Dáil Éireann - Volume 398 - 22 May, 1990

Finance Bill, 1990: Committee Stage (Resumed).

Section 77 agreed.


Question proposed: “That section 78 stand part of the Bill.”

Mr. Noonan (Limerick East): Would the Minister outline his view on excise duties on petrol and diesel, dealing in particular with his view of the harmonisation process of excise of fossil fuels? Perhaps he would outline Government policy on differentiation between the treatment for excise purposes of leaded and unleaded petrol.

[2393] Minister for Finance (Mr. A. Reynolds): The purpose of this section is to give effect to an excise duty reduction of 1.1p including VAT, on a litre of unleaded petrol, which is the equivalent of 5p per gallon including VAT, and to give effect to an excise duty reduction of 43p, including VAT, on a gallon of auto LPG motor vehicle gas.

These measures which came into effect on February 1990 will have the following estimated Exchequer effects: the cost of increased rebate for unleaded petrol — £6.5 million in 1990 and £7.9 million in a full year; cost of reduced rate on LPG — £0.8 million in 1990 and £1 million in a full year. The increased rebate for unleaded petrol doubles the price differential in favour of unleaded petrol from 1.1p per litre to 2.2p per litre or the equivalent of 12p a gallon. This should provide a considerable incentive to motorists to switch to the unleaded product. Unleaded petrol is not included in the base used to determine the consumer price index. The CPI effect of reducing the duty on auto LPG is estimated at 0.017 per cent. In the budget we doubled the differential in the price of unleaded petrol from 5p to 10p a gallon and reduced LPG.

Mr. Noonan (Limerick East): I also ask for an indication of the progress towards harmonisation of excise duty on fossil fuels and asked the Minister to outline the Government position on harmonisation.

An Leas-Cheann Comhairle: Perhaps the Deputy would frame the question otherwise. To ask for an outline of Government policy is not strictly in order.

Mr. Noonan (Limerick East): How far does this measure go to fulfil Government policy on the reduction of excise duty on fossil fuels?

Mr. A. Reynolds: The new package of proposals from the Commission in relation to excise duties has only come to hand and there has been no discussion on them yet. It would be premature to [2394] outline our approach because we will be looking at the entire package, not alone excise duties but VAT in a combined package.

Mr. Noonan (Limerick East): Does the Minister have in mind a differential between leaded and unleaded petrol which it is intended to reach over a number of budgets? Alternatively has the differential already been established in this provision?

Mr. A. Reynolds: We have established a differential of 10p and we will watch its effect in the course of this year. It is too early to say if anything further will be done in next year's budget. If necessary we would possibly consider widening the differential again. In the UK the differential is 15p and that has been widely accepted there. In this country the proportion is in the region of four to one. We will see what effect the increased differential this year will have.

Mr. Noonan (Limerick East): Is there any indication from Revenue that reducing the price of unleaded petrol is having an effect on sales? Is there a switch in purchasing patterns?

Mr. A. Reynolds: There has been a switch. The figure is now approaching 15 per cent.

Mr. Taylor: What had it been?

Mr. A. Reynolds: It had been around 10 per cent or a bit below. It is climbing towards 15 and heading towards 20 per cent.

Question put and agreed to.

Sections 79 to 85, inclusive, agreed to.


Mr. Yates: I move amendment No. 101:

In page 72, before section 86, but in Part II, to insert the following section:

[2395] 86.—(1) Regulation 8 of the Disabled Drivers (Tax Concessions) Regulations, 1989 (S.I. No. 340 of 1989) is hereby amended by the substitution of “10 per cent” for “30 per cent” in each place where it occurs in paragraph (1).

(2) Section 92 of the Finance Act, 1989 is hereby amended by the substitution of “10” for “30” in subsection (1) (b) (ii).

(3) This section shall come into effect on the date of passing of this Act.

This amendment deals with tax relief for disabled drivers or disabled people who are seeking transport. I acknowledge that the Minister made some improvement in the situation last year. The position prior to that was that a person had to have both lower limbs disabled in order to qualify. Therefore, anomalies arose in certain cases, for example, in the case of Mr. Gerard O'Brien who had no arms and only one leg but who was precluded from the scheme. I am glad to be able to say that Mr. O'Brien is now receiving this car tax relief.

Every time we rewrite the rules people get caught on the wrong side of them. I should like to highlight two cases. Like other Deputies I have had considerable correspondence with the Minister about one of these cases which relates to people who are so disabled they cannot drive cars themselves and have to travel as passengers. With regard to the conversion of cars for disabled passengers, the regulations state that 30 per cent of the value of the car must be the expenditure on the modifications to meet the disability. With regard to, say, front seat disabled passengers I understand there is a widely available scheme for about 30 per cent of the original value of the car before taxes are added and that this does not relate to the total value of the car when it is sold from a garage. I ask the Minister to consider accepting amendment No. 101 which seeks to reduce expenditure on modifications from 30 to [2396] 10 per cent of the value of the car. If the Minister believes that a figure of 20 per cent would meet the problem we will not be unreasonable about this. In view of the fact that last year the Minister acknowledged in principle the difficulties imposed on people in such circumstances perhaps he will consider accepting this amendment.

I should like to refer to another anomaly which has come to light since I tabled this amendment, that is, people with club-legs are eligible for the relief while those with club-feet are not. To all intents and purposes the regulations deal with legs as opposed to feet. I ask the Minister to also consider these people sympathetically.

Mr. Rabbitte: I support Deputy Yates's amendment. There seems to be inexplicable anomalies in the existing code. The acceptance of this amendment would be greatly appreciated by the Disabled Drivers' Association and by others who have made representations to us all for some alleviation and a more generous interpretation of the code, as is envisaged in the amendment.

Mr. Noonan (Limerick East): It is appropriate to mark again what the Minister did last year. He took the Finance spokesmen of all parties into his confidence and had discussions with them before he brought amendments to the Floor of the House and provided us in advance with copies of the statutory regulations by which he implemented the scheme. We appreciated that very much.

Anomalies are being brought to our attention all the time. Last year, too, Deputy Yates was particularly interested in the anomaly his amendment seeks to deal with. I should like the Minister to consider this amendment. It might be more appropriate for the Minister to amend the regulations rather than the section. I think he is aware of Deputy Yates's intention and I should like him to consider this amendment between now and tomorrow.

Mr. A. Reynolds: I thank the Deputies [2397] for their recognition of what I did last year which, of course, was done only after consultation with all the Finance spokesmen. There was agreement at that time that the scheme should be reviewed in a year from its inception and I intend to have this review carried out during the autumn. I will be prepared to look at how the scheme here operates during the first year.

With regard to passengers, the percentages referred to in the amendment can be reviewed. The figure of 30 per cent in the Finance Act refers, of course, to the pre-tax price of the vehicle before adaptation, that is, the initial price of the vehicle before VAT or excise duty are charged. This is a significant improvement on the previous scheme under which it was required that the adaptation would exceed 30 per cent of the higher tax inclusive price of the vehicle after adaptation.

There may well be other aspects which require modification. I have no doubt that anomalies exist — we never see them all the first day — but I believe all of these should be taken together rather than changing the agreed scheme in a piecemeal manner as envisaged in the amendment. I will be happy to again consult the Opposition spokesmen on Finance when the review is being carried out in the autumn. If the Deputies look at the 30 per cent figure in detail I believe they will see that it opens the gate pretty wide in relation to what can and cannot be done. Basically what we set out to do in the present scheme was to prevent abuse in so far as possible while widening the scheme to give disabled people the best possible deal.

I can give plenty of examples, if the House want to hear them, of what would happen if we were to adopt this proposal. For example, by putting in a passenger seat people would get away with murder. That is the type of abuse we set out to take out of the scheme so that we could give the people who are entitled to such benefits the best deal possible. I will leave it at that for now. I hope this is acceptable to the House. As I have said, I will involve all the Opposition spokesmen in [2398] the review. This should be a non-contentious and non-political issue. We are trying to do the best we can and I do not think anybody is interested in opening the doors to abuse.

With regard to the point made by Deputy Yates about the inclusion in the scheme of people with club legs and the exclusion of people with club feet I do not recall any such provision either in the legislation or in the regulation. Perhaps the problem arises with the medical interpretation of the provision. I am surprised at what the Deputy says in that regard but I take the point.

Mr. Yates: I appreciate that whatever amendment is made to the regulations there will be people who will seek to benefit from car tax relief but who will not be able to do so. I am thinking of people, for instance, who have had their hands amputated. This significant group were excluded last year and I have not sought, by way of amendment to have them included. I have tried to lunge in on what I consider to be the most deserving of cases. I accept the Minister's bona fides in the matter in view of what happened last year and I will not be pressing this amendment to a vote. However, I ask that the review to be carried out in the autumn will be comprehensive, sensitive and sympathetic and will take account of the copious correspondence the Minister has received about individual cases which have, to date been rejected since the regulations were amended.

Mr. Noonan (Limerick East): May I ask the Minister the number of people who are now benefiting from the scheme and the number of beneficiaries since the scheme was amended last year?

Mr. A. Reynolds: There has been an increase of 58 per cent in the new scheme. We must bear in mind that the new scheme was slow enough in getting off the ground and that the medical people were slow in getting to grips with it. In fact, it took continuous pressure by my Department to get them into line. In view of [2399] that I think the 58 per cent increase is reasonable.

Mr. Noonan (Limerick East): From what base is the Minister working? How many people is he talking about and what is the total cost involved?

Mr. A. Reynolds: I do not have details yet of the total cost but I will have them for the Deputy tomorrow.

Mr. Taylor: What steps have been taken to publicise the scheme so that the people who are entitled to benefit will know about the new regulations which were made last year?

Mr. A. Reynolds: As Deputy Yates said, considerble representations have been made in relation to the scheme. The Disabled Drivers' Association were told about it and I would say they have contact with most of the people ——

Mr. Yates: The Wheelchair Association.

Mr. A. Reynolds: All of the associations who have direct contact with disabled people have been kept well informed of the changes.

Mr. Cotter: I support this amendment. I want to refer to the regulations specifically as they relate to disability of the legs. I came across a case recently where the disability could not be described as being in the legs because it was in the feet. The lady concerned had lost the power of her feet. The medical people gave a description of the disability and I am concerned that the regulations prevent that person getting relief under the Bill. I understood the intention of the legislation was to cover people who find it impossible to drive a conventional car because of some disability in their legs or their feet. The Minister has said that he intends leaving this matter until the autumn but I appeal to him to ask his officials to look at the regulations with a view to amending them. The medical [2400] officer, quite rightly, applies the regulations as he or she reads them but the case I referred to is not covered. The disability of the lady I have referred to cannot be included under the term “legs”. In my view the regulations need to be changed.

Mr. A. Reynolds: I will have a look at the issue raised but, as I said, I do not agree with carrying out a review piecemeal. It is our intention to have a review after the scheme has been in operation for 12 months. We would then be in a position to know the adjustments that are required. We want to ensure that we do not leave the provision open to abuse. I should like to stress, for the Deputy's information, that the scheme is not a general mobility scheme for disabled persons. The general question of mobility for the disabled is a matter for the Minister for Health. I am no expert on this matter but I understand that the chief community officer is the certifying officer. That officer is in a better position than anybody to certify such people for inclusion in or exclusion from the scheme.

