on account of the Exchequer cost. The Exchequer cost of my proposals are big enough and this would add to them because I may be increasing the thresholds for up to £300,000 for class one and I brought the probate rate down. I did consider it and I am well disposed to the Deputy's thinking but I ruled against it in this year's Finance Act solely on account of costs and I will not be reversing that so I will not promise it for Report Stage next week. I introduced measures which made the Capital Acquisitions Act very simple and what I liked about the Deputy's proposals is that they would make it even simpler with two categories. I liked the notion as I do not like complicated ways of doing things. I liked the idea but I ruled against it on account of cost on top of the costs already given. I will revisit it, but not before Wednesday.
The Minister's permanent and dominant theory may apply here, that as one reduces the rates and simplifies things, one may actually collect more, I do not know. The Minister probably talks to the same kinds of tax practitioners as I do. I am advised that the class one has been planned out of existence.
Yes.
And that with a 20% rate and a more straightforward regime, the Minister would probably collect a lot of extra tax under class one.
That is my belief, and as well that we will get more money in the future from all the changes I made. The Deputy's idea about the two classes has great appeal . The only reason I ruled against it this year was that it would add further Exchequer costs but we may end up as in my theory. I have debates in the Department about this and we have placed side wagers about the amount of yield from these taxes. I have collected on the capital gains tax yield and we have side wagers on this one as well.
And also marginal relief on the wager, to allow for the increasing activity in the economy. The Minister can take credit for that.
It might expedite us while getting through the individual sections to talk about the general principle of this point. I come to this as the Minister will know from a completely different angle which is that one should start by justifying why there should be thresholds at all. Inheritance, as I see it, is unearned income in the hands of the recipient. Other people tend to get sentimental about it and talk about having built up assets over the years which gives them an entitlement to endow future generations and so on. I have little sympathy with that although I understand that my view is clearly a minority one. I consider it unearned income in the hands of the recipient which should be taxed as income. As the Minister is aware, I am not sympathetic to the idea of increasing the thresholds in the first instance.
With regard to one of the amendments I tabled which has been ruled out of order, while I recognise the special position of the family home, or the "shared home" which is the phrase now used in the Act, it should count in terms of value towards the threshold.
The amendment suggests that.
Unfortunately, it was ruled out of order because it would be a charge on the people. I agree that if one inherited a house worth £250,000 or £300,000 from an aunt it should be exempt. However, one should not have a further entitlement to an additional threshold figure of £60,000. This was my thinking when I tabled the amendment but, unfortunately, it has been ruled out of order and it cannot be discussed fully.
There is a difficulty with inheritance tax. The Minister may say, correctly, that people at my end of the political spectrum frequently get hung up on this matter. Perhaps we get too hung up on it given that the total take from residential property tax was £16 million, which is less than 2% of the total take from excise duty on tobacco last year. When one compares the two, one wonders why we sweat so much about the matter. Nonetheless, in terms of principle, inheritance should be taxed at the same rate as income and at a much lower threshold than the current figure.
I suggest the committee deals first with amendments Nos. 172 to 176, inclusive, before a general discussion on the section.
Amendment, by leave, withdrawn.
I move amendment No. 173:
In page 217, before section 116, to insert the following new section:
"116.-Section 53(1) of the Principal Act is hereby amended by the insertion after 'taxable gifts' of 'or taxable inheritances'.".
This amendment is intended to create a de minimis taxable inheritance. At present there is a £1,000 allowance for a taxable gift and the amendment is intended, for administrative purposes, to create the same concept in the inheritance tax code.
The intention of the amendment is to introduce a small inheritance exemption similar to that which operates for small gifts. At present a gift of up to £1,000 in any one year may be taken by a donee from a disponer without incurring a charge for capital acquisitions tax. No such exemption operates in relation to inheritance tax.
The extension of such an exemption to include small inheritances could open up substantial possibilities for tax planning. A discretionary trust set up under a will trust could be used to appoint assets valued at £1,000 in successive years over a prolonged period and by doing so avoid the charge of mainstream inheritance tax. There would also be a difficulty in avoiding extending the £1,000 exemption to all inheritances, thereby increasing the various thresholds by this amount. The new group one threshold being introduced in the Bill will exempt an inheritance up to £300,000 from tax. For this reason I oppose the amendment.
I know from solicitors that they feel the administration of an estate would be speeded up if there was a small de minimis, but the changes I made regarding aggregation should make it simpler for solicitors dealing with these problems. Various calculations were necessary in the past if one wanted to give some money to one’s brother or sister. The changes with regard to aggregation get over the problem the Deputy is trying to address in the amendment. I understand his point and I am not ill disposed towards the aim he is trying to achieve. However, the changes I made regarding aggregation should deal with the situation.
