I move amendment No. 8:
In page 7, line 16, to delete "course of" and to substitute "course or".
This is merely correcting a typographical error.
SECTION 6.
Amendment agreed to.
I move amendment No. 9:
In page 7, line 46, after " taxable persons " to insert " and persons to whom section 13 (3) applies ".
The purpose of this amendment is to ensure that a commercial fisherman does not become a taxable person by reason of sales of his catch to foreign buyers. The amendments to the VAT Act provided for in section 6 of the Bill ensures that a fisherman who sells exclusively to taxable persons does not himself become a taxable person. This provision in section 6 ensures that normal disposals of his catch on the home market will not make him a taxable person but it does not take account of the possibilities of sales being made to foreign buyers. This amendment takes account of that and ensures that in such cases the fact that he sells his catch to foreign buyers does not make him a taxable person.
There is a provision which says that the fisherman who sells his goods internally is not taxable but it does not make provision for him to sell externally.
Sale to foreign buyers is not covered.
Would it not be covered under the general provisions of any sale?
We tend to forget that the zero rate is a rate and even if you are dealing in zero rated goods you are still a taxable person within the VAT system. Even though the rate is zero it is a rate of tax and under this amendment the fisherman concerned will not become a taxable person. He will not be involved, therefore, in the accounting system for VAT as an ordinary trader would be.
Are other producers of zero-rated goods liable for tax on foreign sales?
The purpose of including in the normal way a person dealing in zero-rated goods as a taxable person is that if we did not do so he would not be able to claim relief on the tax that he pays. The fact that he is a taxable person enables him to claim it even though he may not be paying tax on the goods in which he is dealing.
Amendment agreed to.
Amendments Nos. 10, 11, 12, 13 and 16 are related and may be discussed together.
I move amendment No. 10:
In page 7, line 56, to delete "£1,800 " and to substitute "£3,000 ".
In accordance with the proposals for a general increase in turnover thresholds this amendment increases from £1,800 to £3,000 the permissible annual turnover from other taxable activities which a farmer is permitted without having to register for VAT. I do not think that I should deal with the other amendments now, but the Committee will realise that there are different taxable thresholds for VAT purposes and there is a general increase in each of them provided for in these amendments. If the Chairman wishes I will deal with the others as well. They are all on the same principle.
Amendment No. 10 deletes "£1,800 " and substitutes "£3,000 ". Did the Minister mention annual turnover?
Yes, that is right, £1,800 to £3,000 of permissible annual turnover, but for the other taxable activities which a farmer is permitted there are different thresholds for different categories. The existing threshold for farmers engaging in other activities is £1,800. There are different thresholds for persons involved in different categories. I was going to mention them on amendments Nos. 11, 12 and 13. These amendments implement the proposal I announced in the budget statement this year to increase registration limits for small traders. The proposed increases are as follows: the limit of £2,000 per taxable period, that is two months, which applies to traders such as grocers, butchers, drapers, publicans and chemists is increased to £3,000; the limit of £1,000 per taxable period which applies to traders such as hardware merchants and jewellers is increased to £1,500, and the limit of £300 per taxable period which applies to services is increased to £500.
It is expected that, as a result of this proposal, about 900 traders will de-register and at least the same number of unregistered traders who would otherwise be obliged to register will remain unregistered. The average tax reduction per trader to those becoming entitled to de-register is estimated at about £277 per year and the total annual cost to the Exchequer at £250,000. The new limits on an annual basis would be £18,000 annual turnover for traders such as grocers, drapers, publicans and chemists, as against the present limit of £12,000. For such persons as hardware merchants and jewellers, the present limit of £6,000 annually would go to £9,000. For persons supplying services, the annual turnover threshold would be £3,000, as against the present limit of £1,800.
Is this the first scaling-up that has taken place since the introduction of the VAT legislation?
Yes.
I am interested in the formula used to arrive at the new limits. Has it been a sort of seat-of-the-pants formula or has it been based on some principle of indexation? Different formulas seem to have been applied to the three categories. The first two seem to operate on 50 per cent and the third one is marginally more or marginally less. Is there a rationale behind the new figures?