Mr. Cotter: In this instance when the medical officer was providing the medical evidence on the official form he was obliged to type out the word “legs” and type in the word “feet” because that was the nature of the disablement. Will the Minister take a special interest in this case if I bring the details to his notice? If the fault lies in the legislation I should like to ask the Minister to rectify it.

Mr. A. Reynolds: I will be delighted to look into the matter if the Deputy sends me details.

Amendment, by leave, withdrawn.

Section 86 agreed.


Question proposed: “That section 87 stand part of the Bill”.

[2401] Mr. Noonan (Limerick East): I understand that this arises from the Eighteenth VAT Directive from the EC Council and deals with the sale of horses chargeable to VAT. Will the Minister explain the provision in more detail? I understand that the 2.3 per cent rate will apply to horses, as it does to other livestock. What will be the position of pure bred horses? Are we talking about the supply of all horses from any source or are we talking about the breeding of horses on farms being liable to 2.3 per cent VAT as is any other animal?

Mr. A. Reynolds: This section amends section 1 (1) of the VAT Act and inserts “horses” in the definition of “livestock” thereby applying to the supply of horses the 2.3 per cent rate applicable to livestock generally. Livestock is liable to VAT at a special low rate, currently 2.3 per cent. At present livestock is defined for VAT purposes as live cattle, sheep, goats, pigs and deer. From 1 January 1991 horses will be included in the definition of livestock. The supply of live horses is currently exempt from VAT. The exemption was provided for by way of a derogation from the terms of the Sixth VAT Directive adopted in May 1977 which established throughout the Community a common system of VAT. On 18 July 1989 the Council of the European Communities adopted the Eighteenth VAT Directive. The terms of this directive provide for the abolition of certain derogations allowed under the terms of the Sixth VAT Directive. One such derogation relates to Ireland's exemption of supply of horses which under the terms of the Eighteenth VAT Directive has to be abolished from 1 January 1991. Horses were taxable at the livestock rate on the introduction of VAT on 1 November 1972 until 3 September 1973 and the supply of live horses has been exempt since then. With the Sixth VAT Directive, as adopted by member states in May 1977 Ireland secured that derogation from the terms of the direction on a transitional basis which allowed the continued exemption of horses from VAT. The Eighteenth VAT Directive involved [2402] a review of all derogations granted and member states were obliged to justify the continued existence of such derogation.

Horses are at present taxable in 11 member states. The continued exemption of horses in Ireland proved impossible to defend and, accordingly, the derogation is being ceded as agreed under the terms of the Eighteenth Directive with effect from 1 January 1991. The supply and importation of horses will become liable to VAT from that date. There are no provisions in VAT law governing sales made by one registered farmer to another and the sale of horses between unregistered farmers will not attract VAT.

Mr. Noonan (Limerick East): I am looking for clarification of the section. I do not understand it very well. Is the sale of bloodstock at any of our great sales exempt from VAT?

Mr. A. Reynolds: It is exempt.

Mr. Noonan (Limerick East): Therefore, the sale of a horse on the farm to another farm, or the sale of a pony to a neighbour who wants a pony for children, is exempt?

Mr. A. Reynolds: They are unregistered.

Mr. Noonan (Limerick East): Are they exempt in the same way that the great sales on the Naas Road are exempt?

Mr. A. Reynolds: Yes.

Mr. Noonan (Limerick East): The Minister has said that the sale of a horse from an unregistered farmer to an unregistered farmer will not attract VAT?

Mr. A. Reynolds: That is what I said.

Mr. Noonan (Limerick East): If a farmer sells a foal to a registered farmer or to a person in the racehorse industry it attracts 2.3 per cent VAT but what about the VAT rebate? How does that work and what mechanism is used?

[2403] Mr. A. Reynolds: The unregistered person gets the 2.3 per cent rebate.

Mr. Noonan (Limerick East): From whom and on what basis?

Mr. A. Reynolds: From the registered person.

Mr. Rabbitte: I have never understood how this is calculated.

Mr. Noonan (Limerick East): If we were talking about the sale of bullocks at a mart it is clear how one could obtain a rebate through that system because the mart would be handling the sale but what is the position of a person who has a mare in foal and sells the foal to another person? How is that rebate organised, whether the purchaser is registered or unregistered? If the sale is to a neighbour, how does one get a refund?

Mr. Rabbitte: I thought the refund was on inputs.

Mr. A. Reynolds: It does not arise when the sale is from neighbour to neighbour. If an unregistered farmer sells an animal to a registered person or company the registered person or company will refund the 2.3 per cent to the unregistered farmer who sells the animal in the first place and will, in turn, reclaim his 2.3 per cent from Revenue.

Mr. Taylor: Will the seller be charging VAT on that sale?

Mr. A. Reynolds: No.

Mr. Taylor: How can he reclaim VAT when he did not ask for it? This does not make sense.

Mr. Noonan (Limerick East): Who is going to be out of pocket?

Mr. A. Reynolds: Is he doing well? The purpose of the flat rate is to compensate those farmers who choose not to register for VAT in respect of the VAT they pay on taxable purchases for their farming [2404] business. Farmers bear VAT at 10 per cent on fuel, electricity, machinery, repairs, etc. They pay 23 per cent on agricultural machinery and transport costs and they may recover this tax in their returns if they register for VAT. If they choose not to register, compensation for the tax burden is available to them by means of the flat rate addition to prices of agricultural produce sold to VAT-registered customers such as co-operatives, livestock marts and so on. These VAT-registered customers, in turn, recover the flat rate addition through their VAT returns as an offset against their own liability. Whether farmers register makes little appreciable difference to total VAT yield, as the major agricultural inputs and outputs are zero-rated. Consequently, from the point of view of administrative efficiency, it is preferable that farmers should not be obliged to register. This option of non-registration for farmers applies in all EC countries with the exception of the United Kingdom and Denmark.

Mr. Rabbitte: If a non-registered farmer disposes of an animal — in this case a horse — to a registered farmer, the registered farmer may refund the VAT element to the unregistered vendor and may himself reclaim the 2.3 per cent——

Mr. A. Reynolds: That is right.

Mr. Rabbitte: On what then is one compensating the vendor for in the first place?

Mr. A. Reynolds: He would have paid VAT on inputs coming to him and, being an unregistered farmer, he would have no way of claiming a refund. Therefore, the 2.3 per cent he gets from the registered person or company is a contribution towards the VAT he already paid, whether to shops, on machinery or input costs.

Mr. Rabbitte: What is the scientific basis for calculation? Is it an arbitrary guess? On budget night Deputy Noonan lectured me very knowledgably on why it [2405] should be 2.6 per cent rather than 2.3 per cent. Is this merely an inspired guess?

Mr. Noonan (Limerick East): Professor Séamus Sheehy said——

Mr. A. Reynolds: The basic data on which it is calculated comes from the Central Statistics Office. It is in respect of the last three years and takes full account of the 1990 budgetary changes. It does not take account of the taxation of horses as such taxation will not take effect until 1 January 1991. The data was compiled over a period of three years but I would not be able to comment on its scientific nature.

An Leas-Cheann Comhairle: Deputy Noonan will appreciate that he released a stray mare here and perhaps we could deal directly with thoroughbreds in a later section.

Mr. Noonan (Limerick East): The VAT directive also deals with greyhounds.

Mr. Taylor: Before we leave this section, will the Minister clarify the position? I understand it very well in the case of a sale from an unregistered person to a registered person, but what is the comparable sequence of events in the sale from an unregistered person to another unregistered person? Are refunds applicable in that case?

Mr. A. Reynolds: Nothing happens in that case.

Mr. Rabbitte: No foal, no fee. It is a different law from that which applies to the rest of us.

Mr. Noonan (Limerick East): Ireland's derogation also exempted greyhounds. Will this section mean that the sale of greyhounds will be subject to VAT? What is the Minister's intention?

Mr. A. Reynolds: It is dealt with later in the section.

[2406] Mr. Cotter: We are discussing the clawback in the VAT system in relation to farmers. Does it also apply to unregistered business people? Do they benefit from a clawback system because, although they would not have the same volume of inputs, they would be paying VAT on electricity and in all sorts of other ways?

Mr. A. Reynolds: There is no similar system in operation for the small trader to whom the Deputy referred. These people may register but there is no obligation on them, up to a certain level, to register.

Mr. Noonan (Limerick East): What about the sale of other livestock as opposed to the prime bullock? One can argue that the prime bullock is the sum of the added value of the product which he consumed, the grass, feedstuffs and so on. He is then sold and there is more added value when he is butchered. However, if the horse is in the show jumping or racing business his value is not the sum of the inputs because there is the x factor of whether he performs well. How can there be a scientific basis for calculating the appropriate level of rebate when there is a totally unquantifiable factor in the performance of horses?

Mr. Cotter: Bring in Deputy McGahon.

Mr. A. Reynolds: There is a very favourable, low rate in operation at the moment and I do not think the Deputy is suggesting that we should move to a higher rate.

Mr. Noonan (Limerick East): The advice is that this data is scientifically based by calculating inputs against the final price when the inputs have very little to do with the final price paid for a horse.

Mr. A. Reynolds: It is calculated on a global agricultural basis, not specifically related to horses.

Mr. Rabbitte: We dealt with this [2407] matter on budget night but do I take it that the entire calculation is on a macro basis and then simply applied to all unregistered farmers? Am I also to understand that there may be great variables between one unregistered farmer and another?

Mr. A. Reynolds: It is a macro figure.

An Leas-Cheann Comhairle: Bearing in mind the time constraints, perhaps we could move to something else.

Mr. S. Barrett: I will give an example. If I go down to the sales in Goff's after 1 January 1991 and pay £10,000 for a yearling, do I pay 2.3 per cent VAT on the sale?

Mr. A. Reynolds: Yes.

Mr. S. Barrett: May I claim a rebate?

Mr. A. Reynolds: Yes, if you are registered.

Mr. S. Barrett: Am I obliged to pay the 2.3 per cent to the breeder?

Mr. A. Reynolds: If the breeder about whom the Deputy speaks is unregistered, when he puts the horse into Goffs sale to be sold and the Deputy goes in and buys the horse for £10,000 plus 2.3 per cent, Goffs will refund the unregistered breeder the 2.3 per cent and claim it themselves because they are registered.

Mr. Taylor: But the purchaser has to pay it?

Mr. A. Reynolds: He pays Goffs, who are selling the horse, 2.3 per cent on top of the £10,000.

Mr. Cotter: Surely it would be the standard rate of VAT which would be applicable to a sale?

Mr. A. Reynolds: No, 2.3 per cent.

[2408] Mr. Cotter: But 2.3 per cent is the additional rate.

Mr. A. Reynolds: This is the new rate. The 2.3 per cent was the standard rebate rate. This is the new rate applicable to horses to get rid of the derogation beginning from 1 January next year. It happens to be the same.

Mr. Noonan (Limerick East): Is there anything else subjected to a 2.3 per cent VAT rate?

Mr. A. Reynolds: Livestock apart from horses.

Mr. Rabbitte: And to date livestock were incorporated. What rate was applicable to livestock to date?

Mr. A. Reynolds: There has been no change with regard to livestock — 2.3 per cent has been applicable from 1 March last.

Mr. S. Barrett: But I, as the buyer of the yearling, pay 2.3 per cent; that 2.3 per cent does not accrue to the State.

Mr. Rabbitte: It does but it is claimed back. All we are doing here is adding horses to other livestock.

