Oireachtas Joint and Select Committees
Thursday, 21 February 2013
Public Accounts Committee
2011 Annual Report of the Comptroller and Auditor General and Appropriation Accounts
Vote 9 - Office of the Revenue Commissioners
Chapter 7 - Audit of Revenue 2011
Chapter 8 - Revenue Outturn 2011
Chapter 9 - Revenue Debt Collection
Chapter 10 - Increasing Tax Compliance
10:10 am
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I remind members, witnesses and those in the public gallery to turn off their mobile telephones because interference from the telephones affects the sound quality of the transmission of the meeting. By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of the evidence you are to give this committee. If you are directed by the committee to cease giving evidence in relation to a particular matter and you continue to so do, you are entitled thereafter only to a qualified privilege in respect of your evidence. You are directed that only evidence connected with the subject matter of these proceedings is to be given and you are asked to respect the parliamentary practice to the effect that, where possible, you should not criticise nor make charges against any person(s) or entity by name or in such a way as to make him, her or it identifiable. Members are reminded of the provision within Standing Order 163 that the committee shall also refrain from inquiring into the merits of a policy or policies of the Government, or a Minister of the Government, or the merits of the objectives of such policy. I welcome Ms Josephine Feehily of the Revenue Commissioners and ask her to introduce her officials.
10:20 am
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I call the Comptroller and Auditor General to introduce the accounts.
Mr. Seamus McCarthy:
As the Chairman outlined, before the committee today are the accounts of the collection of revenue for 2011, the Revenue Commissioner's appropriation account and a number of chapters examining specific aspects of Revenue activity and performance.
Chapter 8 examines key trends in the amounts collected over the past five years. Having fallen in each year since 2007, the net revenue of the State increased by 7.3% to just over €34 billion in 2011. The €2.3 billion rise was principally accounted for by the introduction of new taxes in the form of a universal social charge and a levy on pension schemes, partially offset by decreases in corporation tax and VAT.
The Revenue Commissioner's assist the Department of Finance in preparing forecasts of annual Exchequer tax receipts. Net receipts in 2011 were below the forecast by almost €900 million. Overall, Revenue forecasting has been relatively accurate in recent years with actually receipts being in the range of 2.3% above to 3.9% below the forecasts. A Department of Finance-led tax forecasting methodology review group concluded in 2008 that the level of forecasting error in Ireland had been high by international standards. The group noted that of the four biggest tax heads, corporation tax receipts recorded the highest forecasting error between 1999 and 2006.
The difficulty in accurately forecasting corporation tax receipts has increased as a result of the emergence of very significant losses which businesses can use to offset against reported profits. Revenue estimates that €119 billion of unused losses and capital allowances were available at the end of 2010 to carry forward for offset in future years. The concentration of accumulated losses in a relatively small number of companies suggests that information of use for forecasting purpose could be obtained by Revenue through analysis carried out on a case-by-case basis.
Given the level of change in national output and the structural change in the economy in recent years, the chapter recommended that the Department of Finance should review the effectiveness of its tax forecasting methods and the reasons for divergence from tax forecasts. I understand a review is under way.
Chapter 9 reviews the performance of Revenue in regard to the collection of debt arising from assessed tax liabilities. The estimated value of tax outstanding increased significantly between 2008 and 2010 but dropped marginally over the past two years. The total tax outstanding at the end of March 2012 was just under €2 billion. One third of the outstanding debt at March 2012 was under appeal and, consequently, not available for collection. Approximately one quarter was at some stage of enforcement but the remaining 40% or so of the debt was not subject to enforcement proceedings.
Revenue set a target to reduce the level of outstanding collectable debt by 14% between March 2011 and March 2012. While progress was made, the actual reduction achieved, at just over 5%, fell short of the target.
The age of debt is also an important measure because the likelihood of collection decreases over time. Without specifying a target, Revenue set itself an objective of reducing the overall age of the debt outstanding during 2011 but this was not achieved. Approximately 70% of tax debt at March 2012 related to tax periods prior to 2010.
