Wednesday, 1 July 1942
Seanad Éireann Debate
Mr. Douglas: I find a certain amount of difficulty in understanding how wide or how narrow Section 3 is intended to be. The first sentence says that it relates only to commodities not produced commercially in the State in the 12 months ended 31st August, 1939. If that were taken just by itself, it would seem to me that the section was not going to prove nearly as helpful as it is possibly intended to be. It is quite possible that this section may be interpreted rather more widely, because, after all, it is mainly a section to give discretion to the Revenue Commissioners under certain circumstances. But, there is a certain amount of uneasiness—it has been expressed to me— that if it is not understood that it will be interpreted reasonably and with some breadth, it may prove a discouragement to certain manufacturers. It is quite clear that where a particular commodity was not manufactured before that date because it was not considered to be an economic proposition, and is  now manufactured, because of scarcity, on an uneconomic basis, this section gives full discretion to allow any cost to be chargeable on assessment of income-tax.
It is not quite so clear, and possibly the Minister could help me in the matter, that where the commodity was manufactured or was available, but where the emergency or the war circumstances have forced it to be manufactured in a totally different way and by different means unlikely to be continued afterwards, the relief desired will be given. What I have in mind is this: you may have a certain commodity manufactured here and finished with a certain raw material. Machinery is available for the use of that raw material, but the raw material is now unobtainable, and alternative materials may be used, but they necessitate new machinery. The alternative proves not to be as good and the new machinery may become completely useless after the emergency. It seems to me that the cost of that machinery, in so far as it becomes useless afterwards, should be a charge over the period as depreciation, because it is in the public interest that the commodity should continue to be made, and we do not want to discourage anyone. You have another very simple illustration of the same thing in the case of a firm using motor deliveries. If it becomes undesirable, or impossible, to use petrol for the purpose of those deliveries, and if firms for the period of the emergency introduce horses and vans, the public will have to put up with the slower transport and certain inconveniences. Firms will be rather unwilling to do that if they find that the expenditure will be regarded as capital expenditure and could not be written off as soon as the vans become useless. That is a simple type of illustration. I have been asked by the Chamber of Commerce to raise this point, and to ask how far this section will be interpreted narrowly. One letter I had from a representative of the Chamber of Commerce mentioned a case where, in order to continue a particular type of manufacture, the manufacturer  had to adopt a Heath Robinson type of machine, as he called it, which he would certainly abolish as soon as he could, although it is getting the job done.
On strict reading, I am not at all sure the section would meet his case, and if he did instal machinery of that kind it might happen to be regarded as capital expenditure. I think the Minister could help me with regard to that. There is also the case where a commodity was made before 1939 from raw materials and where the manufacturer has now to make the raw material. In that case I gave it as my opinion that the section would cover it, although in the previous case I was not at all sure it would.
Minister for Finance (Mr. O Ceallaigh): I should like to assure Senator Douglas and any other members of the Seanad who are interested, that the intention is that this section should be interpreted widely, and the Revenue Commissioners given full discretion to use their commonsense in the matter. There is one example that occurs to me as to how the word “commodity” might be interpreted. Paper was manufactured here before 1939 from wood pulp. That paper manufactured from wood pulp if still so manufactured would not be interpreted as a commodity here, but if manufactured from any other materials, straw, for instance, it would be regarded as a commodity within the meaning of the sub-section, and would get the benefits that are set out in the section. With regard to capital expenditure on machinery rendered necessary as a result of the emergency, it is intended that the section be interpreted widely and generously, too. As regards transport, it would be very wise for everybody concerned to submit these cases to the Revenue Commissioners, who will use their discretion. So far as the Minister for Finance is concerned, his desire would be to help people who are trying to help the country with supplies over the difficult period of the emergency. This section will be interpreted in that way. If we find that the law is so drawn that specific cases brought before the Revenue Commissioners  cannot be included in a generous interpretation of the section, I am quite prepared to come to the House again to ask for further powers to interpret the section more widely, so as to include any industrialists who have put up machinery or employed new capital or something that necessitates the expenditure of capital to help the people with commodities not available otherwise than by expenditure for special purposes during the emergency.
