Wednesday, 19 July 1972
Seanad Eireann Debate
Mr. Alexis FitzGerald: The interpretation section omits to give interpretations in respect of a number of matters which are referred to in different sections throughout the Bill. For example, “be appointed today for the purposes of keeping the register” is not interpreted in this section. There is no definition of “delivery”; this is defined in section 3. There is no definition of “the rendering of services”; this is defined in section 5. There is no definition of “stock-in-trade”. None of this may be thought important until you consider that “an accountable person” is defined in section 1 as “a person who is an accountable person in accordance with section 8”. Yet you find in section 4 (5) (a) that “a person shall ... be deemed to be an accountable person”.
Turning to section 16, there is an obligation on keeping records and the question arises whether the person referred to in section 4 (5) (a) who is deemed to be an accountable person is an accountable person by virtue of the failure of section 1 to include “deemed an accountable person” for the purposes of the Bill. This is important because persons who are given the duty of keeping records are subject to penalties if they do not.
With regard to the definition of “stock-in-trade” which is found in section 34 and not in section 1, the definition in section 34 is for the purposes of section 34 only and is not for the purposes of any other section in the Bill.
Professor Quinlan: I should like to ask the Minister a question regarding the definitions in section 1. There is a definition of livestock in section 1, namely, “‘livestock’ means live cattle, sheep, pigs and horses”. If horses are included, why not include ponies, donkeys and greyhounds? Are these livestock within the meaning of this Bill? If sheep are included, why not include goats? There are some possibilities in the breeding of special purpose goats.
Mrs. Farrell: I should also like to ask about the definition of “livestock”. “‘Livestock’ means live cattle, sheep, pigs and horses”. In section 8 it will be  found that poultry farmers are deemed to be accountable people. There is no reference to this except in Schedule I where it states “live animals”. It is stretching the imagination to call a chicken an animal. Zoologically speaking, you might say the animal kingdom is divided into three, but if you speak on poultry and eggs you should mention the source from which they come.
Mr. Russell: May I ask the Minister about one or two matters? Why, in section 1, is the term “promotion of dances” used? Can it not refer to the promotion of any other activity, or is there a special reason for singling out dances in this section?
With regard to the reference to customs-free airport, does that mean that the country will continue to have only one customs-free airport? Can this apply to an airport other than a customs-free airport, such as Dublin Airport? The interpretation of the word “established” in the section means having a permanent establishment. Could the Minister elaborate on that? Would a permanent establishment include, say, a mobile home?
Minister for Finance (Mr. Colley): With regard to the definition of “livestock”, the reason for the limitation of this definition to live cattle, sheep, pigs and horses, is that these are the animals which are sold through marts. There are special provisions later in the Bill which cover these sales.
With regard to the customs-free airport the definition refers to the only existing customs-free airport. If another customs-free airport were to be established the legislation establishing it would presumably include a provision including the customs-free zone under this definition section.
On the point raised by Senator Farrell, the position is that a person who operates a poultry farm on a commercial scale is entitled to adopt  the special arrangements for unregistered farmers, provided his sales do not exceed £1,000 per two-month taxable period. That would be £6,000 per annum. Such a person may opt for registration if he so wishes. It would be in his interests to do so if he was likely to incur heavy capital expenditure on buildings or equipment and a substantial proportion of his produce was either exported or sold to registered persons within the State. A poultry farmer whose sales exceed £1,000 per taxable period is required to register and will be treated for tax purposes as an ordinary trader. He will not, however, lose by this requirement because he will obtain full credit for tax suffered on his inputs, for example, buildings, equipment and fuel and he can pass on a tax credit to his registered customers.
Day-old chicks are regarded as live animals for tax purposes and, consequently, the rate of tax chargeable on these when sold by a registered person will be the lower rate of 5.26 per cent. Larger customers are likely to be registered for tax and they can get full credit for any tax suffered on their purchases. Sales between unregistered farmers will not be liable to tax. The larger poultry farmers who are required to register for tax are unlikely to be prejudiced by competition from smaller unregistered producers. The reason for this is that unregistered producers will suffer tax on their inputs. The tax credit which they will be able to pass on to registered customers will be limited to 1 per cent of their sales to such customers, as compared with the credit of 5.26 per cent which registered poultry farmers will be able to pass on.
Mr. Crinion: My question is much the same. Can I take it that the £1,000 per taxable period will be the governing feature of a poultry farm? I am thinking of poultry farms which are integrated with an ordinary farm supplying eggs to a hatchery or broiler breeder units which would be part of  a bigger farm. How would they be affected?
Mr. Colley: The animals normally sold in the mart. In reply to Senator Crinion's query, the operation of the poultry farm would be treated as part of the whole of the operation. The figure of £1,000 per taxable period would relate to the poultry farm operation.
Professor Quinlan: I should like to raise a point on this section. It states “value-added tax on goods imported into the State”. I raised this point on Second Reading but I was unable to follow it through. What is the situation with regard to tax on goods imported into the State? Let us take the example of clothing made in England as compared with the similar clothing made here. If the clothing is made here and sold on the Irish market it has to carry the full value-added tax. If similar clothing is made in England and  arrives here in a finished condition, will it have to carry the same tax as it would carry if it had been manufactured here?
Mr. Alexis FitzGerald: The transfer of ownership in paragraph (d) takes in the case of an acquisition by the State and also the seizure by a person acting under statutory authority. It does not appear to take in the case of the property being passed by judicial order where there is no agreement between the parties.
Mr. Alexis FitzGerald: Only what I have said. It might be the result of a dispute. It might be a “got together” dispute when you have such things under which the property is effectively passed by virtue of the judge's order. There is no seizure. The person who has argued the case apparently badly and has got the judgment which he expected against him allows the property to pass by virtue of the judicial order without the intervention of any seizure process. It seems to me that you would want to catch that transaction as a delivery.
Mr. Colley: I am trying to visualise the situation in which there is an actual transfer solely by virtue of the court order and no other instrument. The Senator is more in touch with these matters than I am now but I take it that such a thing is possible?
Mr. Crinion: In the event of a compulsory purchase order by a local authority where they require a good deal of land for building, will the individual have to pay tax on it? A farmer or a person who owns a house which is compulsorily acquired would take a very poor view of this compulsory acquisition and then have a tax also.
Mr. Colley: It would be so liable because, if it were not, there would be two values for land—one in the case of land which was not subject to the tax and one case in which it was subject. The whole object of this bill, as far as possible, is to achieve neutrality in all these transactions—to ensure that no advantage accrues to one particular class as against another. For that reason, it is necessary to ensure that tax would apply in all those circumstances.
Regarding the point raised by Senator Crinion, the question of liability to tax arising in a compulsory purchase order case would, of course, only apply where there had been work done by way of development of the land. In the ordinary course of acquisition of land for development by a local authority, it would not be developed land within the meaning of the Bill and, therefore, the tax would not arise.
Mr. Alexis FitzGerald: One question for clarification. With regard to paragraph (f), I take it this is to catch within the tax net an accountable person—for example, a person who brings home his own goods and uses them for his own purpose? It would also mean that accountable persons would be caught within the tax net in respect of their charitable gifts if they decided to give groceries or old clothes to the St. Vincent de Paul Society. Strictly speaking, I take it they would be caught?
Mr. Colley: There is power given in the Bill—not to the Revenue Commissioners but to the Minister—to order a repayment in certain circumstances where it is clear that it would not have been the intention that the person would have been subject to tax; but to provide an exemption would create all sorts of difficulties and anomalies. Theoretically, it would be possible for the Minister in the circumstances described by Senator FitzGerald to provide that tax would not be payable. I do not want to give the impression that such an order would be made because it could certainly be open to abuse.
Mr. Russell: There are certain homes for elderly people in Limerick city and elsewhere where traders each week give a free gift of goods or foodstuffs. Would they be liable for tax on these and would they have to re-claim it, or would the institution itself be liable? There is an old men's home in Limerick run by the St. Vincent de Paul Society and a number of traders  donate foodstuffs each week. Is the home liable for tax?
Mr. Colley: The trader would be liable. Let us suppose he furnishes some item to the home. He purchases this. It costs him a certain amount and he has to pay turnover tax on that item at the moment. The position in practice from his point of view would be exactly the same under value-added tax.
the handing over of the goods to a person pursuant to an agreement which provides for the renting of the goods for a certain period subject to a condition that ownership of the goods shall be transferred to the person on a date not later than the date of payment of the final sum under the agreement,
Does this cover hire purchase transactions or sales of houses under a loan, in which case the delivery would not take place until the final payment possibly 25 years after the original transaction was made? Am I misreading the section or is that the intention?
It goes on to describe the kind of agreement. The kind of agreement envisaged here is one in which the legal ownership does not transfer until, say, three years, as the Senator visualises in the hire purchase of a car. For the purpose of value-added tax, the delivery takes place on the handing over of the goods.
Mr. Crinion: Subsection (3) deals with the auction of goods. There are charities which hold draws and auctions to which people send in goods either to be raffled or auctioned. Would these be taxed? The ICA have country markets where members sell their produce to customers. This is a completely voluntary body. Would these also be liable to tax?
Mr. Colley: Liability arises only where sales are made in the course of trade, so the kind of auction which the Senator visualises would not be in the course of trade and therefore would not attract tax. A raffle is specifically excluded. Jumble sales are also excluded.  The ICA sales to which the Senator referred would be excluded on the grounds that they are not in the course of trade. It may be that in certain circumstances it could be said that some of these operations amount to operations in the course of trade. In that event they could become liable to tax. The test would be whether it was in the course of trade.
Mrs. Farrell: These country markets are part of the activities of the ICA. They are a charitable organisation and as such cannot trade. This is a voluntary organisation; a type of small co-operative where the producers of the locality get together as a co-operative body and sell their goods on a particular day of the week. The Kilternan market is a well-known market in the Dublin mountains.
Mrs. Farrell: I do not think they are liable to turnover tax. Under this rule about a producer of agricultural goods—the one the Minister quoted of £1,000—they might well be exempt because the amount of money taken in by any individual producer in such a market would be very small. It would only be a few pounds per week for any producer. They certainly would not produce £1,000 worth per annum.
Mr. Colley: I think Senator Farrell is right in so far as they would come in under the course of trade and they would go out again because of the level of business transacted. If it amounted to less than £6,000 per year they would not be liable for tax. I would assume that it is on this basis that they are not liable to turnover tax also because the exemptions are approximately the same.
Mr. Alexis FitzGerald: I think I understand the purpose of subsection (5) of this section, which provides that the transfer of ownership as security or in connection with the transfer of a business shall be deemed not to be a delivery. I do not understand—perhaps the Minister will explain it to me —why the Fourth Schedule goods are  excluded. If Fourth Schedule goods are subject to this high rate of tax, are they to be treated, in principle, in a different way from the way in which the 16.37 per cent goods or the 5.26 per cent goods are treated. Is there a loophole which needs to be covered?
Mr. Colley: No. This is intentional. If part of the stocks of a manufacturer of these goods which are liable at a very high rate were transferred to a retailer, we think it would be desirable that the tax at the 30.26 per cent rate should be charged at that point, leaving the subsequent sale by the retailer at only 5.26 per cent which is the same rate as nearly all the other groups he is handling. It is a special situation in relation to these goods in the Fourth Schedule only.
Mr. Colley: No. It is not the same position there, where it is the whole which is passed on. What is happening in the high rate goods is that only the 5.26 per cent is passed on. In other words, apart from the 5.26 per cent, the rest of the tax is paid at the early stage and thereafter these goods are treated in the same way as those in the low rate. It simplifies operations for retailers, in particular, and for everybody concerned.
Mr. Crinion: In subsection (5) (ii) it is provided: “where goods are held as security for a loan or a debt, upon repayment of the loan or debt....” Is tax charged on the actual goods? If a person owed money to a garage proprietor and left his car in for repair, the garage owner would not release it until the full debt was paid and if it was held for a period of time, would he have to pay tax on the car or on the actual loan? SECTION 4.
Mr. Alexis FitzGerald: I should like to raise one or two points on this section. The question of interest is defined in paragraph (d) of subsection (1) where a mortgage is excluded. What is there to prevent somebody who wants to, passing the interest by creating a mortgage for a sum very substantially in excess of the value of the immovable property in question and then transferring the benefit of the mortgage? The mortgage itself is not an interest. Ten times nothing is still nothing, and the transfer of what is not an interest could not be an interest.
Mr. Alexis FitzGerald: The second question I wish to ask is what is there to prevent—this may well have been contemplated—someone who wants to transfer immovable goods taking advantage of the exempted activity provision and transferring the shares in the company who hold the immovable goods so that the immovable goods never transfer at all and still remain the property of the original owner and all that is passed is something which is exempted from taxation by virtue of being an exempted activity? I know this will get caught for other purposes but it seems to me that it will not be subject to wholesale tax. If you have a straight sale of developed property which is subject to wholesale tax and a type of operation whereby you can transfer the interest without exposing it to wholesale tax, it would seem that people will opt for the type of operation which will leave it outside the wholesale tax.
Mr. Colley: First of all, in the situation envisaged by Senator FitzGerald of the transfer, for example, of shares in a company so that the actual ownership does not pass but remains in the company, this was considered, but it  was decided not to provide against it because, on the one hand, to provide for it would involve very complex provisions somewhat analogous to the rather complex provisions we have in connection with liability to other taxes. The Bill is already complex enough. Secondly, it was felt that in most cases any transfer would be between accountable persons, in which event making them liable to tax would not make any real difference in the long run. Anybody so becoming liable could pass it on. It may be that some transactions will get through the net but, in so far as they do, we will have a similar situation to that envisaged by Senator FitzGerald.
Mr. Colley: The transfer of a mortgage as distinct from the actual execution of a mortgage could well be exempt. The Senator is right. It could be exempt. I am not trying to pronounce on this authoritatively, but it could well be outside the net. We think that in most such cases the transactions would be between accountable persons and, therefore, it would not make any difference. If, however, we see the fish coming—as the Senator said—and a few getting through to the extent that it would indicate that this was a loophole which was being availed of to defeat the purposes of the Bill, there is always the possibility of amending legislation.
Mr. Alexis FitzGerald: To help the Minister in his amending legislation, I wonder whether subsection (2) which deals with the disposal of an interest which is defined in the previous subsection, which derives therefrom, would take care of the case where it is only a part of the interest which is transferred, where, for example, a person having sole ownership decides to reduce his fractional interest to a 1000th part and to transfer 999 parts to someone who pays him for it?
Mr. Colley: Yes, that would be caught. Subsection (2) refers to “goods to which this section applies disposes, as regards the whole or any part of those goods, of that interest or of an interest which derives therefrom”.  That would cover the situation envisaged by Senator FitzGerald.
Mr. Alexis FitzGerald: I do not think it would because the interest itself alone will be divided. It will be an interest in the whole of the goods and it will not be a derivative interest from the interest in the goods.
Mr. Colley: This form of wording has been used and operated in another code but it may be that the Senator has something in mind which I have misunderstood. In that event, I will examine it further with a view to possible amending legislation.
Mr. Alexis FitzGerald: Thank you. Could I get complete clarification as to what is intended here? It is only intended to catch within the net of the value-added taxation, sales or transactions in property which is developed. The ordinary sale of property is not within the wholesale net if there is no development within the definition in the Act?
Mr. Alexis FitzGerald: I notice the use of the words, in subsection (5), of “other than transport services”. Is it absolutely clear what is taken in by “transport services”? Can we look to the transport code for a definition in that regard?
Mr. Colley: Effectively, the position is that the sale of secondhand goods will be the same under the value-added tax as it is at present under turnover tax. There are certain circumstances in which they are liable, and certain circumstances in which they might not be liable. But it would be the same position under value-added tax. Substantially the answer is: “Yes, they are liable.”
Mr. Colley: So far as they have been developed. It applies only in the case of a sale in the course of business. A private sale of a house from one private person to another private person, neither of whom is in the business of buying and selling houses, does not attract value-added tax.
Mr. Crinion: In the case of new cars would the Revenue Commissioners agree to a tax so that the garage can advertise a car at a list price, which will include taxes? We had that in the first tax. The price list of new cars includes turnover tax. Is there a provision in this that they can do the same with the value-added tax?
Mr. Russell: Am I right in thinking that this section deals with all types of services? It is headed “Rendering of services”. Does it include services not specifically set out in the section, such as advisory services, consultative services, domestic employment agencies? Are they all included under that section?
Mr. Russell: How would the value-added tax operate in, say, a domestic service agency? Who would be liable for it in the final stage? Is the person who engaged the employee liable, or is the employee himself liable? Who, in fact, would pay it?
Question proposed: “That section 6 stand part of the Bill.”
Mr. Russell: Subsection (1) of section 6 provides:
Tax shall not be chargeable in respect of any exempted activity.
The Minister may by order declare the delivery of goods of any kind or the rendering of a service of any kind to be an exempted activity.
If the Minister declares the delivery of goods or some service to be exempted, does that mean they are exempted from all taxes at the different stages of which the value-added tax would apply or does it mean that they are only exempted at a certain stage? I am not quite clear what the effect of making an exemption order would be. Perhaps if the Minister would elaborate on this, it might eliminate the necessity for any further question in the matter. As of now I do not quite understand what the effects would be. I know that a person would be exempted in the sense that he would not be liable for value-added tax. At the same time, he would not be able to recoup any tax——
Mr. Colley: That is correct.
Mr. Russell: The stage at which he had made the order—is that correct?
Mr. Colley: That is correct.
Mr. Russell: Might I suggest to the Minister that in this section—I suppose it is too late to do it now but, obviously, when this Bill is enacted and has been in operation for some time, the Minister will see the need for some adjustments—it would be advisable for him to take power to ensure that certain services or deliveries are zero rated? As I understand it, under this section he can only grant an exemption order. He cannot grant non-liability for all taxes, or the right to recoup taxes, by making a service or a delivery of goods zero rated. Would it not be advisable at this juncture to provide for that power in the Bill?
Mr. Colley: The power to which the Senator refers is provided in section 10 (8). All that is dealt with in this section is the power to exempt. The Senator is quite correct in what he says. Exemption means non-liability for value-added tax, and it means non-liability at all stages, and for all of the value-added tax. It also means, as the Senator said, that there is no right to claim a credit for tax suffered on other activities in the course of the business, or in the rendering of the service.
Mr. Alexis FitzGerald: I should like to ask one other question. Has the Minister power anywhere in this— and if he has not, should he not have —to remove an exemption? If we are moving towards full harmonisation, have we that under section 11, subsection (8) (ii)?
Mr. Colley: That cannot be done. We have the power under section 6 (ii) (b)—
the Minister may, by order, amend or revoke an order under this subsection, including an order under this paragraph.
The effect of that is that the granting of an exemption by order may be cancelled. Where exemptions are given under the Bill they cannot be withdrawn by ministerial order. I can see the reasons why one might think it advisable to do this but, on the other hand, I am sure Senator FitzGerald will agree with me that it is not the kind of practice that would be considered desirable—that, where the Bill specifically provides an exemption, the Minister could cancel it.
Mr. Alexis FitzGerald: If you are moving towards full harmonisation, where the exemption from taxation of exports may go, will you not want to be able to do that without coming back to the two Houses of Parliament? If my understanding of what is involved in full harmonisation is correct, it may not be necessary.
Mr. Colley: I must say that no knowledge I have of the operations in this regard within the EEC would suggest to me that harmonisation would involve abolition of zero rating on  exports in the near future. I am not aware of any developments that would suggest that this is likely to disappear under harmonisation procedure. It is most unlikely because it is regarded as an essential element in ensuring equality of treatment. If such a thing were to come about, it ought to come before both Houses by way of legislation. I would be slow to depart from the idea that, while exemptions or zero rates given by ministerial order could be revoked by ministerial order, those given specifically by the actual legislation in the terms of the Bill could only be altered by way of a specific amendment. This is a reasonable safeguard.
Question put and agreed to.
Question proposed: “That section 7 stand part of the Bill.”
Mr. Alexis FitzGerald: I was surprised to find that I had to turn back to the general section dealing with regulations to find the power to make regulations under section 7 with regard to the manner in which exemption may be waived and to discover that these regualtions may provide for:
the manner in which exemption in respect of certain services may be waived under section 7 and any such waiver may be cancelled, and the adjustments, including a charge of tax, which may be made as a condition of such cancellation:
We find provisions for regulations of a particular kind in section 7 itself and then we have to turn for the power to make other regulations with regard to the exemption itself to section 32. Why have they divided them up? However, do not let us delay the House on it.
Mr. Colley: It was thought advisable to bring together in this section, which deals with the waiver of exemption, but provisions relating to regulations concerning the waiver of exemption; but the provisions in relation to regulations under section 32 relate to all of the possible matters in regard to which regulations could be made, quite apart from the question of waiver of exemption. It is a matter largely of determining  which one thinks is the most appropriate.
Mr. O'Higgins: Surely the position is that section 7 is merely enabling; it is the law which allows this to happen. Provisions may be made by regulation and section 32 gives the authority for the regulations.
Mr. Colley: That is true, but as it specifically refers to section 7——
Mr. O'Higgins: Section 32 sets out the manner in which the regulations shall be made or framed. Section 7 is merely the provision which enables; section 32 provides for the way in which it is to be done.
Mr. Colley: This is true, but the Senator will see that, apart from doing what he says, section 32 also provides for regulations in regard to many other matters other than waiver of exemption. What the Senator says is correct. It is the one that lays down the manner in which this is to be done.
Question put and agreed to.
Question proposed: “That section 8 stand part of the Bill.”