Mr. A. Reynolds: Yes, because there was a derogation obtaining up to now.

Mr. S. Barrett: Therefore, the breeder will be recouped 2.3 per cent which he is not getting at present?

Mr. A. Reynolds: Precisely, but that comprises a contribution only of the VAT he has paid out in various ways because he is unregistered——

Mr. S. Barrett: So he will be 2.3 per cent better off?

Mr. A. Reynolds: On that specific transaction he is but he has input costs on which he will pay VAT anyway.

[2409] Mr. S. Barrett: What happens if I buy a racehorse from you?

Mr. Cotter: The Deputy would be foolish to do so.

Mr. A. Reynolds: I have none to sell. However——

An Leas-Cheann Comhairle: Again, Deputy Barrett is not correctly addressing his remarks through the Chair. I think it applies now only to unregistered breeders, an unregistered owner of the beast that is being sold.

Mr. Cotter: A Leas-Cheann Comhairle, you are walking in a mine field.

Mr. Noonan (Limerick East): If he is unregistered he will get it back automatically, the same thing——

Mr. Cotter: ——provided he deals with a registered person.

Mr. S. Barrett: What I am asking is: if the Minister has a horse in training and I buy the horse from him, as from 1 January 1991 if I pay the Minister £10,000 for the horse in training, do I pay 2.3 per cent VAT on that?

Mr. A. Reynolds: Is the trainer registered?

Mr. S. Barrett: I would not be paying the trainer; I would be paying the Minister as the owner.

Mr. A. Reynolds: That takes us to the next step: is the owner registered or unregistered?

Mr. S. Barrett: He could be registered but may not be in the business.

Mr. A. Reynolds: Would the Deputy answer my question: is the owner registered or unregistered?

Mr. S. Barrett: Well, Albert Reynolds, politician is not registered for VAT as the owner of the horse so I, Séan Barrett, [2410] politician, buy the horse from Albert Reynolds. Do I pay 2.3 per cent on the sale between the two of us?

Mr. A. Reynolds: Is Séan Barrett registered?

Mr. S. Barrett: No.

Mr. A. Reynolds: Then if the two of us are unregistered nothing happens.

Mr. Rabbitte: Nothing transfers. Arising on this point——

An Leas-Cheann Comhairle: I hope the Deputy's hypothesis will not be based on his buying a horse; will it?

Mr. Noonan (Limerick East): This will be a horse of The Workers' Party, a horse of a different colour.


Mr. Taylor: He is a bit of a workhorse himself.

An Leas-Cheann Comhairle: From past experience I might say to the House that all this delightful levity will be regretted coming up to 6.30 p.m. when there will have been work remaining undone.

Mr. Rabbitte: My fear here is that we are buying a pig in a poke, as somebody has said. To save me rising later may I make the point — seeing that it has arisen at this stage — I remain unconvinced about the fairness of this mechanism. The Minister and his advisers agree now that it is a macro-guesstimate from which unregistered farmers benefit. It seems to me that one can automatically conclude that a very great deal of the farmers concerned do not pay tax of any kind. We had a long debate on another Stage of the Bill about the fact that, now that farmers are being brought on to a current year basis of assessment, they should receive the same allowances as PAYE workers and so on. Notwithstanding our having been watched carefully in the gallery on the evening [2411] in question, I suspect that most of the farmers on whose behalf a plea was being made are not liable to tax at all. I suspect that there is a major overlap here in the sense that unregistered farmers, or a large proportion of them, would not be paying tax of any kind. For example, Deputy Cotter adverted to the anomaly I highlighted in my contribution in the House on budget night, which is, as compared with unregistered businesses, for example, that there is no similar facility available to unregistered businesses. The Minister replies, quite rightly: let them register and we will deal with them. It seems to me there are two different laws applicable here. I am afraid I cannot be convinced of the equity of our making this kind of refund when we really do not know what will be the circumstances of the individual unregistered farmer.

An Leas-Cheann Comhairle: Notwithstanding that, perhaps the House would agree: “That section 87 stand part of the Bill”?

Mr. A. Reynolds: May I put on the record that what Deputy Rabbitte is saying does not represent the facts at all. Members must realise that a farmer buys, let us say, a tractor, equipment, has repairs done and he is paying VAT — I am talking about an unregistered farmer — in all those areas. The fact that he gets a 2.3 per cent refund only covers portion because there will be winners and losers. The fact remains that he is paying VAT in all the areas in which he buys and, if he is unregistered, he has no means of reclaiming it. If he is registered, that is different. Let us take the example of a small business, a small businessman will have a level of turnover in respect of which he can exercise a choice as to whether he wants to register or not. If we were to bring all of the small farmers into the administrative net for refund purposes or otherwise, I would hazard a guess they would be in refund circumstances most of the time. It would be a total administrative nightmare. That is my honest opinion.

[2412] An Leas-Cheann Comhairle: Is section 87 agreed?

Mr. Taylor: No, just a moment: Is the Minister referring to the 2.3 per cent? Is it not a fact that auctioneers charge 10 per cent on their services in their dealings in farm equipment under the 1981 Act? How does that fit into these circumstances?

Mr. A. Reynolds: The 2.3 per cent is the rate for livestock, including horses, goats, sheep, cattle and so on. That is the rate that will be applied for administrative purposes under section 88.

Mr. Taylor: So the 10 per cent on the service of auctioneers is gone now, is it?

Mr. A. Reynolds: No, no way, it is not gone.

Question put and agreed to.

Section 88 agreed to.


Question proposed: “That section 89 stand part of the Bill”.

Mr. Noonan (Limerick East): Would the Minister explain from his section notes the significance of this section? Would he also outline briefly what is the general position at present with regard to VAT on services supplied from abroad? For example, if somebody is engaged in the denture repair business and that service is conducted in Liverpool rather than Dublin, in what way does it work?

Mr. A. Reynolds: This section provides that a recipient of certain foreign services for business purposes — who has an establishment in the State and his principal establishment in the supplier's country, and who would not otherwise be chargeable with VAT on such services — is made so chargeable in the State where [2413] the services are for the use of his establishment here. The provisions of this section will be applicable from the date of passage of this Bill.

The place of supply of many services is the place where the person supplying the service is established. The supplier is legally responsible for payment of the tax to his authorities.

A lacuna in our present law has been identified by a number of accountancy firms. This present amendment is to remove an incentive to have services carried out by foreign companies in circumstances where there might not be any VAT payable. The problem arises where the recipient of taxable Fourth Schedule services is a branch of a company and the principal establishment of that company is in the same country as that of the supplier of the services. The conditions of section 5 (6) of the VAT Act are not met and the services do not, therefore, constitute received services liable to Irish VAT. A practical example of this would be where a Dublin branch of a UK insurance company is in receipt of services from an accountancy firm in Manchester. Such services do not come within the provisions of section 5 (6). Consequently, in so far as Irish VAT is concerned, the general rule applies and the place of supply is Manchester. However, as regards UK VAT, our understanding is that since the services are for the use of the company's Dublin branch this would qualify the accountancy services as a zero-rated supply in the UK. Thus the supply escapes VAT liability in both countries. This could give rise to complaints about distortion of competition since it is clearly advantageous for an exempt insurance company, or bank, to avail itself of tax free services whenever it can do so. This amendment closes the loophole.

Mr. Noonan (Limerick East): Has the Minister any estimate of the increase in revenue arising out of the closure of the loophole?

Mr. A. Reynolds: We cannot assess it at this stage.

[2414] Mr. Noonan (Limerick East): Is it believed to be significant?

Mr. A. Reynolds: It is.

Mr. Taylor: Can the Minister tell us what the modus operandi will be? Does this mean that a firm based in Manchester will be charging and collecting Irish VAT?

Mr. A. Reynolds: No.

Mr. Taylor: To whom will the VAT be payable? If an Irish based firm becomes liable for VAT to a foreign based firm, to whom will they pay the VAT included on their bill? Presumably they will pay this to the firm in Manchester.

Mr. A. Reynolds: A firm in Manchester with a branch in Ireland could claim in the United Kingdom that they are not liable for VAT in that country because the service was being provided in a different State. As I said, there was no way of catching them here. Therefore, this amendment closes off this loophole in that it will have to be paid here.

Mr. Taylor: I follow that but how is it going to work in practice when the section comes into operation? The firm in Ireland is now being made liable for Irish VAT on a service being provided from Manchester.

Mr. A. Reynolds: That is correct.

Mr. Taylor: I want to know to whom they will pay the VAT.

Mr. A. Reynolds: The Irish Exchequer.

Mr. Taylor: Will they pay it directly to the Revenue Commissioners?

Mr. A. Reynolds: They will.

Mr. Taylor: Normally, one would pay it to the person supplying the service. It is included on the bill. I have never heard of a recipient of a service paying the VAT directly.

[2415] Mr. A. Reynolds: That will be the case after they have registered.

Mr. Taylor: Do I take it that the Manchester firm will have to register here?

Mr. A. Reynolds: The recipient of the service will have to.

Mr. Taylor: I am talking here about the payment of VAT to the English firm supplying the service——

Mr. A. Reynolds: Who gets the service? An individual here will get it from a subsidiary of an English company based in Manchester.

Mr. Taylor: To whom will he pay the VAT?

Mr. Noonan (Limerick East): It is added to the bill and goes back to Manchester.

Mr. Taylor: Exactly.

Mr. A. Reynolds: No. The subsidiary will have to register and declare it.

Mr. Taylor: That is fine, but surely the VAT is payable to the firm who supply the service in the ordinary way.

Mr. A. Reynolds: The firm in Dublin, a subsidiary of the Manchester company, will have to register.

Mr. Taylor: I do not follow that: they either pay it to the Revenue Commissioners direct or to Manchester.

Mr. Cotter: It is not clear. Will the subsidiary import the product and sell it?

Mr. A. Reynolds: It is an exception to the general rule that the supplier pays the tax. Is that clear?

Mr. Taylor: In this case—

Mr. A. Reynolds: The recipient of the service will pay VAT. This is an exception [2416] to the general rule that the supplier pays the tax.

Mr. Noonan (Limerick East): The supplier pays the tax.

Mr. Taylor: The supplier pays the tax and collects it in the first instance from the person to whom he provides the service.

Mr. A. Reynolds: Let us first deal with the general rule. The place of supply of many services is the place where the person supplying the service is established and the supplier is legally responsible for payment of the tax to his own authorities.

The VAT Act, which is based on the Sixth VAT Directive, states in section 5 (6) to which I have referred that certain specified services which are received for business purposes tax free from abroad by persons established in Ireland are taxable in Ireland. These include services which are commonly referred to as Fourth Schedule Services. Such services include the services of acountants, lawyers, advertising agencies, consultants, etc. All persons, including exempt bodies, irrespective of whether they are registered for VAT, who receive taxable Fourth Schedule Services for business purposes from abroad are liable, subject to threshold limitations, to pay Irish VAT on these services.

