Select Committee on Finance and General Affairs debate -
Thursday, 5 May 1994

SECTION 84.

Mr. Yates

I move amendment No. 150:

In page 107, before section 84, to insert the following new section:

"84.—Notwithstanding anything to the contrary anywhere, the 21 per cent. rate of VAT shall be reduced to 20 per cent. for 1994 and 17.5 per cent. from the 1st January, 1995.".

This amendment arises from VAT harmonisation provisions provisions at EU level and it must be dealt with. We have a VAT approximation system, but we are moving towards a VAT harmonisation system. It must be recognised that we have high rates of VAT, particularly the standard rate of 21 per cent. We must make changes within Exchequer restraints. The Minister did not carry out VAT reforms this year, but he changed some labour related services last year. If the outcome at EU level is as expected, we will be obliged to increase VAT on certain items, including house construction, to the standard rate. There could be expected to be heated argument at that point. It would be more sensible to give a commitment to try to reduce the top rate to the UK rate over a period. If we reduced it by 1 per cent each year, it would be more affordable. This should begin on 1 January 1995 — that is not unreasonable as there would be no budgetary cost this year — and the rate of VAT should continue to be reduced by 1 per cent each year.

Mr. B. Ahern

The effect of this amendment would be to reduce the standard rate of VAT from 21 per cent to 20 per cent for the remainder of 1994 and to 17.5 per cent, which is equivalent to the UK rate, thereafter. Each 1 per cent reduction in our standard rate would cost the Exchequer £89 million in a full year. Accordingly, the amendment suggested by Deputy Yates would cost the Exchequer £26.4 million in 1994 and a further £246 million in 1995. Given current budgetary circumstances, it is not possible to accept the amendment.

It is appreciated that Deputy Yates may have in mind closer alignment of VAT rates in other member states. Our standard rate is no longer significantly out of line with rates applying in other member states. Denmark has a standard rate of 25 per cent, Belgium now has a standard rate of 20.5 per cent, while three other member states have standard rates of 18 per cent or more. It should also be noted that from a differential of 10 per cent between Ireland and the UK a few years ago, the difference in the standard rate is now 3.5 per cent and the available economic data indicates that this level of divergence is sustainable, although we would prefer if it was not there.

In any discussion on VAT rates, Deputies must bear in mind the overall structure of our rates. This country and the UK are alone among member states in having a significant range of goods taxed at the zero rate. I made that point last year and there was some debate on the issue in this and the other House. There was much discussion in the UK prior to its budget about moving in that direction, but it did not do so. The Chancellor of the Exchequer told me such a move had been closely considered but that they moved away from the idea for obvious political reasons.

Deputies must bear in mind that, unlike our UK colleagues, it has been Government policy to retain as many labour-intensive services as possible at the 12.5 per cent rate, bearing in mind both EU and budgetary constraints. Last year I moved a number of the high employment sectors of industry from the 16 per cent rate back to the 12.5 per cent rate. Because of this a wide range of services, including tourism, have a 5 per cent favourable differential vis-�-visthose in the UK and Northern Ireland.

There will be discussions about rates later this year, particularly about our lower rates. We must argue our position again. In reply to a parliamentary question from Deputy Yates a month ago, I said we would argue the case for a 12.5 per cent rate for labour-intensive services.

Mr. M. McDowell

What would be the benefit to the Exchequer of extending VAT to food at the lower rate?

Mr. B. Ahern

The Exchequer would benefit by approximately £150 million. Items on zero rate, include food related items, school books, medical and oral medicines and children's clothing. This would amount to £26.5 million per 1 per cent.

Amendment, by leave, withdrawn.

Question proposed: "That section 84 stand part of the Bill."

Mr. M. McDowell

The Minister spoke about political factors at Westminster. If, to reach Westminster proportions, one multiplied by five the majority the Government has in the Dáil, the Minister would have a majority of approximately 300.

Question put and agreed to.

Section 85 agreed to.

NEW SECTION.

