Finance Bill 2011
Minister for Finance Second Stage Speech
25th January 2011
I move that this Bill be read a second time.
Opening Remarks
First, I want to thank the main opposition parties for their cooperation yesterday in agreeing a timetable which will allow the passage of the Bill before us today. The Finance Bill is an integral and important part of our commitment under the external assistance programme. Any uncertainty or worse, failure to have it enacted would have been damaging to Ireland internationally and could have jeopardised the arrangement we have reached with the EU and the IMF which has given us access to the funding we need to pay for the public services this State provides to our citizens over the next three years.
This Finance Bill is being brought forward in an unprecedented set of political circumstances. The Government would have liked more time to bring forward, for example, significant amendments to allow for the necessary changes to the tax system arising out of the Civil Partnerships legislation. The requirement to accelerate the Bill in order to facilitate an earlier general election has made it impossible to deal with this important matter now but it can and should be dealt with speedily by the new government.
The necessarily truncated process has restricted us but notwithstanding the time pressure under which it is working, the Government agreed this morning to bring forward a number of important amendments. Among them is an amendment which deals with the position of medical card holders under the new Universal Social Charge. We now propose that the maximum rate applying to medical card holders should be 4% rather than 7%, the same rate as applies to persons over 70.
The Universal Social Charge represents a very substantial change to our tax system. It is based on the principle that everybody must pay according to their means. As I have said many times, it is simply not sustainable that 45% of income earners should pay no tax. I stand by that statement. However, it is apparent that those who have medical cards have been adversely affected by the new charge and the government wants to ameliorate their position while at the same time maintaining the principle that everyone must make a contribution.
The cost of this change which is about €80 million will be made up by increasing the Universal Social Charge rate paid by self employed taxpayers from 7% to 10% on income in excess of €100,000. It is important now to realise that any changes to the tax provisions of this Bill must be paid for by increases elsewhere.
The passing of Finance Bill 2011 will give permanent legal effect to the revenue measures which were provided for in the resolutions passed on Budget night on the 7th of December last. The Bill will continue the process of stabilising our public finances, providing appropriate support to business and assisting the Revenue Commissioners to maintain a climate of compliance.
This country has been through the most severe downturn in the history of the State with crises in both the public finances and banking system. Over the last two and a half years, we have taken swift action to address the deep imbalances in our public finances and to ensure that the banking system is returned to a stable and sustainable footing.
As the House will be aware, the Government has decided that, in order to achieve the deficit target of 3% of GDP by 2014, an adjustment of €15bn is necessary over the period 2011-2014. The Government understands that the scale of the adjustments will have an impact on the living standards of us all as citizens. However, sustainable public finances are a pre-requisite for a return to growth. To show our resolve, the Budget contained considerable frontloading with an adjustment of €6bn and this Finance Bill will enact many of the measures necessary to bring about this adjustment.
There were considerable imbalances built up in the Irish economy through the mid part of the previous decade with growth dominated by an unsustainable construction boom. The last number of years have seen the Irish economy rebalance itself towards a more sustainable growth path for a small open economy, that is, one led by exports. Indeed, figures from the most recent National Accounts showed that exports rose 13.2% in Q3 2010 while data from the Purchasing Manager’s Index suggest this trend is set to continue in the coming months. This strong export performance reflects the significant price and wage adjustments that are taking place, which is testament to the flexibility and adaptability of the Irish economy.
Improving competitiveness
During the building boom of the middle part of this decade, Ireland had its competitive edge eroded relative to our main trading partners. We took our eye off the ball so to speak. However, as a country we are regaining this competitiveness. While the falls in domestic prices, easing wage pressures and improvements in productivity are helpful, we must not be complacent as further improvements in our competitiveness are essential to take advantage of the global recover. To this end, the National Recovery Plan set out in considerable detail a series of microeconomic reforms including labour activation measures which will improve our competitiveness and underpin our growth into the future.
In the labour market, there was a significant fall in the claimant count number of unemployed in the fourth quarter of 2010. So there are signs of stabilisation. While another encouraging development is the movement of the current account of the balance of payments into positive territory in Q3 2010 which means that the nation as a whole is no longer increasing its external liabilities.