Mr. Reynolds: Does section 8 mean that a trader, who has a turnover of £1,000 a year and who did not have to make any return to the Department under the turnover tax, will now have to make a return on £500 due to added-value tax?
Mr. Colley: The accountable period under turnover tax is one month; under added-value tax it will be two months. The limits which are being set are the same as under the present taxes subject to the fact that one is on a tax inclusive and one is on a tax exclusive basis. Leaving that aside, the limits are the same as under the present system.
Mrs. Farrell: I want to raise again the question of the commercial production of poultry and eggs. What type of eggs are referred to in subsection (1) (b)? I want to talk to the Minister, for his benefit and the benefit of his advisers, about eggs. There are eggs for commercial purposes,  which would be in the First Schedule under food. There are also hatching eggs for the production of chickens, ducks and turkeys and are not regarded as an item of food.
They are considerably more expensive than a commercial egg. If I may talk in terms of “old money”, the price of commercial eggs to the general farmer is usually about half-a-crown a dozen. The price of a dozen hatching eggs can run from 7s 10d to 8s 6d for hen eggs. Turkey eggs cost about 4s 6d each.
I can understand the reference to nursery gardens in this Bill. There is just one process involved in market farming and one process involved in fish farming. In the case of poultry it is a question of whether the chicken or the egg came first. I ask the Chair's indulgence while I go into this.
Acting Chairman (Mr. McDonald): The Senator is quite in order.
Mrs. Farrell: The grandparent stock are there for the production of the parent stock. The grandparent stock produce day-old chicks for sale to registered supply farms, for laying breeders or for broiler breeders. These chickens will be subject to 5.26 per cent tax. A lot of medication is used before these birds are sent out and this is an added expense. On the farm the grandparents are put out as day-old chicks for 26 to 27 weeks before they start to lay. In that time 100 pullets would consume nearly one ton of food. It is from these eggs the parent stock is sold.
They continue to need food and this food will be charged at 5.26 per cent. The chickens are then sold to a registered supply farm. I take it that the grandparent stock farm is an “accountable person”. The supply farm where these chickens are sent, because it is usually part of another farm, may or may not be an “accountable person”. The volume of trade must be taken into account. The chickens will be on the supply farm for 27 weeks before they start to lay. The eggs will be sold to a licensed commercial hatchery for the production of chickens. This is bound to escalate and put up the price of the finished poultry. Where and  how is the cost of all this food to be recovered? I am speaking about the food used in producing these birds to the point of laying.
The commercial hatchery will be accountable so they will be charging 5.26 per cent. A grower may or may not be an accountable person. Most of the chicken growers have this enterprise as an adjunct to their farms and may elect not to be accountable persons. The grown chickens go to a processor who will be an accountable person. There is another snag here. Hatching eggs are exported, from both grandparent and parent stock. Finished broilers are also exported but nobody knows what proportion of the chickens coming from the eggs they produce will eventually become an export.
This is a very complicated business. It is bound to lead to an increase in the price of finished chickens. There should be only one accountability there and that should be on the final process between the grower and the processor or between the processor and his retail sale. Only the processor knows what percentage of the chickens will be exported in any one week.
If it were a simple thing like a nursery garden, it would be easy, but poultry farming is a complicated subject and should be looked into again. This applies not only to broiler chickens but to turkeys and laying stock.
Mr. Crinion: There are a number of turkeys being exported and the supply farmer will never know whether they came from the eggs produced on his farm. Eggs for export should have a zero rating but how can they be distinguished?
Mr. Russell: I should like to raise a few points on this important section. Section 8 (1) sets out the farming business or fishing enterprises which are “accountable persons”. They are not included in the general omnibus reference to farming and fish business. Are pig or cattle-fattening stations, whether co-operatively or individually owned, accountable persons or non-accountable persons? They are not specifically mentioned in this subsection. There is  mention of commercial production of poultry eggs. Is game shooting an accountable operation?
Mr. Colley: Game shooting?
Mr. Russell: Yes. The shooting of game birds such as pheasants.
Mr. O'Higgins: If you use a punt gun for duck?
Mr. Russell: The business of game shooting and selling the game is actively engaged in in some parts of the country. Is that accountable for VAT?
Mrs. Farrell: Where does the game hatchery and the commercial production of game come in here? There are hatcheries for the production of game.
Mr. Alexis FitzGerald: Let us take one bird at a time.
Mr. Russell: I am talking about people who engage in the activity of shooting birds and who sell them to poulterers. Is that activity liable to VAT? Are groups of farmers operating co-operative pig-fattening stations accountable persons within the meaning of this section? Section 8, subsection (3) (a) (iv) states:
deliveries of goods and rendering of services other than those referred to in subparagraphs (i) to (iii) the total consideration for which has not exceeded and is not likely to exceed £1,800 in any period consisting of six consecutive taxable periods;
How, in a Bill such as this, can the Minister say a thing is not likely to exceed a stated figure having regard to the continuing effects of inflation? In the case of farmers a substantial increase in the cost of all feedingstuffs is just around the corner because of our impending entry into the EEC. At present the prices of feedingstuffs here are substantially lower than on the Continent. The figures which the Minister has written into the Bill may be substantially increased under EEC conditions. Subparagraph (iv) of section 8 appears to assume that the figure is not likely to exceed £1,800 in any period. Some provision should be made for increasing that figure; this will undoubtedly  be necessary in the years ahead.
I should like to raise a point on somewhat similar lines in regard to the exemption given to small traders of £1,000 in every two-monthly period or £6,000 per annum. Is that a realistic figure? It appears to me to be analogous to the old figure under turnover tax requirements. That came into operation in 1964 or 1966. It has been quite a long time in operation now and the price of every item a small shopkeeper sells has substantially increased since then. Consideration should be given to the changing values of money over the intervening years. Has the Minister power in the Bill to waive those figures? Perhaps he has this power but it is not apparent in this section. The Minister should reconsider the exemption limit of £6,000 per annum because it is no longer realistic. It may have been realistic five or six years ago.
Acting Chairman: Would the Minister like to answer some of the points raised?
Mr. Colley: I will try to answer some of the points raised. The limits set out here approximate to the existing limits under turnover tax. There is no provision in the Bill to enable these to be altered by regulation. Any alteration would require legislation. Our experience has been that they work reasonably well in the way they were intended. The reference “not likely to exceed £1,800 in any period consisting of six consecutive taxable periods” is intended as a relief for a small shopkeeper with a farm. If it were not worded in this way they would have to prove that they did not have to come in under the system. As it is worded, they can stay out unless they operate on quite a big scale, in which event the Revenue Commissioners could show that it was not likely they would not exceed that figure. It is designed to make life easier for small shopkeepers with a bit of land rather than as an advantage to the Revenue Commissioners.
Points were raised on various topics such as game shooting. The position is that, if the particular activity is done  in the course of business, then it becomes liable. Under the exemption provisions corresponding to the existing provisions under the turnover tax, unless work done in the course of business is of a scale which exceeds these provisions, it will not come into the net. That is the general principle which applies.
With regard to the points raised by Senator Farrell, I am not sure I follow all the intricacies of the operations she described. I know she is very familiar with them. I am not sure the position is quite as complex as she seems to think it is because of her knowledge of the problems concerned. Anyone who becomes liable to the value-added tax in the course of his business will be able to recover in full whatever tax he suffers either by deducting it from his own liability or his sales or, in certain circumstances, from the Revenue Commissioners. If his liability for tax in an accountable period exceeds the amount he should account for he can get a refund. I would assume that the people involved in the various chains of production described by Senator Farrell were engaged in these operations in the course of business and that they would be engaged to an extent higher than the limits mentioned here. If, for instance, they were engaged on a smaller scale, and if it suited them, they could opt in. This provision enables them to opt out. Such a person should not suffer as a result of coming within the tax net if he wishes to do so.
The question of whether or not their produce is to be exported is introducing an unnecessary complication. It is the person who is doing the exporting who is concerned. I cannot remember the exact words used by Senator Farrell to describe the person concerned. I think she referred to a person who would not know which eggs were going to be exported must not be exporting eggs himself. In that case the problem does not arise. If he is exporting them himself he knows what he exports. I may be missing the point, but I cannot see a problem arising there.
Mrs. Farrell: I am not with the Minister on this and he is not with me.  The way I look at it is that there is a whole unnecessary complicated system being set up in an already complicated business, whereas by rating everything up to the time that the purchaser gets the chickens as zero and then putting on 5.26 per cent you would achieve exactly the same thing plus the fact that it will mean that all the people along the line will have to find far more capital at every stage. All right, they will get the tax back—perhaps. I still contend that no grandparent stock farmer or no supply farmer can get back the tax on the food fed to the chickens from the time they are a day old. Where will the farmer recover it?
Mr. Colley: Where will these farmers sell their produce?
Mrs. Farrell: The grandparent stock farmer will sell to the supply farmer, but he will then be blowing the price of the chickens up to get money back again. Perhaps, I am wrong. But let us assume that 100 pullets up to the point of laying will consume three-quaters of a ton of food. Multiply that by 50, because usually about 5,000 pullets are run. How will that be shown on the sale of the subsequent day-old chicks? It is not the food which the birds are eating up to the time the eggs were produced that produced those chickens. I thought it was complicated but——
Mr. Colley: I wonder is the Senator complicating the thing unnecessarily. Could I interrupt her just for a moment?
Mrs. Farrell: I do not think so. When a bird is 27 weeks old it starts to lay. Up to that time it has incurred a certain amount of tax on food. The bird continues to eat taxable food every week, so it has to get not alone the back tax but it also has to get the tax off the week the egg was laid. In this connection it would be far easier for everybody concerned to bring in a zero rating except while at the actual production of the chicken or the egg that will be sold to the consumer and let the processor or the egg wholesaler put on the 5.26 per cent and eliminate everything else. You have medication  at 5.26 as well and you have the 5.26 tax on the livestock. There is a tremendous amount of tax involved. There is tax on food and medication and tax on live animals. There are three different taxes on one unfortunate little chicken's head.
Mr. Colley: I am now convinced that Senator Farrell is making this more complicated than it is. The business is complicated but the tax is not as complicated as the business of chick hatcheries. The first thing to be clear on is that it does not matter what tax is going on at the intermediate stages. As far as the ultimate price to the consumer is concerned, the tax being imposed is 5.26 per cent which is exactly the tax being paid today as turnover tax. No matter what happens at the earlier stages, that is the result to the consumer. It does not matter whether a certain amount of food is given to the chicken up to the day the first egg is laid and then food continues to be given thereafter and all of it is subject to tax. That does not affect the issue at all because the trader concerned at the end of each accounting period has made up accounts which show that he received in through the proceeds of sale £X, and he paid out £X as expenses of which £Y consisted of tax that he had paid on the various items mentioned. It does not matter whether it was before or after the chicken laid the egg. It was during the accountable period. He deducts the liability for tax which he suffered on all of these items, from the tax on the amount that he receives on his sales. He is only liable for the difference.
If it happens that the tax which he suffered exceeds the tax on the amount of money received for what he sold, he can then recover the difference from the Revenue Commissioners. Normally, this will not be the case, but whatever tax he pays on feed or anything else and whether it was administered at a particular stage in the bird's life or not does not matter. It may be a complication from the point of view of his business but it is not a complication from the point of view of tax.
Mrs. Farrell: I do not know how anyone is going to estimate this.
Mr. Colley: Why estimate? Why not take the actual figures?
Mrs. Farrell: How can one put on 5.26 per cent tax on a ton of food over a certain number of chickens?
Mr. Colley: One calculates in an accounting period how much tax one pays and how much tax is due on the money one gets in.
Mrs. Farrell: This is what I am saying.
Mr. O'Higgins: How do you apportion the tax when you are selling the chickens either in dozens or singly?
Mr. Colley: You do not have to.
Mr. O'Higgins: Does that mean you are passing it on?
Mr. Colley: What you do is you calculate the tax. For simplicity sake, let us take the 5 per cent rate payable at the moment. It is exactly the same as the 5.26 per cent. If you are selling a dozen or a thousand dozen and the price is so much, the tax on that would be 5 per cent on that figure. There is no question of apportionment here. It is simply on the basis of the price.
Mr. Russell: It is part of the cost.
Mr. Colley: That is what determines the tax. Supposing you sell a thousand dozen and that by doing this calculation, you find your tax liability is £500. That is the amount of tax which you are liable to hand over to the Revenue Commissioners in theory but, in fact, you deduct from that all the tax which you have paid out during that period on food, medicines or any other items you have to buy for the purpose of your business. If that tax came to £400, your tax liability then is £100— the difference between £500 and £400. All these calculations can be done without any reference to apportionment between the birds you are selling or the point in the bird's life at which you administered food or medicine. This does not enter into it.
Mr. Norton: It is a continuous process. You are purchasing food continually month by month and selling month by month. At the end of every two months you add up all the purchases  and subtract your sales, find out how much your liability is and deduct what tax you have paid on what you have purchased. It is an on-going process. It does not matter whether the chickens lay today, tomorrow or——
Mr. Colley: That is correct.
Mrs. Farrell: I cannot accept this. If I am selling 10,000 chickens this week—I am referring to the grandparent stock not to the commercial hatchery stage which is a relatively simple matter—and 10,000 chickens next week, is the 5.26 per cent tax added on to all that? I add on £52.60
Mr. Colley: Where you are charging the price to the person?
Mrs. Farrell: Yes.
Mr. Colley: Yes. You would give an invoice which would show the cost of the 10,000 chicks plus tax calculated on the price.
Mrs. Farrell: I will have to pay tax for 27 weeks, buying food before I get any money.
Mr. Colley: That is not true.
Mrs. Farrell: You must feed a bird for 27 weeks before it begins to lay and during that time you are not making any sale.
Mr. Colley: What the Senator is describing is the situation in which somebody is starting out in business. Even then what she has described is not true. What Senator Norton said is true—you have a continuing operation, or you should have, if you are in business.
Mrs. Farrell: You have a cycle.
Mr. Colley: You may have, but you are in business over a period of months. The accounting period is two months. In that two-monthly period, a person is entitled to set off against his liability for tax any tax paid, including the tax on the feeding of these birds for that period, even though he is not going to sell them for another two months. If it happens at that point that you have paid out more in tax than you are liable for on the basis of what you will be receiving on sales in that  period, you can recover the difference from the Revenue Commissioners. It is related to the accounting period of two months, not to the date on which you sell the birds and the length of time for which you were feeding them. It is only related to the accounting period of two months. Any tax suffered in that period can be charged.
Mrs. Farrell: Thank you. I understand the position now. If you are using food which is taxed, and you are going to get a refund on it, you can claim a refund every two months, for the first accounting period, before the hens start laying.
Mr. Colley: Would the Senator explain this?
Mrs. Farrell: This food tax is only there in order to be written off.
Mr. Colley: Yes.
Mrs. Farrell: Then my contention is why charge it in the first place?
Mr. Colley: I knew the Senator would say that. Most of the food in question is zero rated. It comes in under the Second Schedule where there is reference to processed animal feedingstuffs.
Mrs. Farrell: I see in the Bill “Goods Chargeable” at the rate of 5.26 per cent. This is stated in the Third Schedule, Part I.
Mr. Colley: Would the Senator look at page 42?
(vii) any feeding stuff (within the meaning of the Fertilisers, Feeding Stuffs and Mineral Mixtures Act, 1955), compound feeding stuff (within the meaning of the said Act) or mineral mixture (within the meaning of the said Act)——
It has certain provisions about being delivered in certain quantities, and so on. This will cover most of the food which the Senator is talking about, and it is zero rated.
Mrs. Farrell: Where is the medicine to come in?
Mr. Colley: That is not zero rated.
Mrs. Farrell: Through the Chair, may I say to the Minister I am sorry if I have confused him in any way, but I think a lot has been learned here today about poultry. When I am in difficulty I will come to the Minister's advisers.
Mr. Russell: The fact that an item is zero rated still leaves an obligation at the various stages to charge a tax and then look for recovery.
Mr. Colley: Yes, it comes into the system.
Mr. Russell: I should like to refer again to the question of the exemption ceiling for the smaller trader of £6,000 per annum or £1,000 per two-monthly period of accountability. Does the Minister not agree that this should be raised? It is eight years since it was brought into effect. In that period of eight years, costs have gone up by 50 to 70 per cent. Would a more realistic level not be at least 50 per cent higher than that figure, if not double that figure?
Mr. Colley: We have not had any substantial volume of complaint about these levels. They have worked out reasonably well. One of the things we have tried to do in value-added tax, as far as it was humanly possible, was to change over from the existing turnover and wholesale tax to value-added tax with the minimum of change. It is for this reason that we have the peculiar looking rates of 5.26 per cent and so on. That is the exact equivalent of the existing 5 per cent turnover tax.
We are taking away turnover tax and wholesale tax and substituting value-added tax for them. I am trying to ensure, as far as possible, that we do not change from the existing system in doing this. On that principle alone, I do not want to depart any more than I have to from the existing limits. We have tried to write in, in value-added tax terms, the equivalent, more or less, of the existing exemptions in turnover tax terms.
A grocer dealing in the 5.26 per cent. region must be registered if his turnover is £12,000 per annum. For very many small traders which this is intended to cover, this is not an unreasonable  figure. Certainly people who are in any volume of business ought to be included in this. There are advantages for traders to be included, particularly for retailers. It may be that for the very small trader the advantages will not outweigh the disadvantages, but for most retailers there are two advantages in being registered under the value-added tax system as against the present turnover and wholesale tax systems. They are, first, that the trader will now be able to recover tax paid on items such as weighing scales, other equipment for shops, wrapping paper and all equipment and materials required in the course of his business which at present are subject to tax. Under the value-added system, he will be able to recover the tax in the way I have described to Senator Farrell concerning chickens. That is one advantage over the present system.
The other advantage is that because of the increased accounting period from one month to two months a big majority of retailers will be substantially better off from the point of view of liquidity than they are under the present system. There are advantages for retailers in the value-added tax system and it is only to people in a very small way of business that the advantages will not be too attractive. The limits we are setting are substantially the same as the limits we have at present. As I have already said, we do not want to change the system any more than is absolutely necessary on the change-over to value-added tax.
Mr. Russell: I accept the points made by the Minister. I think they are quite valid, but the Minister will recall that when these exemption limits were brought in they were brought in for a very valid reason which I think is still valid now, and that was to answer the case put up at the time that small traders have not got the facilities to engage in the book-keeping and record-keeping which was necessitated when the turnover tax was first brought in. It was to avoid those troubles and difficulties that it was decided to give the small trader a break. That argument was accepted by the Minister at that time. That argument is still valid today. I know there are advantages in registering;  the small trader can recover tax on shop equipment but he will only have to buy that type of equipment once in ten years, so that will not make much difference to him.
It is an accepted practice, in tax law of every description—and it is certainly accepted in agreements covering wages and in legislation covering income tax exemptions—that decreases in the value of money and inflation are taken into consideration. Every time a Minister for Finance brings in a budget he recognises the fact that people have gone into higher income brackets and makes adjustments accordingly. If £6,000 a year was valid eight years ago, I suggest to the Minister, for the reasons that induced the then Minister for Finance to bring in the exemption which excluded small traders from the bother of keeping accounts and returns, that he should give serious consideration to increasing that ceiling.
I think the Minister said earlier that there has been no great demand for this change but in the intervening years more small shopkeepers have gone over the £6,000 limit and have gone into the £8,000, £10,000 or perhaps £12,000 bracket or perhaps they have not gone to the trouble of registering under the far stricter conditions which will prevail when VAT comes into operation. There is a very strong case to be made for increasing that limit and I would ask the Minister to have another look at it. I am sure he will agree with me when I say that we should do all we can to assist the small shopkeeper and trader. He is having a rough passage today and anything we can do to alleviate his hardship, while at the same time not depriving the State of any substanial figure of tax, should be done. I would strongly urge the Minister to have another look at those exemptions which are now very much out-of-date due to the changed money values and the increased cost of everything over the last eight years.
Mr. Honan: I should like to support Senator Russell on this point. In the average small business, run by a husband and wife with the help of some of their children, the wife usually looks after the turnover tax. If the wife falls ill the accounts fall into arrears and  the Revenue Commissioners come down on them like a ton of bricks and look for 9 per cent interest on the money outstanding. It is not, in my opinion, practical to talk of a turnover of £6,000 a year in a small family business which usually is the sole support of the family. Senator Russell has made a good case for those people and I do not wish to elaborate on it further but it is not good enough to say to a small shopkeeper: “You must provide the Revenue Commissioners with accounts and you must pay on the nail. If you do not pay on the nail you will be charged 9 per cent interest on the sum outstanding.”
I know of cases where decrees were lodged with the sheriff and proceedings were taken against some shopkeepers because their tax fell into arrears while people, living beside them, with a bigger turnover than they who are not registered at all pay through direct sales. The items they purchase are given to them with the cash added. We have one person on one side who has not to do any accountancy at all while, on the other side, we have another person who is obliged to do it. The people who have not got to keep accounts are immune from the terrors of the Revenue Commissioners while the other people have to dance to their tune. As Senator Russell has said, the ceiling should be looked at again because it would be easier from the Revenue Commissioners' point of view to have the tax paid directly by the firms who supply the goods. I know of cases where some member of the shop-keeper's family became ill and they were not able to keep their accounts up to date and the sheriff's minions issued them with a threat of seizure for very small amounts of money and without inquiring into the reasons for the arrears. I would ask the Minister to have another look at the matter.
Mrs. Farrell: Before the Chair puts the question, I should like to ask if any alteration will be made with regard to the commercial production of poultry or eggs? There is a difference between hatching eggs and eggs for human consumption.