Mr. Yates

I move amendment No. 151:

In page 108, before section 86, to insert the following new section:

"86.—Notwithstanding anything to the contrary anywhere, the 12.5 per cent. rate of V.A.T. will apply to the following items:

(a) adult clothing and footwear,

(b) accountancy fees, and

(c) flour and confectionery products.".

To a certain extent, these areas, in which VAT increased from 16 to 21 per cent, are outstanding from last year. In the case of adult clothing and footwear, the VAT increase was from 10 per cent to 21 per cent in three years. Some 30,000 people are employed in the retail sector of the clothing and footwear industry but there was a substantial number of closures at retail level last year. A strong campaign was mounted by drapers and chambers of commerce, but unfortunately the Minister successfully faced them down. He did a neat trick by dividing and conquering the combined clothing trade comprising designers, manufacturers and retailers. In conjunction with the Minister for Enterprise and Employment, Deputy Quinn, the Minister wooed manufacturers with special concessions leaving the poor retailers high and dry. A previous Government fell on this issue, but in this instance the tender mercies of Deputy Kemmy did not extend to 21 per cent VAT on clothing and footwear. There has not been a squeak about this since it was brought in.

There is a problem with farm accountancy fees which clients cannot claim back because there is a flat VAT refund regime for farmers. Again, this is a labour-intensive service sector. The case put forward last year for VAT on other services and fees being reduced should be considered. It would not cost a great deal.

It is estimated that 6,000 jobs have been lost in the agricultural industry through imports from the UK and Northern Ireland, including flour and confectionery products, products with a short shelf life. Many individuals only have a certain amount to spend on such items as clothing and confectionery. By taking more in VAT the Government diminishes the level of overall activity and the volume of retail trade is thereby reduced. This means fewer jobs and less buoyancy and volume. As part of the overall VAT reform, we should try to do something about these areas. I debated this at length last year, but made no progress. I am not optimistic that the Minister will find it in his heart to be more sympathetic this year, but the argument remains valid.

Mr. B. Ahern

I will deal separately with the items referred to by Deputy Yates. The issue of adult clothing and footwear was debated at length last year. I made my position clear then and I do not intend to alter the original decision. The cost to the Exchequer of the amendment proposed by Deputy Yates would be £24 million in 1994 and £80 million in a full year. It is not a question of divide and conquer, the reality is that some of the retailers were importing the materials. Over 84 per cent of what they were selling was imported. If the items were manufactured here there was no distortion for an Irish manufacturer. If they were exporting the item there was a zero rate of VAT. I had little sympathy for that.

I am glad that Irish manufacturers are now successfully penetrating the retail market, which is now beginning to show more interest in Irish goods. During the year I have been asked a number of times to visit and talk to members of the manufacturing industry who are now growing stronger. At last they are getting a foothold. That success has been very useful.

Under EU VAT rules, the accountancy service generally cannot be taxed at a reduced rate. In the limited case of farm accountancy the rules will allow us to apply a parking rate in these services as we applied a reduced rate to these services prior to January 1991. I do not consider it is justified to treat these services differently on the basis of who the customer is.

Mr. Yates

Does the Minister appreciate that they have a different VAT regime? If you have publicans and garage proprietors who are clients of the accountant they can claim the VAT on fees back whereas a farmer cannot.

Mr. B. Ahern

I know that but farmers are able to recover the VAT charged on the farm accountancy services either directly if they are registered, or through the flat rate refund scheme.

The third amendment which I hope Deputy Yates did not really plan to press is in regard to flour and confectionery. He is proposing a 12.5 per cent rate on bread. Which is zero rated at present.

Mr. Yates

Is bread a confectionery product?

Mr. B. Ahern

The way the Deputy structured his amendment made bread a confectionery product. I know that was not the intention. In so far as flour and confectionery products are concerned, the effect of the amendment would be to extend the category. Essentially, we are talking about chocolate biscuits. I know what the Deputy is trying to do. I do not need to say any more about that.

Amendment, by leave, withdrawn.

NEW SECTION.