A lacuna in our present law has been identified. This present amendment is to remove an incentive to have services carried out by foreign companies in circumstances where there might not be any VAT payable. The problem arises where the recipient of taxable Fourth Schedule Services is a branch of a company and the principal establishment of that company is in the same country as that of the supplier of the services. The conditions of section 5 (6) of the VAT Act are not met and the services do not, therefore, constitute received services liable to Irish VAT. A practical example of this would be where a Dublin Branch of a UK insurance company — I have read this out before — is in receipt of services from [2417] an accountancy firm in Manchester. Such services do not come within the provisions of section 5 (6). Consequently, in so far as Irish VAT is concerned, the general rule applies and the place of supply is Manchester. However, as regards UK VAT, our understanding is that since the services are for the use of the company's Dublin branch this would qualify the accountancy services as a zero-rated supply in the UK. Thus the supply escapes VAT liability in both countries. This could give rise to complaints about distortion of competition since it is clearly advantageous for an exempt insurance company, or bank, to avail itself of tax free services whenever it can do so. This amendment closes the loophole.

Mr. Noonan (Limerick East): The theory is very clear but it becomes less clear when we come to its application as it is a departure from the general rule that the supplier pays the VAT. From now on the recipient of the service will be liable for VAT. Let us take the case of a legal company in London which specialises in European law and whose services are being availed of in Dublin: when the company in Dublin get their bill from London with VAT charged at 15 per cent they can ignore this.

Mr. A. Reynolds: There will be no UK VAT.

Mr. Noonan (Limerick East): As presented, no UK VAT will be payable. However, no Irish VAT at 23 per cent will be payable either. If the accounts section is based in the law office in London, no VAT will be payable.

Mr. Taylor: Surely once this Bill is enacted they will have to pay Irish VAT at 23 per cent?

Mr. Noonan (Limerick East): If VAT is charged at 23 per cent it will go back to London. Therefore, that cannot work. There must be some way of making them [2418] pay at 23 per cent in Dublin and returning it to the Revenue Commissioners and if the user of the service is registered there has to be a mechanism whereby he can claim it back.

Mr. Taylor: That is the question I raised.

Mr. Noonan (Limerick East): It is perfectly clear in theory but in practice it is not so easy.

Mr. A. Reynolds: I do not understand one bit of it. The Deputy is right because how can somebody in Dublin be asked to declare a foreign VAT rate that does not apply to him?

Mr. Taylor: No, he is not saying that.

Mr. A. Reynolds: Who is going to raise the Irish rate of VAT? We are talking about a subsidiary of a company in London.

Mr. Taylor: He has two VAT invoices.

Mr. A. Reynolds: We are talking about the value of a service at 23 per cent. What the Deputy is saying now is that the firm in Dublin who has got the service from the London office is legally entitled under our VAT laws to declare the service at the 23 per cent rate.

Mr. Noonan (Limerick East): If they are registered, can they claim it back?

Mr. A. Reynolds: Yes. They can claim it back from the Revenue but nobody has paid it.

Mr. Cotter: How would the Revenue police this? Are they going to check invoices in London?

Mr. Noonan (Limerick East): If the Minister wants it he can have the section but I do not see what it is to anyone.

Mr. Cotter: If I am the person who buys that service from London and I conveniently burn the documentation, will [2419] the VAT inspectors go to London and check out the London firms and pick up occasional invoices that were delivered to Dublin? How will they police it?

Mr. A. Reynolds: If people start burning documents the VAT inspector has not much hope of going anywhere.

Mr. Cotter: Let us suppose I lose it. How is it policed? Can it actually be policed?

Mr. A. Reynolds: It is policed in the same way as any other VAT inspection is policed.

Mr. Cotter: Not in the same way as internal VAT can be policed where the source of the documents can be checked.

Mr. A. Reynolds: Is the Deputy saying that this man would not record the receipt of this document from London at all?

Mr. Cotter: We are living in a non-Utopian society.

Mr. A. Reynolds: Not everybody in life is perfect and we have to deal with the normal run of business.

Mr. Cotter: The Minister knows what I am getting at. Let me just tease it out. In the normal course of business the VAT inspector can go into a premises, he can remove five invoices, he can move on to where the goods were delivered and can check to see if those invoices are on file there. How will he do that under this section here?

Mr. A. Reynolds: The Deputy is giving the example of a person who is getting a service from London and gets an invoice but does not record the invoice. At some stage he has to pay for this service. He has to raise a cheque in payment at some stage so when he raises the cheque his own auditor will, at accountancy time, [2420] ask where is the invoice to match that payment.

Mr. Cotter: I have to disagree.

Mr. A. Reynolds: Let me hear why you disagree.

Mr. Cotter: The VAT people check on the way people are managing their affairs on a regular basis and they do it in the way I have said. They do not go through all the accounts to see if the accountants have appropriated all the figures on the right side of the column.

Mr. A. Reynolds: The Deputy wants to know how would anybody ever check on that situation. What I am saying is that when the auditor comes in to do accounts he will see a payments cheque recorded to some firm in London but he has no invoice. He will ask for the invoice which will have to be produced. When the VAT man comes he will go through the list of invoices and he will see these invoices with no VAT. There is an obligation under VAT law on the person, as a recipient of that service, to declare it and add on the 23 per cent VAT service rate to it.

Mr. Cotter: I still have to disagree with the Minister. It is not up to the accountant. The Minister is asking accountants to actually police the system he is bringing in here.

Mr. A. Reynolds: I am asking them to do their normal duty as auditors.

Mr. Cotter: If the accountants do not do it the position is that the Minister's officers cannot do it because they would have to go outside the jurisdiction to check it out and this is the basic flaw in this whole business.

Mr. A. Reynolds: There is a set of rules that apply in any business irrespective of whether it is small, large, public or otherwise. The auditor has a function to perform. He is not doing it on behalf of the Revenue Commissioners. He is doing [2421] it in relation to his own responsibilities as auditor to that company. Any irregularity will jump straight out at him when he does his reconciliation and matches payments against invoices.

Mr. Cotter: That is not the reality.

Mr. A. Reynolds: Is the Deputy trying to tell me that reality is a man who has run a busines for 35 years, who has been subject to an auditor every year, who knows exactly what they do——

Mr. Cotter: I ran a business myself.

Mr. A. Reynolds: I do not know what sort of business the Deputy ran but if he is so well up on fellows keeping invoices out, burning invoices, not recording them, then an auditor has no chance with him.

Mr. Cotter: I want to process this point. What I am saying is simple. The people in the Department who are responsible for the collection of VAT cannot find the people who burn these invoices unless the auditor does the job for them.

Mr. A. Reynolds: I am not disagreeing with that.

Mr. Cotter: There is a basic flaw here. They can find it elsewhere, unless everybody is at it.

Mr. A. Reynolds: Perhaps the Deputy might tell me how a company in London sending a service to their own subsidiary in Dublin and sending an invoice and charging them can be pinned down? Perhaps the Deputy would suggest an amendment that I could put in here so I can close that loophole if he believes it is a loophole, because I do not.

Mr. Cotter: I believe it is a loophole. I believe they can do what they like with their invoice. In the normal course of events if goods are passed on——

[2422] Mr. A. Reynolds: It is a service we are talking about.

Mr. Cotter: Whatever it might be, if an invoice issues from one source and there is a copy that can be checked, it can be discovered if invoices are being withheld. There would not be any need for the VAT people in the Minister's office if what the Minister is saying was happening every time. However, people make mistakes whether deliberate or otherwise and there is a way within the present system of checking it out. A VAT inspector can go into a business, remove a number of invoices and check the source. For example, an individual could be getting a book of invoices printed for himself, writing them out and putting them into his files and a VAT inspector could take those out and go back to source to find out if they were genuine invoices.

Mr. A. Reynolds: That is what he does, but what the Deputy is talking about is when there are no invoices.

Mr. Cotter: My understanding is that the VAT people cannot actually source invoices from, for example, London. There is no definitive checking system.

Mr. Noonan (Limerick East): Unless the Minister will accept an amendment referring to the fire chief.

Mr. Taylor: It seems that Deputy Cotter is confusing two things. He is confusing a loophole with possible scope for fraud. They are two different things. I do not see that this represents a loophole; it might represent possible scope for fraud. I have no doubt fraud does take place but I think the number of cases is quite small and the sort of firms that this section would be intended to cover are most unlikely to be involved in it.

We should clarify our minds on the modus operandi of the thing. I must admit I am still not clear on that. I do not profess to be an expert on this, but it seems that the ultimate cheque for the VAT will come from the London firm or the Manchester firm or whatever. It [2423] seems it would work by the London firm sending an invoice to their Dublin subsidiary on which VAT of 23 per cent would be added; they would be obligated under the section to collect that 23 per cent with their bill from the Dublin subsidiary and, in turn, to remit that to the Irish Revenue Commissioners. I cannot see how it could possibly operate in any other way.

Question put and agreed to.

Section 90 agreed to.


Mr. Noonan (Limerick East): I move amendment No. 102:

In page 73, before section 91, to insert the following new section:

“91. —Section 8 of the Principal Act is hereby amended—

(a) in subsection (3) (inserted by the Act of 1978) by the substitution—

(i) in paragraph (b) (inserted by the Finance Act, 1982) of `£30,000' for `£15,000' (inserted by the Finance Act, 1989),

(ii) in paragraph (c) (inserted by the Finance (No. 2) Act, 1981) of `£50,000' for `£32,000' (inserted by the Finance Act, 1989), and

(iii) in paragraph (e) (inserted by the Finance Act, 1984) of `£30,000' for `£15,000',

(b) in subsection (3A) (inserted by the Finance Act, 1982), by the substitution of `£30,000' for `£15,000' (inserted by the Finance Act, 1989), and

(c) in subsection (9) (inserted by the Act of 1978), in the definition of `farmer' (inserted by the Finance Act, 1982), by the substitution of `£30,000' for `£15,000' (inserted by [2424] the Finance Act, 1989) in each place where it occurs.”.

I had tabled a similar amendment last year, the spirit of which the Minister accepted. On Report Stage, the Minister increased the thresholds for liability for VAT on small businesses. Again, I have put down an amendment, the spirit of which is to suggest to the Minister that the thresholds at which small businesses are caught for VAT should be raised substantially. I do not know what the appropriate threshold should be, but I believe that it should be higher than it is at present especially in the case of one-man operations where the operator is involved in activities such as upholstery, making of curtains and so on, because a lot of the turnover is effectively the cost of the material which has been bought in to carry out the service. The present ceilings are too low. For example, in an upholstery operation the breakdown between the cost of material and labour is 60:40 in favour of material. Such a person is getting no more than a wage and a fairly inadequate wage at the point where he is caught for VAT.

I ask the Minister to consider this to see if he can raise the ceiling at which the small businessman is caught for VAT. It seems to me that the collection costs are probably more than the revenue gained from a lot of these small businesses. I would like the Minister to introduce a more realistic ceiling.

Mr. A. Reynolds: I have finally sorted out this point: if an exempted body, such as a bank, is buying in a service from abroad, they in turn will be more inclined to take the service from abroad because they are exempt, whereas if they were registered, it would not matter. In effect what happens is that the recipient of the service raises the charge and also claims a refund so it has neutral effect; it is only used to stop distortion of trade. It goes into the recipient's books on one side and out on the other. Basically it has a neutral effect.