Mr. Colley: They will all be liable to 5.26 per cent.
Mr. McDonald: The Minister has missed Senator Farrell's point. She was attempting to differentiate between eggs as a food product and eggs as a farm input. This is a point that needs clarification. In relation to accountable persons, could I ask the Minister a question regarding subsection (3) (a) (iii)? If a small agricultural contractor who shall not be an accountable person tries out some work for a small farmer, who again would not need to be an accountable person, are the activities of such people exempted from VAT?
Mr. Colley: Yes. Such persons, unless they opt otherwise, will be treated as ordinary farmers, in exactly the same way as ordinary farming operations are treated under the Bill.
Mr. McDonald: That is, no tax transactions?
Mr. Colley: Yes, in effect. There is a complex arrangement but the result is simple. The effect of it is that they are not involved as accountable persons. The kind of persons mentioned by Senator McDonald would be treated in that way.
Mr. McDonald: I have been following the debate for the past couple of weeks and there has not been much reference to the position of farmers. Referring to subsection (3), if a farmer in any one year, had an excess of £1,800 worth of produce—be it animals or any other type of produce—would he have to be an accountable person?
Mr. Colley: No; that is not so. Ordinary farming activities are not subject to this limitation. These limitations to which the Senator refers apply only to the kinds of services which are referred to in the subsection. If the Senator examines them, he will see them. For instance:
deliveries of machinery, plant or other equipment which has been used by him in the course of a farming or a fishing business,
 rendering of cultivating, fertilising, sowing, harvesting or similar agricultural services,
This is from one person to another. It is not describing the activities of an ordinary farmer on his own farm. There are no limits as far as that is concerned. These limits apply only to these services being rendered over and above what we would understand by the ordinary farming occupation.
Mr. McDonald: It is a pity the Minister did not clarify this a little more in the Bill. In subsection (1) the Minister does not include the operations of poultry and egg production. I do not know why; perhaps it is because the prospects for this business are not too good. There is no mention at all of the pig units and the co-operative pig projects that are becoming quite popular. There appears to be quite a big impetus and development in this field, mainly because the policy of the Department of Agriculture and Fisheries offers attractive stimuli to boost production.
I should like to ask the Minister where exactly an ordinary farmer with such a unit stands. I wish to refer again to the man who is producing, say, bonhams or piglets of up to 70lbs weight, who would be either selling them to a co-operative or to a farmer with a unit. These would be agricultural inputs. Where does he stand? I should like to cite the pig factor who would perhaps be selling, under contract to one of the processing factories, about £500 or £1,000 worth each week. Presuming that these are not accountable persons, what exactly are their liabilities and how much tax will they be called on to pay?
Mr. Colley: The reason that the types of operation described by Senator McDonald are not included in subsection (1) is that these operations mentioned in subsection (1) are being brought into tax in the ordinary way as ordinary business. I do not think the Senator is urging me to include pig fattening, and so on in that way. That is the reason they are not in: because we do not want to have them in in that way. The kind of operation described by Senator McDonald, through  the various processes through which it goes, would not be subject to tax at all, except at the last stage where there is a special 1 per cent added on to compensate for the farming inputs that would suffer tax. It may not be appropriate for me at this stage to explain why this is so. I referred to it earlier in one of the Schedules, where a great deal of feeding stuffs, fertilisers, et cetera, will not be subject to tax at all. The estimate of the amount of tax which will be suffered by farmers as distinct from pig farmers, is 1 per cent. They will recover that at the last stage of the chain of production, and will be included in the system thereafter. They need not be registered nor have they to do any accounting of that kind to get this.
Mr. McDonald: Irrespective of the size?
Mr. Colley: Yes, irrespective of the size. The kind of operations described by the Senator would be in that category. They are treated as farming operations in the ordinary way.
Mr. Russell: Can any tax be recovered by, say, a pig fattening or a poultry producing enterprise in relation to the ingredients in compound feeding stuffs that suffer tax? The Minister may know that some ingredients suffer tax, such as antibiotics. Some of the ingredients in feeding stuffs would be liable to tax. There is a value-added tax compound in the price charged to the pig fattening station or to the poultry production station. Is that recoverable in any way?
Mr. Colley: These feeding stuffs have now been zero rated, so that there will be no tax element in the cost to a farmer. There is no question of recovering tax because he will not be paying it.
Mr. Russell: No, but the manufacturer of the feeding stuffs will presumably have paid some tax on items or ingredients liable to value-added tax. They will become a part of his cost. I presume that that will not be recoverable.
Mr. Colley: If this should arise, the manufacturer would be able to recover  the tax he had suffered on those elements in the production.
Mr. Killilea: I should like to refer to those whom the Senator described as contractors, people who may not have farms but who may offer to the agricultural community a service, such as supplying machinery. Are they eligible if they offer a service?
Mr. Colley: They can be treated as ordinary farmers for the purpose of tax. They do not have to get involved in the system, except to the extent I have described. They can opt in if they wish. It might suit them better to do so.
Mr. Killilea: Within that there are two types. First there is the syndicate, a group of farmers who probably hire a man amongst themselves to do the work and pay him the same price as they would pay a contractor, but they have him for different jobs on the days they require him. It would be hard to differentiate between the two.
Mr. Colley: There will be no difference in the treatment of either category.
Mr. Killilea: One of them would be a farmer, and the other would not be a farmer but would be offering a service.
Mr. Colley: Yes, but they will all be treated as farmers for the purpose of the tax, unless they opt to be treated otherwise.
Mr. Norton: If they opted to be treated otherwise, they would not get a rebate on fuel and so on for their machines?
Mr. Colley: If they opted it would be because the amount was so substantial in their business that it would be worth their while. I think that is the only reason they would opt.
Mrs. Farrell: I would like to refer the Minister back to the statement he made about pig farming. He said that it was justified to have one tax on that at the end and this is why pig farming was not included.
Mr. Colley: I did not quite say that.
Mrs. Farrell: It sounded like that to me and I wondered why poultry farming could not have been done the same way?
Mr. McDonald: It is a declining industry.
Mr. Crinion: I presume turkeys are included under poultry?
Mr. Colley: Yes.
Mr. Killilea: What you have said is that if they do not opt in, the terms that apply at the moment would not necessarily apply then—the tax free allowance on oil and so on. Is it tax-free or subsidisation by the State?
Mr. Colley: At the moment the agricultural contractor has an excise exemption. That will continue. He also has a benefit which will continue but not on the face of it. Hydrocarbon oils and so on are not subject to turnover tax at the moment. They will become subject to value-added tax at 5.26 per cent. To that extent the tax will go on to input which this contractor has, which he does not pay at the moment. A contractor who is simply selling his services will be entitled to add on 1 per cent to the cost of his services. It will work out on average that he will recover what he has paid out in tax. In turn the farmer can add that 1 per cent on to the cost of the produce he sells. That recovers it to the farmer. There is a special arrangement in regard to pigs. The content of tax paid on foodstuffs for fattening pigs is much higher than on most other things. There is a special arrangement whereby farmers can recover their inputs on that through the tax they suffer on them. With regard to the contractors as described by Senator Killilea, some of the things which are not subject to turnover tax at the moment will become subject to value-added tax, but they will recover that by adding 1 per cent on to their contract price.
Mr. Killilea: They in turn will add 1 per cent on to the other which negatives the whole thing?
Mr. Colley: Yes.
Mr. Killilea: In the case of a syndicate,  which is a limited group, a contractor, who is a land owner, does an amount of work for a group of farmers in his area. He is not offering his services. He is hired within the group itself. For example ten people might say: “We will get our work done this way and hire A to do it for us. We will give him the same price as we would give to a normal contractor.” He is a landowner and some of those people may go out to work as is happening now. What happens in that case?
Mr. Colley: No. It is the same thing for the purpose of tax.
Mr. Killilea: I wonder should it?
Mr. Colley: I hope so.
Mr. Killilea: That is debatable. The contractor has an alternative, but this man is giving a service for which he has no alternative. He is not going outside the scope of the agreement with people to do it this way. While working elsewhere he is rendering the same service as he would if he were working on his own farm. The group is giving a service to itself.
Mr. Norton: He is giving a service to a limited number of customers.
Mr. Killilea: No, the group is giving a service to itself.
Mr. Norton: Is he getting paid?
Mr. Killilea: The group gets paid.
Mr. McDonald: As regards subsecsection (1), is there any danger that the Revenue Commissioners will mix up a farmer and a market gardener? Is there any chance of a farmer who supplies vegetables under contract to Erin Foods being classified as a market gardener? In the case of farmers who produce any of the profitable line of vegetables and attempt to sell a few dozen heads of cabbage retail in a local village, they will have to pass on some tax or will the effect of this Bill be that unless people are careful they will be acting against the law? In a village where a person sells a few heads of cabbage it is doubtful if 99.9 per cent of those people would think of paying tax. It is unrealistic to expect people to observe a law like that.
Mr. Colley: The question of distinguishing between a market gardener and a farmer who is growing vegetables is not a new problem. It has been dealt with before in connection with income tax and should not be too difficult. If Senator McDonald thinks about this question he will find it will work because the person who wants to recover tax, either by way of set-off against his own liability or by a refund from the Revenue Commissioners, will ensure he gets an invoice setting out what tax he paid. It is in his interest to do this and he will do it.
Mr. Crinion: Again on poultry, I do not see any mention in the Third Schedule, Part I, of the number of eggs supplied to a hatchery. It is mentioned in subsection (b). Should it not also be in the Schedule?
Mr. Colley: The Third Schedule, Part I, refers to “animal produce in an unprocessed state”. I understand that will cover it.
Mr. Killilea: I presume the Revenue Commissioners would not categorise people who grow in bulk for, say, food factories as market gardeners?
Mr. Colley: If Senator Killilea is aware of any such people being asked to pay income tax, he can start worrying. The same distinction is being made.
Mr. Killilea: I was referring to Senator McDonald's question.
Mrs. Farrell: Now that chickens are animals, I should not be asking a question like this, but in this Schedule, there is reference to “animal and vegetable produce in an unprocessed state, such as wool, horsehair, bristles, feathers, hides, skins, carcases, roots, plants and cereals”. Is the Minister seriously telling us that he is putting hatching eggs into this category?
Mr. Colley: Yes. “Such as” it states.
Ruairí Brugha: Subsection (7) of section 8 relates to goods or services supplied by a club. The First Schedule excludes sporting events. Does the reference to services in subsection (7) (b)  cover the charges made by various sporting clubs, such as annual and entrance charges, and so on?
Mr. Colley: It does not include membership subscriptions.
Ruairí Brugha: This would cover all sporting organisations?
Mr. Colley: Yes. It relates to the services provided but not membership subscriptions, and it follows the corresponding provisions regarding turnover tax.
Mr. Russell: Is the Minister agreeable to having a look at this non-accountability limit of £6,000 for a small shopkeeper?
Mr. Colley: It will be one of the matters to come under review from time to time. As I have explained to the Senator, I did not wish to make any unnecessary changes on the switch-over to value-added tax.
Mr. McDonald: I should like to support Senator Russell. This section is extremely complicated and when the Minister is bringing in something by way of amending legislation he could make it more readable.
Mr. Colley: I should like to grant Senator McDonald his wish. I look upon this as the most complex Bill as regards terminology I have ever seen.
Question put and agreed to.
Question proposed: “That section 9 stand part of the Bill.'
Mr. Russell: Subsection (2) of section 9 states:
Every person who on the appointed day or on any day thereafter would be an accountable person if tax were chargeable with effect as on and from the appointed day shall, within the period of thirty days beginning on the appointed day...
Does the Minister consider this period to be adequate? This is a tax situation coming into being for the first time. I am thinking of the shall shopkeepers  and traders who did not register under the old turnover tax system. They may not take notice of the appointed day. Would the Minister consider extending the date, at least in the early stages of the value-added tax system? A great many shopkeepers in rural areas will not read these Acts or Bills. Could some additional days of grace be allowed beyond the period of thirty days which, presumably, includes Church holidays?
Mr. McDonald: I support Senator Russell. I should like to ask the Minister if there is a chance his Department might issue a booklet setting out in an unbiased way the pros and cons of how to opt to be an accountable person or otherwise. This would not cost a lot and would help the public to decide how they would derive the most benefit.
Mr. Colley: If I might deal with the last point, there will be a guide to the value-added tax published by the Revenue Commissioners as soon as the legislation is enacted. It will include the information suggested by Senator McDonald up to a point. I do not feel one could expect the Revenue Commissioners to go into a lot of detail in a publication to tell somebody, whose decision must be a personal one relating to the circumstances of his business, what will happen if he opts one way or another. They can tell him what the consequences of opting are but he must apply this information to his own business. We cannot do better than that. The Senator will find that the guide, various forms and ready reckoners which will be issued are designed to make life as simple as possible for small shopkeepers.
The Senator will also find that the Revenue Commissioners will not be unreasonable in regard to the introduction of value-added tax. The change-over will not be noticeable as far as the consumer is concerned. As far as many shopkeepers are concerned the change-over will only have minor effects. For some wholesalers and for manufacturers the change-over is substantial. The House will be aware that I propose to appoint a committee representative  of the various trading interests to work in conjunction with the Revenue Commissioners to advise on the teething problems that will be seen to arise in the three-month period before the operation of the tax and the three months following its introduction. Our general approach is to make the change-over as smooth as possible. There will be no question of hounding people for inadvertent mistakes.
On the question of the number of days provided in subsection (2), the fact is that this provision was originally nine days. I did agree in the other House to its extension to 30 days having regard to the fact that we have doubled the accounting period. In my view, that period is reasonable when one considers that the vast majority of the people who will be registered under value-added tax will be registered automatically because they are already registered under turnover tax. We are only concerned with a relatively small number of people, who will be notified.
Mr. McDonald: Could I ask the Minister if he can assure the House that there will be adequate advertising coverage in the newspapers and on television prior to the first of the 30 days?
Mr. Colley: There will.
Mr. Alexis FitzGerald: I am not clear whether the appointed day has got to be a day before or after the specified day.
Mr. Colley: It will have to be before.
Mr. Alexis FitzGerald: I see. My other point relates to the person who is deemed to be accountable and whose land is developed by someone else. Will he be in the position of being obliged to furnish all the necessary particulars to get on the register? If so, when? What will be the consequences if he does not?
Mr. Colley: He will have the 30 days the same as everybody else. As regards the consequences if he does not, there is a penalty clause in the Bill in connection with failure to register in these circumstances. The practice  in these cases is not to invoke the penalty unless the failure to register is also accompanied by evasion of tax.
Mr. Alexis FitzGerald: Yes. Section 5 (4) will catch people who may be entirely innocent of any such intent.
Mr. Colley: The Senator may rest assured that in such cases no penalty will be invoked against such people.
Mr. McDonald: Must people apply for registration for a definite period of two or six months or a year? Can they not get on the register and, if they are not doing too well, apply to get off it? Could the Minister state the exact procedure in a case such as this?
Mr. Colley: The circumstance described by the Senator is correct. It is only if they wish to come off the register that they must make another application. There are provisions covering those cases.
Mr. McDonald: In section 8 (3) it seems to be the reverse.
Mr. Colley: Once a person elects under section 8 (3) he is registered. He would remain registered unless he applies to be taken off the register. In the event of his wishing to become unregistered one of the important things to be determined is whether by doing this a person is evading liability for tax. There are provisions to ensure that he pays tax up to a level that would put him back as though he had not been registered.
Mr. McDonald: So it is not as simple as it looks.
Mr. Colley: It is simple enough for the person who is not trying to evade tax.
Question put and agreed to.
Business suspended at 6 p.m. and resumed at 7.30 p.m.
Question proposed: “That section 10 stand part of the Bill.”
Mr. Alexis FitzGerald: I would like to know how the wholesale tax is  going to be assessed in the case of sale of immovable property which I take it includes any house which has been the subject of a development as defined in section 1. This is an entirely new and important tax which will affect the price of every house which has been altered subsequent to the specified date or which is itself a development of the land. If the alteration is made, say, at the end of 1972, after the specified date, and the house is not sold until 1990 and there is a tremendous increase in the monetary value of the house because of inflation, I would like to be clear as to the basis of the assessment of the tax and the position of the person who, say, altered his garage to a bedroom, or did something to it which amounted to a development. Must he keep all his records showing his expenditure and if that expenditure has become irrelevant in terms of the price which he gets for the house eventually, how is a just tax assessed on him in relation to that particular transaction?
I think I am correct in saying that this is not a case of bringing in the value-added tax as a substitute for the wholesale or turnover tax. This is a new tax, a tax imposed on a new item offered for sale, or liable to be sold by someone who is a developer or who is caught for tax under the Act, though it may be that the ordinary man who carries out the alteration to his house is not such a person. I should like to know how sure is his position. Maybe the Minister would direct me to the relevant sections on the point.
I take it that if a man conducts a development, builds a lot of houses and then sells them off in the ordinary way, that in so far as he will have put into the development value-added taxed goods in the course of the development, it is reasonably clear how the value-added tax will be established in his case. Very often there is a case whereby a man effects a development and perhaps keeps a house for himself on the estate on which he develops. What is his position in relation to that vis-à-vis wholesale tax if 15 to 20 years later he effects a sale in relation to it?
Mr. Colley: The first thing to remember  here is that the value-added tax will arise in the case of the sale of houses only in the case of a sale between accountable persons. Therefore, in the case of the normal sale of a house from one private person to another, this question will not arise. Where it arises the tax to be charged will be at 5.26 per cent on 60 per cent of the consideration. That consideration can include the value of any rents subsequently created after the development work has taken place. The effective target is to charge an effective rate of about 3.1 per cent.
The reason for this is that at present the tax payable on a house, if you take into account the amount of tax paid by way of wholesale or turnover tax, and taking into account certain items which are not subject to tax, on average it works out at 3 per cent of the selling price of a house. That is how this arrangement—5.26 per cent of 60 per cent of the consideration came about. The tax being charged under value-added tax is as near as we can make it to the existing tax.
If somebody adds a bedroom to his house and in 20 years time sells that house normally no question of value-added tax will arise because he will be a private person doing this for his own purposes and then selling his house in the normal way to another private person. If, however, this becomes a transaction in the course of business between accountable persons, tax would be levied at the effective rate of just over 3 per cent on the consideration passing, which is the equivalent of what is being charged at the moment. I do not know if that answers the questions put by Senator FitzGerald but if not, and if he elaborates, I will reply further.
Mr. Alexis FitzGerald: I think to some extent it does, in so far as it makes clear that the only person liable for taxation is somebody who is an accountable person under section 8. What I have difficulty in understanding is why this liability arises only if it is a transaction between one accountable person and another. If I buy a joint from my butcher I am not an accountable person. I pay for the joint. My  payment to him renders him liable for value-added tax on the value he has added to the joint between his buying it and selling it to me. Where is the distinction between the butcher, in such a case, and the accountable person from whom I buy the new house?
What the Minister has said has allayed considerable anxiety with regard to the position of a non-accountable person so I should like to see where the distinction is to be drawn and from whence it is derived.
Mr. Colley: I may have put the Senator on the wrong track by one phrase I used, which was: “A sale between two accountable persons.” I should have said: “A sale in which the seller is an accountable person” irrespective of whether or not the purchaser is accountable. In that case the seller becomes liable for the tax. Perhaps that makes it clear, that there is no distinction between that and the case of a person going to the butcher —the butcher being the accountable person, the customer not being accountable.
The principle involved here really is, as far as sales and shops are concerned, or even sales of new houses, that it is the ultimate consumer who becomes liable to pay the tax on the price he pays. The tax is at whatever the appropriate rate is, say, 5.26 per cent. It is the accountable person who has to account to the Revenue Commissioners. We may safely assume that in all the cases we can think of, the price paid by the non-accountable person—the ultimate consumer—will include the tax.
In the case of a person buying a new house after the commencement of this Bill, or it may even be a building contract for the actual work although he may be the owner of the plot, in the more usual case he will be buying the house on the land as it stands from the builder. In either case he will be liable for the tax in the manner I have described which amounts to an effective rate of just more than 3 per cent on the consideration and that is the same amount of tax as he is paying at the moment under turnover and wholesale taxes.
 There may be some other aspects but if we can eliminate the difficulties as we go along it may be clearer and quicker in the long run.
Mr. Alexis FitzGerald: One thing which seems to emerge from what the Minister is saying is that the buyer of the house is under no greater liability to see that the value-added tax is paid by the seller than is the buyer of the joint from the butcher.
Mr. Colley: That is true.
Mr. Alexis FitzGerald: To take the case I mentioned in which you have someone who builds a series of houses and converts them into flats but does not sell them immediately—this operation may run throughout his whole lifetime. Is he simply taking the risk that if inflation inflates the ultimate price at which he sells, that the value-added tax will capture—as value added—what has been conferred by inflation in the time between his original building, or reconstruction, as the case may be, and his final sale, whether it be by means of a direct sale or a sale by lease, or whatever way he chooses to have the deed carried out? If so, he is in the position of having to pay a figure of 3.156 per cent on the value added. If he is engaged in this operation he is a taxable person and if he pays this addition, will it be an allowance for determination of what is his net profit for the purposes of income tax and corporation profits tax?
Mr. Colley: That would be so. It would be allowable but there is a point in what Senator FitzGerald said on which we should be clear. He becomes liable to the value-added tax when he parts with possession of the house. I am not quite clear what the Senator had in mind when he talked of somebody building a series of houses over, say, a period of 20 years.
Mr. Alexis FitzGerald: Take the simple case of somebody who likes to invest his money in buying old properties and converting them into flats. When does he become liable?