I am pleased to say that, following the sharp contractions during 2008 and 2009, available data points towards a stabilisation of economic activity last year. Indeed, recently published figures show both GDP and GNP expanding in the third quarter of 2010, which is very encouraging. Most commentators expect this upward momentum to be maintained this year, with a full year of positive growth in prospect.
The recovery is being driven by the exporting sectors, underpinned by the significant improvements in competitiveness that have taken place. As wages and other costs are adjusting, we are pricing ourselves back into global markets. This is most evident from the 13% annual rate of export growth recorded in the third quarter of last year, one of the best performances in the EU. Moreover, this export growth is broad-based, with the pharmaceutical, software, financial and food sectors all performing well. With this export-led growth, Ireland will have a balance of payments surplus this year, so the country as a whole will be paying its way.
Given the impact of the fiscal consolidation and the necessary unwinding of private sector imbalances, domestic demand will remain relatively muted this year, however, over the coming years export-led growth will gradually filter through to the domestic economy.
I would also like to acknowledge the high levels of foreign direct investment that Ireland continues to attract; almost 1,000 companies, including household names such as Google, eBay and Facebook, have chosen Ireland as the hub of their European networks, eight of the top ten global medical technology companies have a manufacturing base in Ireland; and eight of the top ten pharmaceutical firms have operations in Ireland. The message must be clear that Ireland remains open for business and is still the destination of choice for many of the world’s leading firms.
The public finances
The public finances stabilised over the course of 2010. The underlying General Government deficit for 2010 is expected to come in at the 11.6 per cent of GDP forecast in Budget 2010.
However, there was still a gap between Exchequer expenditure and revenues in 2010 of just under €19 billion. It is clear that the State must reduce its level of borrowing over the coming years by aligning more closely its revenues and expenditure.
Over the last two and half years this Government has engaged in a process of re-prioritisation and consolidation across all areas of expenditure in order to close this gap. The measures have reduced all aspects of Government discretionary spending, including public service pay, and running costs across Departments and State Bodies. Significant revenue raising measures have also been implemented over this period, including the introduction of an income levy, a carbon tax, and increases in capital tax rates. Based on a budgetary consolidation package of €6 billion in 2011, the General Government deficit is expected to decline further this year to 9.4%. The measures outlined in the National Recovery Plan 2011-2014 will assist in reducing this deficit to below 3% of GDP by 2014, in line with the commitments given.
Key measures in the Bill
Before I begin to go through the Bill in detail, I would like to draw your attention to some of the key measures contained in it:
- The Bill sets out the details of the Universal Social Charge (USC), introduced to replace the Income Levy and the Health Levy. The USC is a more sustainable charge that applies on a wider base. It removes the steps and poverty traps associated with the Income Levy and Health Levy and goes some way to provide a smoother progression and in dealing with irregularities of the previous two charges.
- I am aware that the introduction of the USC has been the subject of much media comment in recent days. The Charge was introduced for a very specific reason: we must move away from a situation where people make no tax contribution to society and, as a result, the burden falls too heavily on others. As I have often said in this House, a situation where 45% of tax units pay no tax is unsustainable.
However, both the Government and I are aware of concerns expressed about by some people about the USC. Some are somewhat overstated, but others are more legitimate. As regards the latter, I propose to bring forward two amendments on behalf of the Government at Committee Stage that will make the measure fairer without conceding the key principle that everyone must make some contribution.
Under these proposed amendments, those in receipt of a medical card will see the top rate of USC reduced from 7% to 4%, the same as for persons over 70. The new rate will apply as follows: 2% on income up to and including €10,036 and 4% on income above that amount.
For the self-employed earning over €100,000, their rate will increase from 7% to 10% over that level. This ensures that the contribution made by the self-employed will be of the same order of magnitude as employees and will leave their top marginal tax rate unchanged on last year.
These measures, if adopted, will be transitional in nature and have would effect until the end of the period of the National Recover Plan.
- A number of reliefs and exemptions are being either restricted or abolished in accordance with the announcement in my Budget Speech. These tax expenditures include Rent Relief (which is being phased-out over 8 years), Patent Royalty Exemption, tax relief for trade union subscriptions, relief from BIK for employer-provided childcare facilities, capital expenditure on new machinery and plant for use in mining, and a number of share-related measures: relief on loans to acquire an interest in certain companies, Approved Share Options Scheme and relief for new shares purchased by employees.