Mr. Yates

I move amendment No. 152:

In page 108, before section 86, to insert the following new section:

"86.—Notwithstanding anything to the contrary anywhere, the following healthcare items shall be zero rated for V.A.T. purposes: (a) vaccines, (b) ointments, (c) incontinent products, (d) bandages, (e) syringes, (f) suppositories.".

Even after a long second day on the Finance Bill I can work up enthusiasm for this. This is a gross anomaly. If you go to your doctor and are given a prescription for a medicine which you take orally in tablet form or mixture form, it is zero rated for VAT. But if the doctor says "roll up your sleeve, pull down your pants, I am going to give you an injection" you have to pay not 12.5 per cent, not zero rate, but a whopping 21 per cent rate of VAT on those medicines.

Mr. Rabbitte

Deputy Smith said this was VAT at the point of entry.

Mr. Yates

The point is that there is 21 per cent VAT on almost all injections, dressings, bandages, creams, ointments, lotions, rubs, needles, syringes, eyedrops and enemas. These are medicines in the normal course of any medicine. If logic dictates that medicine is zero rated, why should we stop at oral medicines? This is a clear injustice and when we had the officials here in the Minister's absence on Tuesday, I asked them whether this was true, and what the rationale behind it was. They said that it was always done this way. There was no justifiable explanation for it.

This hits the elderly very hard because how this originally came to my attention was that elderly patients in nursing homes were getting supplementary bills for these added items including item (f) on the list. They used a lot of bandages and ointments, especially where the elderly person was incontinent. There is a genuine case here because they have to pay this on top of their £140 per week for their stay in the nursing home. They have to pay additionally on a usage basis for these items. Does the Minister know that babies nappies, sanitary products and some incontinence products are zero rated?

Mr. B. Ahern

Most medical items are zero rated.

Mr. Yates

However, items (a) to (f) on that list are not zero rated as I understand it, so I ask the Minister to accept this amendment in good faith, because it is a tax on illness, because it hits the elderly very hard and because it is utterly and patently unfair.

Mr. B. Ahern

It is not possible to zero rate items if they were not zero rated at 1 January 1993. The vast majority of medical items are at zero rate. If everything was to be moved to 12.5 per cent that would create far more distortions and difficulties. Perhaps it is no harm to put the legal situation concerning the reduction to zero rate on the record. In 1992 the European legislation VAT rates were enacted by way of a Council directive, the terms of which prohibited introducing a zero rate on any goods or services which were not already zero rated on 1 January 1991. The items listed by that are currently at the standard rate so the option of moving them to zero is simply not available. The Deputy is aware that in the case of medical card holders and those suffering from recognised long term illness, the cost of most of these is already alleviated by the Exchequer. Some 35 per cent of the population is entitled to free medicines under the scheme, all others are zero rated items and the long term categories do not pay either.

Mr. Yates

Does the Minister not accept the logic of what I am saying?

Mr. B. Ahern

The Deputy is saying that anything that is on 21 per cent, because it is categorising——

Mr. Yates

No, I am saying that eyedrops, enemas, needles, syringes and vaccines are medicines. The general point is that medicines are zero rated. Therefore these creams, ointments, lotions, rubs, are medicines. Should people be told that if they get a tablet as opposed to an injection, one carries 21 per cent VAT and the other carries zero rated VAT? It is possible to have the same treatment in a different form, one attracts a 21 per cent tax and the other does not. If the EU Commission can turn around and say that even though we have had 10 per cent corporation tax on mushrooms for the last 20 years it has to be changed, I do not see why the Minister cannot make a case to Europe saying that we have a clear anomaly in the VAT code that we did not have it rectified by 1 January 1993 and asking for permission to change it. I also wish to know the cost of the amendment.

Mr. B. Ahern

I do not have a cost on it; I think it would be in the order of £7 million. I understand Deputy Yates' point but he will accept that oral medicines are categorised as zero rated items. He is arguing that——

Mr. Yates

Injections are not, that is my point. They should all be the same.

Mr. B. Ahern

On 1 January 1991 they were not zero-rated items so one cannot return them to that rate. They could be brought back to a 12.5 per cent rate but that would be in the context of a budgetary item — everything of that nature could be brought back to 12.5 per cent. I assume the Deputy would not agree to all of them being at the 12.5 per cent rate? Other items could be raised but the vast majority might have been at zero per cent.