Given the complexities of the factors underlying debt levels, it was recommended that Revenue should develop more specific performance measures in regard to its debt management function, including, for example, separate outstanding debt targets for fiduciary and direct taxes and separate age profile targets for collectable debt and debt under appeal. It was also recommended that Revenue should develop its debt management system to enable the generation of timely management information reports analysing the characteristics and status of outstanding debt and to support the generation of relevant debt collection performance measures.
Chapter 10 reviewed Revenue's approach to monitoring and managing taxpayer compliance. In order to effectively manage compliance, Revenue needs an understanding of the underlying tax gap. This is the level of non-compliance by all individuals and businesses liable to pay tax, including unregistered activity. Revenue collection authorities in other countries have developed methodologies to estimate the tax gap. For example, figures compiled for the UK suggest that the tax gap there is in the order of 8%.
Revenue does not currently produce an estimate of the tax gap in Ireland because of concerns around accuracy of estimates and concerns regarding its usefulness at an operational level. Some work has been done in regard to the links between relevant economic variables and tax collected but this does not provide Revenue with reliable indications of the level of non-compliance.
The audit gap is a more limited indicator of revenue collection performance. It measures Revenue losses as a result of non-compliance by registered individuals and businesses. Revenue does not estimate the scale of the audit gap but it carries out a programme of random audits which has the potential to generate broad estimates of the amount of tax not collected from registered individuals and businesses. Approximately one third of all taxpayers examined under the random audit programme each year are found to have underpaid their tax.
The chapter recommended that Revenue should amend the methodology for its random audit programme to capture additional information on those audit cases, including the amount of the original assessed liability and the value of the tax under declared. Revenue has indicated that since July 2012, this additional information is being captured.
Revenue is relatively successful in targeting higher risk and higher value cases for audit. Excluding large cases and special investigations, the average yield from risk-based audits in 2011 was substantially higher than the average yield for random audit cases. The non-compliance rate for risk-based cases was 73%, which indicates very effective selection of cases for audit.
While targeted audits and assessments result in high value detection of unpaid taxes, Revenue's overall success rate in detecting non-compliant taxpayers is not known. Deployment of additional resources to carry out more audit and assurance work could be cost effective but better information about the effectiveness of detection of non-compliance is needed to conclude on this.
Revenue employs a wide range of measures designed to have a deterrent effect on individuals and businesses that might consider evading their tax obligations. This includes publication of the names and amounts of settlements following audits, levying interest and penalties and legal action to recover unpaid taxes. However, the effectiveness of these measures cannot be assessed in isolation from the perceived likelihood of detection of non-compliance. Ultimately, taxpayers who may consider not paying their due taxes are likely to be deterred only if the likely adverse consequences outweigh the more immediate benefits of non-payment.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I thank Mr. McCarthy. I call Ms Feehily for her opening statement.
Ms Josephine Feehily:
As the Comptroller and Auditor General has outlined for the committee, the chapters under consideration today touch on all important key performance indictors and output measures in regard to tax collection and taxpayer compliance. The issues covered include the receipts for 2011 and trends in collection since 2007, outstanding tax debt and write-off, taxpayer compliance and measures to deal with non-compliance.
In regard to tax receipts, these increased by €1 billion in 2011 and by a further €2.6 billion in 2012, reversing the downward trend of the 2008 to 2010 period. Not surprisingly, outstanding tax debt increased rapidly from 2000 onwards given the economic climate but the negative trend in this area has been reversed in the past two years and the debt has declined by €127 million since 2010.
Revenue has a strong focus on making sure that everyone complies with tax obligations by filing the required tax return and paying the right amount of tax in a timely manner. Our overall strategy is to influence compliance behaviour by making it as easy as possible for people to comply. This is international best practice among tax administrations, that is, that making it easy for comply with tax obligations encourages compliance. It also helps to reduce the cost of compliance for the taxpayer.
