Committee Reports > List of Committees > Dáil > 1980 > Committee of Public Accounts > Report - Appropriation Accounts 1978

MIONTUAIRISC NA FINNEACHTA

(Minutes of Evidence)

Déardaoin, 24 Aibreán 1980

Thursday, 24th April 1980

The Committee met at 11 a.m.

DEPUTY O’TOOLE in the chair.

Mr. S. Mac Gearailt (An tArd-Reachtaire Cuntas agus Ciste) called and examined.

MINUTE OF THE MINISTER FOR FINANCE ON THE COMMITTEE’S REPORT (Paragraphs 18 and 46) ON THE APPROPRIATION ACCOUNTS, 1977

Mr. J. F. Richardson called and examined.

292. Chairman.—The Minister’s Minute on paragraph 18 of the Committee’s previous Report refers to wealth tax returns which were outstanding at end-December, 1979 and cases under scrutiny. What is the present position in respect of these cases?

—The present position is that the formal assessment of cases is continuing and the number of what one might describe as outstanding cases is being reduced but because of the fact that money has been paid in advance in most of these cases there is no great increase in the amount collected. In other words, the accounting for the money which has been received is being brought up-to-date on a proper basis but it does not necessarily mean that there is any great amount of additional tax being collected. It will be borne in mind in this connection that the tax is obsolete and that no further amounts are coming into assessment. What we are doing all the time now is working on a clearing up operation. What is important at the moment is the accounting aspect of it rather than the collecting aspect because the money is there and it is a question of appropriating it finally to the proper accounts.

293. In connection with the Minister’s Minute on paragraph 46 of the Committee’s previous Report, may I ask the Accounting Officer what is the historical background to this “care and management” formula, to put the current position in context?

—The phrase has a long history. It was contained in fiscal legislation which was there before the commencement of our State and it has been continued on in all the Finance Acts which have been passed since. As originally inserted in legislation, its object was to cater for a necessity which arose in practice. That was where the statutory words if interpreted strictly in every case—this is only one aspect of it, I will come to another later on—would lead to results which the Legislature obviously did not intend. There was a certain discretion but I would like to emphasise that it would only be regarded, and it is still only regarded, as a very marginal type of discretion given to the present Revenue Commissioners and the Boards of Revenue which preceded them before the setting up of the State to enable, as it were, the machine to function without foolish and unintended results taking place. The reason I mention that aspect of “care and management” first is because it arises in connection with the matter under discussion but, of course, “care and management” extends to a great number of other areas. If I mention them it will be clear that it imposes on the Commissioners the necessity for making even physical arrangements such as the supplying of uniforms for their uniformed staff, the ordering of cars for patrol, the provision of proper furniture and all the things which are needed to enable the statutes to be given effect. There could be no doubt about the necessity for that kind of provision. The statute is there. The purpose of the words generally in relation to the statute is to empower the Commissioners to take such steps as are necessary to give effect to the legislation. A lot of it would be on the provision of physical facilities. Would you like me to continue on on any particular aspect?

294. There is no problem with the latter portion of your statement. We realise the obligations which legislation brings about in relation to the physical provision of these matters referred to by you. The Committee raised the question concerning the former part of your statement about the discretionary powers exercised and the part the Minister plays now in the Minute here. It states that the Minister is advised by the Revenue Commissioners that, in exercising these powers in regard to the collection of taxes and sums expressed to arise by way of interest on such taxes, they have felt obliged to have regard to the Minister for Finance’s statements in Dáil and Seanad Éireann when the relevant legislation was being introduced. These statements clearly indicate that it was not the intention of the legislation that large amounts of interest at very high rates should be collected from the persons concerned; the interest was to be considered more as a penalty than as a method of compensating the Revenue Commissioners for outstanding accounts. The question arises here as to the intention of the legislation. Normally legislation is interpreted by the courts and court judgments are based on the legislation in front of them. There is no such thing as the spirit of the legislation in this country, as opposed to the system in the UK, for example. Cognisance of statements made by Ministers on Committee Stages of Bills, for example, to off-the-cuff question-and-answer situations is never taken into account in normal court procedures when interpreting Acts of the Oireachtas but in this case it would seem that there is a certain amount of discretion allowed to the Commissioners based on statements made by the Minister for Finance, both in Dáil and Seanad Éireann during the passage of the relevant legislation concerning this particular area of activity. It is different, obviously, from other legislation passed through this House. Would you care to comment on that aspect of it?