Mr. Yates

It was explained to me that some people cannot take medicines orally and have to take them intravenously, due to their age, for example. It is transparently unfair. I rest my case.

Chairman

Is the amendment being pressed?

Mr. Yates

Yes.

Amendment put and declared lost.

NEW SECTION.

Mr. M. McDowell

I move amendment No. 153:

In page 108, before section 86, to insert the following new section:

"86.—No person shall be liable for Value Added Tax in respect of the provisions of any sporting, recreational or leisure facilities or services, in circumstances where the provision of such facilities or services by a club or voluntary group would not be liable to Value Added Tax.".

This amendment addresses the position where people are operating sports and leisure facilities in Dublin. They discover they are being hit for VAT in circumstances where voluntary associations are providing exactly the same facilities, keep fit classes etc., in community halls and there is no such charge.

I correspondended with the Minister last year about this matter. There is an unfairness in all of this. People are trying to make their livelihood in the face of competition from a well-organised community group which is not liable to a VAT charge.

Mr. B. Ahern

I have had a lot of correspondence on this matter. There was much debate about it last year and there has been lobbying from all sides. The commercial clubs, of which Deputy McDowell has spoken, feel they are at a competitive disadvantage compared to those operating in community halls, sports halls and other places. That seems straightforward enough. The other side of the issue is that in the case of clubs, sports clubs and sports facilities, VAT would have to be charged to nonmembers. With regard to golf clubs, for example, the green fees paid by non-members would be subject to a VAT charge if one followed this logic. One would be charging VAT to non-members and this was hotly disputed.

Mr. M. McDowell

I feel sorry for a person who is running a pitch and putt club and has to charge VAT on his receipts whereas a group down the road, a vintners' club for instance, doing exactly the same thing and allowing people to walk in off the street in the same circumstances, do not charge VAT.

Mr. B. Ahern

Golf courses registered for VAT are entitled to recover in full the VAT borne on the development and maintenance of the facilities and on ongoing running costs, whereas exempt golf club facilities are not. I am only taking golf as an example. I understand the argument but there are two sides to it. If a members' club with instructors runs aerobics classes at night and it is open to non-members, or it has gym facilities open to non-members, it is liable to VAT on these services. That would apply to every members' club in the country. When we spoke about this last year, we focused on the other aspect.

I accept Deputy McDowell's point. We spent a lot of time last year looking at advertisements in various magazines. It is not an easy issue to resolve. The Committee should be aware that if we were to do this — and I thought about it at the time of the budget — it would mean taxing all the members' clubs and I decided against it for that reason.

Mr. Yates

Deputy Cox alluded to this on Second Stage and said he would table an amendment dealing with golf clubs, and I was happy to let him do so and come in on his coat tails. A golf club sent a letter to a colleague of mine in relation to this issue and it made a strong case that it had invested heavily commercially. It said that the green fee income from golf clubs which may have got State support in the form of social employment schemes and lottery grants which it did not receive, is undermining it.

The club correspondended with the Minister's private secretary. It asked when politicians would wake up to the fact that their "weak, servile, self-serving and cringing decisions are driven by a clientelism mentality, are wreaking havoc on commerce and destroying the climate for investment in worthwhile enterprises." That is a view on what some golf clubs are getting away with.

There is a dividing line: essentially the commercial clubs are profit making, whereas other clubs could not be seen as profit making as the money they make goes back into improving their facilities. I understand the Minister's caution on this issue. Somebody in Enniscorthy has a par three golf course and frequently he asks me what I am doing about the introduction of VAT on green fees for the golf clubs. I refer the matter to the Minister.

Mr. Rabbitte

The club mentioned by Deputy Yates should stick with golf rather than PR or lobbying. I do not have a great deal of knowledge about the merits of Deputy Yates's argument about golf clubs. With regard to Deputy Michael McDowell's points, my memory of last year's debate is that it was more a question of keep-fit health clubs competing with events in schools and community venues.