Mr. Colley: When he parts with possession.
Mr. Alexis FitzGerald: That is to say when he makes a lease for more than ten years.
Mr. Colley: That would be a delivery.
Mr. Alexis FitzGerald: Not until he does that?
Mr. Colley: No.
Mr. Alexis FitzGerald: If he does not do that for 20 years it is at that point that his liability arises?
Mr. Colley: In the circumstances described by Senator FitzGerald the person becomes liable to the tax regardless of whether he makes a lease longer than ten years. If he makes a lease of ten years or more it is a delivery of the property within the meaning of the section. If, however, he gives a monthly tenancy this is treated as being “a self-delivery” and he becomes liable at that point.
Mr. Alexis FitzGerald: What is the distinction?
Mr. Colley: Let me put it this way: the only circumstances in which he would not become liable would be if he simply left the property unoccupied and did nothing with it. If he parts with possession, even on a short-term lease, he becomes liable at that point.
Mr. Alexis FitzGerald: Therefore, any utilisation of the property renders him liable to value-added tax?
Mr. Colley: That may be going a little far. He must be in business before this arises at all. He would not be an accountable person if the transaction were not in the course of business
Mr. Alexis FitzGerald: I accept that.
Mr. Colley: I do not wish to spell out precisely the circumstances and then say that these are the only circumstances in which the liability would arise. This would be unwise on my part. I am trying to give the general principles behind the liability for tax in these cases. One must bear in mind all the time that liability arises only where the  person is an accountable person which means—as Senator Brugha said—that he is in business.
Mr. Alexis FitzGerald: I wish to direct the Minister's attention to the definition of “business”. It is more extensive than the ordinary man would think was required of him to be in business. If I bought a house and did something to it I could be deemed to be in business, even though I only did that one transaction, because I had engaged in a venture in the nature of trade or commerce. Therefore, anybody who does anything with a view to turning the operation to gain will be in business under the Bill, as I understand it, and will be an accountable person and will be liable to value-added tax on the value which he has added. I am wholly out of my depth when I come to deal with the short distinction between monthly lettings and the effect of the monthly lettings as distinct from the ten-year term.
Mr. Colley: The practical effect, so far as liability is concerned, is no different because the liability will arise. On the question of the definition of “business” it operates on the same basis as operates at present under income tax on land development which, in very rough layman's terms, amounts to the situation where if a man does it once it is all right but if he does it more than once he is deemed to be doing it in the course of business. That is a very rough interpretation. It is the same kind of interpretation in default that would be operated in this connection under value-added tax as is operated at present.
Mr. Crinion: Will the people undertaking big developments and only letting their buildings for five years, or renewing their rents every five years be exempt on account of the short leases?
Mr. Colley: It is a little difficult to answer that question precisely because it would depend on the terms of the lease. If it was a long lease subject, at intervals, to a right of surrender with, perhaps, increased rents being exercised, or if it is a five-year lease, subject to a new five-year lease being granted, it would become liable to tax  on the second lease. I cannot answer the question precisely because it would depend on the terms of the lease in each particular case.
Mr. Crinion: I hope the Minister will make sure that they will be caught.
Mr. Nash: Let us take the case of a widow whose husband had a large house. After he dies the house is much too large for her and, in any event, she has not got the income to keep it going so she converts seven or eight rooms into bedsitters. This to her is a business. She sets the bedsitters to eight separate tenants. Is she liable to value-added tax on those bedsitters?
Mr. Colley: No, except in so far as she would be liable as at present for the tax element in the work done in converting the house.
Mr. Nash: She would have paid that in converting the house.
Mr. Colley: She would pay that in the same way as she pays it at present and that would be the end of her liability.
Mr. McDonald: I should like to ask the Minister to look at subsection (7). I am not at all clear what exactly is meant by it. Subsection (7) states:
The amount on which tax is chargeable by virtue of section 2 (1) (a) on the delivery of livestock shall be 19.20 per cent of the total consideration referred to in subsection (1).
In the definition section we read that “livestock” means live cattle, sheep, pigs and horses. Presumably, that means live cattle, live sheep, live pigs and live horses but would there be a difference if, say, I wished to dispose of my stock deadweight? If a farmer sells his cattle, sheep or pigs liveweight to a fellow farmer there would be no tax transactions, or if a farmer sells to a fellow farmer via the mart there would be a 1 per cent charge, but if a farmer sells deadweight to a factory will he be charged 5.26 per cent on 19.20 per cent of the total price? Have the Revenue Commissioners differentiated between selling farm animals on the hoof liveweight  or selling them deadweight? Both of them are quite common methods of transactions.
Mr. Colley: In the case of a deadweight sale the rate of tax would be 5.26 per cent on the current price but that is only relevant in a sale by a registered person. The ordinary farmer the Senator has in mind would not be a registered person so that the question will not arise as far as he is concerned. In the case of the sale of live cattle, sheep, pigs and horses the method adopted here may appear complex but, in effect, it is producing a 1 per cent rate on the tax-inclusive price. You get that by charging the tax at 5.26 per cent on 19.20 per cent of the value excluding the tax. The object of this is to enable the marts to operate with a single rate of 1 per cent on all livestock. Without this it would be impossible for them to operate. It achieves the same situation for both registered and unregistered persons selling through the mart and for those who are selling otherwise. The ultimate result is the same, so that the value-added tax is not going to affect the price or the competition as regards live animals. There is a difference in approach as regards the sale of carcases on a deadweight basis but this will only affect somebody who is a registered person under the Act.
Mr. McDonald: I am still not clear although I accept what the Minister says. If I sell cattle, sheep or pigs deadweight to a factory, who will be a registered and accountable person? That will be the end of the road for this particular animal, whereas by sending it to the market it may have two, three or more owners before it eventually reaches the factory. Therefore, the collection of tax will not be the same on every beast. Some of them will yield 300 or 400 per cent tax, whereas pigs, in the main, will possibly have a once-only tax. There is a difference here.
Mr. Colley: I am sorry. Did the Senator say a 300 or 400 per cent tax?
Mr. McDonald: Yes. You will be collecting tax three or four times.
Mr. Colley: No. It does not work like that.
Mr. McDonald: It is not clear from the text how he is going to avoid it. Very little has been said on this so far.
Mr. Crinion: The Minister mentioned a few minutes ago that most farmers would not be registered. Anyone selling perhaps 50 or 60 cattle will be over the £6,000. Any dealer dealing with over 50 or 60 cattle a year would naturally have to be registered.
Mr. Colley: No. If he is a farmer, he does not have to register at all, no matter what his output is.
Mr. Crinion: No matter what his turnover is? That is good.
Mr. Colley: In response to what Senator McDonald said, perhaps I should go a little further. I shall take the case of an ordinary farmer whom we can assume to be unregistered, selling on a deadweight basis to a factory. First of all, because he is unregistered he will be entitled to add 1 per cent to the price and so will recover the amount of tax that he has paid on feeding stuffs and so on. If he happens to be a registered person he would put on 5.26 per cent and the factory would deduct 5.26 per cent. He would be deducting on the basis of the tax, if any, he had paid on the items he was feeding the animals with. It would not be a flat deduction. It would be related to what he had actually paid out and he would have to produce the accounts, as a registered person.
There will not be very many farmers in this position. A farmer in this position would be in exactly the same position as any other kind of trader. The vast bulk of farmers would be unregistered. They would simply add on 1 per cent and that would compensate them for the tax they had paid on farm requisites and other items. That is the end of it as far as they are concerned.
Regarding the question of tax being charged a number of times along the line and thereby reaching, as Senator McDonald has said, 300 or 400 per cent, this will not happen. I shall take an example. An unregistered farmer sells a product to a factory. The factory do a certain amount  of processing on it. When they sell in the next stage of the processing they will charge 5.26 per cent on the price at which they are selling. However, they will be entitled to set off against that, or, if necessary, if the figure is too big to get a refund from the Revenue Commissioners, all the tax that they have paid. For example, if they were selling £100 worth with £5.26 tax, the next person in the line will have bought from them at £105.26. Let us assume that he sells at £120, when he comes to sell he can deduct from his liability for tax on the £120 the £5.26 that he has already paid out. This goes on and on in the chain. The net effect is that all the Revenue Commissioners get out of the transaction at the end of the day is £5.26. That is also the amount paid by the ultimate consumer. In fact, it does not really matter theoretically, in the intermediate stages, if somebody charges too much tax or too little. It evens itself out along the way and the ultimate result is still the same. The Revenue Commissioners will get, and the ultimate consumer will pay, tax at the 5.26 per cent rate. That is where we are dealing with goods subject to that rate, which is exactly what is paid at the moment —5 per cent turnover tax.
I know this concept is a little difficult to grasp, if you have not gone through an example in your mind and worked it out. If you do, you will find that this is so. There is no question of tax doubling up all along the way. The whole point of the value-added tax system is to avoid this kind of cascading of tax and to ensure, no matter how many transactions are gone through along the chain of production and distribution, that in the end the amount of tax received by the Revenue Commissioners and the amount of tax paid by the consumer is the figure laid down in this Bill, appropriate to the particular commodity.
Mr. Nash: What happens in the case, say, of a factory that carry a considerable amount of raw material? Perhaps they have £100,000 worth of raw stock on hands on 1st November. They manufacture that and sell it. More raw materials are got in after 1st November.
Mr. Colley: Is the Senator speaking about the commencement of the operation?
Mr. Nash: Yes. How will it work out?
Mr. Colley: There are special arrangements about this, but they come under section 34.
Mr. Nash: I thank the Minister. I shall wait until we come to that.
Mr. Crinion: I should like to ask one other question regarding cattle. In the cattle trade there are a number of dealers who do not own any land. Have they to become registered or will they be liable for tax under this? Will they be exempted in the same way as a farmer?
Mr. Colley: No. A cattle dealer or a mart will be treated in the same way as a farmer. They do not have to register.
Mr. Reynolds: In connection with the sale of cattle, what is the position of a person who is registered as a business person and farmer combined?
Mr. Colley: This is where the provisions to which we have referred earlier in section 8 come in. I said that this was intended to cover a case, say, of a man with a shop and a small farm. Where he has a business which is registered and he also carries on farming activities which normally would not be registered, if his farming activities exceed the figures laid down in section 8, subsection (3), then he would have to register for the whole business, that is, farming plus the other business. However, if his non-farming business does not exceed those figures then the business can be treated in the same way as any other farmer.
Mr. Reynolds: He is nearly in the same position as an unregistered farmer.
Mr. Colley: He is in exactly the same position as an unregistered farmer.
Mr. Alexis FitzGerald: I want to refer to immovable goods. As Senator  Nash mentioned, if we have a case of a widow who has a gratuity to invest and she invests it in converting an old house into flats, it is probable that she would be in the business of engaging in that enterprise and then making sublettings. Therefore, she would be an accountable person and have the responsibilities of such under the Act.
If she sells the house or gives more than a ten year lease, that is a disposal and delivery and she is liable for value-added tax from the value added in relation to that. Short leases are regarded as equivalent to the shopkeeper taking home the stock of goods. The value of that is regarded as part of the groceries that the shopkeeper took home, in assessing her value-added tax. If she elects to be taxed on the rents arising from these short lettings, then she is exempt from value-added tax, if she pays tax on the rent. She is then engaging in an activity which is exempted from value-added tax, but pays tax on the rent in the ordinary way.
If she does this for ten to 15 years and then sells the house at this point there is a disposal and delivery of goods, the value-added tax liability arises and the exemption ends. On what basis is it then determined as to what value she has added by her exercises of the property during the period of buying, reconstructing, and so on? How do they treat the old house which she acquired from somebody who was not a taxable person because there was no tax included in the price she paid for the house? She expends a great deal of money on builders, who are taxable and accountable persons, and she is allowed that money. How is part of the money which she paid on the original property treated for value-added tax purposes when there is no tax repayment to be made to her in relation to it? Does she, in fact, pay value-added tax on the difference between the original cost, whether it includes the cost of the building, before reconstruction or after reconstruction, and includes the entire inflationary difference?
Mr. Colley: In such circumstances a woman would be taxed on 60 per cent  of the full selling price at the rate of 5.26 per cent. It works out at a little over 3 per cent. It could include, if she had created rents, the value of the rents. Presumably, if she sold the rents coming in, then it would include that.
In the circumstances described by Senator FitzGerald I am not sure whether she would become liable at all, or if she would come in as a registered person with the advantages and disadvantages that apply to that. I am giving that answer on the assumption that she would. The treatment of rents is a rather complex business. Rents are exempt from tax under the First Schedule, unless a landlord specifically waives, under section 7, his right to exemption. He might elect to pay tax at 5.26 per cent on his rents if the property was let to a registered person —a shop or factory—and if it was desired to pass on to a registered person's tenant the entitlement to credit for all the prior stage taxes. Normally a landlord who has not waived his right to exemption will not be registered and therefore will not be entitled to any credit or refund for the tax element included in the price of the property purchased by him, or in the charge made by a builder for any property constructed for him. Thus, nearly all property acquired by him, which is constructed after value-added tax commences, will have a value-added tax element of 3.16 per cent, included in the cost, either at that stage —or, if the acquistion is exempt, because it is a second-hand sale—at some previous stage. This continues, almost exactly, the present system under which the element of turnover and wholesale tax represents approximately 3 per cent of the cost price of a building.
A registered person who buys property, or who has a premises constructed for him for the purpose of a taxable business, will be entitled to full credit for the value-added tax included in the price. Having obtained this credit he will be in the same position as if he had acquired the property tax free. This is within the intention of the Bill, so long as the property continues to be used for the business activities which are taxable.
 A difficulty arises if a person, who has got a full tax credit in respect of property, subsequently decides to let the property, but does not waive his right to exemption on the rent received. If no adjustments were made in these circumstances, he would have an advantage over an unregistered landlord since the capital cost of property let by the unregistered landlord would include a tax element of 3.16 per cent, whereas the capital cost of the property let by the registered person, would not include any tax element. There would also be the advantage over property built before the commencement of value-added tax, since such property will have an element of turnover and wholesale tax in its original cost. In order to ensure equality of treatment, it is necessary to withdraw the tax credit which the registered person obtained in respect of the property. This is done under section 4, subsection (3).
Any landlord may elect to be accountable for tax on rents receivable by waiving his right to exemption, but there would not be any advantage for him in making this kind of election unless he had been charged value-added tax for which he could claim credit and unless his tenant was a registered person who could obtain credit for the tax element in the rent.
In the case of ordinary residential property, if a tenant is not registered the landlord would almost certainly prefer to retain his right to exemption, that is to bear value-added tax at 3.16 per cent on the cost of the property and to be exempt on the rent. He would almost certainly prefer that course rather than to obtain credit for the tax on the property but to pay value-added tax at 5.26 per cent on the rent. If he took the latter course, not only would the rate of tax be higher—that is 5.26 per cent as against 3.16 per cent—but over the period of the lease the rent would be greater since it would include an element for the landlord's gross profit in addition to an element for the capital cost of the house. I am trying to assure the House that the danger of rents of residential property being affected by value-added tax is extremely remote.
Mr. Alexis FitzGerald: My only comment is that I will wait until I have read it.
Mr. Reynolds: I hope that clears up the matter but I think it is getting muddier.
Mr. Russell: I should like to ask the Minister a question regarding section 10 (1). This section describes the amount on which tax is chargeable. I quote:
...the total consideration... including all taxes, commissions, costs and charges whatsoever, but not including value-added tax chargeable in respect of the transaction.
Does that definition apply to all goods and services?
Mr. Colley: Yes.
Mr. Russell: That is the basic element on which all value-added tax is levied. I should like to ask the Minister what taxes are included in this? “Including all taxes” would cover income tax and taxes on property and qualifications. Is this correct?
Mr. Colley: It would include customs duties, excise stamp duties, and so on.
Mr. Russell: Only?
Mr. Colley: Yes, but I cannot visualise how income tax would get into the cost.
Mr. Russell: I cannot either. The definition includes all taxes. It is a very embracing term. Would I be right in saying it relates to all tax except taxes on income?
Mr. Colley: It relates to taxes which can be identified as a cost element. Stamp duty is a good example. You could determine precisely how much that was.
Mr. O'Higgins: Is the Senator's point not a valid one? If it states “including all taxes” does that not mean all taxes of every description?
Mr. Colley: Yes, in so far as you can apply them, but there would have to be an identifiable amount. I do not  know how you could identify the proportion of income tax involved in the cost of the item concerned.
Mr. O'Higgins: You could make a shot at it.
Mr. Colley: I do not think we would try it.
Mr. Russell: In other words, it would not be included.
Mr. Colley: The Senator is right there.
Mr. Russell: It would not be included in the cost of the service or the goods in question. It goes on to say “but not including value-added tax chargeable in respect of the transaction”. Does that mean the value-added tax that would be charged to the consumer on a delivery or does it exclude taxes incurred up to that stage? Say there is a three-stage tax right through manufacturer, wholesaler, and retailer, the retailer delivers to a customer, and at that point he has incurred the manufacturer's and the wholesaler's tax with the deductions in between. For the purpose of assessing the amount which is chargeable, the final tax is not added on but is the net charge for the other two taxes included in the price of the goods?
Mr. Colley: The reason for the wording “not including value-added tax chargeable in respect of the transaction” is, as I have mentioned in speaking on an earlier section, that goods specified in the Fourth Schedule are those subject at the moment to the highest rate of wholesale tax plus turnover tax. There is a special arrangement regarding these goods whereby they become liable at 30.26 per cent, but only the 5.26 per cent passes on from the manufacturer or assembler down the line. The remainder is retained. This is a special arrangement regarding this limited range of goods.
Without this wording we would run into trouble in regard to those transactions. That is why it states: “not including value-added tax chargeable in respect of the transactions.” In effect, what happens is that everything is included other than the value-added tax  in respect of the particular transaction which may be 5.26 per cent or 16.37 per cent or 30.26 per cent, depending on the goods concerned or the services concerned and which Schedule they come under.
In the case of motor cars and television sets, which come into the highest range, there can be included an element of value-added tax which would be 25 per cent. In all other goods, the value-added tax would not be included. The tax appropriate to that transaction would be added on after everything else was added up to determine the price.
Mr. Russell: That is reasonably clear. I am taking the case of a trader making out an invoice on which he will be assessed for value-added tax. He takes into consideration all taxes, commissions, costs and charges, including charges for delivery. At that stage, he could have paid some measure of value-added tax because if he bought from a manufacturer through a wholesaler, the manufacturer and the wholesaler would add on their percentages and the wholesaler would deduct the manufacturer's tax. Then it would come to the retailer who would normally add on the retail proportion and deduct the wholesale proportion. This would get to the final figure. At this stage, there would already be some tax paid in most instances. It would not be free of value-added tax.
Mr. Colley: No.
Mr. Russell: At that stage a retail trader would have paid the taxes along the line, making the appropriate deductions. Then he would be faced with the final delivery to a housewife. The final charge would surely include the value-added tax up to that final stage.
Mr. Colley: No. If we exclude the items mentioned in the Fourth Schedule, where there is a special arrangement, there would be no element of value-added tax paid at the point where the retailer comes in. It would have been paid but it would have been fully credited. So far as the Revenue Commissioners are concerned, no tax whatever would have  been paid at that point. If it were an item liable to 5.26 per cent the retailer would charge that 5.26 per cent on the cost. That is the only amount of tax payable on that particular transaction.
All the other tax paid previously at different stages as described by Senator Russell would have been fully credited to the person who paid it. The only exception to this is the special arrangement in regard to the limited range of goods which I mentioned under the Fourth Schedule, that is, where 25 per cent of the tax would have been paid at the manufacturing or assembly stage, would be included in the price all the way down and would not be credited further along the line. In all other cases, all of the tax paid would have been fully credited to whoever had suffered it.
Mr. O'Higgins: What is the tax referred to in subsections (5) and (6) —“excluding tax”? It is clear enough in subsection (4) that tax has been excluded.
Mr. Colley: It would be the value-added tax as defined in section 1.
Mr. O'Higgins: It is not excluding all taxes?
Mr. Colley: In the definitions in section 1 “tax” means value-added tax chargeable by virtue of this Bill. Does that help the Senator?
Mr. O'Higgins: In other words, the reference to “tax” in subsections (5) and (6) is to value-added tax?
Mr. Colley: Yes.
Mr. Russell: There are just two questions. Section 10 (3) (a) states:
if for any non-business reason the actual consideration in relation to the delivery of any goods or the rendering of any services is less than that which might reasonably be expected to be received if the consideration were an amount equal to the open market price or there is no consideration, the amount on which tax is chargeable shall be the open market price,
Could the Minister indicate what is a non-business reason? What is the open  market price and who decides it? It is possible that the market price in the sale of some commodities may be very variable? How is the tax collector going to assess that? What are the mechanics and how is it going to operate? It is grand in theory and looks lovely in print but there are markets where prices can change quite suddenly.
Mr. O'Higgins: If it was the open market price at a particular time it would make more sense.
Mr. Russell: Even at that, what formula is there for assessing the open market price and who will be the assessor? I should be interested in how it is to work. It seems to be unworkable.
Mr. Colley: The open market price is defined in subsection (9) (b) as follows:
“the open market price”, in relation to the delivery of any goods or the rendering of any services, means the price, excluding tax, which the goods might reasonably be expected to fetch or which might reasonably be expected to be charged for the services if sold or rendered in the open market at the time of the event in question.
The question of who determines this would be a matter for the taxpayer in the first instance, then for the Revenue Commissioners. There is a right of appeal provided later on against any such decision if a person feels aggrieved by that decision.