In terms of risks, avoidance and aggressive tax planning represent a constant challenge and there are very specific risks also in regard to excise. Also situations where individual or businesses have the capacity to operate with cash need particular attention from us because we recognise that in times of recession, people look for ways to replace lost income or profits. Last year, we focused much of our audit activity on a wide variety of such cash businesses, ranging from the entertainment sector to white collar professionals, and we will continue this focus in 2013.
As part of a targeted approach to tackling oil laundering, we rolled out a new legal framework for that sector followed up with a new IT-based oil movement system, from which the first returns are due very shortly.
Tax non-compliance is serious and where there is sufficient evidence to support a criminal court case, the matter may be pursued by our dedicated investigation and prosecution division.
Last year we collected €36.7 billion for the Exchequer, €21 million more than projected. This year we have a more significant challenge, with a somewhat higher target of €38 billion and a new local property tax to introduce in an environment that remains challenging for Revenue, for business and for taxpayers.
10:30 am
Kieran O'Donnell (Limerick City, Fine Gael)
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I welcome Ms Feehily and her colleagues. The big issue for people is the property tax. We are seven days from 1 March, which is when the Revenue Commissioners will be writing to people with explanatory guidelines on valuation. To bring clarity to the situation, because people are going through difficult times and they need to be clear about these things, when will Revenue write to people? How many people will Revenue to be writing to? If people do not receive a letter, are they still liable? We read in the media that GPS technology will be used as a basis for valuations. Is that true?
Ms Josephine Feehily:
We were conscious from the very beginning of the need to have as much information as possible available about the logistics and administration of the local property tax. The rest of it is not my business. As soon as this was announced on budget night, we had extensive frequently asked questions, FAQs, available on our website. We have updated those throughout January and then last week we published a booklet on the website. The booklet members have is dated 31 January and because there were amendments to it, there will be another version. We have published the form for the return so people can look at what they must do.
Kieran O'Donnell (Limerick City, Fine Gael)
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It does not incorporate the amendments that will be going into amended booklet.
Ms Josephine Feehily:
It cannot. Those are currently before the Oireachtas. That was our approach with the information during January. We have also engaged with representative bodies for the elderly, community information centres and employers because they will all have to work with us in implementing this. We have done a lot of work behind the scenes to engage with relevant groups on this. We are now awaiting the passage of the amendment Bill. On that basis, we now expect to write to everyone in the second week in March, on or around 11 March. We will be writing to 1.6 million people.
Kieran O'Donnell (Limerick City, Fine Gael)
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Is that 1.6 million households?
Ms Josephine Feehily:
There will be a name and address on the letter. From census data, we know there are 1.99 million properties. There is no single property register in the State so we had to compile one. This is where GPS data came into play. We acquired the geo-directory, a directory that identifies every property in the country.
Kieran O'Donnell (Limerick City, Fine Gael)
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Who developed that?
Kieran O'Donnell (Limerick City, Fine Gael)
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How much did that cost?
Ms Josephine Feehily:
It cost nothing, we got it under the Act. The company was obliged to supply the information in accordance with the law.
The company had a directory of properties and we have databases of names and addresses and we have been merging the two. We also supplemented the directory with databases from the Local Government Management Agency, the Residential Tenancies Board and all the other databases we have had over the years from various third parties in accordance with the law.
Kieran O'Donnell (Limerick City, Fine Gael)
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To allay people's fears, is GPS-style technology being used?
Kieran O'Donnell (Limerick City, Fine Gael)
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So Revenue is not flying around?
Kieran O'Donnell (Limerick City, Fine Gael)
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Who else would use these data?
Kieran O'Donnell (Limerick City, Fine Gael)
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Any State companies?
Kieran O'Donnell (Limerick City, Fine Gael)
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Are any data protection guidelines on people's privacy being breached?
Ms Josephine Feehily:
No. The data were acquired under the law. The Data Protection Commissioner works closely with us on an ongoing basis because we have such significant data holdings. This simply identifies properties. We are matching those properties with names and addresses so we will be writing to people. This is a long-winded way of answering the Deputy's question of this being a letter for each household.
Kieran O'Donnell (Limerick City, Fine Gael)
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Revenue will be writing to 1.6 million households.