There is some rationale but it is not indexation. One of the problems involved in any increase in limits of this kind is that you can create a large disparity between those just above the limit and those just below the limit. If that disparity is out of line it can create discrimination. It is felt that the proposed limits reasonably avoid that kind of discrimination, that any higher increase in them would create problems of that kind. The thresholds proposed compare favourably with those in other EEC countries, including a recent increase in the UK where they now have a limit of £7,500 per annum applying to all classes of traders. It is obvious that there is a reason for distinguishing between them as we do, although they do not do it in Britain. If you take an across-the-board figure, the level of turnover of one kind of business is not realistic in relation to another kind of business. We have tried to take account of that in the different limits that we have provided for different classes of traders.
Would it also be true to say that the level of turnover is not necessarily related to profit margins and things like that?
That would be true. Profit margins would vary even within a particular trade and from business to business. By and large, the limits are an estimate within the class of trade of quite small businesses, many of whom, if they were obliged to register for VAT, would have difficulty in coping with it because of the paperwork involved. Small businesses are not geared to that kind of thing. Persons who are unregistered in this way have the disadvantage that they cannot claim relief in respect of the VAT they pay on their business inputs.
It is open to them to register if they wish?
It is.
It is interesting that the Minister gave the British figure of £7,500 because that would be a very small business in British terms or any other terms. I would have thought that we had a higher proportion of businesses in the small business bracket than they have in Britain, so that the generosity, if that is what it is, appears to be more to the advantage of the traders than it would be elsewhere.
That may be. I do not have the figures but I would guess that in our case, apart from having a higher proportion of small businesses, we probably have a number of much smaller businesses than a small business would be in Britain.
The total amount to be avoided is an estimated £250,000?
Yes.
Which in terms of the total VAT take is a small figure?
Yes.
I presume it would also mean a considerable collection cost, which the Minister did not mention.
I did not mention that but it is a factor in relation to these limits.
Would the Minister please explain the matter in regard to the discriminatory element?
It is necessary to take account not only of the business turnover but also the nature of the business itself. In the case of services, for example, it may amount to the difference between one trader virtually paying no tax and another trader paying tax on his full turnover. If we take a jeweller, for example, his goods are taxed at 20 per cent of sales on the cost price of the goods if he is not registered but if he is registered the extra tax is 20 per cent on the mark-up. If the goods happen to be those with a fairly low profit margin, the tax would be smaller because of the nature of the goods. The difference between a trader who is registered and one who is not can vary from tax on virtually the whole of the turnover to tax at a higher or lower rate on gross profits. In each case the higher the threshold the bigger the difference.
Take a small shopkeeper making twopence profit on a pound of sugar. His margin is very small. The level we are talking about is so low as to affect the efficiency of collection.
I share Deputy Woods view on that. Let us take 900 shopkeepers who are registered and another 900 who are not. On gross turnover of £250,000 the average tax would be £1,800. The collection expenses would bring the Revenue Commissioners to a situation of low cost efficiency. Has the Minister made any study of the relationship between the collection expenses and the VAT revenue?
The Revenue Commissioners are very conscious of the ratio of VAT collection costs to total revenue received. I understand the collection expense in respect of VAT is less than 1 per cent of revenue.
There is then no point in going into the figures, but you might have a VAT inspector spending a whole day with a very small operator and that would make the efficiency element questionable in that one case.
In this case we are talking about a very small minority of taxpayers and these visitations by inspectors are mainly from the point of view of giving advice—explaining to traders what they should be doing.
Advising them, in other words. The corner shop has been mentioned. Such traders would not have to register with a turnover of less than £18,000. When one looks at the consumer price index, I suggest the figure should be increased.
It has been explained that in calculating this we have to take account of the varying tax rates on the goods being dealt in, and in the case of the corner shop a lot of the goods dealt in would be zero rated.
Perhaps only a small proportion of their goods would be taxable, but on paper a figure of, say, £19,000 might appear but the annual profit might be less than £500.