Perhaps I should mention the thinking behind all this. Where goods are given away free or at an artificially low price we want to provide that tax shall be payable by reference to the open market value except in the case of genuine trade offers. Provision is made in subsection (3) (b) that where the amount actually received exceeds the consideration referable to a particular contract, a tax shall be payable on the amount received. The purpose of this paragraph is to prevent any attempt at evasion through issuing a false invoice or through understating  the consideration in the original agreement.
Paragraph (c) provides for the granting of relief where the amount received is less than the full consideration and there is a genuine business reason such as discount allowed or bad debts. Its operation will be very similar to the present system of operation. The Revenue Commissioners will take account of the practices to which ordinary business people are subjected. This is designed simply to catch people who are trying to evade liability for tax. The idea that the Revenue Commissioners would question the normal transactions of retailers who are selling items at a particularly low price for the purpose of attracting business would not be practicable. While the intention is to catch people who are trying to evade their tax liabilities, we are trying to provide a saver to cover the normal business practices followed by, but not confined to, retailers.
Mr. O'Higgins: It seems to me that is a good definition of the open market price. I agree it is not an easy matter to define. I do not think it meets the kind of situation referred to by Senator Russell. This definition is perfectly sound where you are dealing with a consistent market but if you are dealing in the kind of market where there can be substantial variations even in the course of the same day, then it would fall. There should be some guideline by referring to the average open market price which would be expected in such circumstances. While I am not suggesting they would do it, under this it would be open to the Revenue Commissioners all the time in the case of variations in market prices on the same day to go for the highest rather than the lowest price. There is no guideline to tell them that they should go for the average.
Ruairí Brugha: I would say that the only real guide to the market price of an article is when you have sold it.
Mr. Colley: What we accept as a basis at the moment is the cost price to the trader which is a fixed figure that one can determine. We might not  question even a value below that, given particular circumstances. It is when the figure goes below that that the matter of whether any question should be raised arises. It is fair enough if we accept the cost price to the trader without question—in such circumstances the kind of difficulty visualised by Senator O'Higgins would not arise. I admit it could happen if you were thinking about the selling price, but if you go on the basis of accepting the cost price I do not think the question arises.
Mr. Russell: You could have things like carpet auctions where people get hold of a big quantity of surplus carpets. They sell them off at substantially below the open market price, because they happen to pick them up quite cheaply. They could be assessed for the difference between the market price and the actual selling price. But, as the Minister says, if the cost price is brought into consideration, that would probably cover this point. Subsection (5) states that the amount on which tax is charged in respect of the rendering of services referred to in section 5 (2) shall be the cost, excluding tax, of providing the services. Take the veterinary service. I am just wondering what the word “cost” means. Is it a cost to the supplier or the cost to the customer?
Mr. Colley: What is intended here is the cost to the taxpayer. In section 5 (2) we are dealing with transactions in which a liability will not arise unless regulations are made to that effect. Such regulations will not be made unless it transpires that it should be necessary to do this. Subsection (5) in effect provides that in the case of a self-rendering of a service for business purposes, if such self-rendering becomes liable under section 5 (2), then the consideration for which the tax is payable will be the cost excluding tax of providing the service. Liability for tax in circumstances such as this is a fairly remote prospect. It is only if we find, for example, that there is a definite attempt to evade liability for value-added tax by way of these kind of transactions that it would be intended  to make the regulations that would apply liability to these transactions.
Mr. Russell: It is the sale price rather than the cost price.
Mr. Colley: The cost to the taxpayer would be in effect the cost price.
Mr. Russell: I always understood that the cost price would be the cost to the person who supplies the goods. The sale price is the price which the purchaser pays.
Mr. Alexis FitzGerald: Arising from what the Minister has just said, I had hoped that this Bill contemplated that everybody who rendered services other than persons who fall within the description of “exempted activities” would become liable, if they are in business, as accountable persons for value-added tax in respect of the value of the services they render or as subsection (5), to which reference is being made, describes it, the cost of providing the services in question. If you look at the list of exempted activities you find that, while a number of professional services are clearly stated to be exempt, a number of others are not in that list of exemptions which one would have expected—like architects, engineers and quantity surveyors, to mention but three. My understanding of what the Minister has just said is that, although these people are not listed in respect of their activities within the First Schedule, they are in some way not to become liable until a regulation is made under the earlier section to which the Minister referred, section 2. If a quantity surveyor is liable for wholesale tax, on what basis is he liable? Is it for the total receipts he gets for his services?
Mr. Colley: Yes, on fees.
Mr. Alexis FitzGerald: Does this subsection, for example, deal with all renderers of service whose activities are not exempt in the Schedule for exempted activities?
Mr. Colley: The Senator is referring to section 10 and not section 5?
Mr. Alexis FitzGerald: Subsection (5) of section 10.
Mr. Colley: In case we get into more confusion, section 10 (1) deals with the services which are not declared to be exempt. Subsection (5) refers to services of a type covered by section 5 (2) which reads:
The rendering of a service by a person for the purposes of any business activity in which he engages shall, subject to regulations, be deemed, for the purposes of this Act, to be the rendering of a service in the course of business.
That is the special kind of self-rendering of a service to which I was referring. It will not become liable at all to tax unless a regulation is made bringing it into liability. I mentioned already the circumstances in which that could arise. The ordinary services, other than those which are exempted, are dealt with in subsection (1) of this section.
Question put and agreed to.
Question proposed: “That section 11 stand part of the Bill.”
Mr. Russell: Is there any provision for exclusion of dances for charitable functions?
Mr. Colley: No. At present this is not workable. There is at present an exclusion from liability for tax on dances where the number admitted does not exceed 100 and the price of admission does not exceed 20p. That would continue, but otherwise dances would be liable to the 11.11 per cent rate. The existing position will be continued in relation to dances.
Mr. Russell: That is 100 persons?
Mr. Colley: Up to 100 persons and up to 20p admission price.
Mr. Russell: That would need to be revised.
Mr. Alexis FitzGerald: Am I correct in understanding this section as signifying that the Minister is not reserving any power to use the value-added tax as an economic regulator, in so far as he is to be given the power under subsection (8) to reduce the  rates—that he is not taking any power to increase the rates?
Mr. Colley: That is correct.
Mr. Alexis FitzGerald: This is quite different from the United Kingdom where there is a leeway in both directions of 2½ per cent.
Mr. Colley: What the Senator says is true. There are two factors involved which should be taken into consideration. The first one is that it is very difficult to compare our situation in relation to value-added tax to that of Britain. Our circumstances are quite different. Our existing sales taxes are far closer to value-added tax than those in Britain. Their transition is far more difficult because they are so far removed from value-added tax at the moment. There are a number of other differing conditions applying but that is the main one.
The other point is that in general our approach in the past has been that the question of increasing taxes should not be made too tasy for the Government of the day without having to come before the Houses of the Oireachtas and justify their action. From the point of view of an economic regulator, if any Government wish to increase particular rates of value-added tax, it is not impossible for them to come before the Houses of the Oireachtas and argue their case.
Although I might be tempted as a Minister for Finance to look for the ease of movement in these rates, as given by the leeway of 2½ per cent or more, up or down, on balance I believe it would probably be better if we did not do this at present. I should like to make it quite clear that there is no question of increasing the rates of tax as soon as the Bill has been passed. We cannot do this under the Bill. In order to increase the rates of tax new legislation would have to be brought before both Houses of the Oireachtas.
As far as we can we are trying to maintain the existing rate of tax under the value-added tax system. It is not open to us to change that rate of tax after the enactment of legislation without coming back to the Oireachtas to do so.
Mr. Alexis FitzGerald: Speaking for myself I do not dissent from the decision of the Government on this matter but I thought it was an important question of policy and it would be useful to get a definite statement on it which had not been made previously.
Mr. Reynolds: There are some building materials which were exempt under turnover tax which are to be subject to value-added tax at the rate of 5.26 per cent. These are blocks, lime, mortar, plaster, bricks, damp-proof courses, roofing felts.
Mr. Colley: Senator Reynolds is right in saying that some items of this kind are becoming liable to tax which were not previously. Similarly, there are a number of items, for instance, timber and glass, which are at present liable to both wholesale and turnover tax. Under value-added tax they will only be liable to the equivalent of turnover tax. The effect of the arrangements in the Bill is to give us the same position as we have had before—that the average amount of tax paid on a new house will still be in the region of 3 per cent.
Mr. Reynolds: I do not know where the Minister got this figure but it will certainly be much higher than 3 per cent. One can think of the materials used in the building of houses which were exempt, as against those which were liable to 5 per cent turnover tax, wholesale tax or both, particularly, cement, gravel, plaster, unless they were imported. Heretofore they were free. Now they will cost considerably more.
Mr. Colley: I do not wish to delay the House on this point but I must explain something which may not be clear to Senator Reynolds. By making all of these items subject to 5.26 per cent we are enabling people to recover the tax which they will pay on them. At the moment they cannot do this. As far as the ultimate consumers are concerned, what they will pay will be just more than 3 per cent because it is 5.26 per cent of 60 per cent of the consideration. This works out at just more than 3 per cent. It will not affect the ultimate price to the consumer  because the tax he will pay will be 5.26 per cent of 60 per cent, just more than 3 per cent, irrespective of the level of tax on the component items which it contains. They are only valuable for the purpose of the intermediate transactions for builders providers and builders so as to determine what they should be paid and what they can claim.
Mr. Reynolds: To break this down simply so that people who are not in the business will understand it, heretofore, if a man went to build a hayshed, the pillars in the hayshed were exempt, the concrete used for holding the pillars was exempt, the galvanised iron which made the hayshed was exempt.
The only item which was taxable was the timber. Timber was taxable at the full rate. I regret I have not got the figures here to prove that. Everybody knows the amount of timber required to build a hayshed is very small but I can guarantee that the price of building a hayshed from now on will increase by much more than 3 per cent or 4 per cent and it would not surprise me if it increases to 5 per cent.
Mr. Colley: As far as the farmer is concerned—he would be the man concerned with building a hayshed— whatever tax he pays in the building of a hayshed or farm buildings needed for his business he can recover from the Revenue Commissioners so that the price will not go up as far as he is concerned. As regards houses, the amount of tax is worked out on a mathematical formula of 5.26 per cent of 60 per cent of the purchase price which works out at just over 3 per cent.
Mr. Reynolds: I believe the Minister.
Mr. McDonald: Why introduce this complicated mathematical problem of 5.26 per cent of 60 per cent? Is it to give a future Minister for Finance an opportunity of raising the tax to 5.26 per cent of 100 per cent? Would it not have been handier to charge, say, 3 per cent on those commodities and have a Sixth Schedule to the Bill  rather than have these complicated decimals?
Mr. Colley: If we did that it would drive the shopkeepers off their heads. I can assure Senator McDonald that if we gave them three or four rates of tax to handle they really would go on strike. The 5.26 per cent is the rate that applies across the board on most commodities. We kept that rate and then we asked ourselves: “What percentage of the consideration, worked out at 5.26 per cent, would give you what people are paying at the moment, which is just 3 per cent?” It worked out at 60 per cent. That is how the figure was arrived at.
Mr. Russell: On the question of the various tax rates, the Minister went to considerable pains to explain to Members of the Dáil the reasons why it must be an odd amount, such as 5.26 per cent instead of an even 5 per cent, which would have been so much easier to calculate. Basically the reason is that under the present wholesale and turnover tax system there is no provision made for tax rebate while under this system we will have provision for rebate. The 5.26 per cent under this system equals the 5 per cent under the old system. I think that is roughly the situation.
Mr. Colley: If I may interrupt the Senator, one is tax-exclusive and one is tax-inclusive but mathematically the 5.26 per cent is precisely the same as the existing 5 per cent turnover tax.
Mr. Russell: That is what I was trying to say. Notwithstanding that fact, and having regard to the difficulties which this will create, particularly for the smaller shopkeeper, and the fact that it will not make any difference ultimately to the selling price, I think it will have disadvantages. The Minister made the point that if you bring the tax down by 0.26 per cent you will not have a 0.26 per cent reduction in the price of goods. That would be an impossibility but it would, from another point of view, have advantages. It will take some time for people to sit down and do calculations, and time is money nowadays. It would be of considerable help, particularly to the small  shopkeeper who will not have the benefit of computers or calculating machines, if those amounts could have been evened off. I do not think the Minister would lose any revenue in consequence.
I know the Minister is basing this system on the present system of wholesale and turnover taxes but I am sure he would be the first to agree that costs, and consequently sale prices, are not going to remain static. We will have continuing inflation and any marginal loss by a rounding off of these figures would be recovered very quickly by increased prices in the years ahead. Having regard to the fact that he is not prepared to increase the exemption limit of £6,000 per year, which is the current figure, calculating these odd tax charges will mean quite an amount of trouble for the shopkeepers. I think the Minister said in the Dáil that a booklet will be produced and supplied to shopkeepers but most of us who have had occasion to buy items such as newspapers, sweets and cigarettes in small shops will agree that they provide a very useful service particularly at night when most of the larger shops and supermarkets are closed. Anything we can do to ease their burden in regard to the operation of this new system should be done. For that reason I would urge the Minister to round off these figures.
If he cannot do so under this Bill— and I imagine he cannot because time is running out for bringing it into operation—he should take powers to adjust the rates at the earliest possible date. These rates will cause a good deal of confusion. Schemes such as these that are devised by experts in the Minister's Department may look very well on paper but in practice they can cause a great deal of confusion particularly to people who are in a small way of business. I can appreciate the Minister's difficulties in this regard. He does not want to take any action that will increase charges or costs, particularly of the necessaries of life, but if he undertook to round off the figures it would help greatly to ease the operation of this complex system.
I think I am correct in saying that the system we have evolved is more  complex than the system generally in use in other EEC countries. In England there is only one flat rate of tax of 10 per cent. Of course that may not be feasible here for reasons better known to the Minister than myself. In another small European country there are only two rounded-off rates of tax and I am wondering why we could not do likewise here.
I do not want to open up a discussion which has already had a good deal of mileage in the other House but it is a pity that the Minister could not find some means of excluding at least an agreed list of necessary foodstuffs. I know he made the argument in the Dáil that you cannot exclude a limited range of foodstuffs, you must either go the whole hog or nothing. The Minister may come back and say: “If I do that it means I will drop £15 million or £17 million in revenue. How will that sum be made up except I put it on items other than food.” They might be regarded as necessaries of life. I am fully conscious of these difficulties and I accept that food is the basic necessity of life. The housewife purchases daily or weekly at least ten items which I am sure the Minister is anxious to keep at a low cost. It is unfortunate that we could not exclude food. From the point of view of controlling prices, and thereby costs and inflation, the basic thing to start with is the cost of food. I am sure the Minister would agree with me in that regard.
I am sure the Minister does not want to go over old ground again, but while it is not practicable to round up these figures, or to cut down the number of rates to, perhaps two, perhaps we could have a simple single rate such as exists in Great Britain? I should be grateful if he would give us his views on that.
Mr. Colley: On the question of zero rating food I would certainly agree with Senator Russell that this would be very desirable if it could be done. However, he did quote me correctly as saying that if one wants to do this one has to do it across the board. Anybody who goes into the problem discovers this very quickly, as  a Deputy in the Senator's party discovered, when he went about it. That was one thing on which we were agreed: that if it were to be done at all it would have to be done across the board.
That brings in all sorts of problems. You are then zero rating quite a number of items which most people would not regard as being of an essential nature whatsoever, and indeed might well regard as being the ultimate in luxury. I shall not proceed with that in detail; I merely want to point out that that is one difficulty we are up against. If you do this, there is the problem of how to ensure that you will get the benefit in corresponding reductions in the price of essential foods. There is no guarantee that this can be done. At the same time, to do it you are increasing the price of many items which many people would regard, if not essential, almost as essential as food. For instance, you increase the price of new houses and all the furnishings and fittings for houses, clothes and footwear, et cetera. On balance, when you weight it up as I did — having started out on the basis of wanting to take tax off food —you will come ultimately to the conclusion that if you really want to do something worthwhile for the poorer sections of our community, the only effective way to do it is through the social welfare system and an amended children's allowances scheme.
On the question of the rounded rates, clearly life would have been a lot easier for me if I came here with figures such as 5 per cent, 15 per cent, 30 per cent off. I did not lightly approach both Houses of the Oireachtas with rates such as 5.26 per cent and 16.37 per cent. I gave a great deal of thought to it and eventually I concluded that if we were to do our part, not alone in not increasing the cost of various commodities, but in not providing an excuse for people to increase them, then what we ought to do as far as was humanly possible was to maintain the existing rate of tax. The whole system would be a value-added tax system but as far as the consumer was concerned the actual cost of the taxing would be the same as under the turnover and wholesale  taxes. That is the reason why we have held on to these peculiar rates which are as near as we can get to the mathematical equivalent of the present rates of tax.
It means that for the consumer the consequence should be nil, in practically all cases, because the amount of tax will be exactly the same as it is today. As far as the retailer is concerned—and most people are concerned with the effect on the small retailer—the position is that no retailer will have to handle more than two rates of tax. When we talk about his calculating 5.26 or 16.37 per cent, I must admit this sounds like a most formidable undertaking. For instance, if somebody asked me to work out 16.37 per cent of £54.35, I would have to get a pencil and paper and do a lot of work on it. If this is the way we visualise the shopkeepers doing it, we could not expect them to do this.
In practice, that is not what they will be doing. First, they will be issued with ready reckoners and it is a question of looking up in the ready reckoner what is the correct tax, at 5.26, or 16.37 per cent on whatever figure they are looking up. Furthermore, most shopkeepers have a range of commodities, but these do not change very much. At the moment they know the price of these commodities without having to look up invoices and, in a very short time, they will know the amount of tax on these items without having to look up the ready reckoner.
Whatever trouble may be involved, it is not that of doing out a sum such as this on each transaction. If that were the problem, they could not do it. It will be a question of using the ready reckoner to get the precise amount on a particular figure. If they decide to do it on the basis of including the tax in the shelf price, then they have only to do it for each item. On the other hand, if they do it at the check-out point then they will do it on the total sum involved. It will be the one sum—“calculating” is the wrong word. I should prefer not to have these peculiar looking rates but when one examines the reasons for it, one must agree that there are compelling arguments why we should have them, to substitute as  accurately as possible for the present rate of tax. When one analyses the problems that are involved for retailers, they are not nearly as great as they might appear to be at first sight.
Mr. Alexis FitzGerald: I accept what the Minister is trying to do. It is more or less a conversion to a value-added system the effects of our existing sales tax. Would he not agree that it was made apparent to us the bewildering number of different effects in our existing system? If my calculations are correct, this Bill, in relation to different transactions and to different goods and different services, will apply no less than ten different rates. There is the zero rate, which is simple; the 11.11 rate for dances; the 5.26 rate; the 16.37 rate; the 30.26 rate and the rate applicable to livestock, which I work out as 1.00992, without the aid of a ready reckoner and in the case of subsection (8) of section 10, according to which of the rates is applicable, 60 per cent is applied; in the case of the 5.26 rate we have 3.156; in the case of the 16.37 rate we have 9.822; in the case of 30.26, we have 18.156 and, finally, in section 40 we have a tax on betting of 15 per cent.
That should make us pause as to whether we were wise in trying to avoid all the difficulty of bringing these different rates closer together, having regard to the fact that by 1974 the tax systems in the EEC will have to be harmonised and that certain other countries have one and two rates. What are we going to do the day we have to reduce ten of them? How are we going to do it when they are separated by 30.26 per cent to zero?
Mr. O'Higgins: Is the Minister serious in making an assertion that it would not be possible to guarantee that if food had a zero rating the benefit of the reduction would be passed on to the consumer? If that is the stance the Minister is taking with regard to this question, it seems to be an admission of utter failure by the Government with regard to the question of price control. It shows a complete lack of self-confidence on the part of the Government in tackling the question of any method of price control. If it  were decided to zero rate food and if there was to be a consequential reduction of 5 per cent, or one of the other percentages that Senator FitzGerald referred to, it should be well within the competence of any government to ensure that that reduction would be passed on for the benefit of the consumer.
Mr. Colley: I meant precisely what I said, namely, it could not be guaranteed that any reduction would be passed on to the consumer. This is not a confession of inability, incompetence or anything else, as Senator O'Higgins may think — it is a statement of fact. Senator O'Higgins should know that, with one or two exceptions, there is no price control at retail level. I am sure he knows why that is so. To be in a position to guarantee that a reduction of 5 per cent on the tax on food would be passed on to the consumer one would have to have a system of price control at retail level enforced by a huge army of inspectors and even with a huge army of inspectors it would not work.
Can anybody tell me of anywhere in the world where there is effective control of prices at retail level? Without such control you cannot guarantee that the reduction will be passed on to the consumer in whole or in part. If there is not such a system in existence, you cannot guarantee that this reduction will be passed on to the consumer. That is why I made that statement and it is why I meant what I said.
Mr. Reynolds: No later than yesterday evening we had the Minister for Industry and Commerce in the House with the Prices Bill and he told us that prices are going to be controlled. Another Minister comes in this evening and asks us if there is any other country in the world where this is operating?
Mr. Colley: Where what is operating, Senator? Let us be accurate. What did I say?
Mr. Reynolds: Price control.
Mr. Colley: No, I did not say price  control. Of course it operates here. I said price control at retail level.
Mr. Reynolds: If it does not work at retail level then it does not work at all. There is no point in splitting words. I certainly felt obliged to make reference to the Minister's last statement about food. The Minister said that people in the retail business will only have two different taxes—5.26 per cent and 16.37 per cent. In my own business we will be dealing with some exempted goods, with goods at a zero rate, and with the other two rates. If we have not to collect the money, I am sure we will have to fill up some type of form indicating the exempted goods which we sold, or the goods sold at zero rate. The calculations will have to be made for the other percentage taxes.