- The provisions on the property-related tax expenditures, as announced in the Budget, are fully contained in the Bill (Sections 22 and 23), but the Government has decided that they will now be subject to a commencement provision which may only take effect in the next tax year following the preparation and publication of an economic impact assessment on the proposed changes.
- The existing Business Expansion Scheme (BES) is being reformed and renamed as the Employment and Investment Incentive (EII). This new incentive will be more targeted at job retention and creation. Once the necessary approval is received from the European Commission, the new incentive will be commenced by Ministerial Order. This will encourage job creation in both new and existing companies.
- Income Tax relief will be provided for expenditure incurred by individuals (not the landlord of the property) on a range of works undertaken to improve the energy efficiency of residential premises situated in the state. A maximum of €30 million in relief per annum will be allowed for this scheme.
- The Bill gives effect to the fundamental reforms to Stamp Duty on residential property as announced in the Budget. Stamp Duty is now payable at 1% on residential property transactions valued up to €1 million and 2% on the excess over €1 million. This applies to all such transfers on or after 8 December 2010.
- The scheme introduced in Budget 2009 which provides a three-year exemption from corporation tax on the trading income and certain gains of new start-up companies is being extended to include start-up companies which commence a new trade in 2011.
Detail of the measures in the Finance Bill
I will now take you through the Bill and describe the main provisions contained therein:
Part 1 of the Bill deals with the Income Levy, Universal Social Charge, Income Tax, Corporation Tax and Capital Gains Tax.
Section 1 is an interpretation section.
Section 2 provides for the cessation of the Income Levy, the Health levy was abolished in the Social Welfare and Pensions Act 2010 which passed by the Oireachtas before Christmas.
Section 3 makes provision for the introduction of the new Universal Social Charge (USC) as announced in the Budget. The USC replaces the Income and Health Levies and applies at a low rate on a broad base.
The USC is charged on an individualised basis on gross income at 2 per cent on income up to and including €10,036, at 4 per cent for income in excess of €10,036 but not greater than €16,016 and at 7 per cent above that level. Those aged over 70 year do not pay this higher rate and there is a lower exemption threshold €4,004.
The USC does not apply to social welfare payments, including contributory and non-contributory social welfare State pensions. While there are no exemptions for pension contributions or medical cards, Deputies will be aware of the proposed Committee Stage amendment to introduce a low rate for persons with medical cards for a transitional 4 year period.
The USC is a more sustainable charge than the Income and Health Levies. It removes the anomalies associated with those charges and ensures a smoother tax progression across income levels.
Sections 4, 5 and 6 provide for the Budget announcement to reduce the standard rate bands, the age exemption limits and tax credits in line with overall reduction in income.
The single standard band is being reduced by €3,600 per annum from €36,400 to €32,800. The married one-earner band is being reduced by €3,600 from €45,400 to €41,800. The married two-earner band is being reduced from €72,800 to €65,600, with transferability limited to €41,800. The one parent/widowed parent band is being reduced by €3,600 from €40,400 to €36,800.
The age exemption limits are being reduced by €2,000 in the case of a single person and €4,000 in the case of a married couple to €18,000 and €36,000 respectively.
The personal credit is being reduced by approximately 10% per annum from €1,830 to €1,650 in the case of a single person and by €360 per annum from €3,660 to €3,300 in the case of a married couple. The employee (PAYE) tax credit is also being reduced by 10% from €1,830 to €1,650. All other credits are being reduced by 10%. The age credit is being reduced by €80 per annum from €325 to €245 in the case of a single person and by €160 per annum from €650 to €490.
These changes are in line with the commitments in the National Recovery Plan, 2011-2014.
Section 7 provides for the changes to certain exemptions from benefits-in-kind taxation already announced in the Budget. Firstly, it abolishes the BIK exemption that previously applied to payment of professional fees and subscriptions by employers. It also abolishes the exemption from benefit-in-kind where employees are in receipt of childcare facilities which are subsidised by their employers’ capital contributions towards the costs of such facilities
Section 8 restricts the amount of tax relief of ex-gratia payments to a lifetime limit of €200,000 with effect from 1 January 2011. This €200,000 limit is reduced by any previous exempt payments which an employee may have previously received.
