Committee Reports > List of Committees > Dáil > 1975 > Committee of Public Accounts > Interim and Final Report - Appropriation Accounts 1972 - 1973

APPENDIX 12.

PROBLEMS IN RELATION TO TAX COLLECTION

I. Growth in Revenue Operations

1. The amounts of tax which the Revenue Commissioners are responsible for collecting have grown enormously over the past fifteen years. This is clear from the following table which shows the increase in tax collected under the various heads since 1960-61.

2. The Office of the Collector-General, which is based in Dublin, is responsible for the collection of income tax, corporation profits tax and value-added tax. In addition flat-rate health contributions have been collected from certain self-employed persons since October, 1971, and pay-related social insurance contributions have been collected through the PAYE machinery since April, 1974. It is estimated that in 1975 the Collector-General’s Office will collect a total of £610 million.

3. The vast bulk of income tax (including PAYE) and value-added tax is collected from taxpayers by employers and traders and is then remitted to the Revenue Commissioners. The total number of income taxpayers is 730,000 of whom only 60,000 remit tax directly to the Revenue. The number of traders registered for value-added tax is 40,000 and about 57,000 employers are registered for PAYE. Therefore, while everyone in the country pays tax in some form or other, the number of persons obliged to remit tax directly to the Revenue does not exceed 120,000. The main problem in the collection of tax arises in enforcing collection on those persons liable to make remittances who fail to do so in response to the issue of demands.

Growth in number of taxpayers

4. In recent years there has been tremendous growth in the number of employers registered for PAYE purposes. This is clear from the following table which shows the increase in the number of registered and liable employers between 1969-70 and 1974-75.

health contributions.

5. The reason for the sharp increase in the number of liable employers for 1974-75 is that all employers, including farmers, have been required to remit pay-related social insurance contributions through the PAYE machinery from April, 1974 in respect of their eligible employees.

6. In addition to the increase in numbers in PAYE, other increase have occurred due to the collection of flat-rate health contributions from certain self-employed persons since October, 1971 and to the introduction of value-added tax in November, 1972 in place of turnover tax and wholesale tax. This is shown in the following table which shows the number of registrations for the purposes of value-added tax and for turnover and wholesale taxes in recent years.

7. The estimated number of persons liable to income tax under Schedule D is set out in the following table.

II. Computer procedures in the Office of the Collector-General

8. In the administration of income tax (including PAYE) corporation profits tax and value-added tax, the assessing, accounting and collection is done by computer.

Income Tax and Corporation Profits Tax

9. Once the tax liability has been agreed by the inspector of taxes, computerproduced demands for the amount due are issued. Where the liability is not fully agreed the demand is for the amount not in dispute. If no payment is made in response to the issue of reminders, enforcement of collection begins.

PAYE

10. The PAYE system requires that an employer who pays emoluments at a rate exceeding £6 a week (or £1 a week in the case of part-time employees) must register his name and address with the Revenue Commissioners. The employer is obliged to remit to the Collector-General all the amounts of tax he was liable to deduct from emoluments paid by him during an income tax month within nine days from the end of that month.

11. Where the Revenue Commissioners have reason to believe that a person was liable to remit tax for a particular month and that person has failed to remit the tax, they may estimate the amount of tax which should have been remitted by that person within that period and serve notice on him of the amount estimated. The amount of the estimate may be appealed to the Appeal Commissioners whose determination in the matter is final and conclusive. Where an individual fails to remit tax after the estimate has been served the normal recovery procedures outlined below apply.

Value-added tax

12. Persons are not obliged to register for value-added tax if their turnover is less than—

(a) £2,000 in any taxable period of two months for certain categories of traders such as butchers, grocers, publicans or newsagents,

(b) £1,000 in any taxable period for persons such as hardware merchants and jewellers, and

(c) £300 in any taxable period for hoteliers, caterers, hairdressers and others.

13. All registered persons are liable to send in a return together with the amount of tax due (if any) within nine days from the end of a taxable period of two months. If a person fails to make a return two reminders are issued within a month and in the event of a continued failure to remit, an estimate would issue within about six weeks of the due date. The normal recovery procedures would apply in case of failure to remit tax on receipt of an estimate.

III. Enforcement of collection

14. After the automatic computer procedures are exhausted and the tax is still outstanding, enforcement of collection begins. At the enforcement stage, the cases are individually examined and divided into three categories. The largest group of cases (48,673 in the year ended March 31st, 1974) are sent to the Sheriff or County Registrar with a warrant to enforce collection ultimately by distraint. If the Sheriff or County Registrar is unable to enforce collection because there are no goods to seize, the warrant is returned to the Collector-General endorsed “nulla bona”.

15. The second group of cases (7,691 in the year ended March 31st, 1974) are those referred to the Revenue Solicitor to take court proceedings. A significant proportion of cases sent to the Revenue Solicitor are those in which “nulla bona” returns have been received from the Sheriff or County Registrar.

16. The balance of cases are referred to the Collector-General’s arrears section. These cases include those where non-residents are involved or where the inspector of taxes has been unable to ascertain the taxpayer’s address.

17. It is anticipated that the number of cases in which enforcement action is necessary will tend to increase sharply over the levels that have been experienced in recent years. This is due to a number of factors, principally the collection of pay-related social insurance contributions which has greatly increased the number of employers liable to remit deductions. The vast majority of new employers, including farmers, are in a small way of business and there are likely to be difficulties in collecting from a significant number of these.