—I do not feel competent to comment on fields of legislation other than revenue legislation but if I may make this comment: the dividing line between the Revenue Commissioners and the Minister for Finance or at least the place where it occurs is rather a grey area. The legislation which set up the Revenue Commissioners in 1923 was enacted at or about the same time as the legislation which defined the functions of the Minister for Finance. There is a certain grey area as to who is the dominant administering authority. In practice this causes no trouble at all. What in practice happens is that the Minister lays down broadly the lines along which fiscal policy is to be carried out but the carrying out of the fiscal policy in individual cases and its application to individual cases is left to the Revenue Commissioners. In this rather grey area the view has always been taken—and this is not recent—that, if the Minister indicates that a certain piece of fiscal legislation should be administered in a certain way, the Revenue Commissioners feel obliged to take cognisance of his views. In other words, there can be no division between the Revenue Commissioners and the Minister for Finance as to how legislation is to be administered. If I could give you an example removed from this particular point we are discussing, if a completely new tax was introduced the Minister might say in the Dáil that he will instruct the Revenue Commissioners in the first year or two of its operation to bear in mind that people are unfamiliar with its requirements and to abstain from precipitately taking penalty proceedings against them until they get used to the operation of the Act. We would feel obliged to pay great attention to any indication of the Minister’s wish in that regard because it would fall into the area—that is by reference to the historic criteria I have been mentioning—of how fiscal policy is to be implemented broadly as distinct from its application in individual cases.

295. Deputy N. Andrews.—It would be fair to say that the spirit of this particular legislation provides for discretionary powers. Basically the Minister would have indicated that in introducing it. Am I correct in that assertion?

—Yes. The rates of interest prescribed were, by way of reference to the rates prevailing then, but not now unfortunately, very high. In the discussions, the Minister for Finance made it very clear that he did not wish the interest to be regarded as anything other than a threat or penalty to induce people to pay promptly. He said so specifically. To come to the expression you used, in so far as it would be proper for us to think in terms of the spirit of the legislation, yes, that would be the spirit in which the Minister would want it, we thought, to be administered.

I would see that as quite reasonable as long as you use discretion to apply this penalty if necessary.

—If necessary and for the purpose of speeding collection.

296. Deputy Leyden.—This would also apply to Schedule D tax, that collected from the self-employed?

—It would.

297. I did not see much discretion in my dealings with the Revenue Commissioners. Indeed, it is news to me as a member of this Committee and, indeed, as a member of the public and as a taxpayer that you have such discretion. I was not aware of such discretion. I would say that it was never exercised and, furthermore, I have often heard people say it would be advantageous to overpay your tax on the basis that you would get the interest prevailing at the time returned on your overpayment. Is that correct? If you overpay your income tax in advance, when it comes to the actual settlement you would be entitled to collect the interest for the period that you overpaid from the Revenue Commissioners?

—Offhand, I am not certain that is so in the case of income tax—it may well be—but it is certainly the case in wealth tax, if a person has paid on account a greater amount than the amount subsequently assessed, he is entitled to receive back the balance with interest and interest at quite a high rate.

That confirms the information that I had.

VOTE 8—OFFICE OF THE REVENUE COMMISSIONERS

Mr. J. F. Richardson further examined.

298. Chairman.—Paragraph 8 of the Report of the Comptroller and Auditor General reads:

“Revenue Account

A test examination of the Revenue Account has been carried out with generally satisfactory results.”

299. Paragraph 9 of the Report of the Comptroller and Auditor General reads:

“The net yield of Revenue for the years 1978 and 1977 under its main heads is shown in the following statement:—

£1,706,671,000 was paid into the Exchequer during the year leaving a balance of £3,762,464 as compared with £1,861,273 at the end of the previous financial year.”

300. Paragraph 10 of the Report of the Comptroller and Auditor General reads:—

“I have been furnished with the following schedules relating to the assessment and collection of taxes:—

Schedule 1—Income Tax (as at 31 May 1979) (excluding PAYE)

Distribution of Balance

Schedule 2—Sur-tax (as at 31 March 1979)

Distribution of Balance

Schedule 3—Corporation Profits Tax (as at 31 March 1979)

Distribution of Balance

Schedule 4—Corporation Tax (as at 31 March 1979)

Distribution of Balance

Schedule 5—Capital Gains Tax (as at 31 March 1979)

Distribution of Balance

Schedule 6—Wealth Tax (as at 31 May 1979)

Distribution of Balance

Schedule 7—Capital Acquisitions Tax (as at 31 May 1979)

Distribution of Balance

Income tax collected under the PAYE system and included in the amount of income tax collected as shown in paragraph 9 amounted to £523,971,722. Arrears outstanding at 31 May 1979 amounted to £8,450,501.”

301. Paragraph 11 of the Report of the Comptroller and Auditor General reads:—

“Extra-Statutory Reyayments

Extra-statutory repayments of Customs duties, £189, Excise duties, £34,924, Agriculture Levies, £4,010, Value-Added tax, £56,712 and Stamp duties, £7,979, were made during the year.”

302. Paragraph 12 of the Report of the Comptroller and Auditor General reads:—

“Remissions and Amounts Irrecoverable

I have been furnished with schedules of cases involving a loss of £100 or upwards in which claims under the Revenue Acts were remitted without statutory authority or passed as irrecoverable during the year ended 31 December 1978. The total amount of the items included in the schedules, £124,467, is made up as follows:—

The distribution according to the grounds of remission or write-off is:—

I have made a test examination of the items included in the schedules with satisfactory results.”