Kieran O'Donnell (Limerick City, Fine Gael)
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Will all the letters go out at the same time?
Kieran O'Donnell (Limerick City, Fine Gael)
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What will be in the letters?
Kieran O'Donnell (Limerick City, Fine Gael)
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Ms Feehily has done her homework.
Kieran O'Donnell (Limerick City, Fine Gael)
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In many cases the section 22 estimates were grossly overstated.
Kieran O'Donnell (Limerick City, Fine Gael)
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What is the basis of the estimated valuation?
Kieran O'Donnell (Limerick City, Fine Gael)
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Will that guide go out with the manual that goes out with the letter?
Kieran O'Donnell (Limerick City, Fine Gael)
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Many people do not have access to the Internet.
Kieran O'Donnell (Limerick City, Fine Gael)
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Many older people will not have access to the Internet.
Ms Josephine Feehily:
The letter advises people that if they do not have access to the Internet, we have made arrangements with community information centres and Revenue offices for them to come in. We will provide those offices with a paper download of the data behind our model. People can refer to that paper download in certain key places but this is an interactive model that will enable a person to find his street and will give an indicative value for the average price of a house based on certain characteristics, such as being detached, semi-detached, a bungalow, new or old and so on.
Kieran O'Donnell (Limerick City, Fine Gael)
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Will the letter contain the Revenue estimate of valuation?
Kieran O'Donnell (Limerick City, Fine Gael)
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Will the Revenue estimate the tax?
Kieran O'Donnell (Limerick City, Fine Gael)
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If a person divides that by 0.18, he will come up with his valuation.
Kieran O'Donnell (Limerick City, Fine Gael)
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If Revenue comes up with a tax liability, surely it should be able to provide the person with the band?
Kieran O'Donnell (Limerick City, Fine Gael)
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The ordinary person will see his tax liability. It should surely then be straightforward to put beside that the band it is in.
10:40 am
Kieran O'Donnell (Limerick City, Fine Gael)
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People will be interested in finding out which band their property is in and how much they must pay. When they receive the letter from Revenue stating the tax liability, it will be difficult for them to work out the band. It is difficult enough for people to pay another tax, but it is important to make the process as straightforward as possible. Would it be possible at this point to include the price band of the value of the house, so that the householder would see that the basis for the calculation of the liability is X band?
Kieran O'Donnell (Limerick City, Fine Gael)
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It would be very important to have an information campaign to explain it.
Ms Josephine Feehily:
Let me assure Deputies there will most certainly be an information campaign. The information campaign will begin towards the end of the first week in March. We are very conscious of the legislative background to the property tax, which has put our process slightly behind.
We will begin a significant information campaign towards the end of the first week in March.
Kieran O'Donnell (Limerick City, Fine Gael)
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When people get their letter stating their liability I would like them to know immediately the band value of their property. If that is not indicated in the letter, it will create confusion among the public.
Ms Josephine Feehily:
I do not want to say I will do something when I am not sure I can do it, but unless one's house is valued over €1 million, there are only 20 numbers and they are listed in the information booklet. The estimate will have one of those numbers on it. It is very easy to see from the number which band the property is in. Everybody will get one of these booklets.
Kieran O'Donnell (Limerick City, Fine Gael)
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What is the basis of the Revenue Commissioners estimation of the property valuation?
Ms Josephine Feehily:
I am not an economist, but I have an economist who has done very sophisticated hedonic regression work and essentially Revenue has gathered up the property values from the stamp duty system since 2010. Therefore, they are not the inflated values that applied prior to 2010. We have approximately 36,500 values in the model.
Kieran O'Donnell (Limerick City, Fine Gael)
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Let me restate, the valuations are based on 2010 values.
Ms Josephine Feehily:
They are based on properties sold since 2010. We have the figures for 2010, 2011 and 2012 and we recently added the figures for the most recent sales. In addition, we have valuations available from other data sources. We have bought some values in cases in which there were gaps in the data and our existing data was not sufficiently representative. We have paid to fill in the gaps. We have a representative sample that will give average indicative values at the level of electoral area. of which there are approximately 3,500 areas. It will distinguish between houses that are detached, bungalow, semi-detached, rural, urban and before or after 2000.