I do not understand the difficulty with discretionary trusts.
I am told that; I am not an expert in the area.
It would be a difficulty if there was a power to release £1,000 to a beneficiary each tax year. However, surely the Minister could provide that £1,000 could be taken from each disponer on death.
If a discretionary trust was set up, the trustees would make a decision each year. It has been put to me that it could be availed of in tax planning.
That would happen if they were permitted to take out £1,000 each tax year. However, a provision whereby £1,000 could only be taken out once from each disponer via the vehicle of the trust or directly would be sufficient to cover the point.
The cost of a £1,000 exemption for small inheritance would be approximately £4 million in a full year. This figure assumes the increased threshold at the reduced rate of tax provided for in the Bill. This change would cost £4 million in addition to the changes already made. I will consider whether it can be done in next year's Finance Bill. I will also consider Deputy Noonan's proposal for two classes.
Amendment, by leave, withdrawn.
Amendments Nos. 174 and 175 not moved.
SECTION 116.
I move amendment No. 176:
In page 217, line 11, after "falls" to insert "(but, for those purposes, the provisions of Part 34 of the Taxes Consolidation Act, 1997, relating to residence of individuals shall not be construed as requiring a year of assessment to have elapsed before a determination of whether or not a person is resident in the State, on a date falling in that year may be made)".
The Deputies will be aware from my budget speech that I am changing the basis on which gift tax and inheritance tax is to be charged on assets outside the State. At present the charge depends on the domicile of the disponer at the relevant date. This general domicile rule is being replaced by a residence rule so that, in future, foreign assets will only be charged tax where either the disponer or the beneficiary is resident or ordinarily resident in the State at the relevant date.
Section 116 provides that a person shall be resident in the State on a particular date if that person is resident in the State for the tax year in which the particular date falls. This would not cause any difficulties in most cases where the parties are continuously resident in Ireland. However, the wording of the definition may cause difficulties where a person has only recently become resident in the State. In those cases it would not be possible to know whether that person is resident on a particular day until one sees how many days the person was in the State at the end of the tax year. The purpose of the amendment is to ensure that it will not be necessary to await the end of the tax year before being able to decide whether a person is resident in the State on a particular date within the tax year.
I intend to dwell on the general issues of residency and domicile because I cannot agree to the amendment without that discussion. If I wait for the discussion on the section, I will have to call a division on the amendment.
I have serious doubts about the change being made to the grounds for liability to inheritance tax and gift tax and the proposed change from domicile to residence. Domicile is a long standing principle in tax law in common law countries, including Ireland. Residence is also a well recognised principle for liability, especially in relation to annual taxes such as income tax. It is difficult to define domicile. It is also difficult to change one's domicile but it is easy to change one's residence.
I understand the Minister's proposal to mean that a change of residence which survives into the third tax year would be sufficient to organise the change here from domicile to residence and change the basis of taxation. My advice from people, who would not have been shy in making tax planning arrangements for clients regarding inheritance tax, is that this would be a tax avoidance charter if it was implemented. It is easy to change one's residence and qualify on a new basis for tax, but it is also easy to purport to change one's residence. Given the circumstances in Ireland, where there is a political border which is also a tax border, it would be possible for somebody to be resident in Newry and continue to conduct business in Dublin by commuting every morning. By the third tax year, he or she would be able to avail of the provisions of the section. It would also be possible to purport to live in London or Newry but actually be here. My advice is that although this involves a change from avoidance to evasion, enforcement by the Revenue would be extremely difficult.
In addition, a respectable body of legal opinion is opposed to the Minister's proposal. I refer the Minister to a letter from the Law Society of Ireland which he received, a copy of which I, and I presume all other Deputies, received. It expresses the concern of solicitors represented by the Law Society at the proposed changes. It states:
Domicile which is the connecting factor between a person and a particular legal system to which he owes allegiance is pre-eminent in our system of private law. It is a concept which has been developed over a long number of years and is accepted by those countries with which we have the greatest traditional links. In other jurisdictions nationality citizenship and residence are prominent but the residence required in those jurisdictions is one of long standing and of a more or less permanent nature, such as having a family there or establishing a home there.