Section 9 amends section 470B Taxes Consolidation Act 1997, which provides for an age-related tax credit in respect of health insurance premiums.
The section abolishes the age-related tax credit for individuals aged 50 to 59, and increases the amount of age-related tax credit in the case of insured persons aged 60 years and over for relevant contracts renewed or entered into on or after 1 January 2011. For those aged between 60 and 69 the credit is increased from €525 to €625; for those aged between 70 and 79 it is increased from €975 to €1,275; and for those aged 80 and over it is increased from €1,250 to €1,725. The cover provided by the credit has been increased to 65% of the additional cost of providing health insurance to persons aged 60 and over, as part of the interim scheme of community rating. This provision is paid for via the Health Insurance Levy which is dealt with under Stamp Duty.
A number of previously announced Budget changes are being introduced in relation to shares in this Bill. Section 10 provides for the abolition of relief for new shares purchased by employees, the abolition of approved profit sharing schemes and also brings the tax treatment of the value of share awards into the PAYE system. Section 11 abolishes interest relief on loans that are used to acquire an interest in certain companies. This relief will be phased out over four years with an annual reduction of 25% in the amount of interest that can be relieved. No relief is allowed for new loans taken out from Budget day.
Section 12 provides for the abolition of tax relief for trade union subscriptions for the 2011 and subsequent tax years.
As I announced in my Budget speech, I am introducing a new tax incentive scheme to encourage taxpayers to invest in works that will improve the energy efficiency of their homes. Section 13 of the Bill provides the legislative base for this scheme. The tax relief will be provided by way of repayment in the tax year following the year in which the work has been completed and in which the expenditure was incurred. The maximum amount of expenditure that will qualify for relief in any one tax year will be €150 million. This equates to tax relief of €30 million. This section of the Bill is subject to Commencement Order to allow for processes and procedures to be put in place.
Section 14 provides for the abolition of Rent Relief for new claimants from 8 December 2010. In addition, it also makes the legislative changes required to withdraw the relief from existing claimants on a reducing rate basis until no further relief will be provided in the 2018 year of assessment. This withdrawal period is in line with that previously announced for mortgage interest relief.
Changes are made in Section 15 to tax relief for third-level fees/charges to take account of the Government decision to replace the existing Student Services Charge of €1,500 with a flat-rate Student Contribution of €2,000.
Section 16 provides for the introduction of a €40,000 limit on earnings for the artists exemption that was announced in the National Recovery Plan 2011 – 2014 and in the Budget.
Section 17 is a routine update of the Schedule of Accountable Persons for the purposes of Professional Services Withholding Tax.
As a means of improving the assessment of tax performance in advance of the usual December Budget, the pay and file dates for self-employed Income Tax and Capital Gains Tax (CGT) are being brought forward by one month from end-October to end-September and this is addressed in Section 18. I would note also that there will continue to be an additional 14 days for payment on line via the Revenue Online Service (ROS). These changes are aimed at reducing the over-concentration of tax receipts in late October/mid-November; this will enhance the accuracy of next-year Budget forecasting.
Section 19 of the Bill deals with the various changes in the tax treatment of private pension provision announced in the Budget.
These changes involve the extension of the flexible options on retirement – that is access to an Approved Retirement Fund and so on – to all Defined Contribution pension arrangements, subject to certain changes to the general conditions attaching to those options and to certain transitional provisions.
There will also be an increase from 3% to 5% in the annual imputed distribution which applies to the value of assets in an Approved Retirement Fund in respect of asset values at 31 December 2010 and future years. The section provides for a reduction in the maximum allowable pension fund on retirement for tax purposes, known as the Standard Fund Threshold, to €2.3 million with transitional arrangements for individuals with pension rights valued above the reduced threshold on Budget Day.
In addition, there will be a reduction in the annual earnings limit which, along with age-related percentage limits, determine maximum tax-relievable contributions for pension purposes from €150,000 to €115,000; and, finally, a reduction to €200,000 in the overall life-time limit on the amount of tax-free retirement lump sums that an individual can draw down from pension arrangements. The excess of retirement lump sum payments over €200,000 will be taxed at the standard income tax rate of 20% up to an amount equal to 25% of the new Standard Fund Threshold which is €575,000. The excess of retirement lump sum payments over that amount will be taxed at the taxpayer’s marginal rate of income tax.