Kieran O'Donnell (Limerick City, Fine Gael)
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What does Ms Feehily mean by "before or after 2000"
Kieran O'Donnell (Limerick City, Fine Gael)
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Based on a valuation of the property on 1 May 2013?
Kieran O'Donnell (Limerick City, Fine Gael)
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Obviously people can get a valuation from an auctioneer or come up with their own valuation.
Kieran O'Donnell (Limerick City, Fine Gael)
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An issue that has come up is what will happen if a property is under-valued. People need to be reassured that if they arrive at a genuine figure for the valuation they will not need to worry about the valuation of the property in the future.
Ms Josephine Feehily:
In accordance with our normal customer service standard we have a presumption of honesty. That presumption of honesty extends to all taxes. The property tax is a self-assessment tax, so what we have said again and again, and the Minister has repeated this on our behalf, is that in cases in which a person approaches this honesty, we will accept the valuation. We always do. When we come to do compliance, which will certainly not be this year, we will be looking at outliers. There is no doubt that we will look at outliers, as we would not be doing our job otherwise.
Kieran O'Donnell (Limerick City, Fine Gael)
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What does Ms Feehily mean when she refers to "outliers"?
Ms Josephine Feehily:
When we have all the returns, we will have lots of values for properties. Let me give an extreme example - if a return states property X is in band 3 or 4 and it should be valued at €1 million. Clearly that is a big outlier. Our compliance campaign will start at the outliers, at the extreme end.
Kieran O'Donnell (Limerick City, Fine Gael)
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Will it be based on an risk analysis?
Ms Josephine Feehily:
Yes, we will be focusing on the biggest gaps that will arise from our risk analysis. If people want reassurance, may I suggest they use the guidance model honestly and that will be sent out to everybody. We also suggest they can use the Property Services Registration Authority, if houses were sold in their area, the values are available at the level of an address.
Kieran O'Donnell (Limerick City, Fine Gael)
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Will there be a helpline in order that people can pick up a phone and ring and seek advice from the Revenue Commissioners?
Kieran O'Donnell (Limerick City, Fine Gael)
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In terms of the valuation, people should have nothing to fear if they follow----
Ms Josephine Feehily:
If they approach the valuation honestly and reasonably, people have nothing to worry about. That is at the heart of self-assessment.
Compliance work will not be done immediately because my major worry this year is to implement the property tax - getting the returns out and in and collecting the money. The compliance element of the work will begin with the significant gaps in the valuations. If there is an outrageous gap between the norm that is emerging for an area and returns, these are the cases in which we will start our work on compliance.
Kieran O'Donnell (Limerick City, Fine Gael)
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I note the Revenue Commissioners sought an additional 100 staff. How much will it cost to implement this new area of taxation?
Ms Josephine Feehily:
Obviously additional staff will be working in different places, but we are locating the administrative centre in Ennis, County Clare. Staff were becoming free in Ennis as a result of public sector reform initiatives with payroll and a number of other shared service initiatives. We would have had to redeploy these people and it made much more sense to move the work to this area. The paperwork will be done in Ennis, the planning will be done in Dublin. Obviously there is a big overlay on the IT side and the Office of the Collector General in Limerick will be central to that, as they will be collecting the money.
There is a live online system. I looked at the prototype last week. The screens are available and the system is nearly ready. The logistics are on track. Staff who will be redeployed from other Departments will come this week or next week. I have lost track of the dates. We will be hiring some temporary clerical staff in Ennis and in Limerick to supplement the staff there.
We sought an allocation of 100 staff as this is a new tax. We had no idea of what staff it will take, but now it will certainly not stop at 100. We must deal with 1.6 million tax returns and we have never handled that large volume in a single month. This is colossal and it will eat into our own resources. We will be supplementing it.
The allocation in the expenditure report for 2013 for property tax is €25.9 million.
Kieran O'Donnell (Limerick City, Fine Gael)
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Does Ms Feehily have adequate resources to implement the tax?