18. Enforcement of collection through Sheriffs and County Registrars has been the method most widely used because of its administrative simplicity and its avoidance of long-drawn out court proceedings. Recovery of tax arrears on a large scale through County Registrars has created serious problems because of the sheer volume of cases involved. In an attempt to reduce the pressure on County Registrars, tax assistants in certain local tax offices were assigned last year on an experimental basis to special duties in connection with collection, which involved making personal calls on defaulters whose cases would normally have gone directly to the County Registrars. Despite the employment of tax assistants on local collection work, it is likely that under present conditions there will be substantial growth in the volume of cases referred to County Registrars in the next few years arising from the taxation of farmers and the collection of pay-related social insurance contributions through the PAYE machinery from employers who, in many instances, never had taxable employees before.

Charge of interest on tax outstanding

19. In order to try to reduce the number of cases reaching the enforcement stage the legislation has been strengthened in recent years to encourage prompt payment of tax. Section 17 of the Finance Act, 1971, increased the rate of interest on overdue income tax, sur-tax and corporation profits tax from 0.5 per cent to 0.75 per cent for each month or part of a month in which the tax was outstanding. This rate is being further increased in the Finance Bill, 1975 to 1.5 per cent per month or part of a month. The Finance Bill also increases the rate of interest on late payments of PAYE and VAT from 1 per cent to 1.5 per cent per month or part of a month. In addition, the Finance Act, 1973, imposed a minimum interest charge of £5 in respect of late payment of PAYE. These increases were necessary because the sharp rise in other interest rates which occurred over the past few years had made the old rates inadequate to fulfil the purpose for which they were intended, that is, to act as a deterrent in order to ensure prompt payment of tax.

Significance of Arrears

20. Due to the existing policy of according individual attention to cases in which large remittances are due, it has been possible to ensure that the difficulties which have arisen in relation to collection have not seriously impaired the flow of revenue to the Exchequer. Therefore, to date, despite the large number of cases reaching the enforcement stage, the amount of money involved in these cases in relation to the total receipt has been relatively small. However, the following tables show that the amount of tax due for collection expressed as a percentage of the net receipt of tax has increased significantly over the past three years.

21. Table A shows the amount of income tax due for collection as at June 1st, 1974 as a percentage of the net receipt of income tax (excluding Schedule E tax paid by employees) for 1973-74. For comparative purposes similar information is shown for the two previous years.

Table A

Assessed income tax due for Collection

This shows that the amount of income tax due for collection has doubled in the last three years in relation to the receipt of income tax other than under Schedule E. (Schedule E tax is almost entirely collected by deduction from taxpayers).

22. Table B contains similar data for sur-tax as that shown in Table A for income tax. The amount of sur-tax due for collection as at March 31st, 1974 is shown as a percentage of the 1973-74 net receipt from sur-tax. Corresponding data is shown for the two previous years. This confirms the trend shown by Table A for income tax in that sur-tax due for collection has also grown sharply in relation to the receipt over the past three years.

Table B

Sur-tax due for Collection

23. Table C shows the same data for corporation profits tax as that shown in Table B for sur-tax. From this it is clear that while the collection of corporation profits tax has deteriorated significantly it has not done so to the same extent as has happened in the case of income tax and sur-tax.

Table C

C.P.T. due for Collection

24. It will be appreciated that the figures given in the tables above do not include sums which may be overdue in respect of PAYE or value-added tax, as these are not assessed taxes in the ordinary sense, formal assessments for these duties only being made when other methods of recovery have failed.

Problems arising from the present difficult economic situation

25. Over the past year or so the achievement of compliance in relation to collection has become increasingly difficult because of the effects of inflation on the liquidity of many businesses. In that period, it has become clear that many taxpayers, including some large and long-established companies, are experiencing difficulty in payment of tax. In such cases, every effort is made by the taxpayer to delay payment. For example, in 1973 the initial application for payment of tax by the Revenue Solicitor was effective in about 50 per cent of cases. During 1974 that figure progressively declined and the percentage for the first two months of 1975 has fallen to about 12 per cent. This increases the number of court actions, which necessitates the employment of a greater number of specialised legal staff, who are difficult to recruit.

26. Many taxpayers are experiencing genuine temporary difficulties in paying their tax and the Revenue Commissioners take this into account in demanding payment of tax, particularly in cases in which a vigorous enforcement policy would endanger jobs. However, a very firm line is taken in respect of the collection of PAYE, which has been deducted from employees and value-added tax, which has been paid by customers. In these cases the view is taken that the trader has absolutely no right to retain for personal or company use tax, which belongs to the Exchequer and which he has deducted from his employees and customers.

How the problem is being tackled

27. To cope with the problem of growing tax arrears, the Revenue Solicitor has increasingly availed of the procedures for the winding up of companies, bankruptcy proceedings (against individuals) and registration of judgement mortgages. In addition penalty proceedings to enforce prompt delivery of returns and payment of tax are being taken on an increasing scale. Discussions have also been held with the Department of the Public Service and the Department of Justice in order to bring to their attention the growing volume of work with which County Registrars have to cope.

28. The Revenue Commissioners are very concerned about the growing problem of arrears of tax due for collection and every effort is being made to reduce those arrears. The problem is being kept under constant review and any steps within the power of the Revenue Commissioners which are thought necessary will be taken.

Office of the Revenue Commissioners,

March, 1975.

* Includes estimated receipt from pay-related social insurance contributions and