Mr. Douglas: I am very much obliged to the Minister. I hope that his suggestion that a case might be put beforehand will get some publicity. It is most important that people should not be discouraged from taking some financial risks at the present time which might add to the total supplies available to the country.
Mr. Douglas: I should just like to say with regard to this section that it removes a particular flaw in the operation of the excess profits tax which I criticised last year. It seemed to me, that as it was framed last year, there was a possibility that a company might be obliged to pay excess profits tax in one year even though actually the company might have lost over a longer period and might not properly be liable to the excess profits tax at all. My reading of the section is that it completely removes that flaw. Possibly, I have referred to the wrong section.
Mr. Douglas: I want to say, on behalf of both traders and manufacturers, that this is a very satisfactory provision. It seems that not only is it a matter of simple justice but it means, in effect, that where a firm had a good year last year—it was a good year in a number of cases—the excess so made will be allowed to remain as a security or reserve, should there be a loss at a later period, to cover such loss. That means that a  company can go ahead, taking a certain amount of risk with some confidence, even risking a loss which it could not possibly face if the money had been paid over to the Revenue Commissioners and was irrecoverable. It seems to me only right that there should be an excess profits tax during an emergency of this kind. Provided that it is not paid on what is not actually an excess profit, I am altogether in favour of this tax. I just want to make it clear that this provision represents an enormous improvement.
Mr. Fitzgerald: I do not know whether a point to which I desire to refer is appropriate to this section. It is a fact that we have an agreement with the British with regard to double taxation, that is, taxation here and in England. In England, at the moment there is an excess profits tax of 100 per cent. and there are firms which operate both in England and in this State. I understand that the British Government, in considering an assessment for excess profits tax, will take into consideration—I do not pretend to be an expert on this and I may be wrong in the details—corporation profits tax paid here. I understand, on the other hand, that where the British Government demands a tax of 100 per cent. the Revenue Commissioners here, in deciding what taxation they are going to impose on a firm operating here and in England, will consider the profit made by that firm but which is not enjoyed by it as the excess profit has been taken from it by the British Government and will impose taxation on that profit. The effect of that would be that any firm which increases its business—I am speaking of a firm, of course, operating in the two areas of jurisdiction—thereby making some additional profit will, in fact, by reason of that fact have losses imposed upon it.
There are one or two firms which I happen to know which operate in England and which it is desirable should also operate in this country. It seems to me that their aim must be rather to avoid any extension of their business over here or in England to keep the total profit down because the  excess profits they make will be taken by the British Government less a deduction for taxation here. I understand that the Revenue Commissioners do not take into account in the same way the imposition of the 100 per cent. excess profits tax in England. The result is that if a company which before the war was making £5,000 should make £7,000 during this year, that £2,000 excess will be taken by the British Government but the Government here may say: “They made that £7,000 here. We are going to demand taxation upon that sum which has been taken from you by the British Government.” I am not sure that I have got my details correctly, but I remember examining a case some months ago and I was quite satisfied from my examination that it would be necessary for such a firm to avoid doing extra business because any additional profits they made would only result in their being involved in loss. I should like the Minister to let the House know whether that is the case and, if so, he regards it as equitable or desirable.
Mr. O Ceallaigh: I do not think the Senator is correct in his assumptions in this matter. The taxes paid by an Irish company trading in England are allowed here. If excess profits tax has to be paid in England, there is an allowance made for it when they come to reckon what they have to pay here. Vice versa, in the case of a British company operating here, any excess profits tax they have to pay here is taken into account in Britain. It does not mean that they are any worse off than their neighbours. If they make extra profits and they have to pay extra tax here, that is taken into account on the other side. Similarly, we take into account any taxes they pay to the British Government.
Mr. Fitzgerald: I am glad to hear the Minister say that because as I remember the position it did not appear to be so. The Minister has now stated that our Revenue Commissioners in deciding what sum a firm operating in this country has to pay will, before they approach that, take from the sum they  are going to consider, the amount of taxation that has been imposed by the British Government? That is clear?