Ms Josephine Feehily:
The Deputy should ask me in a few months. Let me rephrase that. We have done our best. I have enough cash resources for the IT development. We got a capital sum for that. We have enough cash to run the publicity campaign and so on. If 1.6 million people all telephone on the same day, we will not have enough staff to deal with them. That would be an enormous challenge.
The challenge is as follows: to make the information campaign as good as it can be; to stagger the issue of the letters, apart from the logistics of the postal system which will stagger it; and to encourage as many people as possible to file online. It is a very simple procedure to file online. It will be similar to the way one pays motor tax online. We will give people a PIN to file online. If all the pieces fall into place, we will have sufficient resources. If they do not, we will eat into our other resources, and that is what we will do.
Kieran O'Donnell (Limerick City, Fine Gael)
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Will Ms Feehily restate the way the process will work? First, I understand the letters will issue from 11 March and continue over a four week period. What should people who are seeking an exemption or deferrals do? Will she outline the return dates, the payment dates and the methods by which people can pay?
I want Ms Feehily to deal with the issue of ability to pay and financial hardship. This new measure is being introduced in the amended Bill. It is obviously an issue. As public representatives, we are conscious that ability to pay is a key factor. Can Ms Feehily quickly run through the logistics that come into play in terms of returns, payment dates and payment methods, when the people to whom letters are issued seek exemptions or deferrals?
10:50 am
Kieran O'Donnell (Limerick City, Fine Gael)
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Before Ms Feehily expands on that, can I ask her what a person who does not receive a letter should do?
Ms Josephine Feehily:
We will change the message in our publicity campaign when we have finished issuing the letters. As this is a self-assessment tax, those who do not receive letters will have the same obligation as those who do. At the beginning, the message will be "the letters are going out - here is the helpline". In April, the message will be "all of the letters have gone out - if you have not got one, here is the helpline, get yourself a form or go online". It will move along like that. The filing date for paper returns will be 7 May. The filing date for online returns will be 28 May.
Kieran O'Donnell (Limerick City, Fine Gael)
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That means one has to file a return. It does not mean one has to make a payment at that time.
Kieran O'Donnell (Limerick City, Fine Gael)
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Okay.
Kieran O'Donnell (Limerick City, Fine Gael)
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If a person who is seeking an exemption or a deferral files his or her return on 7 May or 28 May, when will he or she have to write to the Revenue Commissioners to that effect? I refer to people living in houses affected by pyrite, people with certain categories of disability and people entitled to compensation.
Kieran O'Donnell (Limerick City, Fine Gael)
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I want Ms Feehily to deal with the category she has mentioned.
Kieran O'Donnell (Limerick City, Fine Gael)
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I accept that.
Kieran O'Donnell (Limerick City, Fine Gael)
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Everyone will have to make a return-----
Kieran O'Donnell (Limerick City, Fine Gael)
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-----regardless of whether they are paying, they are exempt or they are seeking a deferral.
Kieran O'Donnell (Limerick City, Fine Gael)
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Okay.
Kieran O'Donnell (Limerick City, Fine Gael)
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It will be a code.
Kieran O'Donnell (Limerick City, Fine Gael)
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Self-assessment.
Kieran O'Donnell (Limerick City, Fine Gael)
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Okay.
Kieran O'Donnell (Limerick City, Fine Gael)
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If people get a separate valuation or submit a different valuation-----
Kieran O'Donnell (Limerick City, Fine Gael)
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-----will they just fill in the relevant code for the band their property is in?
Kieran O'Donnell (Limerick City, Fine Gael)
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That is fine.
Kieran O'Donnell (Limerick City, Fine Gael)
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Will a claim be more likely to be followed up as a risk if the valuation differs from the valuation issued by the Revenue Commissioners?
Kieran O'Donnell (Limerick City, Fine Gael)
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The differential.
Kieran O'Donnell (Limerick City, Fine Gael)
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Fine. I apologise for interrupting Ms Feehily in mid-stream.