Mr. Mac Gearailt.—These are the usual paragraphs concerning the collection of revenue and certain repayments, remissions and amounts written off. The paragraph on outstanding taxes has been expanded in order to give more detailed information as promised to the Committee. There are two tables for each tax heading. The first shows how the balance of tax outstanding is arrived at and the second shows the position relating to the collection of this balance.

The paragraphs also show the amount of PAYE tax outstanding.

303. Chairman.—I would express the gratitude of the Committee to the Accounting Officer for the new format outlined in the accounts here and the wealth of detailed information that is now evident to the Committee from your presentation under this new formula. I am thankful for that; it is very helpful indeed. In paragraph 9, there is a list of headings there for different taxes some of which have been abolished. Wealth tax is one; turnover tax and wholesale tax would be others. Could I ask the Accounting Officer what progress has been made in finalising collection and winding-up the process in these three particular cases?

—Taking the sales taxes, the amount still outstanding is diminishing all the time and in so far as these are on the books now they consist of cases in which there are special factors such as liquidations, or where deaths have occurred and estates have not been wound up. We are, generally speaking, awaiting some formal act before we can proceed to collection or before the person who is accountable can appropriate the moneys in his hands to the Revenue. It is a diminishing problem and is very small in relation to the total yield.

You are happy with the situation?

—Yes.

304. In paragraph 10, Schedule I— Income Tax (as at 31 May 1979) (excluding PAYE), looking down through the years 1973-1974 to 1977-78, in 1976-77 there is a substantial drop in the net charge of that particular year. Could you comment on that?

—Several things happened in that year. One in particular was that the civil service went on to PAYE whereas previously they had been assessed straight under Schedule E. It was an assessed tax and the amount of the assessed tax was included in the charge. When there was a move to PAYE it ceased to be an assessed tax in the sense that we could include it in the charge. That would account for the drop.

305. We note that income tax collected under the PAYE system and included in the amount of income tax collected as shown in paragraph 9 amounted to £523,971,722 and that arrears outstanding at 31 May 1979 amounted to £8,450,501. Have you any idea of the number of cases involved in that particular sum? It is a question to which you may not have the answer at the moment.

—We do not have the answer to that particular one.

306. Do you have any idea of the number involved?

—I am afraid not. There is a certain difficulty about picking on a number of cases because a person might be in arrears for one month of the year and not for the other 11 and the month would be included in that figure whereas the person himself would not be regarded as a defaulter in the same way as a person would be who had not paid an annual tax. One can say he is a defaulter for that year.

307. The number of cases, then, would not be a true reflection of the actual position at all?

—It would not necessarily show the number of people who were in default. It could be less or it could be greater. It probably would be greater because a person might be in default in respect of two different months and there would be a danger of his being counted twice.

308. On the question of evasion—it may be a naive question—but have you any idea of what degree of evasion there is? Are you happy that progress has been made in tracking down people who are not paying their fair share?

—We are not happy about it at all. We know that there is evasion but we have no way of measuring the amount involved. The first step towards collecting it would be to know of it. Over the last two years we have stepped up our attempts to track down evasion by employing more outdoor officers who go round from town to town—there has been some reference to this in the press —and update themselves, as it were, in the field. This has become even more important with the handing over to us of responsibility for collecting pay-related social welfare contributions. We have very considerably strengthened the field force for both PAYE and pay-related social welfare contributions. This is giving quite good results. As to what part of the iceberg still remains untouched we cannot give an estimate.

309. Of the £8,500,000 approximately, have you any idea of what proportion of this would be employers’ liability?

—It is all employers. This is the amount which has been ascertained from the records which have been examined. We try, and I hope you will think laudably, to give you as up-to-date a figure as possible so we have projected ourselves forward from the year which is at present under review, up to 31 May 1979. I have to remind you that there was a postal strike for some months before 31 May 1979 and that affected the flow of documents. If it had not been for the postal strike I am afraid that figure for arrears outstanding would probably be larger though not frighteningly larger.

310. On paragraph 11, could you tell the Committee how these extra statutory repayments arise?

—This is something in the field of care and management that has been mentioned earlier on. It is more formalised inasmuch as the kind of cases in which these extra statutory repayments are made have been defined since time immemorial by Minutes from the Minister for Finance. The largest part would occur in relation to diplomatic privilege. There is an international understanding that the diplomats of a foreign country do not pay the taxes of the country in which they are resident or that if they do they are refunded. In some cases it is impossible at the point of sale to segregate the duty element from the total price. This is done by way of repayment. There are other cases where remissions are made under the headings of, say, compassionate grounds and grounds of equity and also where there are no funds to meet the liability and an attempt to pursue the liability could only result in loss for the State. In this grey area we take as a guiding principle that State money should not be spent in an attempt to recover a smaller amount of tax than the cost of recovering it would be. That is a broad general principle.

Deputy Belton.—You do not throw good money after bad.

—No.