Mr. Cotter: I wish to comment briefly [2425] on the amendment that Deputy Noonan, (Limerick East) has just proposed. I am particularly interested in raising the thresholds for registration for VAT because I feel it could be used as a mechanism for making life a bit easier for people trying to trade in Border areas. We have tried everything, as the Minister well knows, to try to alleviate the difficulties that they are experiencing in those areas. They have come up with all sorts of imaginative schemes which were unworkable, indeed we have had discussions on how they could be assisted. While the Minister has made some attempt to tackle the problem by reducing the rate of VAT from 25 per cent to 23 per cent and by reducing the excise duty on selected items, I am sure he is aware that the position in the Border towns is far from satisfactory. The difference between the price of goods North and South is still far too great and in fact traders have to apply much lower profit margins than their colleagues in the South for example. Traders in the Border area are very conscious of the price of goods and have very keen profit margins. In his amendment Deputy Noonan is seeking to raise the threshold of traders to £50,000 per annum but when you consider that a profit margin of 10 per cent applies to that turnover, a turnover of £1,000 a week brings in less than a normal week's wage for the individual. Persons with that level of turnover cannot afford the services of a person to do their books, and in addition they would have an inadequate income.

The point I am making is that if the Minister increased the threshold at which VAT is payable he would be putting a few extra pounds in the pockets of those living along the Border areas and this would be extremely welcome. I ask the Minister to take Deputy Noonan's suggestion on board and raise the thresholds to a meaningful level.

Mr. A. Reynolds: The amendment proposes, in effect, that the annual turnover thresholds for VAT registration purposes should be increased from £32,000 to £50,000 in the case of suppliers of goods [2426] and from £15,000 to £30,000 in the case of other traders. The amendment is opposed on the following grounds: First, by providing for the exclusion of certain traders from the VAT system the amendment imposes a cost which is broadly estimated at £1.5 million in a full year. The higher the level of turnover threshold for registration purposes is pitched the greater are the tax advantage effects accruing to unregistered traders below the thresholds as against registered traders above the thresholds. Such advantage must lead to distortion of competition. The latest adjustment in thresholds occurred as recently as 1989 when the annual turnover thresholds were increased, in line with inflation, from £25,000 to £32,000 in the case of the supplier of goods and from £12,000 to £15,000 in the case of other traders. Our thresholds, along with those of the United Kingdom are far higher than those in other member states of the EC. The high level of our thresholds is not viewed with favour by the other member states and I have received no demands from traders or business that the threshold should be further increased. Certainly I have received pleas from the traders in the Border areas to do something to alleviate their problems, but their problem will not be solved in this manner as it is much more wide-ranging. Indeed the first step in trying to alleviate some of the cross-Border problems was the reduction of VAT and by continuing along that road we will solve that problem. A small increase in the threshold of exemption from VAT will not make any material difference to them. We also have a very low rate of inflation this year.

The introduction of the 48 hour rule was another step along the road to try to alleviate some of the problems experienced in the Border areas. Indeed it was successful, but it is under court threat at present. We expect to receive a decision on it during August or September this year but I believe that it will be the harmonisation of taxes so that there will be little or no difference in the level of taxes [2427] on each side of the Border that will ultimately be the solution to the problems the Deputy has raised.

Mr. Cotter: I think the Minister is conscious that there is a serious problem in the Border areas. Having listened to the Minister's response it appears that he agrees that there will be some advantage to the traders in the Border areas if he accepts this amendment. They would be at the advantage that they could sell their goods more cheaply because they would not have to apply the 23 per cent rate of VAT to the higher price. My reading is that there would be a cost advantage to the retailer if this amendment were accepted, and the cost to the Exchequer of £1.5 million as mentioned by the Minister, is insignificant——

Mr. A. Reynolds: It will make very little material difference to the hundreds and thousands of traders.

Mr. Cotter: In fact the Minister would be telling the retailers in the Border areas that he was trying to improve things for them. The Minister should consider that everybody on the main street in Clones would be removed from the VAT registration net if he raised the threshold to £50,000, and in addition he would be telling those people that they would not need to employ somebody to do the books. In addition the traders would be a little bit more competitive. I was the first person to indicate that this amendment was a possible mechanism to help those in the Border areas and once I mentioned this I got a great response from the business people. They would like a little assistance, which would not cost the Exchequer very much. The threshold has a different meaning in towns like Clones, Castleblayney or any other town in my county from that in the rest of rural Ireland. To raise the threshold to £50,000 would exclude many people and if they then wanted to register they could do so on a voluntary basis. I would appeal to the Minister in view of the small cost to [2428] the Exchequer to consider implementing this amendment.

Mr. A. Reynolds: Under EC law I am not entitled to raise the threshold to £50,000. I can just make a little marginal adjustment in relation to inflation and the benefit to the people the Deputy is talking about would be infinitesimal. The Deputy said that if I raised the threshold to £50,000 it would make a material difference to the people in the Border areas but EC law does not allow me to do that; it only allows an inflationary adjustment, which is a very small adjustment in relation to the figures we are talking about — £32,000 or £33,000.

Mr. Noonan (Limerick East): Last year the Minister gave a fairly reasonable increase. I would like him to have a look at this matter on Report Stage and, in the meantime, I will withdraw the amendment.

Mr. A. Reynolds: It is so marginal it makes little difference.

Mr. Cotter: Surely the Minister could find a way of increasing the threshold?

Mr. A. Reynolds: I cannot do that because I am not allowed.

Mr. Cotter: Could the Minister not make a special application for that?

Mr. A. Reynolds: The Deputy did not listen to what I was saying. Our threshold is way above that of all the other member states except the UK.

Mr. Taylor: How many years have these threshold figures remained unaltered?

Mr. A. Reynolds: They were adjusted substantially last year.

Mr. Noonan (Limerick East): Yes, about 30 per cent.

Mr. A. Reynolds: I cannot remember but we went as far as we could go.

[2429] Mr. Noonan (Limerick East): The ceiling was raised to 30 per cent. That might have been in line with the rate of inflation when the last adjustment was made.

Mr. A. Reynolds: Cumulative inflation. That is why there was such a big increase last year. The inflation we are talking about is very marginal.

Mr. Cotter: We will come back to this matter tomorrow.

Amendment, by leave, withdrawn.

Acting Chairman (Mr. M. Barrett): Amendments Nos. 102a and 102b form a composite proposal and, therefore, it is suggested that they be discussed together, by agreement. Is that satisfactory? Agreed.

Mr. Rabbitte: I move amendment No. 102a:

In page 73, paragraph (a), lines 19 and 20, to delete subparagraph (ii).

Basically this amendment proposes the excision of the provision in the Finance Act, 1988, which provides for VAT on electricity at 5 per cent. The Minister now proposes to increase that to 10 per cent. I cannot understand the arguments that the ESB should be treated differently from any other company. If my memory serves me right, the Minister proposed that this amendment would take £11 million from the ESB in the current year and £18 million in a full year. My understanding of the position in the ESB is very different from the Minister's if he thinks there is leeway to take that money out of the accounts of the ESB, who recorded a profit of £5 million last year and who still have a serious debt equity problem.

There is a second aspect to this matter. I cannot understand how the Minister can continue to maintain that this will not impact on the consumer. In the context of the ESB balance sheet, it must impact on the consumer. The costs must be [2430] passed on indirectly to the domestic consumer. I presume the industrial and general commercial user can reclaim the VAT but in the case of the domestic consumer they must ultimately pick up the tab. I recall the Taoiseach saying on budget night that it would not cost the consumer a penny but, against the background of the ESB balance sheet, that cannot be the case. The purpose of the amendment is to excise that reference in the Finance Act, 1988.

If the Minister wants to look at the whole question of taxation of fuels and so on, I suggest we would have to do so against a much broader canvas. There may indeed be an argument for assisting those who purchased consumer friendly fuels as compared with fuels that help to destroy the environment. At least at the point of use, electricity is a consumer friendly source of energy. Therefore, for all these reasons I hope this amendment is acepted.

Acting Chairman: In agreeing to discuss amendments Nos. 102a and 102b together, I suggest we also discuss amendment No. a102b. Is it agreed that the three amendments be discussed together?

Mr. Taylor: Amendment No. 102a deals with electricity whereas that matter is broadened very considerably in amendment No. 102b.

Mr. Noonan (Limerick East): They follow electric hares.

Mr. J. Bruton: They all come under the same Schedule.

Acting Chairman: Is it agreed that they be discussed together? Agreed.

Mr. Taylor: I support Deputy Rabbitte's amendment. It proposes to deal with what amounts to a clever little device for tapping into profits the ESB are making and accumulating which, I believe, is entirely wrong. We should not operate our industrial base, so heavily reliant on electricity and power supplies, [2431] on the basis that the ESB's profits should be tapped into directly by the Minister. If, as is the case, the ESB make appreciable profits, those profits ought to be passed on to the consumers of electricity, domestic and industrial, in the form of lower prices.

The cost of electricity in this country is among the highest in Europe. This is making things increasingly difficult for our industrialists and it prejudices employment. If the ESB make profits, the most advantageous thing that could be done for the economy would be to use some of that additional funding to reduce the price of electricity to industrial and domestic users. It is a fact that in my constituency and in that of Deputy Rabbite the price of electricity impacts very hard on many households. Both of us have people coming to our clinics who have their electricity cut off because they cannot meet the electricity bills. They are terrified when the ESB bill arrives, and the ESB apply tough standards of collection of those funds. Yet, here we see that their profits are being allowed escalate, not to the benefit of the consumer, who is entitled to it, but to the benefit of the Minister in a rather strange way of collecting taxation which is not up front.

He is saying he will increase VAT on electricity but it will cost the consumer nothing because the increase will be absorbed by the ESB. It should not be absorbed by the ESB. The proper course to adopt would be that the Minister should raise his taxation in whatever way is appropriate, in a fair way across the board, and the prices of electricity should be kept to an absolute minimum in the interests of employment and in the interests of people who very often have great difficulty in meeting those bills and whose living standards are adversely affected.

Mr. J. Bruton: Amendment No. a102b in my name and that of Deputy Noonan reads:

In page 74, before section 96, to insert the following new section:

[2432] 96.—The Second Schedule to the Principal Act is hereby amended in paragraph (vii) by the insertion of `except greyhounds' after `dogs'.

This amendment is designed to bring some relief to the greyhound industry. As the House is aware, I hope, feed for greyhounds is the only form of animal feed subject to value-added tax — it suffers a value-added tax rate of 23 per cent. Feed for race horses is VAT free. Feed used for cattle, sheep and other animals is also VAT free. In this Finance Bill we have had a proposal from the Minister that the rearing of greyhounds and horses should no longer be exempted from VAT. The Minister links the greyhound industry and the bloodstock industry because, following the enactment of this Bill, they will be subject to value-added tax.

When it comes to applying value-added tax to the feed used in the production of these animals the Minister does not see the greyhound industry and the horse racing industry, or other horse rearing industry, in the same light. He applies no value-added tax to the feed used in the horse industry but a 23 per cent value added tax to the feed used in the greyhound industry. This only aggravated the deep sense of annoyance among those working in the greyhound industry when they saw how the Minister divided up a recent allocation of £3.5 million, which is a proportion of the 10 per cent off-course betting duty proceeds, between the two industries. Out of that total of £3.5 million he allocated £3 million to the Racing Board and a mere £500,000 to Bord na gCon. In addition to levying a higher rate of value-added tax on feed used in the greyhound industry and not levying it on the horse industry he gives a disproportionate amount of the allocation of the funds from the off-course betting levy to the horse industry as against the greyhound industry. I have nothing against the horse industry by any means. It is one of the most employment-intensive uses of agricultural land that exists if not the most employment-intensive use of agricultural land. I do not wish to take from [2433] any of its privileges but it is fair to say that it is the sport of those who are relatively well off. It requires a certain amount of money to become commercially involved in the horse industry. However, for somebody who is of modest income and who wishes to supplement their income by the breeding of animals, entering into the greyhound industry is a much easier and less expensive method of becoming involved in what will in the future be off-farm commercial income for those living in rural areas.