As I announced in the Budget, there major changes to the Relevant Contracts Tax regime. These are covered in Section 20 and involve the replacement of the current RCT rates with a three-rate withholding system on a revenue-neutral basis. The current 35% rate will be retained as the default rate only where the other rates are not appropriate. In addition, the monthly repayment system will be abolished and replaced with an offset system while the reporting system for RCT principals will be strengthened in order to enhance compliance and reduce the opportunities for fraud.
An area of particular concern is the loss of tax revenue caused by false claims for tax credits or refunds. Section 21 introduces a penalty for any person who makes a false claim or assists in making a false claim. This measure also seeks recovery from the beneficiary of any tax refunded on the basis of a false claim. Finally, it provides for the charging of interest on such proceeds from the date the person first benefited from the false claim until the proceeds were paid back to Revenue.
Section 22 provides for restrictions to schemes of accelerated capital allowances under the various area-based and property-based tax incentive schemes.
Section 23 deals with restrictions to relief for lessors of rented residential accommodation i.e. Section 23 relief.
Both of these sections provide for changes to property-based reliefs as set out in the Budget night Financial Resolutions. However, the commencement of these provisions is now dependent on the carrying-out and publication of an economic impact assessment into the effects of the proposed changes.
In essence, the provisions restrict the use, and carry- forward, of capital allowances and Section 23 relief. The aim of the changes is to reduce ongoing legacy costs to the Exchequer and ensure that tax will be paid on some income previously sheltered by the various reliefs.
The restrictions only apply to passive investors and not to those actively engaged in the businesses nor do they affect residential owner-occupier relief.
If commenced the provisions provide that:
- All reliefs must be used within 7 years (in the case of 7 year schemes, e.g. hotels) and 10 years (in the case of ten year schemes, e.g. section 23) and that any carry forward of unused reliefs after that period will no longer be allowed and the unused reliefs will be lost;
(ii) Tax reliefs can only be used to set against income arising from the trade or rental property that gave rise to the relief. This applies to both capital allowances and section 23 type reliefs and ensures that tax will now be paid on some income previously sheltered by the various reliefs.
It was always intended to carry out an impact assessment of the proposed changes and this is why I announced it on Budget Day.
However, because of the widespread level of concern that has been expressed by individuals and groups, in particular regarding the downstream effects of the changes on the real economy, and on employment, I have proposed in the Finance Bill that an economic impact assessment of the changes should be undertaken in advance of the commencement of the provisions.
I believe that legislating for the restrictions in the Finance Bill, as originally intended, combined with undertaking an ex-ante impact assessment of their effect, in advance of the commencement of the provisions strikes the right balance between seeking to restrict unnecessary tax reliefs on the one hand and taking notice of real concerns that have been expressed about the proposed changes.
Section 24 provides for the continuance of the relief to farmers for the increase in stock values for a further two years to 31 December 2012 from the current closing date of 31 December 2010 subject to the usual State aid clearance from the European Commission.
Section 25 abolishes the tax exemption for income received by an individual or company from a qualifying patent. The tax exemption for distributions made by companies from exempt patent income is likewise abolished. This measure was announced on Budget Day and was also included in the list of tax expenditures set out in the National Recovery Plan for abolition or curtailment. The abolition of the exemption applies to income from a qualifying patent which is paid on or after 24th November 2010 which was the date of publication of the Plan.
Capital expenditure on new machinery and plant for use in mining has qualified for a 20% investment allowance in addition to normal wear and tear allowances. An allowance of 20% of expenditure incurred on mining exploration has also been available in addition to the 100% exploration allowance for such expenditure. Section 26 abolishes these additional 20% allowances in respect of expenditure incurred from 1 January 2011 in line with the recommendation in the 2009 Report of the Commission on Taxation.
Section 27 is an anti-avoidance provision and introduces changes to legislation to counter attempts to extract funds from close companies on a tax-free basis using trusts and other such arrangements. The changes will apply to transfers of assets or liabilities made on or after the date of publication of the Bill.