311. Chairman.—Paragraph 12 is self-explanatory in that there are irrecoverable sums on compassionate grounds and miscellaneous liabilities not enforceable. I presume that would be as a result of deaths or bankruptcy, liquidation and all that kind of thing?

—Yes.

312. Paragraph 13 of the Report of the Comptroller and Auditor General reads:

“In the course of audit a number of cases came to light in which amounts of turnover tax remaining uncollected did not appear to have been formally written off even though the relevant files had been marked closed and I asked the Accounting Officer for his observations on the matter.

He informed me that in recent years a small subsection has been dealing with the residue of turnover tax cases largely on a manual basis and that, up to now, the emphasis has been to get each case to the stage where a decision can be made in regard to the prospects of securing payment. If the prospects are considered good the case is referred to an enforcement agency for collection. Where, on the other hand, the circumstances of the case are such that there are no realistic prospects of payment the case is regarded as closed. However, the computer records which indicate that turnover tax is outstanding are not altered and continue to reflect that the cases are open until each case is eventually submitted for passing of the unpaid tax as irrecoverable. Because of the limited staff resources available the final stage of preparing such submissions has had to be deferred so that the processing of ongoing cases can be expedited.

The Accounting Officer also stated that at the end of June 1979 there were 557 turnover tax cases closed and awaiting the preparation of submissions for the passing of the outstanding tax as irrecoverable and that arrangements being made should result in considerable progress in this matter.

He added that it is the normal procedure to submit for passing as irrecoverable all items of unpaid taxes, whether they be turnover or any other tax, where it becomes clear that there is no realistic prospect of collection.”

Mr. Mac Gearailt.—This paragraph deals with the delay in following the normal procedure of passing as irrecoverable a number of cases in which turnover tax remained uncollected and which were regarded as closed. The Accounting Officer’s explanation of the delay is included in the paragraph.

313. Chairman.—What is the present position on the 557 cases?

—I refer back to an earlier part of our discussions this morning in which you asked about the amount of turnover tax outstanding. I said that the number of cases still remaining was very small and generally speaking of small amounts. This is one of the reasons why they were left to one side, although that is perhaps an exaggeration. The amount of attention paid to them was not sufficient. Since our attention has been drawn to this we have speeded up the process of bringing these cases to the point where they can be taken off the books.

314. Am I correct in saying that they would appear in paragraph 12 under irrecoverable payments?

—Yes. While I do not want to take away from the importance of this operation, it is not one which will result in any gain to the Exchequer; it will be a question of clearing the books.

315. Paragraph 14 of the Report of the Comptroller and Auditor General reads:

“Value-Added Tax

The register of persons accountable for VAT is maintained on a computerised system incorporating procedures for the collection of the tax. These procedures provide for the issue of pursuit documents automatically to a taxpayer in respect of outstanding tax. At any stage subsequent to the issue of such documents recovery action may be suspended either for a specified tax period or generally by the input of a stop on the taxpayer’s computer record. On the release of such a stop normal recovery procedures automatically resume. In the course of a limited test examination carried out by my officers in January 1979 it was noted that a number of period stops introduced from 1974 onwards still remained unreleased. It was also noted that general stops introduced from 1973 onwards remained unreleased in some 5,100 cases which represented approximately 8% of the total live VAT cases registered at that time. Some 3,200 of these cases were being considered for cancellation of registration and there were some 1,900 cases in which official correspondence had been returned undelivered. In a number of the cases, however, VAT payments had been accepted by the Revenue Commissioners while the general stops in the computer records remained unreleased. As failure to review cases in which stops have been introduced could result in a loss of VAT revenue I sought information regarding the steps being taken to ensure prompt clearance of long outstanding stops.

The Accounting Officer has informed me that the period stops which had not been released at May 1979 fell mainly into two categories viz. Instalment stops and Inspectors’ stops. Instalment stops are input when a trader seeks an instalment arrangement to cover tax due for certain periods. If the instalment arrangement does not materialise, or having got under way subsequently breaks down, the computer stop is removed manually. Otherwise it is usually left on until the entire instalment arrangement is fully completed. Instalment arrangements in many cases extend over twelve months or more and, in exceptional cases, may even extend over two or three years and, accordingly, tax periods covered by such an arrangement may be under stop for a considerable length of time while the arrangement is progressing to a satisfactory conclusion. The Accounting Officer stated however that, with a view to better control of instalment cases and greater efficiency generally, a special subsection of the Collector-General’s Office was set up in March 1979 to deal with these cases. A list of cases under instalment stops which was produced in July 1979 was being processed in that section and in future such lists would be produced every six months and regularly processed.

Inspector’s stops are input either at the request of the Inspector or by the Collector-General in cases referred to the Inspector for investigation. Lists of such stops are produced in Tax District order for issue to the Inspectors. These lists have not been furnished on any agreed regular basis hitherto but it is intended that in future they will issue at least twice a year.