It is an easy thing for somebody who does not know anything about business to say that ready reckoners will be available and it will work itself out. The costings will have to be included. If we buy articles in Dublin and transport them down the country with our own transport, we have to put a cost in against that. Then we have to put a cost in against the tax. I can see prices soaring here, because we all know what happened when turnover tax was introduced. There is no point in the public blaming the business people for turnover tax. The business people did their best not to have it introduced. They walked the streets of this city and of every town in the country protesting against it. Prices are automatically rounded off and this is the danger. We had that experience with the change of currency and I can see the same thing happening. I can see the price of houses going sky-high because there is a tax on building materials. It will be much nearer to 5 per cent than 3 per cent if not more than that amount. This Bill is dangerous as far as increases in costs are concerned unless the Minister for Industry and Commerce can control prices. Prices must be controlled at retail level.
Mr. Colley: To talk about what happened when turnover tax came in is irrelevant. When turnover tax was introduced, there was a new additional  tax being imposed and obviously prices had to go up to cover this. I have gone to some pains to explain why we are keeping these odd rates, that is, not increasing the tax. The 5.26 rate is precisely the same as the 5 per cent turnover tax. We are not increasing the tax and, consequently, it is not a comparable situation. When this comes into operation, I think Senator Reynolds will find that he is mistaken in what he thinks is going to happen in his own business as regards the number of items coming under different rates. Despite what he said, the operation of tax with regard to the price of houses cannot be any more than just over 3 per cent, because it is to be calculated at 5.26 per cent on 60 per cent of the purchase price. However you work it out that cannot be 4 per cent or 5 per cent. It is just over 3 per cent.
Mr. Reynolds: That is immediately 4 per cent.
Mr. Colley: I am talking about the tax which the Revenue Commissioners will collect. This is laid down in the Bill and they cannot collect any more on a transaction like that. The danger referred to by the Senator does not arise in the case of houses because the amount of money is substantial. There is a danger in regard to small items in retail shops and that is precisely why I am sticking to the 5.26 per cent. I do not wish to give the slightest excuse to anybody to say that because there is a slight change in the rate, he can change the price.
Mr. McDonald: The Minister is being most helpful but there is a tendency to oversimplify the matter. As Senator Reynolds said, more services are being brought under value-added tax than there were in the case of either wholesale tax or turnover tax. The Minister cannot get away from this.
Looking at subsection (1) (e), which deals with services, I think there are difficulties in regard to new services which are subject to tax for the first time. I have in mind the co-ops which provide the AI service, for instance. To date this service has not been subject to turnover tax or wholesale tax.  Yet, under the terms of section 11 it would appear that it now comes in at the rate of 16.37 per cent. That is, I presume, 16.37 per cent of the entire cost of the service. This is paid at the time the service is given. What becomes of the old custom: “no foal, no fee”? Will there not be great difficulty and much red tape involved in reclaiming this tax which they will have paid several months in advance? I think the whole thing will be completely unworkable.
Mr. Russell: I agree with the Minister. There is no method of effective price control at retail level. In my experience, as a businessman and as a public representative, I have never seen it work effectively unless there are emergency conditions with limited supplies where goods can be controlled from the supplier through the whole manufacturing and distribution system. The best system is to encourage active competition in free conditions. Everything that can be done to encourage competition should be done. I do not accept the Minister's surmise that, even if we took the value-added tax off food, there would be no guarantee that it would be passed on to the consumer. I believe it would be used as a sales gimmick. We have evidence of this from the large advertisements we see in the daily newspapers in which every advantage is taken by some of the larger operators to cut prices and make special offers to the housewife. The abolition of value-added tax on food items would have an automatic repercussion on the lowering of prices generally.
We must accept the fact that if the Minister does that, there must be a quid pro quo, and he would have to find another £15 million or £17 million by some other means. The Minister has turned his face against increases in other costs but it is unfortunate that we could not find some system of not taxing the necessities of life such as food. This would have a steadying influence on the question of price inflation. It would be a help to people who do not come into the children's allowance class, such as old people living alone, et cetera. Turnover tax on food  started off at 2½ per cent and there was an assurance that it could not be increased. It was doubled by just a stroke of a pen some years ago. The Minister has made provision whereby the value-added tax on food and similar items cannot be increased. There is no guarantee that his successor will not do this. Once a precedent is created, there is always a danger that some future Minister for Finance who is stuck for £15 million or £20 million will decide that the easiest way out is to increase the rate of value-added tax on food and similar items.
Mr. McDonald: In reply to Senator Reynolds the Minister stated that he is only interested in collecting roughly the same amount of tax from the same amount of goods. Under this section and in the Third Schedule animal medicines are being taxed at the rate of 5.26 per cent. This has not happened before. The 5.26 per cent will be on 60 per cent of the cost. It will be helpful to all concerned to have these mattes clarified in writing as a guide for those who must live with this Bill when it is enacted later this year. Regarding the cost of animal medicines, is it 5.26 per cent of the full cost or is it 5.26 per cent of 60 per cent of the cost?
Mr. Colley: It is 5.26 per cent on the full cost of animal medicines. The whole basis of value-added tax is that people engaged in business suffer tax on the various items they use in the course of their business, but recover that tax in full. Farmers using these various items in the course of their business will pay tax on them but they will also recover the tax. The farmer will not be any worse off. It is necessary to do this in order to make the value-added system work. It must be spread across the board on as wide a basis as possible.
There are a number of reasons for a value-added tax system. One is to make it more difficult for people to evade their liability to tax which they find it rather more easy to do than I would wish at present under the turnover and wholesale taxes which are stretched almost beyond their limit. They were not designed for the level  at which they operate today. To cut down on the size of the net operated under the value-added tax system would defeat this objective. Farmers, like other people in trade or business, who suffer tax will recover it. Their position will not be disimproved as a result of value-added tax.
Mr. McDonald: That is what the Minister is aiming at.
Mr. Colley: Yes.
Mr. Reynolds: Does it mean that farmers will get a refund of 1 per cent on medicines? Medicines for cattle were exempt under the turnover tax. In the Second Schedule they seem to carry a tax of 5 to 6 per cent. Does it mean that the farmer will have to pay a higher rate for his medicines due to the value-added tax?
Mr. Colley: There are two aspects of recovery of tax so far as the farmer is concerned. He can recover in full the amount of tax which he pays on farm buildings from the Revenue Commissioners. He can, also, add 1 per cent on to the price at which he sells his produce. If he adds 1 per cent on to the price of a cow——
Mr. Reynolds: You would want to get a ready reckoner for him too.
Mr. Colley: ——he is covering a lot more than the tax he paid on the animal medicines. Allowing for the items which are being zero rated this figure of 1 per cent has been worked out as being the amount of tax which a farmer on average would suffer on his inputs other than on the farm buildings. That is what he gets back. He will be no worse off than he was before. Even if certain items are now becoming subject to tax, which were not subject to it before, he is in a position to recover tax in one of the ways I have mentioned, which he was not in a position to do before.
Mr. O'Higgins: Could I ask the leader of the House a question? I am raising it from the point of view of the staff. The intention was to continue the debate until we had finished all Stages of this Bill. Is that still the intention?
Tomás Ó Maoláin: It is.
Mr. Alexis FitzGerald: It will take us ten hours at the rate at which we are going.
Mr. Colley: We have been dealing with the most difficult sections. The remaining sections are much simpler and we should go very fast.
Mr. Alexis FitzGerald: Not if there are difficult Senators.
Mr. O'Higgins: I am not objecting. I simply wanted clarification.
Mr. McDonald: Is there any reason why we must? Surely another day will not make that much difference. We have not dealt with the main agricultural sections yet. When anything dealling with agriculture comes up here we have to burn the midnight oil. There was a prolonged debate in the Dáil on section 13 on one word. I am not happy about the position. I do not wish to be here until 2 a.m.
Mr. Colley: I do not think the Senator is correct in saying that any one section of this Bill was dealt with in one word in the Dáil. Perhaps he is referring to the last Stage.
Tomás Ó Maoláin: Every year the Seanad is stuck here in August. We have all had an ambition to get out of here at the same time as the Dáil. Year after year we were not able to manage it. This year there is a glorious opportunity of doing so. Last Thursday when the House adjourned I indicated that it was our desire to get the business completed quickly this week and to adjourn for the summer recess. Yesterday I indicated that we would complete the Value-Added Tax Bill today. To facilitate Senator FitzGerald we started today at 3 p.m. instead of 10.30 a.m. in the hope that we would complete all Stages of the Bill. As the Minister has said, a lot of detailed explanations had to be given. Perhaps there may not be so many detailed explanations needed in the remaining sections of the Bill and we might proceed quicker. Senators on the other side are young, fresh and well fed and there is no reason why they cannot put in more work.
Mr. Reynolds: I agree that we should go on until 10.30 p.m. and consider the situation then.
Dr. West: I should like to ask the Minister for clarification of certain of the services included under the First Schedule. Let me give three examples so that my question becomes a concrete one. I am interested in a service listed under the First Schedule, for example an educational or medical service with a subsidiary activity. If the educational activities of a school are exempt under the First Schedule what is the position of the school tuck shop? That is a very small item and probably the tax would be negligible. In the case of a hospital whose medical services would be exempt under the First Schedule, what is the position in regard to a hospital cafeteria which might be used by members of the public visiting patients and by the medical staff? What would be the position of a cafeteria in a training college, university or technical college where the educational services were exempt?
Mr. Colley: These subsidiary services do not affect the liability or non-liability of the major service to which they are ancillary. As far as they themselves are concerned, the question of their liability depends on (a) whether their operations come within taxable activities as set out in the Bill, or (b) whether the size of their turnover is above the limits of exemption provided in the Bill. If they are engaged in taxable activities, or the sale of taxable goods, and if the level of their turnover is above the limits set out in the Bill, they are treated as a business and their liability for tax does not affect the liability or non-liability of the main business to which they are ancillary.
Mr. Alexis FitzGerald: As Senator West has raised the point, could I ask the Minister if the activities of the Seanad are exempted activities? The First Schedule gives a list of service renderers whose activities are free from value-added tax. The only possible heading under which the remuneration of Deputies and Senators  and Ministers could be treated would be under paragraph (vii) where the service is given in return for wages and salaries. We do not get wages and salaries and it would seem to me——
Mr. O'Higgins: What about paragraph (xxii)?
Mr. Alexis FitzGerald: Of the schedule? Do we come in under that?
Mr. O'Higgins: We will if we go on much longer.
Mr. Alexis FitzGerald: It is a serious matter. It seems to me we are rendering the activities because we are within the definition of a business in so far as each one of us is pursuing a profession. The same thing would apply to director's fees which do not seem to get listed at all and seem to be subject to value-added tax.
Mr. Colley: When Senator FitzGerald stated that we are not paid wages or a salary he was thinking of some years ago. That position changed some years ago. The remuneration paid to Senators, Deputies and Ministers is subject to tax under Schedule E as are the fees paid to directors and, on that basis, they would not be subject to value-added tax.
Mr. Alexis FitzGerald: Is it only wages and salaries which are exempted if they are taxed under Schedule E? not all those different types of remuneration other than wages and salaries which are taxed under Schedule E are exempted.
An Cathaoirleach: If I may intervene for a moment, this arises under the First Schedule.
Mr. Alexis FitzGerald: It arises on the question of the rates, does it not?
An Cathaoirleach: If the Senator can convince me of that, yes. At the moment I do not think it arises on section 11. It may do so, but I am unable to find it.
Mr. Alexis FitzGerald: I intended to raise the point on the First Schedule,  but if the Chair rules it out of order, all right.
Question put and agreed to.
Question proposed: “That section 12 stand part of the Bill.”
Mr. Alexis FitzGerald: I have only two points to raise on this. Under subsection (2) it is not stated when the excess is to be paid. Is there any time within which it should be repaid? If there is delay in paying it, there is interest borne by the sum which is in arrear on a repayment.
The second point is a question of principle. Why have the Government decided to exclude motor vehicles and petrol from this provision for deduction of tax? This is not universal and, indeed, as I said on Second Reading, under the Danish system of value-added tax, there is a deduction for these items wholly if they are used for business purposes and a percentage if they are only partly used.
Mr. Colley: On the second question first, it is quite true to say that our treatment in this regard, of motor cars and petrol, is not universal. It is also true that there are a number of countries with the value-added tax system who adopt the same approach as we do. It is equally true to say that some of the countries who allow cars and/or petrol as a deduction in whole or in part are at present contemplating changing their position because it seems to be a provision which is very much open to abuse and very difficult to control. That is primarily why we did not make provision for these deductions.
Regarding the first question raised by Senator FitzGerald, speaking from recollection, I think we have a provision in the Bill which deals with this. I will check in a moment.
Mr. Alexis FitzGerald: I could not find it, but no doubt it is there.
Mr. Colley: I was wrong in my recollection of this. I was thinking of another point. The position as regards the time within which a refund would  be made is that in the normal case it would be made within three weeks, that is where the taxpayer furnishes the necessary details. But there can be situations in which the necessary details are not furnished, or in which there is some particularly good reason why a further examination would be necessary by the Revenue Commissioners. For that reason, I cannot put an absolute time limit on all cases. It is not proposed to pay interest on the money due to a taxpayer except in so far as the taxpayer might have paid interest to the Revenue Commissioners on the sum involved. In such case they would have to give back the interest, but that would be the only repayment of interest involved.
Question put and agreed to.
Question proposed: “That section 13 stand part of the Bill.”
Mr. Alexis FitzGerald: This deals with special provisions for tax invoiced by farmers and fishermen. Could the Minister explain paragraph (a) of subsection (3)?
Mr. Colley: This relates to the 1 per cent which may be added on by an unregistered farmer in order to recover the tax he has suffered on his various transactions. As I mentioned earlier, this is calculated on the basis of what will happen under the value-added tax as set out in the Bill. Originally, as drafted, that figure was 3 per cent because there were items such as fertilisers and processed feeding stuffs and so on, which were originally to be subject to tax, but subsequently I discovered that it was possible to exempt them and, as a consequence, we were able to reduce the flat rate figure necessary to compensate the farmer.
I mention that as a background because it is conceivable that, with changes in prices, or even changes in the kinds of commodities used by farmers, this flat rate calculation would alter and that is the reason why we are providing here that, if circumstances alter, we can, by order, change the amount of that flat rate. If such  an order were made it would, of course, have to be brought before the Oireachtas. It is designed to give some degree of flexibility to the amount of flat rate relief.
Mr. Alexis FitzGerald: Up or down?
Mr. Colley: Up or down, yes.
Question put and agreed to.
Section 14 agreed to.
Question proposed: “That section 15 stand part of the Bill.”
Mr. Russell: This section relates to the rates of tax applicable to imports under the various Schedules. Under the British system there will be one flat 10 per cent rate. I should like to ask the Minister if this is likely to raise any complications. We will be applying three grades of taxation to imports from Britain and Northern Ireland. They will be applying a flat rate of 10 per cent on imports from this country into Britain. Is this likely to raise complications having regard to the close trading relationship between the two countries and to the EEC objective to rationalise taxation between countries? Should we not now prepare for the day when there will be rationalisation of taxes? Is the Minister making trouble for himself, or his successor in future years, by having these three categories of taxes whereas Great Britain has only one? I do not think any other country has the same number of import taxes as we have.
Mr. Colley: Speaking from recollection, there is one country at least which has four rates. Effectively, our higher rate, because of the special arrangement I described earlier, in regard to 25 per cent of it, it operates only at the manufacturing or assembly stage and thereafter it is the same as our ordinary rate of 5.26 per cent. The purpose of this provision is to ensure that we apply the same rates to the same goods which are imported as we apply to those which are delivered within the State. If we did not do this  there would be a competitive advantage for imports and we could not have this.
Mr. Russell: I see the reason.
Mr. Colley: That is why we have to do it. I do not think it will present any problems. We are operating the same system at present under the existing sales taxes. Registered persons will be able, as at present, to import these goods without paying the rates of tax. I would only be an unregistered person who at the importation stage would have to pay the appropriate rate of tax. We need not anticipate any difficulty in the operation of this. It is essential in order not to give a competitive advantage to imports.
Question put and agreed to.
Question proposed: “That section 16 stand part of the Bill.”
Mr. Alexis FitzGerald: I know nothing can be done at this stage but I am concerned about the kind of situation with which we are familiar in relation to people who have property. Let us frankly state the position of many people at present with regard to the possibility of their liability for income tax if they should dispose of their property. They are uncertain about the matter and will get conflicting advice and different opinions. It turns upon delicate issues of fact as to whether or not a court would finally hold them liable.
Such persons might finally be held to be engaged in a business defined in the first section and become persons who are deemed under section 4 (5) as an accountable person in relation to that part of the land which, for example, they allow somebody else to develop. They might allow this development to continue for them and finally become liable for income tax, surtax, corporation profits tax and so on and finally pay whatever is due.
Under this Bill, they might be found not merely liable for wholesale tax but, under the language used in this section, without the savers which ought to exist, and failing to have kept  the proper records and to have entered their names on registers, liable to penalties which are quite extensive. This could prove very worrying and serious for these people. This is something which ought to be clarified by an amendment at some future date. It is not clear at the moment; just as it is not clear whether such a person is at present liable for income tax it is equally unclear whether they will ever be found liable for wholesale tax.
Mr. McDonald: I think this is a completely unnecessary section and I regret that it should be foisted on the public at the present time. Over the years the Revenue Commissioners have got off lightly by having turnover tax collected for them gratis. They will now operate the same system with this tax. This will cause great hardship on those who must collect and keep accounts for the Revenue Commissioners.
I think subsection (2) of this section takes the biscuit altogether. As far as the farming community are concerned, it is completely unpractical. It cannot possibly work.
I should like to ask the Minister how he expects the vast majority of the farming community who, in the main, do not keep any records and have not even the simplest from of a filing system, to accumulate records, invoices, receipts, accounts, vouchers, bank statements and other documents which relate to the delivery of goods of any kind by any person.
Mr. Colley: I do not expect them.
Mr. McDonald: How does he expect ordinary people to keep these records for six years?
Mr. Colley: They will not be registered persons and therefore will not have to keep records.
Mr. McDonald: What about a person other than an accountable person? The people who are not accountable persons are being asked to keep these accounts for six years. This takes in at least 200,000 large and small farmers. I would remind the Minister that at least 70 per cent of those 200,000 persons are farmers with less than 20 acres. They are people in  the very low income group. These people, heretofore, have not kept an accounting system. In any one county, the people who keep formal accounts can be counted on the fingers of one hand. In my own county there are only two groups who have responded to the efforts by the advisory services to introduce some type of accounting system for farmers. In the whole county there are less than 30 students out of 5,000 farmers. That does not mean that only 30 people keep accounts but nevertheless the Minister is setting himself an extraordinarily difficult task.
When one looks at the penalty meted out under section 26 one will realise that we are going too far altogether. If the Minister expects co-operation on the grand scale he is laying down in this legislation he is completely misjudging the situation. It is unfair and unjust in the extreme to expect elderly farmers to keep accounts. If the Minister looks at the figures of the last census of population issued by the Central Statistics Office he will observe that a high percentage of farmers consist of elderly and bachelor farmers. Most of them are over 55 or 60 years of age. How can we tell people at that age to introduce a book-keeping system and to keep files and store them for six years? It is an impractical suggestion.
When one looks at section 26 one observes that the penalty is £26 a day for each day that accounts are not kept. Every person in public life, whether he be a Member of the Oireachtas or of a local authority, knows that if one is asked to assist a farmer in filling in an ordinary form for an agricultural grant the farmer usually cannot lay hands on the latest rates demand notice which may be only a couple of months old. The keeping of documents, invoices and receipts has not been a tradition in rural Ireland. By imposing a penalty under this section the Minister is doing a grave injustice to those people. He will not be able to bulldoze the farming community overnight into a state of efficiency. I would like to see the farming community keeping exact records because it would help them to become more efficient but I deplore the fact that the Minister is compelling  them to do so with the big stick of severe penalties.
Mr. Russell: I think Senator McDonald made a very valid point but he could have cast his net a bit wider to bring in the trading community, which I have mentioned on more than one occasion. I am concerned about the small shopkeeper who sells around £6,000 worth of goods per year, which is a little over £100 a week, and whose business cannot be regarded as anything more than a huckster shop. According to this section:
every accountable person must keep such books, invoice, credit note, debit note, receipt, account, voucher or other document which has been issued by the person to another person. Any copy therefore which is in the power, possession or procurement of the person shall be retained in his power, possession or procurement for a period of six years from the date of the latest transaction to which the records or invoices or any of the other documents relate.
That is the accountable person. Then the non-accountable persons such as farmers, fishermen and shopkeepers selling under £6,000 worth of goods a year must keep all invoices issued to them in connection with the delivery of goods.
Apart from the impossibility of the farmer or the shopkeeper complying with that regulation, the next step taken against them is the likelihood of inspection. This gives an authorised officer of the Minister's Department very wide powers and the only comparison would be a police officer with a search warrant. The authorised officer can go right through the person's shop or dwellinghouse and look for receipts, inspect books, bank statements, invoices, credit notes, debit notes and every other document connected with the business. According to section 18 the shopkeeper or farmer concerned must co-operate; if he does not co-operate he will suffer very severe penalties.