Mr. Fitzgerald: So that it is not possible that any firm operating in the two countries by reason of the operation of the excess profits tax will, as a result of making extra profit, involve itself in a loss? Can the Minister assure me that the arrangements are such that no firm could lose by making an extra profit?
Mr. O Ceallaigh: That would be going very far. I could not say that any firm was not going to lose. All I can say is that we allow here what is paid on the other side, in the case of firms who are obliged to pay tax here. There is no reciprocal arrangement, but that is the common practice.
Mr. Fitzgerald: I referred last week to just one matter—that people by getting married, with comparatively  small incomes enjoyed by the two parties, because they get married have additional taxation imposed upon them. Personally, I believe that to be undesirable. My recollection is that the Minister pointed out that immediately on the birth of a child the married couple would receive an exemption with regard to £60. I do not think that is a true statement of the case. I think the Minister himself is misinformed. If people get married, say on the 31st March, they are then treated as enjoying the marriage remission for the financial year ending on the 31st March. If a child is born, say on 5th May of any year do the parents enjoy the remission with regard to that child for that financial year? I would like to know does the Minister wish to change what he said, that immediately on the birth of the first child the married couple would enjoy that remission. There are probably thousands of people who have to pay as though they had no child for a period when in fact they have imposed upon them the cost of a child.
If that is so, the general financial legislation in this country should be so amended as to rectify that position. The whole history of the development of the Finance Acts is something like the history of the policeman and the burglar, the Government wishes to impose taxation on the people equitably, and the clever lawyers or even the non-lawyers get together to see how, within the law, they will be able to escape the imposition that the Government desires to place upon them. The Government seeks to close the loophole. If you are going to try to get justice you cannot do it by merely adverting to the needs or the rights of one party, when two parties are involved.
I am satisfied myself that there are hundreds of cases where the taxation laws work out inequitably and it is almost inevitable that it should be so, because the drafting of the taxation laws has not had in mind so much general justice to the Government, to the common good and to individuals. It has one thing in mind, namely, that any possible loophole should be closed so that nobody can possibly escape  from paying taxes that they should pay. That is quite right, but at the same time if the Government is to be guided by justice, it must also have in mind that taxation will be so imposed that nobody will be called upon to pay tax which, strictly speaking, in equity they should not be called upon to pay. I think the whole tax code should be examined, not merely from the point of view of the policeman and the burglar but also to see that the law should be such that people should not be unfairly treated. I gave just one instance last week where, by getting married, with a comparatively small sum, the joint income can be reduced by taxation by £50 a year. The Minister gave another case in which the income could be reduced by only £11. But I could run along a whole scale showing that it is financially undesirable in many cases that people should get married.
I queried the Minister's statement that immediately the first child is born the parents get exemption. I looked it up, and I saw that it depended on the date that the child was born, because by getting married on 31st March one is exempt for the whole of the previous year, whereas if a child is born some time after that the parent is not only not exempt for the previous year, but is treated as if there was no child at all for the previous year. If that is so, there is a case for alteration of the law. It is quite right that the law should say that so far as the policeman and the burglar is concerned the burglar should go to jail, but the analogy is not quite exactly that. Every one of us is bound to pay tax. The taxation laws are drafted on the assumption, and it is a fairly sound assumption, that everybody is going to try to dodge paying taxes if they can. That is quite all right, but the Government in doing that is bound in justice surely to see that their drafting will not be such as to impose inequitable taxation on some people by a flaw in draftsmanship. Am I right in thinking that the Minister was not right when he said that immediately on the birth of a child the exemption was enjoyed?