Ms Josephine Feehily:
There will be six payment options. If one is filing online, one will be able to pay with a credit card or a debit card. If one is filing on paper, one will be able to avail of the single debit authority system, which is like an electronic cheque. One will fill in one's bank account number and authorise the Revenue Commissioners to take a specific amount of money from it.
Kieran O'Donnell (Limerick City, Fine Gael)
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What date will that have to be paid by?
Kieran O'Donnell (Limerick City, Fine Gael)
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Yes. I have seen the date. It is 21 July. Ms Feehily is correct. I would like to clarify something with regard to the payment dates. If we say, for the sake of argument, that a person files his or her return-----
Kieran O'Donnell (Limerick City, Fine Gael)
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I am keen to get clarification on the chronological order. Manual returns will be filed on 7 May. Online returns will be filed on 28 May. If one decides to pay by direct debit of equal amounts over a six-month period-----
Kieran O'Donnell (Limerick City, Fine Gael)
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Is it 1 July?
Kieran O'Donnell (Limerick City, Fine Gael)
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On what date would one have to go to the bank?
Kieran O'Donnell (Limerick City, Fine Gael)
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What about people who want to pay by cheque or cash?
Kieran O'Donnell (Limerick City, Fine Gael)
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By what date would such a payment have to be made?
Kieran O'Donnell (Limerick City, Fine Gael)
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In essence-----
Kieran O'Donnell (Limerick City, Fine Gael)
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Ms Feehily is basically saying that if one is paying by direct debit, by cheque or by cash, one will have to start making payments by 1 July. If one is paying by direct debit or by electronic transfer, one will make an indication to that effect and the money will be taken out of one's account on 21 July. If one is paying by direct debit, it will be taken out on 15 July.
Kieran O'Donnell (Limerick City, Fine Gael)
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Can Ms Feehily explain how that will work?
Kieran O'Donnell (Limerick City, Fine Gael)
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What payments will be involved, in terms of-----
Kieran O'Donnell (Limerick City, Fine Gael)
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One will have to elect for that.
Kieran O'Donnell (Limerick City, Fine Gael)
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One will elect on the form.
Kieran O'Donnell (Limerick City, Fine Gael)
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Okay.
Kieran O'Donnell (Limerick City, Fine Gael)
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Okay.
Kieran O'Donnell (Limerick City, Fine Gael)
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In essence, explanatory memorandums will be received on 11 March or thereafter. Manual returns will have to be filed by 7 May. There will be an extra three weeks to make online returns. They will have to be done by 28 May. One will choose one's method of payment on one's form. If one indicates that one wants to make payments by means of direct debit or electronic transfer, they will start coming out from 15 July in the case of direct debit. If it is a single once-off payment, it will come out on 21 July. If one wants to pay by cash, one will be able to make a payment every month, from 1 July onwards, if one wishes. If one wants to pay by cheque, one will be able to write a cheque.
Kieran O'Donnell (Limerick City, Fine Gael)
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Obviously, the cheque will have to be dated 15 July.
Kieran O'Donnell (Limerick City, Fine Gael)
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Not before that.
Kieran O'Donnell (Limerick City, Fine Gael)
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I would like Ms Feehily to deal with financial hardship before she concludes.
Ms Josephine Feehily:
I would like to mention something else before I do so. I do not want to mislead the committee. Deputy O'Donnell mentioned that in the case of deduction at source, people will have to opt into that. When we reach the compliance stage of this, if people have not opted in, deduction at source will happen on a mandatory basis. Such a deduction will be based on the Revenue estimate.
Kieran O'Donnell (Limerick City, Fine Gael)
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When would that take place?
Kieran O'Donnell (Limerick City, Fine Gael)
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Will Revenue send them a reminder?
Kieran O'Donnell (Limerick City, Fine Gael)
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When will those who have not engaged be written to?
Kieran O'Donnell (Limerick City, Fine Gael)
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Okay.
Kieran O'Donnell (Limerick City, Fine Gael)
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They will be written to.