I am aware that the Minister for Agriculture and Food has referred in a number of his pronouncements about rural development to the potential importance of the greyhound industry as a means of creating additional income for those living in rural areas in view of the fact that the income from strictly farming activities is liable to be constricted as a result of developments in world trade and at EC level. If that is the case — I have no doubt the Minister for Agriculture and Food is sincere in what he says — he should get help from his colleague, the Minister for Finance, who should treat feed used in the greyhound industry in the same way as feed used in the agricultural industry is treated for VAT purposes; in other words a zero rating. That is the purport and purpose of amendment No. a102b. I hope the Minister and the House will be prepared to accept it.

Mr. Noonan (Limerick East): I support this amendment. It is difficult to understand when all food including animal feedings stuffs are exempt from VAT that food for greyhounds is not exempt. Greyhounds are very important in the economic life of many parts of rural Ireland. I think it was an oversight that food for greyhounds was not exempted in the past. This is an appropriate Finance Bill in which to exclude VAT on greyhound food.

We have already dealt with the issue of the Minister applying VAT to horses and greyhounds; in effect he has defined horses and greyhounds as livestock for livestock purposes under the VAT Acts. It seems to me that it follows that he [2434] should also define greyhound food as an exempt food — animal feeding stuff — in the wider sense now in which he is using the term “livestock”. I have no doubt whatsoever if his colleague and close friend, Deputy Collins, were Minister for Finance he would accept this amendment immediately because he lives in a part of the country where the greyhound is very important to the economy.

I recommend this amendment to the Minister. I doubt very much if there would be a serious loss of revenue to the Exchequer. If there was a loss it would be unquantifiable. The breeding of greyhounds is becoming increasingly a source of revenue to small farmers. It would be consistent with the policy of his colleague, the Minister for Agriculture and Food, who has advocated to Brussels that the breeding of greyhounds be treated as a off-farm activity for certain purposes. Also he is aware that Bord na gCon has in pectore proposals if not open proposals to close down many of the tracks throughout the country. Rationalisation is taking place in the greyhound track industry at present which is a matter for serious concern. There is an extensive export business in greyhounds. It does not have the high profile or the glamour attached to it which the horse industry has. It is the small man's sport. We see the fellow walking out with the two dogs on a lead early in the morning with a cap pulled down over his head, he is a very unglamorous figure. As Deputy Bruton said, he will not figure in the Angela Phelan column. He will never be on the first line saying that such-and-such a Minister who is interested in greyhounds was not at Harolds Cross. I do not think we will have that introduction in the greyhound industry. It is an important facet of Irish life and will become increasingly important in the economy of rural areas. It is particularly important as another source of income for small farmers who are increasingly coming under pressure as a result of the depletion of their main activity income because of the fall in the value of milk, calves and beef.

While I am on my feet I would like to indicate support for Deputy Rabbitte's [2435] amendment. He has made a very good case. I think there has been an extremely unhealthy sweetheart arrangement between Fianna Fáil Governments and the ESB. The rules which apply to state companies were stated very firmly by ourselves when we were in Government and particularly by the then Minister, Deputy Jim Mitchell, who had to take some very hard decisions to sort out the State sector. You cannot have the Government and a State company hand in glove, there cannot be sweetheart arrangements, it must be all above the line.

Mr. A. Reynolds: All engagements must be love.

Mr. Noonan (Limerick East): No matter what Government are in office that must be the arrangement. The pretence that the ESB can be charged VAT at 10 per cent rather than 5 per cent and that it will cost nobody anything, because they have a secret piggy bank which they dip into to oblige the Government from time to time, is absolute nonsense, and contrary to all good accountancy and auditing practices.

Mr. J. Bruton: Hear, hear.

Mr. Noonan (Limerick East): I would prefer the Minister to say that we have to put 10 per cent on electricity under EC directives, that we also believe it should be done and that is how it will appear, rather than the pretence that it is not going to cost anybody anything. Deputies like Deputy Taylor talked here about the ESB making profits and said the profits should be used to reduce the price of electricity rather than be used for extra revenue. That would be fair enough if they were a profitable company, but the ESB borrowings — I was going to say atrocious — are colossal, massive, out of proportion even to the turnover and asset value of the company. If they were not a monopoly company and had to trade in [2436] the normal world they would be declared insolvent. They are technically insolvent.

Mr. A. Reynolds: I do not accept that.

Mr. Noonan (Limerick East): Here the Minister says 5 per cent is going on electricity but it will cost nobody anything because the ESB have secret funds.

Mr. J. Bruton: They have secret debts.

Mr. Noonan (Limerick East): They are fairly good on a cash basis at the moment. They have a fairly good throughput at the moment and their turnover in cash terms is reasonably all right but look at the outstanding debt and the bottom line of the ESB accounts. I support Deputy Rabbitte's amendment for those reasons and for the reasons he has stated.

Mr. A. Reynolds: There is no pretence, no piggy bank, nothing. The ESB had a net surplus of £11.6 million under the legislation as they are set up. I am sure all Deputies are well aware the ESB were not set up to make a profit, they were set up to break even.

Mr. Noonan (Limerick East): They were not. They were set up to supply electricity at the least possible cost.

Mr. A. Reynolds: They are not allowed to make a profit. That is the main reason for the legislation. Secondly, the ESB have been allowed from the very start to apply double depreciation. No other outfit in this country, commercial or otherwise, can do that. We are talking about running State bodies on a commercial basis and I would have no quarrel with the ESB if they now wanted to revert to normal commercial practices and forget about double depreciation. Double depreciation was put into the legislation as a vehicle to allow them to accumulate money to provide for their development programmes. We are all fully aware they are at the end of their major development programmes so if they want to revert to normal commercial criteria, as I hear from the other side of [2437] the House and with which I agree, then let us see the ESB in a different light.

I was criticised last year when I did nothing in relation to harmonisation of taxes in starting the process. We all know the ESB and Telecom are not going to last at their present rates, so there has to be a move. Deputy Noonan and Deputy Taylor suggested that this is not the way to do it, that we should come in here and raise taxes for that £11 million. That is a new approach but I heard none of them say where I was supposed to raise that £11 million. However, we started the process this year and it is right to continue it and show to the Community member states that we are serious about accepting in principle the approximation of taxes.

This area along with Telecom and others will have to be tackled and in that process there will be winners and losers. Why not do it when there is a surplus there to take it on board? If we wait until next year and then there is no surplus, what will happen? It will have to be passed on to the consumer. Consequently, the consumer is getting the benefit of the surplus at the moment. The consumers' bills have been sent out. Most people in the House said when this provision was announced, “Wait till the time comes and the additional 5 per cent will be added to the cumtomer's bill”. It was not, because the surplus was there to take it. That is why the amendment is opposed.

On the question of introducing a zero rate for greyhounds I am precluded from creating any new zero rate.

[2438] Acting Chairman: As it is now 5.45 p.m.——

Mr. Noonan (Limerick East): With the agreement of the House, would the Minister finish the point?

Mr. A. Reynolds: I am not allowed to create a new zero rate in relation to greyhounds or anything else.

Mr. Noonan (Limerick East): Greyhound foods.

Mr. A. Reynolds: Greyhound food or any other food. I am not allowed to create a new zero rate for anything, irrespective of what it is. That is why I have to oppose the amendment.

Mr. Noonan (Limerick East): Will the Minister come back tomorrow and consider the 2.3 per cent?

Mr. A. Reynolds: It is late in the day now.

Acting Chairman: As it is now 5.45 p.m. I am requested to put the following question in accordance with the resolution of the Dáil of 15 May 1990: “That the sections undisposed of in Parts II and III of the Bill are hereby agreed to”. Is that agreed?

Mr. Noonan (Limerick East): No.

Question put.

The Committee divided: Tá, 69; Níl, 59.

Ahern, Bertie.

Ahern, Dermot.

Ahern, Michael.

Andrews, David.

Aylward, Liam.

Barrett, Michael.

Brady, Gerard.

Brady, Vincent.

Brennan, Mattie.

Briscoe, Ben.

Browne, John (Wexford).

Burke, Raphael P.

Calleary, Seán.

[2439]Fitzgerald, Liam Joseph.

Fitzpatrick, Dermot.

Flood, Chris.

Gallagher, Pat the Cope.

Harney, Mary.

Hilliard, Colm.

Hyland, Liam.

Jacob, Joe.

Kelly, Laurence.

Kenneally, Brendan.

Kirk, Séamus.

Kitt, Michael P.

Kitt, Tom.

Lawlor, Liam.

Leonard, Jimmy.

Leyden, Terry.

Lyons, Denis.

Martin, Micheál.

McDaid, Jim.

McEllistrim, Tom.

Molloy, Robert.

Morley, P.J.

Callely, Ivor.

Clohessy, Peadar.

Connolly, Ger.

Coughlan, Mary Theresa.

Cowen, Brian.

Cullimore, Séamus.

Daly, Brendan.

Davern, Noel.

Dempsey, Noel.

Dennehy, John.

de Valera, Síle.

Ellis, John.

Fahey, Jackie.

[2440]Nolan, M.J.

Noonan, Michael J.

(Limerick West).

O'Connell, John.

O'Dea, Willie.

O'Donoghue, John.

O'Hanlon, Rory.

O'Keeffe, Ned.

O'Leary, John.

O'Malley, Desmond J.

O'Toole, Martin Joe.

Power, Seán.

Quill, Máirín.

Reynolds, Albert.

Stafford, John.

Treacy, Noel.

Tunney, Jim.

Wallace, Dan.

Wallace, Mary.

Wilson, John P.

Woods, Michael.

Wyse, Pearse.


Ahearn, Therese.

Barnes, Monica.

Barrett, Seán.

Belton, Louis J.

Boylan, Andrew.

Bradford, Paul.

Browne, John (Carlow-Kilkenny).

Bruton, John.

Bruton, Richard.

Byrne, Eric.

Connaughton, Paul.

Connor, John.

Cosgrave, Michael Joe.

Cotter, Bill.

Crowley, Frank.

Currie, Austin.

D'Arcy, Michael.

Deasy, Austin.

De Rossa, Proinsias.

Doyle, Joe.

Durkan, Bernard.

Farrelly, John V.

Fennell, Nuala.

Ferris, Michael.

Finucane, Michael.

FitzGerald, Garret.

Flanagan, Charles.

Gregory, Tony.

Harte, Paddy.

Higgins, Jim.

Higgins, Michael D.

Hogan, Philip.

Kavanagh, Liam.

Kenny, Enda.

McCartan, Pat.

McGahon, Brendan.

McGinley, Dinny.

Mac Giolla, Tomás.

McGrath, Paul.

Mitchell, Gay.

Mitchell, Jim.

Moynihan, Michael.

Nealon, Ted.

Noonan, Michael.

(Limerick East).

O'Keeffe, Jim.

O'Shea, Brian.

O'Sullivan, Gerry.

O'Sullivan, Toddy.

Owen, Nora.

Pattison, Séamus.

Rabbitte, Pat.

Ryan, Seán.

Sherlock, Joe.

Spring, Dick.

Stagg, Emmet.

Taylor, Mervyn.

Taylor-Quinn, Madeleine.

Timmins, Godfrey.