Mr. M. McDowell

Community centres.

Mr. Rabbitte

It is a difficult point because the——

Mr. B. Ahern

It is not always profit making.

Mr. Rabbitte

Frequently it is not profit making and the people running the community centres would probably find it difficult to survive at the best of times. The management of these community centres is a major problem in Dublin, for example. They have been built by various means over the years but some of them have been allowed to become derelict because of the absence of management expertise. Such events are resorted to as a way of keeping the show on the road and keeping the centres up and running.

It is a difficult decision to take. There are some people in my constituency affected by the issue Deputy McDowell raises. I am not sure how the balance might be struck or how one can make the distinction. Schools in my area are being let out for this purpose and they will argue that any minimal income they get from it goes towards the school's general upkeep.

Mr. M. McDowell

Lest it should appear that I am advocating the imposition of VAT on golf clubs, that is not the case — that was Deputy Yates's constituent. Nobody who provides a recreational or leisure service should be liable for VAT in circumstances where it is the same as that provided by a voluntary group.

Mr. B. Ahern

I recognise the point Deputy McDowell is making, but it seemed all so simple when we debated this issue last year. I tried to include all the decisions we made at that time; I was successful with some but unsuccessful with others. I can understand the points made by the person writing that letter — I have in my office letters from others with similar problems. One must start on the basis that one cannot remove a person's tax, but only equal it by putting it on to another person and then we end up being disliked by everybody.

While I accept that there is, inevitably, some competition between taxable and non-taxable entities, I am not convinced that distortion of competition arises between them to a sufficient extent or on a wide enough scale to warrant changing the law, but the issue will continue to come up. If it is accepted there is distortion, the only possibility under European Union VAT law is to consider bringing clubs or voluntary groups within the VAT net in relation to those activities which give rise to the distortion of competition, which will mean all activities. Although European Union law allows for this eventuality, it is an issue which requires careful consideration and I will not go ahead with it this year. Bearing in mind the nature of these clubs and voluntary groups, it is easy for somebody to come up with a commercial one and say it is a distortion, but if that is extended, much unreasonable difficulty could then be created for various bodies and groups.

Amendment, by leave, withdrawn.

SECTION 86.

Chairman

Amendments Nos. 154, 248, 249 and 250 are related and may be discussed together.

Mr. Yates

I move amendment No. 154:

In page 109, between lines 2 and 3, to insert the following:

"(8) The V.A.T. credits or refunds relating to this section shall also apply by way of a V.A.T. refund to the lessee of such leases even if they are not registered for V.A.T., due to the fact that their trade or business is not eligible for such registration.'.".

With the agreement of the committee, could we group the amendments from No. 154 to No. 171 — Deputy Rabbitte and others have amendments later on — so that Members would not be denied the opportunity to speak on them?

Chairman

Is that agreed? Agreed.

Mr. Yates

The Minister has introduced a VAT concession for long term leases. There is no problems with this if the tenant holding the lease is on the register of that business. However, offcourse bookmakers are not registered for VAT and a number of businesses, such as transport, are also exempt; they cannot get these benefits. The Minister has acknowledged the principle of a VAT refund for such leases, but it should be extended equally to all such tenants. It currently means that those who register for VAT could afford to pay a higher price for a lease than others.

Mr. B. Ahern

The purpose of this amendment is to provide that when VAT is charged on a long term lease of property to a lessee who is not registered for VAT, the lessee would be entitled to obtain a refund of the VAT charged to him. The Deputy will appreciate that our VAT system must be in line with the VAT rules at European Union level and a fundamental feature of European Union VAT law is that VAT is only deductible by a taxable person if it relates to taxable supplies made by him. Persons who are not eligible to register for VAT are not entitled to the VAT deductibility, nor do they charge VAT. This amendment, therefore, is contrary to EU law.

Amendment, by leave, withdrawn.