Mr. O Ceallaigh: I had in mind shortly after, but I think it is not as shortly as I thought. The Senator is probably right when he said for the greater part of that year or at least for the first half of it the couple might not get the benefit of the allowance for the child. There is that much right in what the Senator said. Maybe for the greater part of that year the allowance would not come to the benefit of the income-tax payer. The principle the Senator speaks in favour of —of separating the wife's income from that of the husband—is one that would have to be very carefully examined as to its repercussions not alone on the Exchequer but on married people as a whole. The natural thing is that couples will be married and that the husband will be the earner, and that his will be the income that will keep the family going; and it is on that basis that the income-tax laws are arranged. If we go on another basis, and separate them, and arrange for a new principle—that the wife's income will be always separately assessed—it would probably hit the married couples, and therefore you would be hitting the majority of the taxpayers of the country. I have not had time to have the matter thoroughly examined. The point which Senator Fitzgerald has raised is an interesting one. It probably has been examined already at other times and in other places, but I have not had time to examine it thoroughly yet. It is certainly true that, if we were to adopt in principle what Senator Fitzgerald suggests, married couples as a whole would not benefit.
Mr. Fitzgerald: The Minister will pardon me; he has assumed that the  condition which I pointed out can only be met in one way, namely by treating the two incomes as distinct. That is not the only possible way of meeting it. It can be met by treating them as one, if you like, but arranging the incidence of taxation in such a way that people will not actually be detrimentally affected financially by getting married as distinct from not getting married. It is a wrong conclusion that that can only be met by drafting the whole income-tax code on the assumption that the two incomes are distinct. Of course, I am not asking the Minister to go into the whole matter now.
Mr. O Ceallaigh: I understand. We have one principle running through; we accept the principle of marriage, and it is on that basis that we accept the income-tax code. We have not changed it very much; the principle remains the same.
Mr. O Ceallaigh: I gathered that what the Senator has in mind was that there would be a principle of separate taxation, with the present principle running side by side with the income-tax code, and that the taxpayer would have the right to choose which of the two suited him better.
Mr. Fitzgerald: That is not my proposal. At the present moment, a single person has £120 free of income-tax. Therefore, two people have £120 each, or £240 in all, free of income tax. If they get married they have only £220 free of income tax. As I said, if each one of them has £100 on top of that, they have each their £100 at the half income-tax rate. They will have, as unmarried people, £240 free of income-tax, and then the two of them together will pay half income-tax on £200. If they get married, the two of  them will have £220 free of income-tax instead of £240, and they will then have only £100 at the half income-tax rate. That would bring them up to £320 and they will then have, I think, £80—I am making this calculation rather hurriedly—on which they will pay the full income-tax.
The arrangement as to how much you are going to have free as a single person, or on how much you are going to pay half income-tax, and at what point you will pay the whole income-tax, could easily be re-adjusted so that the benefit would be in favour of those who get married rather than of those who avoid marriage. That will not mean that everybody will have the option of deciding whether they will have the incomes treated as one or two. It could be arranged quite simply on half a sheet of paper.
Mr. O Ceallaigh: I think £20 tax free is not going to weigh so heavily in the balance; no matter how charming the girl may be, you will think a little more of the matter. Any Minister for Finance would have to have this matter examined from the revenue point of view, and it is not quite so simple. I do not think anything relating to income-tax is very simple, from my own experience. Anybody who had the interest and the time to read the different sections of the Finance Bill, and the amendments which were introduced this year, will realise that income-tax is anything but a simple matter. I can imagine something of the type of Section 4 or Sections 16 and 17 taking a lot of time. I can imagine, as Senator Douglas told us last year, people putting their towels around their heads, not alone to try to understand them, but to write them. A good deal of that would be required, I think, to put anything like what the Senator has in mind into  operation. Naturally, no Minister for Finance, and less still, probably, his staff, would like to be urged to introduce modifications or amendments of that kind. Looking at the matter purely from a social point of view, if the saving of tax on £20 a year would encourage people to get married, I should like to be able to do that. I should like to help young people, if that would be a help to them, to decide on the matrimonial state rather than to stay single or to live as the Senator suggested the last time we were here that they might live, if they feared the income-tax burden becoming so much heavier. At any rate, it would require time for study.
Mr. Fitzgerald: I do not think it will be so very complicated to see that people who have a child will enjoy exemption from the moment that they have the additional expense of that child. At the present moment, they get no benefit for a year, I think.
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