Yates, Ivan.

Tellers: Tá, Deputies V. Brady and Clohessy; Níl, Deputies J. Higgins and Ferris.

Question declared carried.


Amendment No. 103 not moved.

Question proposed: “That section 97 stand part of the Bill”.

Mr. Rabbitte: I want to make a general comment on section 97 before it follows [2441] the inevitable path of previous sections. I have reservations about some aspects of the section but I will confine my remarks to a general comment on the provision which imposes a levy on the banks. This highlights the weaknesses identified in the earlier discussions concerning the general corporate tax area and the fact that this levy was really only introduced as an acknowledgment that the banks were managing, through the use of one tax avoidance measure or another, to avoid paying any signficant amount of tax.

An Leas-Cheann Comhairle: I want to advise the House that strictly speaking the Deputy is the only person entitled to be addressing the House. Maybe that reminder will help other members to give the Deputy the audience he should have. Deputy Rabbitte, without interruption.

Mr. Rabbitte: It was really due to the Government's embarrassment at the infinitesimal take in taxation which caused the levy to be introduced in the first place. I would prefer it if the tax did not have to be levied on the assets but rather on the profits but, of course, the situation is that this represents the only significant amount of tax the banks yield. Unfortunately, as I understand it, it is restricted to deposits within the State. Of course, banks including our major banks, are effectively multinationals which can afford to transfer funds abroad for “good commercial reasons”. I should like to say again that the banks' published accounts in this area usually contain a provision for tax, and is no more than that, and the actual cash tax payments returned are usually very significantly less. For that reason I am unhappy with section 97.

Mr. Noonan (Limerick East): May I ask the Minister if he envisages the bank levy to be an on-going part of our legislation or does he think that when the various changes he is making to section 84 loans are complete — I presume he intends to continue with these changes — the bank levy will be replaced by a corporation tax of 40 per cent, as it will be [2442] after the implementation of this Finance Bill? Will the Minister also indicate the breakdown among the different banking groups of the £36 million? How much did the AIB pay us against the Bank of Ireland and so on last year?

Mr. A. Reynolds: The information in relation to the last part of the Deputy's question is confidential.

Mr. Noonan (Limerick East): It was in the accounts for last year.

Mr. A. Reynolds: I imagine that they should show it.

Mr. Rabbitte: Why should that information be confidential?

Mr. Noonan (Limerick East): It was published in last year's bank accounts.

Mr. A. Reynolds: I understand the two main banks publish it but the other banks do not.

Mr. Noonan (Limerick East): Does the Minister have a figure for the two main banks for last year?

Mr. A. Reynolds: It was roughly £15 million in each case for the AIB and the Bank of Ireland; the rest was among the smaller banks. With regard to the bank levy, the income from corporate tax relief from the banking sector has been disappointingly low for some years past, for example, in 1986-87 it was only £24 million. We are trying to increase this amount all the time by reducing the accelerated capital allowances and tightening up and phasing out section 84s. In 1988-89 the corporate tax paid by the banks was £50 million, plus the levy of £36 million.

As we continue to phase out section 84 and capital allowances, naturally there will be more corporate tax to be paid by the banking sector. Section 84 is the real tax shelter for the banks and it is the area where they have managed to evade paying most tax. It is a bit early to be definitive about what will happen in levy [2443] in the early part of the nineties when the Single Market comes except to say that if one were to look very broadly at the competitive aspects of banking one could perhaps argue the case that it puts them in an inferior position on it is a distortion of competitive positions or whatever. No definite decision has been taken on that but we will continue to tighten up on section 84s and on the phasing out of capital allowances.

Question put and agreed to.


Mr. A. Reynolds: I move amendment No. 104:

In page 77, subsection (1), between lines 14 and 15, to insert the following definition:

“ `declaration', in relation to the purchase of units by persons who are not resident in the State, means a written declaration which—

(a) is made in such form as may be prescribed or authorised by the Commissioners,

(b) declares that at the time when the declaration is made the person who is beneficially entitled to the interest in relation to such units is not, or, as the case may be, all of the persons who are so entitled are not, resident in the State,

(c) contains as respects the person, or, as the case may be, each of the persons, mentioned in paragraph (b)—

(i) the names of the person,

(ii) the address of his principal place of residence, and

(iii) the name of the country in which he is resident at the time the declaration is made.


[2444] (d) contains such other information as the Commissioners may reasonably require for the purposes of this section;”.

Amendment agreed to.

Mr. A. Reynolds: I move amendment No. 105:

In page 77, subsection (1), line 20, after “State” to insert “and in respect of which a declaration was made, at the time of purchase by those persons, to the person from whom such units were purchased”.

Amendment agreed to.

Mr. A. Reynolds: I move amendment No. 106:

In page 77, subsection (1), line 23, to delete “from the assets of the undertaking”.

Amendment agreed to.

Mr. A. Reynolds: I move amendment No. 107:

In page 77, subsection (1), line 28, to delete “to” and substitute “by”.

Amendment agreed to.

Mr. A. Reynolds: I move amendment No. 108:

In page 77, subsection (1), between lines 41 and 42, to insert the following:

“(i) units purchased by or on behalf of an undertaking, being an undertaking to which this section applies;”.

Amendment agreed to.

Mr. A. Reynolds: I move amendment No. 109:

In page 79, subsection (1), lines 10 to 23, to delete the definition of “undertaking” and substitute the following:

[2445] “undertaking' means an undertaking the main objects of which include the collective investment, in any property, of capital raised from the public and the units of which may, at the request of the unit holders, be repurchased or redeemed, directly or indirectly out of the assets of the undertaking, and includes a unit trust, UCITS or other similar investment undertaking which, in the case of a similar investment undertaking is, in the opinion of the Commissioners an undertaking to which this section applies notwithstanding that such undertaking is a company which issues shares to the public, whether or not those shares may be repurchased or redeemed directly or indirectly out of the assets of the undertaking;”.

Mr. Rabbitte: I know it is not popular to confess ignorance in the House but I must confess that I have never heard of UCITS until I came to the House and I have been struggling to unravel it since. I get the impression that every house should have one, or more than one. Will the Minister use the expertise available to him to enlighten me on this issue? Will he explain what change necessitated the amendment?

Mr. A. Reynolds: The type of undertaking to which this section is to apply is one established on the lines of a unit trust or an investment company. It is not intended to apply generally to investment by members of the public in ordinary plcs, and, particularly, not holding companies. Concern has been expresed since the publication of the Bill that as then defined an “undertaking” could include such investments. It is not possible to comprehensively define in a statute the kind of undertaking to which the levy applies although its nature is easily described and ascertained. Accordingly, the amendment to the definition of “undertaking” gives authority to the Revenue Commissioners to reach a conclusion in any case of doubt. This is likely to be a rare occurrence. Any such decision by the [2446] Commissioners, however, will be subject to the usual appeals mechanism for stamp duty. What we are talking about are mutual funds that are managed on behalf of unit trust holders.

Mr. Rabbitte: Unit trusts are not taxable for capital gains?

Mr. A. Reynolds: Correct. Trusts are not but the gains in the hands of the unit trust holder are.

Mr. Noonan (Limerick East): There is a 3 per cent levy on insurance companies?

Mr. A. Reynolds: Yes.

Mr. Noonan (Limerick East): Is the Minister trying to introduce a level playing pitch for all activities?

Mr. A. Reynolds: Yes, to leave Irish unit trust holders and foreign concerns being sold here on a level playing pitch or otherwise the foreign ones selling into the country will have an advantage, for example, those originating out of Luxembourg.

Amendment agreed to.

Mr. A. Reynolds I move amendment No. 110:

In page 82, subsection (13), line 21, to delete “thirty days” and substitute “60 days”.

Amendment agreed to.

Mr. A. Reynolds: I move amendment No. 111:

In page 82, subsection (16), line 38, after “undertaking” to insert “, including units in the form of a stock certificate to bearer,”.

Amendment agreed to.

Mr. A. Reynolds: I move amendment No. 112:

[2447] In page 82, between lines 47 and 48, to insert the following subsection:

“(17) (a) The Commissioners shall make such regulations as appear to them to be necessary for the purpose of giving effect to this section or of enabling them to discharge their functions thereunder.

(b) Every regulation made under this subsection shall be laid before Dáil Éireann as soon as may be possible after it is made and, if a resolution annulling the regulation is passed by Dáil Éireann within the next 21 days on which Dáil Éireann has sat after the regulation is laid before it, the regulation shall be annulled accordingly, but without prejudice to the validity of anything previously done thereunder.”.

Amendment agreed to.

Section 98, as amended, agreed to.


An Leas-Cheann Comhairle: We move now to amendment No. a112a in the name of the Minister. Amendment No. 129 is consequential and I propose, therefore, to take amendments Nos. a112a and 129 together.

Mr. A. Reynolds: I move amendment No. a112a:

In page 83, between lines 10 and 11, to insert the following subsection:

“(5) The Heading set out in Part IV of the Ninth Schedule to this Act is hereby substituted for the Heading `DUPLICATE or COUNTERPART of any instrument chargeable with any duty' in the First Schedule.”.

Mr. Taylor: Will the Minister indicate the reason for this amendment? What percentage increase is involved and why is the duty being increased by such a substantial amount?

[2448] Mr. A. Reynolds: As part of the proposal for rationalisation of stamp duty, which is contained in section 99 and the Ninth Schedule, eight of the major headings in the First Schedule of the Stamp Act, 1891 have been altered. One of the headings dealing with duplicate or counterpart instruments was omitted from both section 99 and the Ninth Schedule. This is now being rectified.

At present the maximum charge for a duplicate or counterpart instrument is £5. The intention is to increase this maximum charge to £10. The charge for a duplicate or counterpart has always been in line with the charge for collateral, auxiliary or additional instrument which has been increased in this section from £5 to £10.

The £10 is a maximum charge of £10. If the duty payable on the original instrument is less than £10 the charge payable on the duplicate or twin instrument will be the same as the original. The Financial Resolution, No. 26, made provision for the amendments to the First Schedule Stamp Act, 1891. I have been advised that a further resolution is not required.

Mr. Taylor: The levying of funds in this way on counterpart or duplicate documents is unnecessary and should not be done. The stamp duty appropriate to the original instrument should be assessed and paid. However, we are talking about applying the full stamp duty to a duplicate of the original document. Traditionally, the duplicate was stamped for £5. We have been told that charges should be increased in line with inflation but the Minister is imposing an increase on 100 per cent which is wrong. The stamp duty on the documents can be varied from time to time but the Minister is proposing to increase the charge for a copy of the original. It should be left at £5. The doubling of the cost will place a burden on many people.

Mr. A. Reynolds: This is part of a whole package of rationalisation of stamp duty. In the overall package it is being reduced by £2.5 million. There are too many charges involved and the Deputy, [2449] and his profession, will agree that there is a need for rationalisation.

Mr. Taylor: The charge should not have been doubled.

Amendment agreed to.

Section 99, as amended, agreed to.


Mr. A. Reynolds: I move amendment No. 112a.

In page 83, before section 100, to insert the following new section:

100.—Section 58 (as amended by section 47 of the Finance Act, 1981) of the Stamp Act, 1891, is hereby amended by the substitution in subsection (8) of “paragraph 8” for “paragraph 4”.