The submission argues that this is more akin to our concept of domicile than a five year or three year term of residence would be. Residence as defined in the Taxes Consolidation Act, 1997, is ideal for income tax which is annual tax. Accordingly the residence test is an annual or semi-annual test. The submission continues:
It is extremely unsuitable for capital acquisitions tax which arises infrequently in a person's life and usually only after long intervals. Domicile is of particular significance under Irish law when dealing with questions relating to the civil status of marriage, matrimonial causes, illegitimacy, divorce, property, succession and, traditionally, taxes on succession and gifts are affected by the domicile provisions. Domicile can be changed but the requirements for that change are more fundamental than merely leaving one's country for another.
The submission goes on to outline what happened in Britain. The Scottish Law Commission produced a report on the law of domicile in 1987, the recommendations of which are far-reaching and include abolishing domicile of origin. After lengthy consideration it was announced in the House of Commons in a written answer on 26 May 1993 that the Government had no immediate plans to introduce legislation to move from residency to domicile. The law propounded in the report was similar to the law change being introduced by the Minister now. The submission states that the British decision of 1996 was made after a report made in 1987 following nine years of discussion. We are proposing to introduce a similar change without any prior discussion or consideration whatsoever of the changes that that will bring about.
The submission says that if the residence test is introduced for capital acquisitions tax, many further changes will have to be made and it seems to me these have not been made by the Minister. Among these are changes to section 6(a) of the 1996 Act, section 12(b) of the 1976 Act, section 19, CTA, section 57 of the same Act, section 66 of the Finance Acts of 1984 and 1986, in so far as they relate to discretionary trusts, section 81 of the Taxes Consolidation Act, 1997, the probate tax provisions in the Finance Act, 1993, running from the Succession Act, 1965, the Finance Act, 1988, brought in by the Status of Children Act, 1987, and so on.
The submission states that generally where the Succession Act, 1965, and the CAT code are in conflict - and they will be in view of the proposed change - there will be difficulty. Where cognisance of foreign law must be taken into account the question of formal verification of that foreign law must be considered causing considerable extra expense in the administration of estates.
I wish to advise the committee that the question must be put at 3.30 p.m.
That leaves us in a difficult position. I could continue but the Minister is aware of the submission and I may get the opportunity on Report Stage to re-enter this amendment. This is a serious change which is being made without due consideration.
On the question of the amendments which I tabled and which have been ruled out of order, because they impose a tax on the people, I suggest that if a change is being made they should be moved down a cell, so to speak, to citizenship. We are all familiar with the old adage, no taxation without representation. The converse is also true, no representation without taxation. People who decide to opt out of this nation, in order that they do not have to pay any tax, should be required to opt out of citizenship of this nation also. If changes are to be made, they should be made along those lines.
I am not an expert on this matter but the advice I am getting from those who are experts on it from the tax side, supported by the advice from the Law Society, would suggest that this change is not fully considered and is premature. There are consequential changes in law that are not being taken into account and the possibility of avoidance would be widespread if the changes were made. I shall return to this on Report Stage and seek to table amendments along the lines suggested which would not have the income tax implications.
I appreciate we are short of time. I share many of the concerns expressed by Deputy Noonan. To say the least, I am not convinced of the need for this change. There are two needs that should be addressed. If this cannot be done today I should like to do it on Report Stage.
I want to tease out whether my concerns in this area are real. It seems we will no longer catch the non-Irish assets of people who are domiciled in Ireland but who are not tax resident here. They are the people we think of as being Irish, living abroad and who would have substantial assets abroad. We will now catch the non-Irish assets of non-Irish individuals who happen to be tax-resident here, for example, people from Spain or France who might be working here for three, four or five years. If they were to die tragically here their assets in their home country would be caught by Irish inheritance tax. They are the two central concerns. I am not sure how real those concerns are in terms of the viability of catching non-Irish assets in the first place. It would be helpful if we had the facts and figures on how much of that we actually got.
Not a shilling.
If that is the case we are getting worked up about something which has no reality in terms of the tax take. Perhaps the Minister can explain further.
I will come back to all these questions on Report Stage. I do not agree with what the Law Society has said. The system to which I am moving is simpler and easy to understand and is the system in most other countries, apart from those countries that have abolished this tax. We will have a general debate about that also.
The only people who make money out of this are solicitors who spend a good deal of time making up schemes involving domicile, residence and so on. They are the only people who will get a shilling apart from the tax on their exorbitant profits. I do not believe one word the Law Society says in this regard. I was pleased at a section of the Law Society's letter - if I remember it correctly - given the hassle when Deputy Quinn introduced the whistleblower's provision. I want to find the part where Arthur Murphy——
Stumped up largely by the Minister's former profession.
Yes, but not by me.
The Law Society made the case about tax avoidance which made me laugh. It was planning all these schemes in any event. I also note that they did not write to me until 3 February. We did not hear from them in the two months before the publication of the Finance Act.