In regard to general stops the Accounting Officer informed me that lists of cases involving undelivered correspondence or cancellation of registration are sent twice yearly to the Inspectors of taxes for examination. He also stated that a system development is being provided in the next computer development package which will enable long outstanding stops to be more readily and promptly identified. He added that because of the volume and movement in input and release of stops it has been difficult to pinpoint long outstanding stops and consequently to know whether delay has led to any loss of VAT revenue but that when the new system development is available it should be possible to clarify the position.”

Mr. Mac Gearailt.—This paragraph deals with the delay in reviewing cases in which action for the recovery of tax had remained suspended for a number of years. The Accounting Officer mentions revised procedures which are being introduced to enable long outstanding cases to be readily identified and I understand that as a result recovery action has been resumed in a number of these cases.

316. Chairman.—Arising from those comments, could I ask you why there was suspension in the first instance?

—There are three sets of circumstances in which a stop is put on computer operations. One is when an amount is outstanding but the taxpayer has represented that he is unable to pay it all in one sum and there is an arrangement whereby he pays off arrears by instalments. Generally we insist on his paying his current tax in full at the same time, but there is a stop put on the further recovery action because of the agreement to pay by instalments. It still has to stay on the books because the amount has not been discharged. There is another kind of stop and that is where a man who has been billed for a certain amount of tax comes along and says he does not owe that amount and he convinces the inspector sufficiently for the inspector to say that we had better have another look at that. While that examination is being carried out, naturally a stop goes on because the amount is in dispute. Then there is the third stop where in the course of a collection procedure it is discovered that the person we are pursuing is not at the address on the record and letters are coming back marked “gone away”. Then we have to make further inquiries before we can resume the effective collection action. So a stop goes in there. The Comptroller and Auditor General very correctly drew our attention to a lack of system in our approach to these stops, that we were not reviewing them systematically enough, and we have taken steps in all cases to formalise the bringing forward of stop cases and their review, not periodically or at indefinite intervals but at twice yearly intervals. We list them and send them off to the tax districts concerned saying that there is a stop on this case and asking the position. We have the new procedures in operation now. There is a systematic list whereby the cases are reviewed and are not left for too long without an examination as to the present position. This was the object of the Comptroller and Auditor General’s approach to this and we have, to the best of our knowledge, complied with his requirements.

317. You mentioned three instances where a stop is introduced. The first two are obviously where you have sums in dispute, the inspector’s request and so on. These are matters which can be terminated in due course through negotiation. The third one, where there is change of address, or where you have correspondence undelivered, can go on indefinitely if you fail to track them.

—Not in all cases. We deal with that by using what we call “outdoor” officers. They make a list of these people and make inquiries at the address. Very often the answer will come that the taxpayer has emigrated. In that case the tax will be put up as irrecoverable. It will be taken off the books, not definitively, but until such time as we have reason to believe that the man has come back into the jurisdiction. They do not stay in limbo; we do take steps to try to trace what has happened the person whose address does not coincide with our records. Has he gone to some other address, has he left the jurisdiction, has he died? We try to keep the position up to date on that. The list of those stops is also dealt with now in a systematic way.

318. Paragraph 15 of the Report of the Comptroller and Auditor General reads:

“In the course of audit it was observed that a number of 1978 applications for VAT registration had been rejected by the computer apparently because of difficulties arising from registration numbers allocated to the applicants concerned. As it appeared that the computer listing of such rejected cases was not being examined and that the applicants concerned remained unregistered some four months after rejection I asked the Accounting Officer for his observations on the matter. He informed me that in January 1979 a new procedure for the examination of the listing of rejected applications had been introduced. He stated that the applications referred to in my query had been rejected because the numbers allocated were found to be already on file. Duplication of registration numbers, which occurs in a very small number of cases, is a problem associated with the introduction of a common serial number for traders and employers who are liable for Schedule D Income Tax and/or PAYE in addition to VAT. When a new application is rejected the application form is returned to the Inspector for the allocation of a new number and the resubmission of the form for processing. In the cases referred to in my query the Inspectors either had no record of the receipt of the rejected applications or had not returned the application forms to the Collector-General. The Accounting Officer added that appropriate action had now been taken in each of these cases.”

Mr. Mac Gearailt.—This paragraph draws attention to the failure to examine lists of cases in which applications from traders for VAT registration had been rejected by the computer. As a result these traders remained unregistered and could, therefore, escape their liability to pay over VAT. While only a small number of such cases came to light during our audit they did suggest a weakness in control procedures which I was anxious to have removed.

—We had already noticed this defect. We certainly had it under examination when we received the query. In January 1979 we introduced a new procedure for the examination and the listing of the rejected applications. It has been in operation since 1979 and the position now, we think is rectified. There is no longer any danger when the computer rejects a case of its being left there without a number. The cases which are rejected are listed and dealt with by the allocation of a different number and we are satisfied that that particular aspect of the operation is under proper control now.

319. Chairman.—You ascertain now why the number has been rejected because of duplication or whatever it might be. You ascertain the reason for it and you take action?

—We do not have to. Once it has been rejected we know in these cases why. It is because the same number has been allocated to two cases. So all we do is go ahead and give a new number to the second.