The real problem in this section is, as Senator McDonald said, that the keeping of books by the farming community  is almost completely unknown except in the case of the larger farmers. It is equally unknown to the small shopkeeper whose accounting system, as the Minister probably knows, consists of putting the invoices on one hook and the receipts on another hook. That is usually the book-keeping system of many small shopkeepers. I believe it would be impossible for them to work this section and I hope the Minister will find some means of modifying it to make it workable.
Mr. Reynolds: Small shopkeepers will come under this if they have a turnover of £6,000 a year, which is approximately £100 a week. They are not voluntarily going into the scheme; they will be compelled by the Act itself. As Senator Russell has pointed out, their book-keeping system is very limited. Those people will have difficulty in making available to an inspector of the Revenue Commissioners any books, credit notes, debit notes, receipts, accounts, vouchers, bank statements or other documents. Even in bigger businesses which keep such records the question is: where will they get storage space for those documents for six years? It will create quite a problem for them. At the moment they are obliged to keep their documents, under the turnover tax system, for a five-year period. Those people know that they could use the space taken up in storing these documents for other equipment connected with their business but they are compelled by law to hold the documents for inspection. I would suggest that that period should be reduced substantially. I cannot see the reason why, unless the Minister in his reply can convince to the contrary, it is necessary to hold such documents for six years.
Mr. O'Higgins: The Minister intervened very briefly and, I am quite sure, bona fide to reassure Senator McDonald that it was not intended that farmers should have to keep these records. I looked down the section to see how that could be and because it seems to be clear that this section, as it stands, applies first under subsection  (1) to accountable persons and, secondly, to everyone else who is not an accountable person as defined by the Bill under subsection (2). The only possibility for excluding from the operation of this section the categories to which Senator McDonald and Senator Russell referred would be by bringing into play the machinery provided in the second paragraph of subsection (3). That would be an immense task. The paragraph I am referring to reads:
Provided that this section shall not require the retention of records... in respect of which the Revenue Commissioners notify the person concerned that retention is not required.
It appears to be an immense task to bring that particular portion of subsection (3) into operation because it does not apply to classes or categories of persons: it applies to individual persons. These individuals must be notified, as individuals, by the Revenue Commissioners that in their case it is not necessary to keep this record, that book, or such and such an invoice. In other words, as I interpret it—I may be wrong in this—there must be individual notification by the Revenue Commissioners to the persons concerned. I could see that if the situation were that, under subsection (3), the Revenue Commissioners could, by announcement directed to particular classes, exempt from the obligations of keeping records, the thing might be workable. As it stands, unless I am reading the section completely incorrectly, it seems that the net is so wide as to cover everyone. The consequences of that are exactly what Senator McDonald has said: if the farmer, whether big or small, or the small shopkeeper to whom Senator Russell referred, falls down on the job of keeping the records required to be kept under section 16, of keeping the invoices, the accounts and statements, et cetera, for a period of six years, he automatically becomes liable to have the penalties provided in section 26 imposed on him. The penalties are no mean penalties. As Senator McDonald has pointed out, they start off with an initial penalty of £20 and after that a  daily penalty of £20, as long as the omission continues. In the light of the remarks made by Senator McDonald and Senator Russell, anyone trying to look at the matter objectively and from an independent viewpoint would feel that what Senator McDonald and Senator Russell have said is quite right and, if this section goes through as it stands, it would be quite unworkable. It is not the business of the Oireachtas to pass legislation which is unworkable.
Mr. Colley: When I interjected during the course of Senator McDonald's remarks I said I did not expect the farmers, large or small, to produce, keep and maintain for six years accounts of their business. The remarks of Senator McDonald, and subsequently those of Senator O'Higgins, appear to suggest that they are under the impression that that is what this section requires. Of course it does not. I noted some of the phrases used by Senator McDonald. In relation to non-registered farmers, he talked about accounts, a book-keeping system and exhaustive files. Looking at the actual section it can be seen that the requirement in relation to such persons is only that they “shall keep all invoices issued to them in connection with the delivery of goods or of the rendering of services for the purpose of such business”. In other words, if somebody issues them with an invoice, they are to keep it. They can put it on a hook—just keep it. That is all they are being required to do. They are not required to keep accounts or exhaustive files. That is all the section requires them to do.
The same requirement applies to unregistered small shopkeepers to whom Senator Russell referred. The reason for this requirement is very simple. If we did not have this requirement people could escape liability simply by refusing to keep any records. It would be completely open to abuse. They did not keep any records, they had no liability and they would be committing no offence by not keeping any records. It is as simple as that. The requirement in relation to unregistered shopkeepers or unregistered  farmers is merely to keep the invoices which have been given to them.
Mr. O'Higgins: For how long?
Mr. Colley: Up to six years.
Mr. O'Higgins: Then subsection (3) relates to subsection (2) of the period of six years, because subsection (2) says nothing about six years.
Mr. Colley: I do not understand the Senator's point.
Mr. O'Higgins: I took it that the Minister is making the point that the only subsection that applies to the small farmers or small shopkeepers is subsection (2), which requires merely the keeping of an invoice.
Mr. Colley: What I said was that the only requirement imposed on an unregistered farmer or shopkeeper was the one of keeping invoices issued to him. At one stage Senator McDonald made this point, that in subsection (2) this was where the requirement in relation to an non-accountable person existed. The requirements imposed on an accountable person are mentioned in subsection (1), and indirectly in subsection (3). The fact that the six years could apply to the non-accountable persons does not impose an obligation on them, additionally, to keep any records other than the invoices issued to them. That is the only obligation on them.
As far as farmers are concerned, many of them—indeed it may well be the majority of them—will in the course of their business be erecting farm buildings and will become subject to tax on the elements involved in that. They will be entitled to get a refund of the total amount of tax they have suffered in the farm buildings. In order to get it they will, of course, have to apply and, if they apply, they will have to produce their invoices to show the amount of tax they have suffered. Therefore, it is in their interests to keep accounts. If it is just a case of leaving a hook on the wall and shoving every invoice they get in connection with value-added tax on to that hook, that does not seem to me to be an undue imposition on anybody,  be he a farmer or a small shopkeeper. It does not require him to produce an elaborate accounting system or book-keeping. It just asks him to hold on——
Mr. Alexis FitzGerald: It will add to the number of hooks in the country.
Mr. Colley: I think Senator FitzGerald is getting the idea. In regard to the requirements of registered persons, they are somewhat more onerous, as one would expect. By being registered, these people are enabled to recover in full any tax which they have suffered. It is necessary therefore to have an accurate record of what tax they did suffer and what tax they should be allowed, either by refund from the Revenue Commissioners or by way of set-off against their liability. Under subsection (1), they are required to keep full and true records of all transactions which affect or may affect their liability to tax.
In regard to subsection (3) it might be thought on a first reading that they are required to keep all of the items mentioned. That is not what it says. What it says is:
Records and invoices kept by a person pursuant to this section and any books, credit notes,
and so on with that list, which are kept by him—
...and are in the power, possession or procurement of the person...
In other words, the only specific requirement is——
Mr. O'Higgins: It says:
any books... whatsoever relate to the delivery.
Mr. Colley: Yes, but if they do not have them or do not have power of control in their possession, it does not impose on them an obligation to have all the things that are listed here. The only obligation imposed on them as regards the kind of record they keep, is contained in the following:
such records as will give a full and true record of all transactions which affect, or may affect their liability to tax.
 Under subsection (3) all kinds of documents are listed which may be in existence, or which the person may have, or which are in his possession, power or procurement. In relation to those, he has got to make them available for inspection. It does not say that he is obliged to keep records of this kind. If he complies with subsection (1) that is his obligation as regards the kind of records he has to keep. It will be seen that the obligations on a registered person are not as onerous as might appear and are similar to those at present imposed on people under turnover and wholesale tax. As regards non-registered persons, the only requirement is to hold on to the invoices which are issued to him.
As regards the time involved, at the moment there is a requirement to keep them for six years. The provision in the second paragraph of subsection (3) is for businesses for whom it would be impossible to hold on to records for six years. On application to the Revenue Commissioners they can be given permission to keep their records for less than six years. It is not a question of the Revenue Commissioners issuing word to a particular group or class of people but if people applied to them the Revenue Commissioners would have power to modify this requirement.
Mr. Russell: Why six years? That seems a long period.
Mr. Colley: It is the existing period. If anybody finds difficulty in complying with this requirement he will find the Revenue Commissioners prepared to facilitate him, provided he is acting bona fide. If he is not acting bona fide he will not find the Revenue Commissioners co-operative. The vast majority of taxpayers are bona fide and we should not forget that. It is because the majority of taxpayers are bona fide that we have all the greater obligation to ensure that the minority who are not do not evade tax.
Mr. Russell: You are asking the vast majority, 95 per cent, to facilitate the 5 per cent who are not complying at present.
Mr. Colley: Anybody who has a particular problem will be able to get accommodation from the Revenue Commissioners.
Mr. O'Higgins: Could I ask the Minister to clarify this? The Minister obviously knows what is intended under this section. I have no doubt his interpretation is correct. After listening to Senator McDonald and Senator Russell, I believed the points they raised were valid. The Minister has eased my anxiety, to some extent, by spelling out what is required in subsection (2), but I am still a bit uncertain as to what is required under subsection (3) of this section. It is clear what the requirement under subsection (2) is. It is for:
every person, other than an accountable person, who delivers goods in the course of business or renders services...
The requirement there is to keep all invoices issued to him. There is no dispute about that. I understood the Minister was making the case that the list of documents which are set out in subsection (3) has nothing to do with that and that all that was required was a “hook” long enough to take invoices for a period of six years and that you then complied with section 16. Subsection (3) reads:
...records and invoices kept by a person, pursuant to this section....
That seems to me to apply either to a person who keeps records under subsection (1) or who keeps invoices under subsection (2). The subsection reads:
...records and invoices kept by a person, pursuant to this section and any books, credit notes, debit notes, receipts, accounts, vouchers, bank statements or other documents whatsoever which relate to the delivery of goods by the person.
Is there any reason why that does not apply to the person who delivers goods referred to in subsection (2)? I would have assumed that the reference here to the delivery of goods by the person is equally applicable to the person who has delivered goods and obtained an invoice under subsection (2). It seems to me that Senator McDonald and  Senator Russell are correct in thinking that the small farmer or small shopkeeper has an obligation under subsection (3):
...to retain any books, credit notes, debit notes, receipts, accounts...
Mr. Colley: Excuse me, that is not the case Senator McDonald made. I do not want to deflect the Senator, but he will recall that Senator McDonald made the case that small farmers were obliged to keep accounts, a book-keeping system and exhaustive files. That is not the case Senator O'Higgins is making, or is it?
Mr. O'Higgins: No, this may clarify the position for me. There is no mention of an accounting system here. Am I right in thinking that any of these other documents, whether by a credit note, debit note or an account, must be kept for six years, and that copies must be kept in certain cases? To me it is not an excuse to say “possession of procurement was in my power but it no longer is”, because the period of six years commences from the moment possession of procurement comes into a person's power. The period of six years starts from then, so that getting rid of one of the documents does not help a person.
Mr. Russell: It is quite clear from section 16 (1) that a set of accounts must be kept.
Mr. Colley: By an accountable person.
Mr. Russell: Yes, they must keep records. The books and so on itemised in section 3 would exclude some of the books normally kept in the accounting system. We should face up to the issue that an accountable person must keep an adequate set of accounts or books in conjunction with his business. There is no question of his doing away with a credit ledger or debtors' ledger or a bank lodgment book. He must keep a set of books. It would be misleading to say that he need not keep certain books. If he keeps a set of books, as understood by any accountancy practice, he must keep a complete set for inspection for six years unless he gets permission  from the Revenue Commissioners to destroy them after four or five years.
An accountable person in the case of a shopkeeper is one who sells £6,001 worth of goods and over per year. Many of those people are not in a position to keep books. Many of them are what we call “man and wife” shops or shops run by one person. It could be a severe strain on these people, but under that section there is no way out of it. I suggested earlier to raise the limit to exclude a greater number of these people from the necessity of keeping what can, for a small trader, be quite difficult records.
Dr. West: I take the Minister's point that small farmers and shopkeepers have only to keep the receipts involved. For a large section of the farming community whom I know, this will be a new departure. I suggest to the Minister when this tax is launched he should simultaneously, or some time before, launch a campaign to explain this vital point to the community especially to those who are not used to keeping full records. In doing this, some of the other difficulties involved could also be explained.
Mr. McDonald: I accept the spirit in which the Minister looks at this. When some unfortunate person, whether a shopkeeper or farmer, finds himself standing before a Circuit Court judge, will his lordship look up the spoken record of what was stated by the Minister here tonight or will he be guided by what is in the Act before him? It is likely he will be guided by the Act and so it is a pity the Minister did not state exactly——
Mr. Colley: It states it precisely that he must keep all invoices issued to him.
Mr. McDonald: If what the Minister states is true, why did the draftsman not write into subsection (3) “records and invoices kept by a person pursuant to subsection (1) of this section”? He included the entire section. It can be read either way and there is a danger there. The Minister over-simplified it. It is not just a matter of getting one “hook”. If he  were to take that attitude he would need at least six “hooks”, one for each year.
Mr. Colley: That would be an undue imposition over the six-year period.
Mr. McDonald: The Minister has told the House that every item will come under value-added tax. For the least purchase the consumer can expect to have an invoice or receipt, and I should imagine a billhead will go with it. The amount of material will be great. These things will not last for six years, they will blow all over the place. I would be happy if the Minister would remove this section from the influence of section 26. A Circuit Court judge would have no option but to impose the penalties as set out in section 26.
Mr. Colley: Regarding Senator West's point, there will be publicity given to this and other appropriate matters arising out of this Bill after its enactment. Senator McDonald is mistaken in thinking that the penalties would apply automatically. They would have to be sued for, and liability established in court. It is not a question of a penalty being applied because the Revenue Commissioners “are of opinion”.
Mr. McDonald: This section is quite clear.
Mr. Colley: Which section?
Mr. McDonald: Section 26 stipulates the actual sections and penalties. If a person cannot produce the invoices there is a definite case against him in the sixth year.
Mr. Colley: This would be a question for the courts and not the Revenue Commissioners, as to whether a person was guilty of an offence under this section. This brings in factors other than the mere presence or absence of records. At this stage I will not pursue that aspect of the matter. Subsection (2) is quite clear regarding the onus it puts on non-accountable persons such as small farmers and small shopkeepers who are not registered. It reads: “They shall keep all invoices issued to them.”
 The provisions in subsection (3), and many of the things listed, could not under any circumstances be deemed to be invoices or part of invoices. I read subsection (3) as meaning that in the case of either a registered or a non-registered person, if he happens to have any of these things mentioned, he has the obligation to produce them. There is no obligation imposed under this section on anybody to keep records of the kind mentioned in subsection (3). The obligation in the case of non-registered persons is to keep all invoices issued to them. In the case of registered persons, it is to keep full and true records of all transactions which affect or may affect their liability to tax. This means for many small shopkeepers a record of their sales and purchases, and very little else. This is a precautionary measure and is so for the simple reason, as I mentioned earlier, that without this provision people could evade all liability by refusing to keep records.
Dr. West: Even though the Minister states this is a precautionary measure, we all foresee difficulties at the time of the introduction of value-added tax. Even with a campaign to educate the general public there will be problems in the operation of this tax. I hope the Revenue Commissioners and the Minister will look leniently on the people, at least in the early stages in their compliance with these sections. Education at that early stage is much more important than the imposition of penalties on certain unfortunate people who may be caught by bad luck.
Mr. Colley: I can give complete and unreserved assurance to that effect.
Question put and agreed to.
Question proposed: “That section 17 stand part of the Bill.”
Mr. Reynolds: Does section 17 (5) clearly indicate that tax must be added on when the invoice is being issued?
Mr. Colley: Would the Senator elaborate on that point?
Mr. Reynolds: To develop the point, let us suppose a person enters a retail shop, purchases some item that is carrying tax at the rate of 5.26 per cent to the value of £100, is it sufficient to add 5.26 per cent on the invoice? Can he embody it in the costings?
Mr. Colley: In each of the separate items? I understand what the Senator means.
Mr. Reynolds: If the answer is yes, it will present an awful problem.
Mr. Colley: The position is that it is open to the trader to do it either on the total or in relation to each separate item of the invoice. I am not sure if this is relevant to the point raised by the Senator.
Mr. Reynolds: I do not wish to interrupt, but I should like to simplify the point. Whether one, two or three items are involved, must the tax be kept separately on the invoice for each item?
Mr. Colley: No. It can be done either way.
Mr. Reynolds: The tax cannot be embodied in the costing?
Mr. Colley: Does the Senator mean: can an invoice be issued for a particular sum which is the total amount the person is going to pay because it includes the tax?
Mr. Reynolds: Yes.
Mr. Colley: This can be done in the case of an unregistered person, but in the case of a registered person an invoice issued to him must show the tax separately.
Mr. Reynolds: Ninety per cent of the people in rural areas embodied the wholesale and turnover taxes at the costing. Where an item was carrying 5 per cent TOT and cost £5, they added 5 per cent to that figure to get their costing. What will the position of that merchant be when value-added tax is introduced?
Mr. Colley: Exactly the same as at present, if he wishes it to be.
Mr. Reynolds: That cannot be, because he has to give invoices for other people to get refunds.
Mr. Colley: Is the Senator speaking about the shelf price, or what he shows in his accounts?
Mr. Reynolds: It is the same price.
Mr. Colley: No. He can show the shelf price if he wishes, including the tax. He may well be compelled to do so, not under this legislation but under the Prices Bill. The question of claiming a refund is a separate matter. It has nothing to do with the customer. That is one of the reasons why the invoice he receives has to show the tax involved separately. When he claims a refund of tax, he produces this invoice and knows immediately how much tax he has paid on those goods.
Mr. Reynolds: But if he sells building materials to a farmer who will be applying to the Revenue Commissioners for a refund under a farm building scheme, he must show the tax on the various items.
Mr. Colley: That is correct.
Mr. Reynolds: In that case, what will happen at the change-over period? For example, nails carry both taxes and he has them costed in as carrying both taxes. He then retails them at a given price and has to add the value-added tax.
Mr. Colley: Is the Senator speaking about the actual stocks on hand?
Mr. Reynolds: Yes, this is the danger.
Mr. Colley: That arises under section 34 of the Bill. He will be able to get a refund of the tax he has paid.
Mr. Reynolds: It will arise anyway and is going to create an awkward situation.
Mr. Colley: No, it is all worked out.
Question put and agreed to.
Question proposed: “That section 18 stand part of the Bill.”
Mr. McDonald: Section 18 (1) states:
An authorised officer may, for the purpose of making any inquiry which he considers necessary in relation to liability to tax of any person, enter any premises in which the officer has reason to believe that such person is carrying on business and the officer may request the production of, search for and inspect any books, invoices, credit notes, debit notes, receipts, accounts, bank statements, vouchers or other documents whatsoever relating to the delivery of goods or the rendering of services and may remove and retain any such books, invoices, credit notes, debit notes, receipts, accounts, vouchers, bank statements or other documents for such period as may be reasonable for their examination or for the purpose of proceedings for the recovery of a penalty under this Act.
Can the Minister give the same assurance in regard to this section as he did in relation to section 16 (3) where the small business person or small farmer is concerned? The two sections are similar. This section also carries a penalty.
Mr. Alexis FitzGerald: Even more important is the fact that every Irish-man's home is his castle. It is not even limited to an accountable person. It refers to every person, accountable or not, who is carrying on a business.
Mr. McDonald: A business as defined in section 1——
Mr. Alexis FitzGerald: The whole of Éire is open to the Revenue Commissioners.
Mr. Colley: It is true it is not limited to accountable persons. This is necessary. It might well be necessary to establish whether or not a person was accountable. I could not do this without the necessary information. I can give an undertaking that the powers involved in this section will not be used by the Revenue Commissioners in cases where it is clear to them that any problems that have arisen are due to simply a lack of knowledge on the part of the people concerned  and that it does not arise out of lack of good faith on the part of such persons. There is a considerable difference between this section and section 16.
I would assume that in the main section 18 would not be operated at all except in cases in which the Revenue Commissioners had good reason to believe that they were matters which required investigation by them and, in order to be investigated, required them to enter on premises, make inspection and if necessary take away certain records. There is a difference between the two sections and, subject to that difference and on the basis which I have outlined, I can give the undertaking mentioned.
Mr. Alexis FitzGerald: To ensure that all his successors will comply with it, can the Minister have it amended to limit it to accountable persons?
Mr. Colley: No. It would leave loopholes.
Mr. McDonald: If, as the Minister told us, subsection (3) applies only to accountable persons, then how does subsection (1) apply to persons who are not accountable? It is the same list of books, invoices, credit notes and so on, in the main, that are concerned.
Mr. Colley: Section 18 involves action by the Revenue Commissioners. Section 16 involves the retention of records by taxpayers. There is quite a difference.
Mr. McDonald: The Minister said when dealing with section 16 that subsection (3) did not apply to persons who are not accountable persons.
Mr. Colley: That is not what I said.
Mr. McDonald: An officer of the Revenue Commissioners can come in and request production of these things specified in subsection (3). If they are not forthcoming, they can go in and search for them. The two are not compatible.
Question put and agreed to.
 SECTION 19.
Question proposed: “That section 19 stand part of the Bill.”
Mr. Alexis FitzGerald: When is an invoice to be issued? Fortunately, I was not here for the debate on section 17, but as I read it I do not see any provision for a time of issue. If there is not a time of issue, what is issued in due time and when is it that that invoice should have been issued?
Mr. Colley: It is intended to prescribe by regulation that this will be within ten days after the end of the month during which the delivery took place.