There was a committee looking after it.
There must have been some specialists on the committee. I will deal with these matters but I do not agree with one word they say. The system I am bringing in will bring in much more money than the previous system.
As it is now after half past three, I am required to put the following question in accordance with an order of the Dáil of 24 February 2000: "That the amendments set down by the Minister for Finance to Parts 4, 5 and 6 of the Bill and not disposed of are hereby made to the Bill, and in respect of each of the sections undisposed of in the said Parts, other than section 107, that the section, or as appropriate the section, as amended, is hereby agreed to."
Question put.
The Select Committee divided: Tá, 8; Níl, 5.
Tá
- Ahern, Michael.
- Carey, Pat.
- Dennehy, John.
- Fleming, Seán.
- Foley, Denis.
- Kitt, Michael.
- McCreevy, Charlie.
- O’Keeffe, Batt.
Níl
- Belton, Louis.
- Deenihan, Jimmy.
- McDowell, Derek.
- Noonan, Michael.
- Stanton, David.
Question declared carried.
NEW SECTION.
I move amendment No. 188:
In page 231, before section 132, but in Part 7, to insert the following new section:
"132. - Section 944A of the Taxes Consolidation Act, 1997 (inserted by section 134(1)(a) of the Finance Act, 1988) is hereby amended by the deletion of ’may make arrangements for the publication of reports of such of their determinations as they consider appropriate,’ and the substitution therefor of ’shall make arrangements for the publication of reports of their determinations,’.”.
This amendment was tabled last year in the context of the change of powers introduced by the Minister. It involved changing the word "may" to "shall" so the commissioners would be obliged to publish the determinations they make during the course of a given year as opposed to having discretion to do so. That is the current situation as I understand it.
Deputy McDowell's amendment proposes that first, the appeal commissioners must, rather than may, publish their determination and second, they must publish all their determinations rather than those they consider appropriate. The role of the appeal commissioners is that of a fact finding body. They make their determinations in relation to a tax appeal on the basis of facts found at a hearing before them. The taxpayer is entitled to seek a rehearing before a judge of the Circuit Court, while both the taxpayer and the Inspector of Taxes can appeal points of law, by way of a case stated, to the High Court. Some appeals on which the appeal commissioners make determinations find their way into the public arena if they reach the High Court. Hearings at the Circuit Court are held in camera. However, many determinations of the appeal commissioners are not of practical importance to anyone other than the taxpayer and the Inspector of Taxes - for example, a determination of whether a taxpayer is entitled to a sub-contractor’s certificate or whether he lives on £15,000 or £20,000 per year. If the appeal commissioners, however, had the power to publish all their determinations it would be wasteful of their time.
I introduced legislation in the Finance Act, 1998, with the approval of the appeal commissioners, to allow them make public the determinations they consider appropriate. I am given to understand that with the assistance of the Institute of Taxation, a web site is available on which determinations of the appeal commissioners will be made available publicly within the next two weeks. I understand that 30 determinations will be made available at that time. It is preferable we allow the appeal commissioners to exercise their judgment as to the determinations they consider should be made public on the new web site. In any event, I will not make any change to the legislation without further consultation with them. For these reasons, I cannot accept the amendment.
The important point here is the practice rather than the law. We must ensure decisions which are precedents are widely publicised and available for scrutiny by people who might have an in interest, be they tax practitioners or whatever. When this was tabled last year, the suggestion was made that while the appeal commissioners had discretion they were not in the habit of exercising it so as to publish determinations. What is the practice?
This is one of my better brain waves. I introduced this section in the 1998 Finance Bill in order that determinations could be published. Tax practitioners said they would like to see the precedents in such cases. This was discussed in the Office of the Revenue Commissioners and it was decided to include the provision. Fortunately, the provision for publication was in place when the famous case appeared in the public arena. Between the time of the passing of the Finance Bill, 1998, and the particular case nothing had been published. The appeal commissioners gathered the information together as to what they deemed to be precedent type cases and 30 determinations will be published on the web site in the next two weeks.
Anyone who frequently has clients before the appeal commissioners knows that most of the cases do not relate to obscure points of law, but since the system of appeals changed between 12 and 14 years ago, cases before the appeal commissioners are more likely to be of substance rather than the time wasting of the previous 30 years or so. Most cases would not be of interest to anyone except the individual taxpayer concerned. Determinations will be published which may have set precedents or substantial points of law.
Is it intended to disclose the facts of individual cases of somebody who does not want to be identified?
No. Only the relevant facts, not those which would identify the taxpayer, although I do not know how one will get around the case the Deputy might have in mind.