You are happy that this closes that gap?

—Yes.

320. Paragraph 16 of the Report of the Comptroller and Auditor General reads:

“Persons accountable for VAT are required under Section 19 (3) of the Value-Added Tax Act, 1972 to make returns in respect of each taxable period and to remit, by a specified date, the tax, if any, payable for such period. Section 22 of the Act provides that where an accountable person fails to make a return for any period the Revenue Commissioners may make an estimate of the tax payable in respect of such period and may recover the amount so estimated. Such an estimate is normally issued by the computer some two months after the end of the tax period for which a return has not been received. In the course of audit it was observed that some Section 22 estimates for tax periods from March/April 1976 onwards were not issued until May 1978 and that demands for payment of the tax due in respect of these periods had not been issued by March 1979. I asked the Accounting Officer for his observations regarding the delay in pursuing the collection of tax in these cases. He has informed me that certain persons registered for VAT indicate that they wish to transact their affairs through the medium of the Irish language. Because of the small numbers involved the collection procedure is a manual one but it was intended to be tied in closely with the automatic system. Due to certain inadequacies in the programming, however, this was not done in all these cases. Because of the small number of cases in the category the rectifying of the programming had a low priority and it was not feasible to take any action until very recently. The Accounting Officer also stated that until recently manual pursuit of these cases had been divided between different officers and that because of staff changes, particularly at supervisory level, some misunderstanding seemed to have developed in relation to the correct procedure to be followed and collection was allowed to fall behind in the cases referred to in my query. The Accounting Officer added that with a view to greater efficiency all cases in this category had recently been allocated to one officer and that collection in the cases where there had been a delay would be brought up to date.”

Mr. Mac Gearailt.—This paragraph draws attention to the failure to pursue recovery of tax from traders who desired to transact their tax affairs through the medium of the Irish language.

321. Chairman.—How many cases of this type have been involved? Have you that information?

—About 40 cases altogether. Because there are so few, it is impossible to devise a computerised system to cater for 40 cases. It would be totally uneconomic, so they must be dealt with manually. Before they can be identified, the computer operation in relation to the huge bulk of cases has to be gone through and then there is this residue. Now, it is unfortunate that, almost of necessity by reason of the machine type of operation, they should be dealt with as a residue. What happened was that first of all they were small cases and, secondly, they arose in a belated kind of way. They were left to one side in the different areas in which they arose. How we have dealt with that is that we have recognised that it is a small operation, a manual operation and all of these cases go to one person who has the responsibility for dealing with those. They have been advanced to the stage where the liability has been estimated, and we can now think in terms of recovery action. One of the results, as a matter of interest, is that they are all shown now as owing more than they did when the matter was raised first. It is an untidy end and we are satisfied now that it has been tidied up and is fitting in to an ongoing operation.

322. Paragraph 17 of the Report of the Comptroller and Auditor General reads:

“Section 12 of the Value-Added Tax Act, 1972 provides that if the computation of the VAT liability of an accountable person for any tax period shows that the tax which may be properly deducted exceeds the tax due by him the excess shall be repaid to him. A test examination of the system in operation for controlling such VAT repayments indicated that procedures did not exist for establishing the authenticity of repayment claims for amounts below a certain level and that such claims are not referred to the Inspector for certification unless he has specifically requested that this be done. Having regard to the comparative ease of registering for VAT purposes and the possibility of irregular repayment claims being made I asked the Accounting Officer for his observations on this matter.

He has informed me that prior to the introduction of VAT in November 1972, the Commissioners considered it essential that priority treatment should be given to the inspection of VAT returns which showed repayments due to traders. This consideration was based on the traditionally strict Revenue procedures employed in regard to the determination of claims for repayment of taxes generally. It was obvious, however, that available staff resources would only be able to make repayments within a reasonable time in respect of a fraction of the claims received in each taxable period if every claim were to be verified with the trader’s records. Accordingly a scheme was approved which provided that a claim or a number of claims from the same trader could be repaid without prior check if the aggregate of the current claim and the preceding claims in the latest twelvemonth period did not exceed £1,000. The scheme also provided that, following examination of a trader’s records, an Inspector could authorise an amount less than £20,000 per claim for automatic repayment in the following period of twelve months.”

However, it was not possible to continue this scheme as it was found by July 1973 that the repayment of claims was falling into arrears and therefore out of line with the undertaking given by the Minister for Finance, prior to the introduction of VAT that repayment claims would be met within three weeks of receipt. It was found necessary to reduce the number of claims being sent to Inspectors by abolishing the twelve months aggregate provision with the result that any claim under £1,000 per taxable period could be automatically repaid and by raising to eighteen months the period during which claims up to £20,000 could be automatically repaid following examination of a trader’s records. While this revised arrangement resulted in a smooth operation, the zero rating of food, oral medicines, etc., in September 1973 caused a rise in the level of repayment cases and the increase in the other tax rates in March 1976 contributed to further rises. It therefore became necessary in May 1977 to raise the automatic repayment limit from £1,000 to £2,500 and at the same time to increase from £20,000 to £40,000 the inspector’s discretion to authorise the repayment of claims.