Mr. M. Ahern

All of us are aware of people coming from England and selling lorry loads of electrical, sporting and other types of goods without paying VAT. I am aware that officials of the Revenue Commissioners went to Cork and caught some of them. However, it has been brought to my notice that they are still operating. They may give a VAT number, but often it may not be a properly registered one. Would the Minister look at the possibility of setting up a special VAT team to examine those types of traders to ensure they are not misleading people and defrauding the Exchequer? They are playing on an uneven pitch and damaging legitimate business. The Minster may be able to come back to us on that matter between now and Report Stage.

Mr. B. Ahern

I have a long list of various weekend sales around the country during 1993 up to the end of March this year, which shows the number of traders and the yield the Revenue Commissioners have successfully got from them. We did give additional powers to the Revenue Commissioners to deal with this problem. I might get an update on that, but the Deputy will see from this list the extent to which the Revenue Commissioners are proceeding with these issues. Section 91 also deals with some of these types of problems.

Amendment, by leave, withdrawn.

Section 86 agreed to.

NEW SECTION.

Chairman

Amendments Nos. 155 and 156 are related and may be taken together.

Mr. Yates

I move amendment No. 155:

In page 109, before section 87, to insert the following new section:

"87.—A Value Added Tax (Refund of Tax) Order shall be made in respect of gifts or donations of equipment by individual parents, parents associations or other charitable benefactors, to schools where such equipment is based and used wholly and exclusively within the school, is verified by the school principal and is subject to the approval of the Minister for Education.".

Amendments Nos. 155 and 156 cover the same issue, which was debated last year. A voluntary group who raise money to buy equipment for a school or a hospital should not be penalised. They are relieving the State of an obligation. It is a genuine case. It is a little like the issue of disabled drivers. One cannot put up an argument against it; it is only a case of how far one is prepared to go.

Amendment No. 158 calls for a new cash basis for accounting. The threshold of £250,000 is too low and I ask that it be raised to £1 million. The new measure introduced in the budget did not go far enough. Perhaps the Minister might compromise and raise it to £500,000? I also ask that the thresholds the Minster is raising for VAT in section 90 be index linked for the future.

I ask him to comment on amendments Nos. 161 and 162 dealing with the travelling funfairs. The Minister would be aware that the Irish Showmens Guild has written to us saying that if shows such as Funderland operate for less than 19 days, they are exempt from VAT. They wanted this period extended to 30 days. I understand the rate is now 12.5 per cent for everyone. Perhaps the Minister will clarify that.

Amendment No. 168 deals with the stamp duty concession. The reference is to someone having to spend half their time in a working week; it should be specified in hours per week. The Minister has backdated that concession and I welcome this.

Mr. B. Ahern

I have considered the question of making a refund order in relation to gifts and donations of equipment for schools, but it is not appropriate to do so. Given the nature and level of expenditure involved, to have any useful effect the refund order for schools would have to be more extensive and wide-ranging than existing refund orders. A refund order on charitable donations to schools would make it difficult, if not impossible, to resist similar orders for other charitable causes. It is a regrettable fact of life that there are a huge number of voluntary bodies who are always trying to get the benefits from refund orders. There are refunds up to £20,000 available for capital expenditure on health equipment. In addition we are introducing a new refund order in respect of research and development which may be issued to the Wellcome Foundation.

If VAT was to be refunded for every excellent fund raising case, the situation would be impossible because every football club, group and so on would try to obtain a refund order. In addition it is not the best way of targeting because, for example, where a parents' committee or a board of management in a wealthier area raise money, they will seek a VAT refund order. It is then targeted to them, whereas a poorer area will not gain the benefit. It would be better to give aid directly rather than through the VAT system.

Regarding amendment No. 158, there was no threshold and the cost of moving to a threshold of £250,000 was £5 million. The Deputy has probably received representations from the other groups and individuals, as I have, on this issue. I have no objection in principle to the adoption of a higher threshold but the implications of the amendment, or of the issue generally, in terms of cash-flow loss to the Exchequer would be considerable and that is why I have not proceeded on this basis.

While it is not possible to pinpoint accurately the cash flow loss to the Exchequer resulting from an increase in the threshold to £1 million, it is estimated that the potential loss would be at least £45 million and more likely in excess of £75 million. Again, this is a matter which must be considered in the context of budgetary cash flow.