Amendment, by leave, withdrawn.
Sections 132 and 133 agreed to.
NEW SECTIONS.
I move amendment No. 189:
In page 232, before section 134, to insert the following new section:
"134. - Section 138(1)(b) of the Finance Act, 1993, is hereby amended by the substitution of the following subparagraph (iv):
'(iv) any financial futures or options traded on an exchange which is a regulated market that has been notified to the Commission of the European Communities by a Member State of those Communities under Article 16 of Council Directive 93/22/EEC of 10 May 1993;'.".
This amendment inserts a new section to amend section 138 of the Finance Act, 1993, which sets out the ways in which the assets of the Post Office Savings Bank Fund can be invested. Under section 138, the NTMA is permitted to trade on any financial futures and options of exchange operating in Ireland. This is achieved through the agency's trader who manages part of the assets of the Post Office Savings Bank Fund. The trader operates in the same way as an investment manager of a bond portfolio. He seeks, through active management of the portfolio, to enhance the market liquidity and obtain market information. Use of the futures market also conveys the advantage of being able to hedge a portfolio and reduce risk in an environment of rising or falling needs.
Trading in the futures market was done through the Irish futures and options exchange which is no longer in operation. As there are no suitable exchanges operating here it is proposed to amend section 138 of the Finance Act, 1993, to allow the NTMA operate on other regulated futures and options exchanges within the European Union. While it is envisaged the agency will trade principally on the EUREX exchange in Frankfurt, the amendment enables the agency to operate on all regulated EU exchanges to obviate the need for further legislative change should the agency wish to trade on another EU exchange.
The amendment ensures the NTMA will continue to have the means to manage risk and maintain liquidity in the operation of the Government bond market.
Amendment agreed to.
NEW SECTION.
I move amendment No. 190:
In page 232, before section 134, to insert the following new section:
"134.-(1) In this section 'Minister' means the Minister for Finance.
(2) The Minister may, whenever he or she considers it appropriate, establish deposit accounts denominated in the currency of the State under such terms and conditions as he or she deems fit.
(3) The Minister may, from time to time, pay moneys out of the Exchequer accounts at the Central Bank of Ireland into the accounts established under subsection (2).
(4) The Minister shall, from time to time, make disbursements out of amounts credited to accounts established under subsection (2) into and only into the Exchequer accounts at the Central Bank of Ireland.
(5) Where the functions of the Minister under this section stand duly delegated to the National Treasury Management Agency under section 5 of the National Treasury Management Agency Act, 1990, any balance in accounts established under subsection (2) shall be consolidated with the balances in the Exchequer accounts for the purpose of the accounts prepared under section 12 of that Act, at the close of the financial year of the Agency.
(6) The First Schedule to the National Treasury Management Agency Act, 1990, is hereby amended by the addition of the following paragraph:
'(p) subsections (2) to (4) of section 134 of the Finance Act, 2000.’.”.
The rationale for the amendment stems from concerns the European Central Bank has expressed to central banks of a number of EU member states, including Ireland, regarding the large variation between forecasts of exchequer balances in central bank accounts and daily outturns. Its concern relates to the impact of such variations on liquidity in the euro area. In order to maintain its desired level of liquidity, the European Central Bank each day replaces funds on the market equivalent to the forecast balances withdrawn from the financial system in the form of central bank deposits by members states' exchequers.
My Department met the NTMA and the Central Bank in order to work out a practical means of addressing the ECB's concerns. The most feasible approach involves maintaining target balances with the Central Bank over five day periods with the NTMA either placing any excess funds over this balance on the market or taking funds from the market to make up any shortfall. The main issue with this approach is that without improved forecasting the NTMA would have to place funds on the market or take funds from the market late in the afternoon. While this could be done, there could be a cost in that less favourable interest rates would be achieved.
My Department and the NTMA are currently working with Revenue and Government Departments to put in place forecasting models, which will more accurately predict the level of daily Exchequer balances. However, given the unpredictable nature of Exchequer drawdowns and receipts, it is likely to take some time to refine this system. In addition, it is likely that unpredictable circumstances will continue to arise from time to time, which would place the NTMA in a position of having to place moneys on the market or take moneys from the market at uncompetitive rates late in the afternoon.
The amendment is designed to facilitate the placement of excess moneys on the market in the name of the NTMA to establish deposit accounts for Exchequer moneys outside of the Central Bank. These accounts will be put out to tender and excess Exchequer moneys over the target balance in the Central Bank will be placed with a successful tenderer or tenderers, if a better rate could not be obtained on the market.