This is a technical amendment which has arisen out of the rationalisation of stamp duty rates contained in section 100. The First Schedule to the Stamp Act, 1891 has been substantially amended. Under various charging headings a number of paragraphs have been deleted. In some cases, in the interest of clarity, some paragraphs have been given paragraph numbers and in addition some paragraphs have been moved.

There are references to specific paragraphs in the First Schedule in existing legislation which must be changed to take account of the new paragraph numbers contained in the Ninth Schedule. One of the changes is covered under the provisions of the Interpretation Act, 1937 and, for technical reasons, the second change requires a specific amendment.

Amendment agreed to.

An Leas-Cheann Comhairle: We now come to amendment No. 113 in the name of Deputy Noonan. Amendment No. 114 is related and, for discussion purposes, we will take both together. Is that agreed? Agreed.

[2450] Mr. Noonan (Limerick East): I move amendment No. 113:

In page 84, subsection (3) (a), line 28, to delete “10” and substitute “4”.

This section changes the manner in which stamp duty is applied to houses. Previously, when a house or apartment was acquired from a builder, it was the practice to acquire the site at a certain value — or sometimes to impute a certain value to its acquisition — and then to enter into a building contract. If somebody bought a site for £20,000 it was regarded as a contract and stamp duty was paid on that amount. They then entered into a contract for £80,000 to build the house and no stamp duty applied. On a house of that composition costing £100,000, stamp duty was paid on the sum of £20,000 and that is how people operated for a long time.

I know there was an element of tax avoidance in it at times when; even when the site cost less, people would impute a higher proportion of the value to the cost of building it. As the stamp duty only applied to the contract on the acquisition of the site — and not to the building contract — they paid stamp duty on the smallest possible amount. The Minister has moved to close that and, while it is very hard on people who have entered into contracts, the Minister introduced an amendment between the day of the budget and the introduction of the Finance Bill to say that if their business is completed by 1 September they will be all right.

I wish to discuss the circumstances in which somebody acquires a site but does not build on it for a long time. An American or German tourist visiting Ireland sees a half acre of land on which he thinks he would like to build a house and buys it for a sum of £10,000. Up to now he paid stamp duty according to the Schedule which the Minister recently amended. As matters stand now, there will be an imputed value of an aggregated consideration ten times the value of the site. Therefore, the purchaser, instead of paying stamp duty on the site which he acquired for £10,000, will pay it on an [2451] imputed value of a house which will subsequently be built on the site — plus the site — of £100,000.

Mr. A. Reynolds: No, that is an interpretation.

Mr. Noonan (Limerick East): When the aggregated consideration cannot be ascertained at the time of the signing of the contract, the duty will be charged on a figure equal to ten times the market value of the land. That is the meaning of the section. It is fine if the acquisition of the site and the building of the house are only separated by a short interval but we all know people who acquired sites and held on to them for many years without building on them. This particularly applies to the site acquired by a tourist living in Hamburg who intends to reside here when he retires. Indeed, there can be four or five transactions over ten or 12 years in relation to sites of this kind. It is clear from the section that in a case of this kind the purchaser will be paying stamp duty on ten times the value of the site.

If there is a different interpretation it badly needs to be clarified because it goes on to say that this ten times value can be decreased by negotiation with the Revenue Commissioners but that it cannot be decreased to a figure more than five times the value. A German — or an Irishman — may buy a site for £10,000 but does not build on it. The Revenue Commissioners will say that the aggregate value of the house which he intends to build in future on the site is ten times the value of the site so his stamp duty is based on the sum of £100,000. He can negotiate with the Revenue Commissioners a figure between £50,000 and £100,000 for the purposes of assessment for stamp duty. That is a daft provision and I should like to see it changed.

Mr. Rabbitte: It is a devastating example.

[2452] Mr. A. Reynolds: People wrote asking me to clarify——

Mr. Rabbitte: In German, no doubt.

Mr. A. Reynolds: No, my queries were from Ireland. We all know what is involved here. Sites were bought from a builder who had about 100 of them in an estate. Stamp duty was paid on the sites but not on the houses which were subsequently built on them. This is a matter of equity, apart from anything else. How do you tell a person who buys a secondhand house costing £100,000 or £150,000 that they should pay stamp duty based on £150,000 when it does not apply across the board? If somebody in a rural area buys a site from a neighbour or farmer and then negotiates with a different person to build the house they are not caught by this section.

Subsection (3) deals with the multipliers which the two amendments seek to reduce. It must be emphasised that this subsection is not a tax charging section. It can only come into operation where a house is being built or will be built on the site but, in addition, where it is not possible to determine the consideration for the house when the instrument is presented for stamping.

The range of multipliers, a maximum of ten and a minimum of five, provided for in subsection (3) is intended to provide flexibility in the application of the section. It recognises that situation will exist where information regarding the cost of building the house will not be forthcoming. Depending on the information available to them, the Revenue Commissioners may feel it appropriate, in certain cases, to apply a higher multiple than in others. The area and location of the site and the size of the building will be among the factors that will determine the choice of multiple.

Based on the past experience of the Revenue Commissioners it is felt that multiples within the range of five to ten times the value of the site realistically reflect the true proportion which exists between values of sites and of completed houses. A range of two to four times the [2453] value of the site is considered far too low and could lead to the deliberate suppression of information in order to have stamp duty assessed on a low multiple rather than on the real cost involved.

To express it in another way, if the multipliers are too low there will be serious loss of revenue as individuals will tend to use these multipliers rather than the real or higher consideration of the house. The section has been inserted to meet the case of the purchasers who genuinely do not know or cannot ascertain the consideration of the house he or she will have built. It is not the intention to open up possibilities for avoidance schemes.

If too much stamp duty is shown to have been paid as a result of using the multipliers, the section provides for a refund of the overpaid duty with interest at 1 per cent per month or part of a month. This interest is tax free.

Mr. Noonan (Limerick East): If somebody buys a site for a home, although they do not know when they will be in a position to build on it, when they get the site transferred to their name they become liable, not only for the stamp duty on the value of the site, but for the value which will be put at a future date on that house. Is that correct?

Mr. A. Reynolds: No, not unless there is a direct connection between them and the seller of the site.

Mr. Taylor: Amendments Nos. 114a and 115 are particularly important. Will the House, by agreement, give them five minutes?

Mr. Noonan (Limerick East): Agreed.

Mr. Rabbitte: Then I will waive my right to speak on this, a Leas-Cheann Comhairle.

An Leas-Cheann Comhairle: Then we will change the order and allow an additional five minutes now. The question will be put at 6.35 p.m.

[2454] Mr. Noonan (Limerick East): Can the Minister answer that one question? For example, if somebody buys a site and does not build on it for years, is that person liable to stamp duty on the value of the site plus the value of the house which will eventually go onto the site at the time when the site is transferred into their names?

Mr. A. Reynolds: No, unless there is a direct link between the seller of the house, being a builder, for instance, who has the site; those kinds of circumstances. I think the Deputy knows what we are trying to get at. We are trying to stop builders who are using the loophole to avoid paying stamp duty on a house, say, costing between £150,000 and £200,000 by imputing the site value only. When circumstances arise in which there is no direct link, then that will not attract stamp duty more than that payable on the site itself. If there is a link established, in those circumstances, the multiplier effect would be employed by the Revenue. For example, if no house is built on the site over a period of two years then there will be a total refund of the imputed stamp duty.

Mr. Noonan (Limerick East): If a local landowner sells a site to a young couple who are going to build on the site——

Mr. A. Reynolds: A local landowner?

Mr. Noonan (Limerick East): Yes, let us say a local landowner sells to a young couple to build on the site, there is no link between them, it is a straightforward, arms length transaction, and a builder who has no link with either of them comes in to build the house under contract, that young couple will pay stamp duty site only. Is that correct?

Mr. A. Reynolds: Precisely.

Mr. Noonan (Limerick East): Then I can withdraw my two amendments.

Amendment, by leave, withdrawn.

[2455] Amendment No. 114 not moved.

Section 100, as amended, agreed to.

Section 101 agreed to.


An Leas-Cheann Comhairle: We come now to section 102 and amendment No. 114a in the name of Deputy Rabbitte. Amendment No. 115 is an alternative and can be discussed with amendment No. 114a.

Mr. Rabbitte: I move amendment No. 114a:

In page 87, lines 9 and 10, to delete “by either spouse into the joint ownership of both spouses.” and substitute the following:

(a) by either spouse into the joint ownership of both spouses, or

(b) by either spouse into the ownership of the other spouse arising from marital separation or breakdown.”.

This section provides for transfers of property by a spouse into the joint ownership of both spouses, so that any such transfers will be exempt from duty from the date the Act becomes law. I am seeking in my amendment to provide for circumstances of a marital breakdown. Let us suppose the spouse who seeks to have her name put on the deeds of the family home finds that the only name on the deeds prior to that has been the name of the other spouse, her husband, so that currently she is liable to stamp duty in attempting to have her name inserted on the deeds.

Deputy Taylor advises me that his amendment No. 115 meets the same objective more economically than mine, since his refers specifically to “the property in a family home” — seeking that no stamp duty should be payable on any instrument where “the property in a [2456] family home” is transferred to the other spouse in the circumstances I have described. With your permission, a Leas-Cheann Comhairle, I should like Deputy Taylor to make a comment on his amendment No. 115.

Mr. Taylor: Perhaps I might inform the Minister of the kind of circumstances I am endeavouring to cover here. I am asking the Minister for a concession on this since we have worked long and hard on this Bill. Let us suppose a husband and wife are separating and the house is in the husband's name only. Let us also suppose it is a small house costing, say, £25,000. When they break up the arrangement is that the wife is to get the house, that is part of the deal on the break-up of the marriage. The husband agrees to transfer it to her. Without this amendment she would be caught for stamp duty on that transfer. In most cases about which Deputy Rabbitte and I are speaking they just could not afford to pay the stamp duty. Putting the property in joint names means it would be exempt but when the property is to go into the wife's name only it is caught. This is causing considerable difficulty for people in standard, working-class, houses and so on. The stamp duty might amount to, say, £300 only, but they just cannot cope with that imposition. I would ask the Minister for a concession on this one.

Mr. A. Reynolds: I have been looking at the position. In my last budget I made joint ownership exempt from stamp duty in order to encourage such transfer. I had one worry about this, that is that as a consequence, it might encourage single party ownership of a house by one spouse. I am almost satisfied we can meet Deputy Taylor's request. I will see what I can do between now and Report Stage but I am fairly satisfied we can meet his request. The Deputy is really saying that in circumstances of marital breakdown where the family home becomes part of the overall settlement, rather than that being subjected to stamp duty, it should be exempt. Is that what he is saying?

[2457] Mr. Taylor: When they decide it is to go into the name of the wife only, which is the more usual procedure if the husband agrees to back out, there should not be stamp duty imposed.

Mr. A. Reynolds: In other words, the husband moves out and the wife remains in the family home with the children. In those circumstances stamp duty would apply unless it is exempted. I will bring forward an amendment to cover that on Report Stage.

Amendment, by leave, withdrawn.

Amendment No. 115 not moved.

An Leas-Cheann Comhairle: On the understanding that the Minister will look at it between now and Report Stage.

Section agreed to.

An Leas-Cheann Comhairle: I must now put the following question: “That the amendments set down by the Minister for Finance to Parts IV and V 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, that the section or, as appropriate the section, as amended, is hereby agreed to.”

Question put and declared carried.

Sitting suspended at 6.35 p.m. and resumed at 7 p.m.