Regarding the index linking of thresholds, the Committee will be aware that section 90 introduces new rules allowing more traders to use the cash basis. It will stand beside the already existing rules for eligibility, that at least 90 per cent of a taxable person's turnover must derive from sales to unregistered persons. Deputy Yates will appreciate that this is a measure operating in conjunction with an existing measure and my officials will be examining the effectiveness of any change in this over the coming year.

Mr. Yates

Amendment No. 160 refers to loss adjusters' fees. The insurance industry is afraid that people will end up operating in the black economy which would increase insurers' costs. Given this, why did the Minister select loss adjusters' fees for VAT?

Mr. B. Ahern

The main purpose of this measure, as I announced in the budget, is to provide that the services of loss adjusters will no longer qualify for exemption from VAT. These services will, accordingly, become liable to VAT at the standard 21 per cent rate with effect from 1 September 1994. The measure will place loss adjusters, who are clearly providing a service on a commercial basis, on the same footing for VAT purposes as motor assessors, who are operating in a similar area.

Mr. Yates

Are motor assessors liable for 21 per cent VAT?

Mr. B. Ahern

Yes. I receive some representations, as I am sure Deputy Yates did, where they try to argue that they are not motor assessors. If the Deputy requires some data on this I will provide him with it.

Mr. M. McDowell

If an insurance company carries out its own loss adjustment function there is no VAT.

Mr. B. Ahern

That is correct.

Mr. M. McDowell

Why, then, should the insurance company not simply save itself 21 per cent VAT by internalising its loss adjusting and making it an in-house function?

Mr. B. Ahern

This measure deals with somebody who provides a service in the normal way and claims expenses.

Mr. Yates

Deputy McDowell's point is that somebody who had a lot of claims would pay a car rental company, for example——

Mr. M. McDowell

I am referring to a loss adjuster who is undertaking work on behalf of insurance companies. Why should the insurance company not advise the loss adjuster it is not going to pay the 21 VAT as it cannot recover it and it is going to employ somebody to do it in future and thereby put the loss adjuster out of business?

Mr. B. Ahern

The insurance company does not do that with its solicitor or accountant——

Mr. M. McDowell

No, but 21 per cent VAT in respect of loss adjusters is a large amount.

Mr. Yates

How much revenue does the Minster expect to raise from the measure?

Mr. B. Ahern

Approximately £2.5 million to £3 million.

Mr. Yates

There are a small number of people affected by the measure. Perhaps the Minster could now respond on amendment No. 161, dealing with the travelling playgrounds.

Mr. B. Ahern

At present, entertainment services supplied in fairgrounds by the travelling fun fairs are liable to a 12.5 per cent rate. To qualify for the reduced rate the fun fair must not stay for longer than 19 days in the one location and there must be at least a one month gap before the next performance in the same area.

The provision, which was introduced in the Finance Act, 1986, allows the travelling fun fairs to stay three weekends in the one location and still qualify for the reduced rates. In contrast, entertainment services in permanent or semi-permanent locations, such as amusement parks, continue to be liable at the standard rate, currently 21 per cent. This means that there is a different rate applying to the same services depending on where they take place. This differential treatment discriminates against operators in the seaside resorts. Representations have been received from Tramore and Salthill.

Mr. Yates

The Minister is aware that the travelling showmen lobbied to get the 19 days extended to 30 days. The Minister has clobbered those who avail of the 19 day provision.

Mr. B. Ahern

No.

Mr. Yates

Would the Minister explain the position?

Mr. B. Ahern

We received representations from the travelling showmen to increase the 19 days to 30 days,

Mr. Yates

Did the Minister do this?

Mr. B. Ahern

We eliminated it altogether. Representatives of the permanent facilities sought the extension of the reduced rate to their operations. We have removed altogether the time limitation on duration of stay.

Mr. Yates

For those that were zero rated within the 19 days, will the rate be 12.5 per cent or 21 per cent?