Section 28 amends sections 256 and 267B of the Taxes Consolidation Act 1997 to provide for an increase of 2 percentage points in the rate of Deposit Interest Retention Tax (DIRT) with effect from 1 January 2011. The rate is now 27% where the interest is paid annually or more frequently, and 30% where the interest is paid less frequently than annually.
To match the increase in DIRT, Section 29 increases the rates of tax applying to life assurance policies and investment funds by 2 percentage points with effect from 1 January 2011.
The changes in Sections 28 and 29 are expected to yield a total of €22.5 million in 2011 and €30 million in a full year.
As previously announced, the existing Business Expansion Scheme (BES) is being reformed and renamed the Employment and Investment Incentive (EII). This is being done in Section 30 and the new incentive will ensure that the tax relief is more targeted at job retention and creation. It is subject to the approval of the European Commission and the existing scheme will continue until this has been secured.
In my Budget 2009 speech in October 2008, I introduced a scheme providing a three-year exemption from Corporation Tax on the trading income and certain gains of new start-up companies. I have extended the scheme each year since. The scheme is being extended again, in Section 31, to include start-up companies which commence a new trade in 2011. However, it is being modified to linked the relief to the amount of employers’ PRSI paid by a company in an accounting period subject to a maximum of €5,000 per employee. The purpose of the change is to better target the relief at companies generating employment.
Section 32 amends Schedule 24 to the Taxes Consolidation Act 1997 to make it clear that a company is not permitted to allocate relevant trading charges on income as it sees fit in the computation of the credit due to it in respect of foreign tax paid on its income.
Sections 33 and 34 of the Bill deal with provisions around tax relief on interest on borrowings. Legislation will now provide that relief will not generally be allowed in respect of interest on intra-group borrowings to finance the purchase of assets from another group company nor will such interest be allowed as a deduction in computing profits or gains of a trade. Other changes are being made in this area to ensure that the interest relief provisions operate as intended.
The scheme of accelerated capital allowances for expenditure by companies on certain energy-efficient equipment bought for the purpose of a trade was introduced by Budget and Finance Act 2008 for a three year trial period which ends in 2011. Section 35 extends the scheme for a further 3 years to 31 December 2014.
As part of its consideration of various tax expenditures relating to enterprise, the Commission on Taxation examined and concluded that the exemption from corporation tax in respect of grants or payments made by the Minister for Agriculture, Fisheries and Food to the National Co-Operative Farm Relief Services Limited be discontinued. Section 36 terminates this exemption from 1 January 2011.
Section 37 provides for the amendment of Section 110 of the Taxes Consolidation Act, 1997 which governs the taxation of securitisation and structured finance transactions. The purpose of the proposed amendments is twofold. In the first instance, it will extend the type of assets that a section 110 company can acquire, to include plant and machinery, commodities and carbon offsets. At the same time, the provisions of section 110 are being restricted to better reflect their original intention.
The extension to include plant and machinery will be of benefit to Ireland’s international leasing industry, in particular the aircraft leasing industry which has achieved notable success over recent years.
The inclusion of carbon offsets is part of a broader initiative to develop a Green Financial Services Centre.
Section 38 amends the definition of expenditure on research and development for the purposes of the R&D tax credit so that a company cannot also claim the tax credit on expenditure incurred on specified intangible assets for which a separate tax relief scheme is already in place.
Part 2 of the Bill deals with Customs and Excise
It contains sections confirming a number of Budget day announcements including increasing the excise duty rates on petrol and auto-diesel; introducing a single rate of Air Travel Tax of €3, to replace the existing rates, from 1 March 2011; the extension of the car scrappage scheme until 30 June 2011; and extending the VRT relief allowed on the purchase of series production hybrid and flexible fuel vehicles for a further 2 years until 31 December 2012, with a reduced maximum of up to €1,500.
Provision is also made for the re-classification of certain commercial vehicles to insure that they continue to be taxed at the low VRT rate, increasing the flat-rate of VRT applicable to commercial vehicles from €50 to €200 from 1 May 2011, as well as introducing a cap of €5,000 on the amount of VRT relief which can be claimed in respect of the purchase of certain electric vehicles with effect from 1 May 2011.
Section 39 addresses rates of mineral oil tax. The legislation that amends Mineral Oil Tax law to deal with issues relating to conditions, under which a rate lower than the appropriate auto-rate may be applied to mineral oil, are dealt with in Section 40. Section 41 amends provisions concerning the Solid Fuel Carbon Tax.