In essence, the proposal will involve the NTMA having standing accounts for five or six institutions throughout the euro area with which it could place moneys at a predetermined rate, if better value could not be obtained in the market. The amendment is to facilitate active management of the Exchequer account and assists in maximising the interest daily on daily Exchequer balances.
We are talking about Exchequer balances not reserves.
This is a very technical area and if members wish to go into private session, some of my experts will elaborate on it.
Perhaps, very briefly, as I do not want to take up to much of the committee's time on it.
The committee went into private session at 3 .53 p.m. and resumed in public session at 3.54 p.m.
Amendment agreed to.
Section 134 agreed to.
SECTION 135.
Question proposed: "That section 135 stand part of the Bill."
The Minister gave a commitment that he would introduce two Bills on superannuation at which time the temporary holding fund, with which this section deals, will be established on a permanent footing.
Yes.
Have the heads of the Bills been cleared by Cabinet?
No, they have not been cleared by Cabinet yet.
When does the Minister expect they will be published?
I hope to introduce those two Bills in the Dáil before the summer.
Does the Minister expect they will be enacted before the summer recess?
I hope so. A team in my Department have been working on them for some time. They represent one of the main objectives I hope to achieve during my period in office as Minister for Finance. A good deal of time has been devoted to them and they are being drafted at present. I hope to bring them before the Dáil in the next few months.
I do not want to go into the substance of them, but I counsel the Minister that, given that such legislation would be in place for give or take 20 years, a measure of consultation on it would be appropriate, as it is intended to govern the Minister's successors for quite a while. It would be useful if there was something approaching a political consensus on how the fund could be used, in what circumstances it might be drawn down, and so on.
I presume the heads of those Bills will be discussed by this committee.
None of us wants to be placed in a position where in seven years' time the moneys cannot be drawn down in some circumstances which the Minister might not have envisaged and which the legislation does not provide for. Is the money lying in a vault in the Central Bank?
No, it is managing it and it is held in the temporary holding fund.
I am talking about the £1,850 million extra, which is also part of the proceeds of the privatisation of Telecom Éireann. Where is that money? Has it been given to the NTMA?
No, in February we received £1,138 million, the balance of the money from the Telecom Éireann privatisaton in February. That money together with 1% of our GNP this year will be put into the temporary holding fund once this Bill is passed. The section put through before Christmas provides that the temporary holding fund allows for a figure up of to £3,050 million. This will allow up to another £1,850 million, which is made up of the £1,138 million plus £600 million.
That money is on short-term deposit.
The money we received in December earned some money for the temporary holding fund, which will also go forward into the proper fund. We put in £3,050 million before Christmas and, say, £1,139 plus £600 million before the end of the summer.
That amounts to approximately £5 billion.
It would be the best part of £5 billion. That money will then be transferred to the proper funds when they are set up.
Where has the money been lying since the middle of February?
It is lying in the Exchequer——
In short-term deposits?
Yes. The Exchequer returns for the month of February, which are out today, will indicate the overall surplus. It is higher than normal because of the £1,138 million that came in February from the balance of the proceeds of Telecom Éireann privatisation relating to Compustore, that company which owned a slice of it.
I have always thought that one of the ironies about this fund was that it was made up largely of privatisation receipts and that doubtless some of the moneys will be used to buy back the shares in those companies as an investment when they are publicly quoted.
That is possible.
A transfer of ownership.
Question put and agreed to.
Section 136 agreed to.
SECTION 137.
Question proposed: "That section 137 stand part of the Bill."
As the Minister is aware, a number of local county museums are operating at present and they operate to the highest standards in consultation with the National Museum. Are they exempt from receiving donations of heritage items?
That area is not covered by this section. It would be best if I read the speaking note on the section and then I will return to the Deputy's question.
Section 137 amends section 1003 of the Taxes Consolidation Act, 1997, which provides for a scheme of tax relief for gifts of important heritage items to national collections. The relief is in the form of a non-refundable tax credit equal to the value of the gift being donated, which may be used to discharge certain tax liabilities of the taxpayer.
The gift must be approved by an expert selection committee in order to qualify. The selection committee is limited to selecting items valued at more than £75,000 and the current annual limit on the aggregate value of items, which they may approve for the purpose of relief, is £750,000. Where important heritage items are offered to the State to be part of a national collection and available for the enjoyment of the public, it is important we should be in a position to accept them. The indications are that the present limit of £750,000 will be easily reached in planned acquisitions over the next few years and that additional suitable heritage items are also being offered. In the circumstances I am proposing to increase to £3 million the ceiling on the aggregate value of items, which may be approved for the purposes of relief in any one year. This new limit will apply from the current calendar year onwards.