Mr. B. Ahern

It will be 12.5 per cent.

Mr. Yates

If, therefore, Funderland, for example, was rated at 12.5 per cent it will continue at this rate after this measure?

Mr. B. Ahern

Yes.

Mr. Yates

So the Minister not only applied the measure for 30 days but for the entire year.

Mr. B. Ahern

The measure puts all fun fairs at a rate of 12.5 per cent regardless of their status.

Mr. Yates

That is a good idea.

Mr. B. Ahern

Regarding stamp duty, the conditions for granting the stamp duty relief on transfers of land to young farmers required the young farmer to furnish a declaration to the effect that he or she, for a period of five years from the date of execution of the transfer, spent not less than 50 per cent of his or her normal working time farming the lands. The declaration is similar to declarations which have been made by the transferee under the EC farm retirement scheme and under the scheme for installation aid and therefore normal working time would be defined for the purposes of the stamp duty relief by reference to the guidelines which apply to those schemes. Normal working time for the purpose of those schemes is based on a working year of 2,100 hours therefore 50 per cent of normal working time is 1,050 hours.

Under the Deputy's proposal a farmer would be required to work a minimum of 1,040 hours based on the 52 weeks of the year. There is no great difference in practice——

Mr. Yates

The difference is 38 minutes in practice between the two. Regarding amendments Nos. 167 and 168, perhaps the Minister could advise on the position. Perhaps the provisions of amendment No. 168 are already in effect in so far as those on the farm retirement scheme will get the benefit of section 104 regarding the lower, one third, stamp duty.

Amendment No. 167 seeks to set up an appeals procedure for stamp duty. Section 101 makes clear that in order to have a stamp duty appeal the appellant must pay the money first and then seek an appeal. This amendment proposes that an appeal should be possible without having to pay the up front cost. It is a reasonable proposal.

Mr. B. Ahern

The representations made in the past regarding the stamp duty appeals procedures were concerned with achieving a mechanism to allow taxpayers appeal to the appeal commissioners rather than having to go the the High Court.

Mr. Yates

I agree with that. We discussed it last year.

Mr. B. Ahern

This request has been met. In the past there were very few stamp duty appeals. Only four cases in eight years appealing against a valuation of unquoted shares went to the High Court.

Mr. Yates

The point of my amendment is that in order to get an appeal, one has to pay the full amount as assessed by the Revenue Commissioners. This means that one pays it before one knows the result of the appeal. This does not apply to income tax.

Mr. B. Ahern

Stamp duty tax is different to all other taxes. Under stamp duty legislation, unstamped instruments may not be used in evidence or for any other purpose. This tax is different in law from all other taxes. The only exceptions arise in the case of criminal proceedings or proceedings to recover stamp duty.

Mr. M. McDowell

What effect have the territorial changes, which were made last year, had on the yield?

Mr. B. Ahern

The changes were made in 1991. The yield has not been that significant.

Mr. M. McDowell

It is not being chased up enough.

Chairman

As it is now 6 p.m. I am required to put the following question in accordance with an Order of the Dáil on 25 April:

That the amendments set down by the Minister for Finance to Parts II, III, and IV of the Bill, and not disposed of, are hereby made to the Bill and that in respect of each of the sections undisposed of in the said parts, that the section, or, as appropriate, that the section, as amended, is hereby agreed to.

The Select Committee divided: Tá, 15; Níl, 8.

Tá
Ahren, Bertie. Ahern, Michael. Ahern, Noel. Broughan, Tommy. Costello, Joe. Ellis, John. Kenneally, Brendan.	Kenny, Seán. Martin, Micheál. Nolan, M. J. Noonan, Michael (Limerick West). O'Leary, John. Smith, Brendan. Upton, Pat. Walsh, Eamon.

Níl
Crawford, Seymour.	McGinley, Dinny.
Creed, Michael.	McGrath, Paul.
Currie, Austin.	Nealon, Ted.
Finucane, Michael.	Yates, Ivan.

Question declared carried.

The Select Committee adjourned at 6.15 p.m. until 11 a.m. on Friday, 6 May 1994.