Mr. Alexis FitzGerald: That is provided for in section 32 (1) paragraph 5.
Mr. Colley: Yes, that is correct.
Question put and agreed to.
Question proposed: “That section 20 stand part of the Bill.”
Mr. Alexis FitzGerald: The section says that the Revenue Commissioners may refund the excess. Should they not be obliged to refund the excess and to include in the excess any interest paid? My second point is, while I am entirely satisfied and approve of the provisions with regard to the blind, why is this limited to the blind? There are lots of other disabled persons who could be beneficiaries of the subsection. Perhaps that is for future legislation.
Mr. Colley: They can be dealt with under ministerial orders. In reply to Senator FitzGerald's first question, I am advised that “may” means “shall” in this context.
Mr. Alexis FitzGerald: At this time of night I am inclined to believe the Minister.
Mr. McDonald: I should like to ask the Minister here about the refund of taxes. It says that the Revenue Commissioners may include any interest which has been paid under section 21  in the amount refunded. Will the Minister agree to pay in cases where the Revenue Commissioners are rather slow to agree to pay? Are the Commissioners empowered to include in their refund a similar amount in interest, that is, 1 per cent for each month that they delay in paying the refund back to the taxpayer?
Mr. Colley: No. The only provision is for refund of interest which might have been paid by the taxpayer. There are provisions of the kind mentioned by the Senator in regard to income tax and sur-tax, but the considerations involved are different and lead to a situation where we do not provide for interest or payments of that kind in regard to value-added tax.
Question put and agreed to.
Question proposed: “That section 21 stand part of the Bill.”
Mr. Alexis FitzGerald: Is the interest here, if payable, deductible as a matter of expense in the other tax returns of the taxpayer?
Mr. Colley: Yes, it is.
Question put and agreed to.
Sections 22 to 25, inclusive, agreed to.
Question proposed: “That section 26 stand part of the Bill.”
Mr. McDonald: I think that the penalties here as set out in this section are altogether too harsh, especially regarding the penalty of £20 for each day on which there is a continuity of the offence being committed. In cases where persons are just unable to find the invoices or the documents concerned that this is too severe. The Minister is not making any allowance for people on the lower rungs of the ladder who may find themselves in conflict with the law through indolence or ignorance. I should like to see a less severe section, or to have the penalty subsection deleted altogether.
Dr. West: I wish to support Senator McDonald. I should like to ask the Minister about the phrase, in subsection (1), which stipulates a £20 penalty together with, in the case of continuing non-compliance, a penalty of a like amount for every day for which the non-compliance continues.
I presume that if a farmer loses an invoice he is liable to a penalty for losing that invoice but the penalty is for that time only. If this invoice turns up some months later would it make him liable, at most, for a penalty of £20 and for no other day in the period? Also if a farmer loses two invoices on two separate days, as far as I understand it, he is liable for a penalty of £40 but nothing for the intervening period.
I do not know if we have much legislation which penalises somebody for losing something; therefore, I am not sure if this type of clause has come up in a case before the courts. I should like the Minister to say how this will be applied.
Mr. Crinion: I should like to speak against what Senator McDonald has said in that the penalty is too heavy. This Bill must be given some teeth. From our experience in the courts, how rarely does a first or second offender get anything near the maximum penalty for which a Bill provides? This penalty is intended for the persons who is consistently failing to keep records.
Mr. Colley: Just to add to what Senator Crinion has said, there is no point in having all these elaborate provisions if you do not have some penalty to deal with people who are trying to avoid their obligations. To imagine that somebody who inadvertently loses an invoice will, in the first place, be prosecuted at the instance of the Revenue Commissioners and in the second place be subjected to the maximum fine under this section by the courts, is stretching the imagination too far. I would expect any court, on being satisfied that there had been a breach of one of these sections, but that there was no real intention to defraud the Revenue, would be inclined to apply the Probation Act.
 The Revenue Commissioners are not going to waste their own time and the taxpayers' money by prosecuting people frivolously under this section. The only kind of situation in which there would be a prosecution would be where it appeared to the Revenue Commissioners that there is a deliberate attempt to evade liability or to aid and abet in its evasion. It is a matter for the court to decide whether it is of this nature. If the court is not so satisfied, the Probation Act would be applied.
Mr. McDonald: Listening to the Minister one would think that the Revenue Commissioners were all saints complete with haloes. When one picks up the local papers week after week and finds the Revenue Commissioners prosecuting farmers for using marked diesel in tractors taxed at the rate of £2.50, despite the fact that that seems to be the law, I cannot see from where all these reasonable Revenue Commissioners come.
Mr. Colley: Surely the Senator is not suggesting that these people should not be prosecuted? If they are not prosecuted why should any of the rest of us use anything other than red diesel?
Mr. McDonald: I mean using red diesel in tractors taxed for agricultural purposes. They are doing this in several counties. It all depends on what county you live in as to whether you will be able to do this.
Mr. Crinion: It is the Land Rovers that are evading the tax. They should be paying a higher rate.
Mr. McDonald: I should like the Minister to explain subsection (2) for me.
Mr. Colley: This subsection provides a penalty for an unregistered person who issues an invoice showing tax in such a way that the receipient would be entitled to claim tax either by credit or refund.
Question put and agreed to.
Question proposed: “That section 27 stand part of the Bill.”
Mr. Alexis FitzGerald: I am concerned about the responsibility of a personal representative under subsection (3) of this section. Has the duty of a personal representative become so enlarged that he must infer correctly with regard to whether invoices are correct or not? Is he then in trouble if he makes the wrong inference? What is the obligation of the personal representative on such a matter?
Mr. Colley: It does not impose an obligation on the personal representative. It only says that: “If it comes to his notice” then there is an obligation. I cannot believe that any court would interpret that phrase as meaning that the personal representative should have found the error in the documents. I could not believe that any court could interpret that as meaning: “The documents were there and you should have known it.”
Mr. Alexis FitzGerald: I hope the Minister is right.
Mr. Colley: I would assume on the normal interpretation of statutes of this kind that, in effect, the onus would be to show that there was something far more active than simply that the information was there but that it actually came to the notice of the personal representative.
Question put and agreed to.
Question proposed: “That section 28 stand part of the Bill.”
Mr. Alexis FitzGerald: Does this mean that someone who, for example, types out an invoice which is incorrect is liable to a penalty of £500? It would be the price of her job if she tried to do anything about it.
Mr. Colley: I do not believe that a typist in such circumstances would be liable under this section but, as the Senator knows very well, this would also be a matter for interpretation by the courts. I would assume that the courts would require some degree of active complicity before there would be any question of conviction in a case  of this kind but I cannot purport to give any authoritative interpretation of this section.
Question put and agreed to.
Sections 29 to 31, inclusive, agreed to.
Question proposed: “That section 32 stand part of the Bill.”
Mr. Alexis FitzGerald: I take it that these regulations must all be made before the specified date?
Mr. Colley: There is a continuing power to make regulations.
Mr. Alexis FitzGerald: But they would be concerning those appropriate persons?
Mr. Colley: That is right.
Question put and agreed to.
Section 33 agreed to.
Question proposed: “That section 34 stand part of the Bill.”
Mr. Alexis FitzGerald: Could the Minister give a short summary of the position of stock which is held by various people in relation to wholesale and turnover taxes paid on it?
Mr. Colley: The stock-in-trade held on the specified day will be chargeable with value-added tax on delivery and there would be double taxation if it had already borne turnover tax or wholesale tax on purchase by the person accountable. A claim for the appropriate relief must be made and the necessary adjustment will be made in the second and third taxable periods. The persons entitled to credit or repayment will be, generally speaking, retailers registered for turnover tax whose stock-in-trade includes goods which they bought at prices including wholesale tax. Secondly, persons such as building contractors who are not required to register for turnover tax or wholesale tax but who will be registered for value-added tax and who hold stock on which turnover tax  and wholesale tax has been paid will also be entitled to credit or repayment. The relief will cover goods in stock for resale, work in progress, materials held for incorporation in the manufacture of finished goods for resale and consumable materials held for use in constructing, repairing or decorating premises.
Ruairí Brugha: Could the Minister say what the position is on stock held to which wholesale tax did not apply?
Mr. Colley: Does the Senator mean stock which would have been liable, in the normal way, to wholesale tax?
Ruairí Brugha: No, it would not be. This is at the appointed day. You will have huge stocks all over the country in different firms.
Mr. Colley: Stocks of what kind?
Ruairí Brugha: Which would not have a value-added tax. Now you are going to have a 5.26 per cent value-added tax coming forward.
Mr. Colley: I do not follow. Could the Senator give me an example of the kind of situation he envisages?
Ruairí Brugha: Value-added tax on any commodity which is not subject to turnover tax, on a whole range of goods which does not necessarily carry wholesale tax. Under value-added tax, as it will be applied, the 5.26 value-added tax will come in gradually. It will not be a turnover tax. It seems that there will be concerns carrying very large quantities of stock to which value-added tax cannot have applied up to date and to which turnover tax would apply normally. Are they subject to any form of value-added tax or will the Revenue Commissioners allow the normal turnover tax system in a value-added tax of 5.26 per cent on sales?
Mr. Colley: These would be goods which, on the appointed day, had not been subject——
Ruairí Brugha: Are on hands.
Mr. Colley: ——and had not been subjected to any tax. Thereafter, in the  course of sale, they would normally be liable to 5.26 per cent.
Ruairí Brugha: When sold, yes.
Mr. Colley: I cannot see what is wrong with that situation that they would continue——
Ruairí Brugha: Let us take two years after the appointed day. By that time tax will have been paid from the manufacturing process through and collected back if necessary. Are the Revenue Commissioners going to take the view that the tax should have been paid on stocks?
Mr. Colley: No. I see what the Senator means.
Ruairí Brugha: It is only a technical point because the tax could be reclaimed.
Mr. Colley: They would only be liable to the 5.26 per cent. There would be no question of going back retrospectively and making them liable to the earlier levels.
Question put and agreed to.
Sections 35 to 39, inclusive, agreed to.
Question proposed: “That section 40 stand part of the Bill.”
Mr. Alexis FitzGerald: Is it not odd to include betting tax?
Mr. Colley: I agree. It arises because we must increase excise duty from 10 to 15 per cent. We are abolishing turnover tax, for which the value-added tax is substituted.
Mr. Crinion: Betting can be classed as a luxury.
Mr. Colley: I do not think Senator FitzGerald is objecting to it.
Question put and agreed to.
Sections 41 to 44, inclusive, agreed to.
Question proposed: “That the First Schedule be the First Schedule to the Bill.”
Dr. West: I would like to ask the Minister whether a case cannot be made in respect of particular educational charities. I believe that in Britain there have been concessions to charities in the British value-added tax system, such as allowing the charities to spring up into their separate organisations for the purposes of reducing the level of taxation. I ask the Minister to consider transferring section 10 and the services listed under section 9, hospitals, nursing-homes, schools and similar establishments, from being exempted activities to the Second Schedule and, thereby, a zero rating. Under this First Schedule they will suffer certain disabilities which they do not suffer at the moment and they would be considerably better off coming under the Second Schedule.
Mr. Colley: What kind of disabilities does the Senator think they will suffer from which they do not suffer at the moment?
Dr. West: I have not worked this out in detail. However, I believe in the case of schools, colleges and universities they have exemptions on other items, rather than just the basic services which are mentioned in section 9. The actual example I have involves the purchase of scientific equipment for research which comes in the Third Schedule. Equipment which schools or universities buy for laboratories for scientific research is not mentioned in any of these schedules. Therefore, it is taxable at the rate of 16 per cent. I should like to have it reduced and to have it included in the Third Schedule. This is not actually the point I am making on this First Schedule. I should like the Minister to examine the case of educational charities and their position in the First Schedule.
Mr. Colley: The liability under value-added tax would be the same as the liability under the existing turnover and wholesale taxes. As I said earlier, I do not wish to change from that where I can avoid it, for the reasons I set out earlier.
Dr. West: But equipment of that nature was exempt from wholesale tax — if it was for research purposes.
Mr. Colley: There is no exemption of that kind from wholesale tax.
Dr. West: Some of the equipment I am referring to is mentioned in the Third Schedule, paragraph (e) of clause (xvii). The equipment mentioned there, coming under the 5.26 rate, is:
... of a kind used solely in professional practice either to make a diagnosis or to prevent or treat an illness or to operate.
I had hoped that equipment used for research of this nature would be included at the 5.26 rate in the Third Schedule.
Mr. Colley: The equipment to which the Senator is referring is not being changed as regards liability for tax under the value-added tax system. Therefore, I could not agree to a change. It might be possible at some future time but not on the introduction of value-added tax.
Dr. West: Unfortunately, I have not got the exact details that I would wish to have. If I find an anomaly I will write to the Minister and let him know what it is.
Question put and agreed to.
Question proposed: “That the Second Schedule be the Second Schedule to the Bill.”
Mr. Russell: Regarding subsection (vii), I am not clear what the rate of tax is on feeding stuffs:“... designated for the use of dogs, cats, cage birds or domestic pets.”
Mr. Colley: The pet foods are at the rate of 16.37 per cent.
Mr. Russell: In a certain size packet. Subsection (vii) (a) states:
which is delivered in units of not less than 10 kilograms and is not packaged, sold or otherwise designated for the use of dogs, cats, cage birds or domestic pets.
Mr. Colley: I think the Senator is referring to animal feeding stuffs, which are non-pet foods. The animal feeding  stuffs which are sold in sizes at or exceeding those specified in the Schedule are zero rated. Animal feeding stuffs sold in smaller quantities are subject to the 5.26 per cent rate. Pet foods are subject to the 16.37 per cent rate.
Question put and agreed to.
Question proposed: “That the Third Schedule be the Third Schedule to the Bill.”
Mr. Flanagan: In this connection I want to refer to tar, asphalt, bitumen and pitch. For road making and surface dressing, at the moment, an additive is added to enable materials to be used in damp or wet weather. That additive is generally imported from Sweden or France and used by the local authorities if they are manufacturing their own surface dressing materials, or otherwise used by some of the bigger companies who do surface dressing by contract. At the moment the additive is subject to wholesale and turnover tax. It is listed in the Third Schedule at 5.26 per cent. What rate will it be liable to?
Mr. Colley: The additive would be liable to 16.37 per cent, which is lower than wholesale tax plus turnover tax. However, I should point out that a local authority are entitled to recover all of the tax they suffer including this tax on the additive used in road making.
Mr. Flanagan: Have they not got this facility at the moment?
Mr. Colley: No. this will be one of their advantages from value-added tax.
Mrs. Farrell: I would like to ask a question about clothing. Up to now, manufacturers of clothing were not subject to wholesale tax. Now clothing, fabric and yarn are subject to value-added tax. Can that tax be passed along by getting the same rebate as others can get?
Mr. Colley: I would like to make it clear that there is no change in the incidence of the taxation. Where turnover tax only applies at the moment in  this field, 5.26 per cent value-added tax will apply; where the lower wholesale tax, which is 10 per cent plus turnover tax at 5 per cent, applies at the moment, 16.36 value-added tax will apply. There is no change there.
In so far as it applies, a credit passed on may be claimed against liability or, if necessary, if the amount that a person claims for credit exceeds the liability, there can be a refund from the Revenue Commissioners.
Mr. McDonald: I would like to ask the Minister a few questions. I am disappointed that wool is included in the Third Schedule because wool has been at a bad price for the last few years. The entire wool industry is finding it difficult to cope because of competition from the synthetic fibres.
I regret that newspapers and school books were not included in the Second Schedule. I would be greateful if the Minister would clarify the position regarding medicines. Where is the dividing line between those charged at 5.26 per cent and those charged at 16.37 per cent? In this particular field there will be difficulties for retail chemists. The Minister might be able to elaborate on the dividing line.
Mr. Colley: We are not changing the incidence of taxation on wool or medicines. There is a marginal change being made whereby items such as insecticides, medicated detergents, shampoos and so on will be rated at 16.37 per cent. At the moment they are liable only for turnover tax and this has presented a number of problems, because as the Senator said, where does one draw the line. This is not a complete answer to the problem. There is no ideal answer but this will be a more rational approach in so far as these particular kinds of items would appear to be more appropriate to goods which are liable to turnover tax and the lower wholesale rate rather than to medicines subject only to turnover tax.
One change we are making here is to reduce the incidence of taxation on newspapers and periodicals, effectively taking the wholesale tax off and leaving them liable only to turnover tax. That is the effect of that is being done in value-added tax terms.
Dr. West: I welcome this change for newspapers and periodicals from 16.37 per cent to 5.26 per cent, but I am disappointed that the Minister was not bolder and that he did not go the whole hog and zero rate printed books, booklets, newspapers and periodicals. So far as books are concerned, this has been done in other EEC countries. I hope we will get around to getting them a zero rating in the near future.
I would like to ask the Minister about one difficult point which I raised previously in connection with wholesale tax or turnover tax. This concerns material of a printed and scientific nature coming in by exchange.
The specific example I have in mind is that of the Royal Irish Academy who produce a journal which is well known and circulated all over the world and in exchange for that journal they receive the proceedings of other societies from the entire academic world. We would not be able to purchase one-tenth of these. We get them by exchange and I hope the Minister will ensure that these journals and similar ones coming in by exchange are exempted from any further tax. It seems ridiculous that something which comes in by exchange for something we send out should be taxed.
Mr. Colley: It is necessary for administrative reasons to apply tax at importation. I have made arrangements whereby this tax can be recovered. I have gone as far as I can without creating a number of problems particularly for people whose livelihood is dependent on ensuring there is not an advantage for imported books as against those produced at home. I also have regard to the other desirable aspects of facilitating the importations of the kind mentioned by Senator West. The arrangements which I announced some time ago are as far as I can go.
I should like to assure Senator West that while I am Minister for Finance there will be no situation arising in which newspapers and periodicals are zero rated while essential foodstuffs are subject to 5.26 per cent.
Senators: Hear, hear.
Dr. West: The Minister has made concessions as far as the special importation I described arises. Do I understand him correctly in that the arrangements that now apply under the turnover tax will apply similarly to these items coming in so far as recovery of tax is concerned?
Mr. Colley: Under value-added tax? Yes.
Mr. Farrelly: The Minister has made the case that since we must tax foodstuffs, why should periodicals and newspapers be exempt? Provincial newspapers will go by the board if the Minister insists on applying value-added tax. It is not a good argument to say if we must tax foodstuffs, we must also tax newspapers. In my view, this is a tax on education.
Mr. Colley: The position of newspapers and periodicals is being improved substantially under value-added tax. The wholesale tax is being taken off. Under no circumstances would I, as Minister for Finance, attempt to justify taking tax off newspapers and periodicals while, at the same time, taxing essential foodstuffs.
Mr. McDonald: The Minister should tax those and take it off foodstuffs.
Mr. Colley: We dealt with that earlier.
Question put and agreed to.
Question proposed: “That the Fourth Schedule be the Fourth Schedule to the Bill.”
Mr. Alexis FitzGerald: Are cassettes and tapes included here?
Mr. Colley: It does not include either of these. They would be at the 16.37 rate.
Question put and agreed to.
Fifth Schedule agreed to.
Title agreed to.
Bill reported without recommendation and received for final consideration.
 Question proposed: “That the Bill do now pass.”
Mr. Russell: I should like to compliment the Minister. He had a difficult session in the other House and has had a number of important duties to attend to as a Minister of State, both inside and outside the country. We should not finish without thanking him for the manner in which he received the various points raised here tonight. He did not give us complete satisfaction but that would be asking too much.
It is proposed to bring the Act into effect on the 1st November next. It was suggested in the Dáil that it should be postponed again but the Minister has resisted that suggestion. I ask him to reconsider it. November 1st is a most inappropriate time to bring in a Bill of this kind. It is the pre-stocking up period for stores and business premises for the Christmas trade. It will present the commercial and business community with another problem on top of the many other problems with which they must contend.
Our friends in Great Britain are not introducing value-added tax until April, 1973, I think. A more appropriate time for us would be after the busy Christmas period when the business community will have more time to devote to complicated legislation of this kind. The Minister and his advisers may think the small shopkeepers and farmers will have no trouble in applying these laws, but I can assure him, speaking as one with some knowledge of the business world, there will be difficulties. I would ask the Minister to defer it until the new year when business would be slacker and the business community would have a better opportunity to become accustomed to this new legislation.
Mr. Alexis FitzGerald: I should like to make one general remark on this Bill. The parliamentary draftsman should study closely the report of today's proceedings in the Seanad. I would suggest that in future when he is drafting a Bill he should put the most difficult sections at the end. We are all feeling tired and might be here for breakfast.
Mr. Colley: I do not wish to delay the House but in regard to the question of the date, If it is not 1st November this year it will have to be 1st March, 1973. I do not wish to accept that for a number of reasons. I would remind the House that the longer we delay putting the Bill into operation the longer we delay the benefits for the newspapers and periodicals and for retailers who stand to gain in two ways under value-added tax, first, by getting credit for tax on items which they use in the course of their business and, secondly, by increasing their liquidity substantially. That is why I am not anxious to delay the operation of the Bill. It can operate from 1st November without disruption  to the Christmas trade. Any time later would create disruption. Finally, I should like to thank Senator Russell for his kind remarks which I very much appreciate.
Question put and agreed to.
An Cathaoirleach: Sula chuirim an Seanad ar athló ba mhaith liom an méid seo a rá: tá súil agam go mbeidh saoire taithneamhacha ag na Seanadoírí uilig agus ag oifigí na Tí.
I should like to wish Senators and officers of the House a very pleasant holiday.
The Seanad adjourned at 12 midnight sine die.
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