Obviously it is impossible to get a system so refined that it will cover all cases. We have gone quite a distance by distinguishing between traders whereas in the UK there is an across-the-board rating. It is also true that if you raise the limit unduly high, even in the case of the corner shop you would be depriving the Exchequer of revenue and you would be discriminating as between one trader and another. The limit involved could be too high. As far as possible the objective has been to include all trading, and the exemptions or exclusions must be kept to a minimum if the system is to be operated effectively and if the overall revenue is not to be seriously damaged.
I regard the threshold as being fair. In the case of the corner shop, if the threshold were increased the overall collection cost would be more than 1 per cent of revenue. In the case of farmers, nowadays we have a more educated type of farmer than heretofore and when he goes into business he will find it might be to his benefit to register. We are leaving him the option to register and, as I have said, I regard the threshold as being fair. In the case of the small businessmen, many of them are not capable of going into figures and you would have to get the VAT inspector continually to go around explaining to them what the thing is all about.
Small shopkeepers with a turnover of £1,000 per week will not have the financial resources to employ a full-time book-keeper. The number of invoices they get from suppliers of bread, milk and so on, is very considerable. I agree that in general the limits have been increased and that is good. The amount of money collected from such shopkeepers during a year would not warrant the cost of keeping records and the trouble involved for the Revenue Commissioners in checking the records. Regard should be had to the amount of goods sold at zero per cent in a grocery shop. Those people could be deregistered at a considerably higher threshold—say at £80,000 or £100,000. If the Revenue Commissioners do an assessment of grocery shops who have a large percentage of items at zero per cent, they will realise that the amount collected in VAT from a business with a turnover of £100,000 will be very small.
I support what Deputy McCreevy has said. A small grocer with a turnover of £20,000 a year could not afford to employ anybody to help him with his book-keeping, having regard to the profit margins in the grocery trade. Probably a person in a service industry with £3,000 a year would have more profit and could afford to employ somebody to help him with his book-keeping.
The Revenue Commissioners have given the trader with the mixed receipts three different options for calculating his VAT liability and they are very favourable to the taxpayer. The amount of bookkeeping involved in a fairly large shop depends on the ratio of purchases, whether it is zero, 10 per cent or 20 per cent. There are certain limits given. The amount of money collected, as against the amount of book-keeping that must be done in a grocery shop with a large number of items at zero per cent, does not warrant the cost and inconvenience to the taxpayer and to the Revenue Commissioners.
As I have indicated, unlike some other countries, we have endeavoured to meet this situation to some exent but it will be realised that the percentage of turnover which is zero-rated in a grocery shop for instance can vary enormously depending on the kind of trade. It is not possible to devise general rules that will not create the kind of anomalies mentioned by Deputy Barry and Deputy McCreevy. We have gone a fair distance to meet the problem having regard to the two overriding considerations that arise and which I mentioned earlier. One is the question of the effect on the Exchequer and the other is the question of distorting competition unfairly by reason of the tax system because, depending on the degree of the mix in the turnover of a business and the rates of VAT applicable to the different types of goods, you can get a situation where there is a considerable competitive advantage. Effectively, non-registration in some cases can mean exemption of the profit from tax. We have to keep a close eye on the effect so that we will not create an undue distortion arising directly from the tax system.
A shop with a turnover of £40,000 may sell many items at 20 per cent. That kind of shop will make considerably more profit and will pay much more VAT than a shop with a turnover of £140,000 where the sales mix is different. Items such as sugar and butter are expensive to buy; there is no profit in them for the retailer but they form a considerable part of the trade of the small shopkeeper with a turnover of £18,000 per annum. The Revenue Commissioners have some sympathy with these people. The number of invoices that these small shopkeepers have to cope with each year is equivalent to that handled by a large store in Dublin. There is no relation between the amount of profit made and the book-keeping that must be done. Perhaps some future Bill would have regard to that. If zero-percentage goods make up £X of turnover much higher thresholds should be introduced for those people. It is impossible to devise an across-the-board rule but perhaps my suggestion might be considered at a future date for the people I mentioned.
When we talk about the corner shop we usually mean the shop run by a man and his wife. Probably they have no training in book-keeping and they open seven days a week. It is a very small business indeed.