Section 42 introduces a system of tax-geared penalties to be applied to excise duties. Tax geared penalties, which are penalties as a percentage of tax evaded or otherwise underpaid, were introduced for other taxes in the Finance (No. 2) Act 2008. Provision is made in Sections 43 and 44 relating to claims made in respect of goods seized by the Revenue Commissioners which may be subject to forfeiture. Also included is provision for certain proceedings to be heard in the Circuit, rather than the High Court, and for such proceedings to be taken in the name of the Revenue Commissioners.
Section 45 covers the revised Air Travel Tax, to which I have previously referred.
Section 46, on foot of the Budget day announcement to extend the Betting Duty to remote betting including betting exchanges, makes a number of amendments to the Finance Act 2002, in connection with the taxation of betting and related activities. The necessary regulatory changes will be provided for through separate legislation amending the Betting Act 1931.
Section 47 is an interpretation section while Sections 48, 49 and 50 address enactment of the package of Vehicle Registration Measures to which I have just alluded.
Section 51 introduces a system of administrative penalties for breaches of the Community Customs Code, which will bring Ireland into line with the practice in other EU Member states.
Part 3 of the Bill deals with Value-Added Tax.
Sections 52 to 58 inclusive provide for a range of minor technical and anti-avoidance amendments to VAT legislation. This includes the introduction of a reverse charge mechanism for the scrap metal sector; the amendment to the notification rules as regards foreign-established mobile traders, and the extension of the penalties regime for VAT non-compliance.
On a technical level, this includes the restatement of the exemption for admissions to cultural services, e.g. museums; a necessary extension of the postal services VAT exemption; a transitional measure for housing and burial plots purchased or acquired by public authorities before, and sold after, the introduction of VAT; the extension of the exemption on betting to remote betting including betting exchanges, in line with the similar extension of betting duty, and a series of minor technical amendments that arose from the VAT consolidation process, as contained in Schedule 3.
Part 4 of the Bill deals with Stamp Duties.
Section 59 is an interpretation section.
Section 60 provides for a major reform of the charge to Stamp Duty on residential property transactions. The change involves a simplification of the system by lowering the rates of Stamp Duty and abolishing a number of exemptions and reliefs. These Stamp Duty reforms as announced in Budget 2011 have two aims: stimulating the property market and commencing the necessary infrastructure for the commitment in the National Recovery Plan for a Site Value Tax.
Section 62 introduces a 1% rate for all transactions of residential property valued up to €1 million. A new 2% rate will apply to amounts above €1 million, replacing the current rate of 9% for these properties. The section also abolishes the previous exemption from Stamp Duty on transfers of residential property valued under €127,000.
In line with other base-broadening measures and to pay for the new rates, Section 60 abolishes a number of reliefs and exemptions from Stamp Duty as follows:
-
- First Time Buyer’s Relief;
- Relief from Stamp Duty on new houses under 125 sq metres;
- Reduced Stamp Duty on new houses over 125 sq metres
- Consanguinity relief on residential property transfers;
- Site to Child Relief on transfers of sites for the purpose of building a principal residence for the child.
Although some house purchasers who were previously exempt from Stamp Duty will now be liable to Stamp Duty, the recent fall in property prices means the overall cost of the transaction for purchasers is much lower and the majority of purchasers will pay substantially less Stamp Duty than before.
The new rates will apply to property transfers on or after 8 December 2010. However, a transitional provision will be put in place to ensure that anyone who has entered into a binding contract to purchase a residential property before 8 December 2010, and who executes the transfer of that property before 1 July 2011, will not be disadvantaged.
Section 60 also provides that first-time buyer relief applies to the purchase, by either the parent of an incapacitated person or a trust established exclusively for the benefit of an incapacitated person, of a residential property for occupation by that incapacitated person as his or her principal place of residence, where the purchase is in the period 1 January to 7 December 2010.
The overall cost of the residential property Stamp Duty measures is estimated to be €36m in 2011 and in a full year.
Revenue information on property transactions will be used to compile a database of house valuations which will help bring transparency to the housing market.