The Accounting Officer further stated that in January 1979 it was decided that some tighter controls on automatic repayments should be introduced on an experimental basis and that these controls are in operation in respect of all cases whose VAT registration commenced on or after November 1978. The first repayment claim in excess of £100 will not now be repaid automatically but will be referred to the VAT Inspector to establish that trading exists. The Accounting Officer explained that while it was intended that the experiment would be reviewed after some months in operation to see how the Tax Districts and Collector General’s Office were coping with the extra work involved, that review had not yet taken place because, due to the postal strike, the revised procedures had not been fully operational on a countrywide basis for a sufficient length of time in which to judge their success or otherwise.”

Mr. Mac Gearailt.—This paragraph draws attention to weaknesses in the procedures for proving the genuiness of claims from traders for VAT repayments where such claims are for sums below certain levels.

323. Chairman.—Paragraph 18 of the Report of the Comptroller and Auditor General reads:

“The procedures in operation for the recovery of VAT provide that cases in which accountable persons fail to pay amounts due be referred to County Registrars or Sheriffs for collection. In the course of audit it was noted that in many cases which had been so referred no further action had been taken and I sought information as to the number of taxpayers and the amount of tax involved. The Accounting Officer has informed me that the total number of cases in the hands of County Registrars and Sheriffs at 31 March 1979 was 9,823, representing VAT amounting to £10,306,293 and that the total amount collected by them from 1975 to 31 March 1979 was £17,635,688.”

Mr. Mac Gearailt.—This paragraph is for information. It gives the number of VAT cases in the hands of County Registrars and Sheriffs for recovery at 31 March 1979, and also the total amount of tax involved in these cases as well as the total amount of VAT recovered by these agencies up to that date.

324. Chairman.—There is a delay obviously in action taken by the County Registrars and Sheriffs. Would you comment on the reasons for the delay in these cases?

—We have taken up this matter with the County Registrars in particular and they tell us they are short of staff and that the taxpayers in these cases are not particularly cooperative. Sometimes they are very hard to get. Their court messenger will call time and time again and there will be nobody at home, or nobody will know where the person is and so on. It is an area in which we have a continuing problem. I am not able to assure you, as I have been in other cases, that we have this collection area under control. We have taken several steps to try to alleviate it. For instance, one of the matters which the County Registrars represented to us was that they were getting a number of cases for enforcement where, when they went along to enforce, the person had gone abroad recently or gone out of business, or something like that. So we have instituted a system whereby attached to the tax offices, and particularly the country tax offices, there will be somebody who will make inquiries on the ground before these certificates are released to the County Registrars. That has brought about a certain reduction in the number of cases going to them. But even given that, I am not able to say we are satisfied with the arrangements for the collection of revenue debts through County Registrars. One cannot consider it in isolation. There are certain difficulties County Registrars have in the collecting of civil debts as well as debts owing to the Government and it is an area which would have to be considered as a whole in relation to all their functions rather than just their revenue function.

325. Paragraph 19 of the Report of the Comptroller and Auditor General reads:

“It was also noted that the cases referred to County Registrars and Sheriffs did not include those in which over repayments of VAT had occurred nor those in which retrospective assessments had been made when cancelling the registration of accountable persons. Over-repayments are regarded as having arisen when an accountable person, when paying tax, takes credit for amounts later found not to be due to him. The Accounting Officer informed me that, because of the limitations in the existing computer programme, it is at present necessary to resort to a manual operation to seek recovery of the tax due in such cases. However, a development to the existing computer programme is presently being formulated to cater for the automatic pursuit of VAT over-repayments by means of estimates raised under Section 23 of the 1972 Act following the recent amendment of that section, with effect from 1 March 1979. This amendment empowers the Revenue Commissioners to raise estimates to recover VAT which was over-paid or VAT which was repaid where liability existed.

In regard to retrospective assessments made on cancellation of registration the Accounting Officer stated that as the computer programme did not provide for automatic pursuit of tax outstanding in such cases a manual procedure had been developed. In September 1978, however, the position had been re-examined and it was then found possible to change the procedure so that such cases would be processed automatically for enforcement. The Accounting Officer added that these revised procedures are now in operation.”

Mr. Mac Gearailt.—This paragraph draws attention to two classes of recovery cases which were not apparently being referred to the County Registrars and Sheriffs for action—

(a)Cases in which over-repayment of tax had been made, and

(b)Cases in which retrospective assessments were made subsequent to the traders’ registrations being cancelled.

326. Chairman.—Why have the two types of cases specified not been referred to the County Registrars’ Offices for collection? Cases of over-repayment is one example.