The Revenue Commissioners have studied the returns from a number of shops and the results show there is an enormous variation in the mix of goods in shops apparently in the same category. We could end up with an enormous number of categories in an endeavour to meet this situation and might add to the complexity of an already complex situation. It is a question of trying to devise a workable system that is reasonably fair to the Exchequer and to the trader. I do not say we have found the ideal answer but I do say that the increases proposed in these amendments improve the present situation considerably.
Has the Minister received submissions on these limits from RGDATA and similar organisations? Would there normally be consultations and deputations about matters such as this between the Department and the organised interests?
Yes. We received submissions in regard to this but that was a considerable time ago.
The benefit to the Revenue of having this massive record-keeping gun is very considerable to them when they go about their income tax collection.
The Deputy said that; I did not. Another of the advantages seen in the introduction of the VAT system, and I said it at the time, was that it was expected to improve the returns on the income tax side. It provides a certain method of cross-checking by the Revenue Commissioners.
Will the Minister say what category the roadside traders come into? They are unfair competition to the corner shops and even to the larger shops who give considerable employment and who contribute to the upkeep of the State and society. There is also the category in the multinational set-up where a company moves in and hires a big hotel or a ballroom and puts people out of business for the following 12 months. What is the return? Is it coming in or going out?
I appreciate the point made by Deputy Cogan and I appreciate also his concern in this which he has expressed to me on a number of occasions. That question might be more appropriate to section 13 where we will be dealing with some proposals to ameliorate that position, not to solve the problem completely but to reduce it.
Anybody who is on a local authority knows the hardship of rates on small businesses.
Amendment agreed to.
I move amendment No. 11:
In page 8, line 4, to delete "£2,000 " and to substitute "£3,000 ".
Would the Minister remind us which categories the amendments cater for?
Is the amendment agreed to?
No.
Question put and declared carried.
I move amendment No. 12:
In page 8, line 21, to delete "£1,000 " and to substitute "£1,500 ".
This amendment refers to hardware merchants, jewellers and so forth.
Amendment agreed to.
I move amendment No. 13:
In page 8, line 29, to delete "£300" and to substitute "£500".
This amendment deals with services.
That is in the sense of dressmakers and that kind of person and it does not deal with people like travel agents who come under another section.
Amendment agreed to.
I move amendment No. 14:
In page 9, line 1, to delete " section " and to substitute " Act ".
Amendment agreed to.
I move amendment No. 15:
In page 9, subsection (9), line 2, after " goods " to insert ", other than live horses and live greyhounds,".
Amendment agreed to.
I move amendment No. 16:
In page 9, line 27, to delete "£1,800 " and substitute "£3,000 ".
Does that deal with farming?
Yes.
Amendment agreed to.
Question proposed: "That section 6, as amended, stand part of the Bill."
Could the Minister give an indication of the number of agricultural contractors who will have to be registered for VAT and whether there will be a meaningful gain to the Exchequer as a result of such registration under the section? Rather than go into detail, this information is included in the written answer to a parliamentary question which I asked on 11 October in relation to section 6, as in the Official Report, column 47, Volume 308. The answer was that the number of new traders liable to be registered for VAT is estimated at 2,500. Are these 2,500 the total number of people known in the set-up of the Bill or are they the agricultural part?
No, that is the total number. We do not have a separate figure for agricultural contractors although it would be true that most of them will not become liable. Only those who are not farmers will. Most of those who are farmers will not have to register.
If a person is a farmer and also does agricultural contracting do the Revenue Commissioners regard his income tax liability in the sense of a contracting ancillary to his farming activities and not as a separate trade? Could he be caught in the VAT net and caught also for income tax?
The limit in this case would be £3,000, but the general approach is that where the equipment he is using for his agricultural contracting is what he would normally be using on his farm it would be regarded as ancillary. If it is substantially more than he would be normally using on his farm it is not regarded as ancillary. That is a rule of thumb.
He would not be in the VAT net even though he would be over £3,000.
That is correct. The threshold applies only where he has nothing else.
Is the section agreed?
No.
Question put and declared carried.