Section 61 amends Section 125A of the Stamp Duties Consolidation Act 1999 to bring forward the due dates for payment of the Health Insurance Levy. The increased levy applies to all renewals and new contracts entered into from 1 January 2011, at the rate of €66 for each insured person aged less than 18 years and €205 for each insured person aged 18 years or over.
Section 62 is an amendment to Schedule 1 of the Stamp Duties Consolidation Act, 1999.
Part 5 of the Bill deals with Capital Acquisitions Tax.
Section 63 is an interpretation section.
Section 64 corrects drafting errors in the Capital Acquisitions Tax Consolidation Act 2003 concerning the operation of agricultural relief, business relief, and the use of Capital Gains Tax as a credit against a Capital Acquisitions Tax liability on the same event.
Section 65 gives effect to the proposal announced in the Budget statement to reduce the CAT group tax-free thresholds from €414,799 (Group A – broadly speaking, from parent to child), €41,481 (Group B – broadly speaking, between siblings, from children to parents, from grandparents to grandchildren, and from uncles and aunts to nephews and nieces) and €20,740 (Group C – all cases not covered by Group A and Group B) to €332,084, €33,208 and €16,604 respectively. This amendment applies to gifts and inheritances taken after midnight on 7 December 2010.
This measure is expected to yield in the region of €27 million in 2011 and €40 million in a full year.
Part 6, the final part of the Bill, covers miscellaneous provisions.
Section 67 is an interpretation section.
Sections 68 and 69 relate to the Mandatory Disclosure regime. Mandatory Disclosure, which I introduced in Finance Act, 2010, is to operate as an effective ‘early-warning’ system for Revenue where information on tax avoidance schemes that may be unacceptable can be obtained at an early stage. Regulations and Guidance Notes have now been published. They reflect the outcome of a consultation process undertaken by the Revenue Commissioners and which raised a number of issues about the scheme that require amendment by primary law.
The provision makes the Regime prospective from the time final Regulations are published and it allows a transition period of three months before first disclosures have to be made. Similarly, it is proposed to amend the primary legislation relating to client lists to require the promoter to include a client on the list to whom a scheme has been made available for implementation unless the promoter has satisfied himself that the client has not implemented the scheme during the reporting period.
A number of proposals are being made in relation to the use of Notices of Attachment by the Office of the Revenue Commissioners. These proposals allow for the widening of the circumstances in which Revenue can issue such a Notice and are covered in Section 70.
Section 71 outlaws the use of software (known as a ‘Zapper’) which can be applied to electronic point-of-sale records to seamlessly amend them to, for example, reduce the recorded turnover of a business. A number of other tax administrations have found this software in use on a significant level. Given the sophistication of the tools, the potential tax loss and the difficulty in establishing that they have been used, it is necessary to adopt such a measure and to allow for appropriately stringent penalties.
Section 72 amends the legislation in relation to the publication of tax defaulters. In general, such publication can only follow “agreement” and “payment” of settlement amounts. Certain taxpayers and agents are aware of this requirement and they persistently resist or refuse to either agree liability or pay the settlement which does not allow Revenue publish the relevant details. This is now being remedied.
At present, there is no specific tax-related provision governing the confidentiality of taxpayer information provided to Revenue. Section 73 addresses this. It will also align the treatment of confidentiality of taxpayer information which is out of line with the practice in most other tax administrations and Irish Institutions such as the Central Bank and Financial Regulator
Revenue traditionally issued physical receipts for taxes paid. However, with technological developments, receipts are now issued or made available electronically wherever possible. Revenue wishes to make further advances in this regard by making physical receipts the exception. It is considered desirable that the issue of receipts in electronic format be copper-fastened in the legislation, this is the purpose of Section 74.
Section 75 represents a customer service initiative to provide taxpayers with additional optional methods for the payment of taxes and duties which gives them greater flexibility for making payments, for instance by the use of credit or debit card. It also assists in facilitating voluntary compliance.
Finally, Section 76 addresses miscellaneous technical amendments in relation to tax, while Sections 77, 78 and 79 cover standard annual provisions.
Conclusion
At this stage, there are still a small number of matters under consideration for inclusion in the Finance Bill that I may bring forward at Committee Stage and Report Stage. I will, of course, also give consideration to any constructive suggestions put forward during our debate today and tomorrow.