If there is a valuable heritage item, its value must be assessed by the National Gallery or another such institution under the Department of Arts, Heritage, Gaeltacht and the Islands. Let us say the Deputy owns this item or he buys it and gives it to the State, that can be offset. The approved bodies are the National Archives, the National Gallery of Ireland, the National Library of Ireland, the National Museum of Ireland, the Irish Museum of Modern Art or, in relation to the offer or gift of a particular item or collection of items, any other such body being a body owned or funded, wholly or mainly by the State or by any public or local authority, as may be approved, with the consent of the Minister for Finance, by the Minister for Arts, Heritage, Gaeltacht and the Islands for the purposes of this section.
So, it is covered here. Let us say somebody wished to donate a piece of art or an artefact to the Kerry museum——
The relevant section mentions the approved bodies under paragraph (6). It has to be a body owned or funded, wholly or mainly, by the State. It cannot be a private body.
What about the body being owned by the community?
The section states that the body is owned or funded wholly or mainly by the State or by any public or local authority. That museum is in Tralee.
Yes, but I am only citing it as an example. There is also, for example, the Kerry Literary and Cultural Centre which is being built in Listowel. In that instance, Kerry County Council would be on the board of directors but it is community owned. Listowel Urban Council and Shannon Development is also on the board of directors. There are many other such models throughout the country. In that instance——
It depends on where they get their funding. This definition specifies that it be owned or funded, wholly or mainly, by the State or by any public or local authority.
I got the information through the CDIS programme from the Department of Arts, Heritage, Gaeltacht and the Islands. That is State funded.
I would imagine so.
So it is a matter of putting the proposal to the select committee?
Yes. After the expert group looks at it, the Minister for Arts, Heritage, Gaeltacht and the Islands signs off on it and I give consent. My official tells me it depends very much on the facts of the case. On the facts outlined by the Deputy, it should qualify.
So the owner will get a tax concession on the value of the gift?
If the gift is above £75,000 and if the select committee approves it as an item of national heritage. There are a number of hurdles to cross.
Question put and agreed to.
SECTION 138.
I move amendment No. 191:
In page 233, subsection (1), lines 20 and 21, to delete paragraph (c) and substitute the following:
"(c) in subsection (4)-
(i) by the substitution of 'Paragraphs (c) and (d)’ for ’Paragraph (c)’, and
(ii) by the substitution, in paragraph (c) of ’paragraph (c) or (d), as the case may be,’ for ’paragraph (c)’,
and".
This amendment is necessary to correct a minor drafting error in subsection (1)(c) of section 138 of the Bill. That paragraph proposes to replace the words “paragraph (c)” in subsection (4) of section 1086 of the Taxes Consolidation Act, 1997, with the words “paragraphs (c) and (d)”.
There are, in fact, two references to "paragraph (c)” in the aforementioned subsection (4) and both need to be changed. This amendment achieves this.
Amendment agreed to.
Question proposed: "That section 138, as amended, stand part of the Bill."
With regard to the publication of the names of tax defaulters, the names of people who voluntarily disclose their liability to the Revenue Commissioners will not be published. I encountered a case recently where a company thought it was paying its full liability but, due to the negligence of its accountant, its VAT payment was not correct. A Revenue official visited the company and discovered the discrepancy. The company was very open with its books and it was obvious from them and from the tax returns that the company was making a mistake but it thought it was doing the right thing. It was paying large amounts of VAT and keeping up with PRSI payments. When the official called there was a voluntary disclosure of the books. The company co-operated fully. Would that company's name be published?
Under the code of conduct drawn up by the Revenue Commissioners, where there is a voluntary disclosure before the audit commences, there should not be publication. I would like the Deputy to keep up with the case and let me know what happens. In the last couple of months, I have been told about a number of cases, particularly related to VAT, where there appears to be zealousness regarding penalties and so forth. The chairman of this committee will be aware of some cases and, in fact, cases involving VAT were mentioned by the President of the Institute of Taxation in his address to the institute last Friday night.
I hope Deputy Deenihan lets me know how that case concludes. In my view, a case such as that constitutes a voluntary disclosure and there should be no publication. In the recent past, people have given me details of some similar cases where there seemed to be a question of publication and penalties arising, rather than interest and late payment. This has become something of an issue, particularly in the VAT area.
I will be delighted to keep the Minister informed.
Is there a definition of voluntary disclosure? At what point does it cease to be voluntary? What about a random audit and somebody putting their hands up the day the inspector arrives?
Before the audit actually commences——
When is that? Is that before the decision is taken to audit?