—Largely due to a defect in our system. We had not up to then found it possible to introduce a programme to enable this kind of thing to be fitted into the general collection procedures. But in September of 1978 we did launch a programme to enable outstanding tax and cancellation cases to be processed automatically and in full for enforcement. This is in operation now. So we think that particular difficulty no longer exists. In relation to the over-payment matter, we had a legal difficulty which, we were advised, would prevent us from setting off over-payments of tax in one period against under-payments in another. Legislation was introduced by way of amendment of the Value-Added Tax Act, 1972. That amendment was introduced in 1978 and became effective on 1 March 1979. We are now able to take these into account and we pursue that aspect of it manually. In brief, what was holding us up before was a legal difficulty. This difficulty was cleared in 1978 and the procedures for setting off over-payments against liabilities is now in operation.

327. There is now no need, therefore, to refer this type of case to the County Registrars except in the case of non-payment?

—That is so.

328. You can set off over-repayments against under-payments?

—All that emerges then is a nett liability and if there is such we would refer that but otherwise it would not arise.

329. Paragraph 20 of the Report of the Comptroller and Auditor General reads:

“It was also noted that repayments of VAT had been made in a number of cases while earlier over-repayments remained unrecovered and I asked for information regarding the controls in operation to ensure that tax is not repaid to a taxpayer for one period while tax is still due from him for an earlier period. The Accounting Officer informed me that automatic repayment of VAT cannot be made if a taxpayer’s computer record includes certain data. However, because of a deficiency in the instructions to the section concerned, the records of taxpayers to whom over-repayments had already been made did not include the data necessary to prevent further repayments. The Accounting Officer stated that this deficiency has now been remedied and the necessary control has been put into operation in all over-repayment cases in which tax is still outstanding.”

Mr. Mac Gearailt: This paragraph deals with cases in which repayment of VAT was made to traders while they were still liable to refund tax previously over-repaid to them.

330. Chairman.—That comes under the Accounting Officer’s previous reply?

—It is the same section and we have taken care of that.

331. On subhead B.1—Travelling and Incidental Expenses—there is an over-expenditure of £171,000 which, when looked at in the context of the grant of £824,000, is a very substantial increase, one of 20 per cent. Will you comment on this?

—Two factors went into this. One was an increase in the actual extent of travelling. To some extent this would be related to the efforts which we have been making in increasing measure in recent years to accelerate collection, going around to tax payers to get things done in a speedier way than dealing with them by way of correspondence. It is effective from the point of view of collection but it costs money. We have been doing rather more of that in recent years than before. Apart from that, the major part of the increase was the granting of increases in subsistence allowances and motor mileage. Subsistence allowances were increased by 18.5 per cent and motor mileage by 15 per cent with effect from 1 January 1977. Also under this heading removal expenses are covered and there was an increase of 13.9 per cent in that. The excess was largely due to increases with retrospective effect in the rates of subsistence and travelling mileage allowance and so on. We did not know when we were framing the Estimate that these increases would be granted or from what date.

332. On subhead B.2—Office Machinery and other Office Supplies—there is an under-expenditure. The note on B.2 states that the saving was due mainly to the fact that expenditure on disc packs and on the replacement of microfiche equipment did not arise and to the delay in the installation of Post Office lines and modems. Will you comment on that?

—This relates to the purchase of equipment. In our Estimate for the year we provided for the purchase of certain equipment which, in fact, was not needed during the year. The reason it was not needed was because it would be used in conjunction with equipment which would be installed by the Post Office. There were delays in the installation by the Department of Posts and Telegraphs of the equipment we had provided for. The deficiency is a nett one. It was partly off-set by increased expenditure which we had to incur on computer rentals and supplies. Broadly, the over-estimation arose from the fact that equipment which we had thought would be delivered within the year did not, in fact, arrive within that year.

333. On subhead D—Machinery and Equipment for Security Printing and Stamping—the explanatory note states that the excess was in part due to the increased cost of stamps printed commercially. Have you given any thought to the possibility of having this done internally?

—We have. In fact, over many years we have worked towards the position where stamps would be printed internally. We have the equipment to do many ranges of stamps. In connection with certain commemorative issues, the machinery we have is not able to do them to the standard which the Department of Posts and Telegraphs require. To some extent they are influenced by the fact that a very well produced stamp will have a value over and above its face value for philatelists and sales to philatelists form quite a significant part of their revenue from stamps. We do not know in advance which stamps will be specified by the Department of Posts and Telegraphs as being proper to be done by us and which should be printed by an outside printer. It is a question of the technique which they want.

334. Deputy O’Hanlon.—On subhead E—Motor Vehicles—were the cars for customs patrols?

—Yes. The reason for the saving was a strike in Fords which meant that six cars which we were expecting did not come. We off-set the saving to some extent by purchasing more radio telephone equipment than we had bargained for in the beginning. It was entirely fortuitous that there was a strike which held up the delivery of the cars.

The witness withdrew.

The Committee adjourned.

*Includes £556,449 duty deferred under EEC Regulations (1977—£429,524).

†Includes £623,307 tax deferred under EEC Regulations (1977—£533,081).

‡Includes £10,726 levies deferred under EEC Regulations (1977—£73,160).