No. Let us say a person's name comes up at random and it is picked to audit. As I understand the code of conduct, before the Revenue starts the audit the inspector of taxes more or less says to the person, "Is there anything you want to disclose before we start the audit?". If the taxpayer says "Yes" and tells the inspector what it is, that is voluntary under the code of conduct.
In circumstances where it is clearly the fault of the accountant or the tax practitioner, did the Minister ever consider publishing the name of the accountancy firm or the accountant?
It is funny the Deputy should mention that. In the past three years I have been talking with people in the Department and in the Revenue Commissioners about this. When I became Minister for Finance, I talked about it more often but then events overtook it with the number of scandals that occurred. One can have rational debate in the Department and with the Revenue Commissioners but whether the same rational debate would take place if proposals were brought forward is a different matter.
In the past, there has been an odd occasion I have seen in the publication list where it was a matter of dispute as to whether something was allowable. Most inspectors of taxes use their heads in cases where there has not been disclosure. However, it is hard to draft legislation to cover all eventualities. My own view is that where things are in dispute or where there is a mix up, such as outlined by Deputy Deenihan, it is not fraud or evasion.
In many circumstance a business person will put themselves in the hands of a professional. Much of the time this professional is an accountant.
That would not arise mostly in the case of tax evasion. Some schemes of tax avoidance developed by accountants did not stand up when they were scrutinised by the Revenue and went to the courts. People had more tax to pay, but that was not evasion either because they involved avoidance techniques. It is difficult to think of a case involving a reputable accountant in tax evasion. If an accountant aided and abetted a taxpayer in evasion, he or she would be prosecuted also. There is an offence of aiding and abetting.
The circumstances I am thinking of relate to where the professional advice is that something is on the right side of the line but, after an audit, it is on the wrong side of the line and one's name is published.
That is an interesting example. I am glad the Deputy is also aware of such a case.
The accountant would be negligent.
It could be a mistake involving something, as Deputy Noonan said, on one side of the line or the other.
The advice did not stand up.
Yes, it was not evasion as such. It was something that was claimed in error. It is interesting that Deputy Noonan is also aware of a case where a name was published. In the case of which I am aware, in my view the name should not have been published because it was not evasion. It was a question of interpretation of what was allowable or not allowable and the accountant called it wrong. It was never the intention that the list of such cases would be published.
I am glad to know Deputy Noonan is also aware of a similar case. I am aware of a number of cases where that happened. It was not a matter of evasion where a person had a secret bank account somewhere into which money was being put. It was a case of things being done incorrectly in the accounts. There was no issue of evasion. As Deputy Noonan said, it was a question of something being on one side of the line or the other. Some thought is being given to this area to ensure that, notwithstanding all the tax evasion matters which have come to light in the past couple of years, there is a sensible approach to such cases. To be fair to the Revenue Commissioners and the inspectors of taxes who are working on the ground, most of them have adopted a reasonable and pragmatic view in such cases. However, times are moving on and people may feel under a different type of pressure.
The exclusion on publication is a matter to which the 1993 tax amnesty applied. I am referring to the explanatory memorandum rather than the section. Was it drafted on the basis of whether it was applied and availed of? In the look back investigations now, particularly with regard to certain accounts, it may come to notice that, while the tax amnesty was availed of, certain items which should have been included were omitted. Does the section exclude publication of such matters?
The existing procedure regarding publication is repeated in the explanatory memorandum. There is no change in that regard. Deputy Noonan's point relates to the 1993 tax amnesty. It is covered if there is a valid certificate. However, that is not the case if there is an invalid certificate.
Question put and agreed to.
Sections 139 to 142, inclusive, agreed to.
Schedule 1 agreed to.
SCHEDULE 2.
I move amendment No. 192:
In page 241, lines 22 to 25, to delete clause (I) and substitute the following:
"(I) by the substitution in paragraph (a) of ’144 and 145’ for ’144,145 and 147(2)’ and of ’144 and 145’ for ’144, 145 and 147’, and”.
This is a minor technical amendment to correct a drafting error.
Amendment agreed to.
Schedule 2, as amended, agreed to.
Schedule 3 agreed to.
Title agreed to.
Bill reported with amendments.
I wish to inform the committee that it may be necessary for me to bring forward an amendment on Report Stage to section 45 of the Bill which deals with residential development land to clarify the commencement section in relation to income tax. I may also have to introduce a technical amendment to section 3 in relation to individualisation.
I intend to introduce Report Stage amendments to indicate an extension to the packages relating to the upper Shannon and the Connacht regional airport. I also intend to table an amendment relating to business exemption from CAT. This amendment will probably be to section 127 of the Finance Act, 1994.