Kieran O'Donnell (Limerick City, Fine Gael)
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Before that stage is reached, will people-----
Kieran O'Donnell (Limerick City, Fine Gael)
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There will be cases of people who inadvertently miss the final date through no fault of their own. I refer to people in hospital or in nursing homes.
Kieran O'Donnell (Limerick City, Fine Gael)
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Right. People might be in hospital. Given that this is a new tax, people are entitled to be written to.
Ms Josephine Feehily:
I will put it this way. It is a question of logistics. I completely understand the Deputy's point. A letter will be sent to people in the salary age bracket and there will be publicity. If we are going to implement this from 1 July, there will not be much time for them to respond. They will have to respond to the letter quite quickly.
Kieran O'Donnell (Limerick City, Fine Gael)
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How quickly?
Kieran O'Donnell (Limerick City, Fine Gael)
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I think we should certainly allow people a week. I understand what has to be done when a new tax of this nature is being introduced. We deal with people in our constituencies. We need to learn from the experience of the other taxes. We must proceed on the basis that people are working from a position of honesty. It would be important for people to be issued with a letter and to be given sufficient time to respond. There will be genuine cases. I ask Ms Feehily to deal with financial hardship and ability to pay, which is a huge issue.
How will deferrals operate in practice? For how long will it be possible to have a deferral? What criteria will be used? People are experiencing serious difficulties, particularly with mortgages.
11:00 am
Kieran O'Donnell (Limerick City, Fine Gael)
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Yes.
Kieran O'Donnell (Limerick City, Fine Gael)
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That only applies up to 31 December 2017.
Kieran O'Donnell (Limerick City, Fine Gael)
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On the provision on financial hardship, which is-----
Ms Josephine Feehily:
That is an exceptional provision in the Bill. I am a little constrained in what I can say about this because the Bill is before the Oireachtas. What I can say, however, is that we will prepare very detailed guidelines explaining how we will use that provision when the Oireachtas has disposed of it. It is difficult for me to engage on this issue when the Bill is before the Oireachtas.
Kieran O'Donnell (Limerick City, Fine Gael)
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When does Ms Feehily expect the provision to become effective? We have another tight deadline. If letters are to be issued on 11 March, some people will have to file returns by 7 May.
Kieran O'Donnell (Limerick City, Fine Gael)
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The Revenue Commissioners must issue guidelines. For how long does Ms Feehily envisage a deferral will be in place? Will deferrals be provided on an annual basis or rolled over? What criteria will be used? I assume some of the elements pertaining to the administration of other taxes will be used. It is difficult to introduce any tax and taxes must be, above all, transparent and as equitable as possible. What criteria will be used and when does Ms Feehily expect the guidelines to issue?
Ms Josephine Feehily:
The criteria that are specified in the Bill use phrases such as "significant" and "unexpected". We will have to define those terms. The Deputy can take it that we are already working on the drafts. I am conscious that the Bill is before the Oireachtas and, as such, I am somewhat constrained. We will have draft guidelines available, probably next week, but what I will do about publishing them is a slightly different issue.
Kieran O'Donnell (Limerick City, Fine Gael)
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The Revenue is at the stage where it is-----
Kieran O'Donnell (Limerick City, Fine Gael)
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What will be the process by which people will be able to apply under the heading of financial hardship? Will they apply using the form in the normal way?
Kieran O'Donnell (Limerick City, Fine Gael)
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When must they write to the Revenue Commissioners?
Kieran O'Donnell (Limerick City, Fine Gael)
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They will enclose a note?
Kieran O'Donnell (Limerick City, Fine Gael)
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The normal return will be filed. Will an additional form be available for people who want to apply under financial hardship?
Kieran O'Donnell (Limerick City, Fine Gael)
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Will that form issue with the letter?
Kieran O'Donnell (Limerick City, Fine Gael)
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In that case, how will people obtain the form?
Kieran O'Donnell (Limerick City, Fine Gael)
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When a person comes to file a return on either, he or she will have to file an additional form on financial hardship grounds.
Ms Josephine Feehily:
This is a very restricted section. The idea of sending 1.6 million people an encouragement to tell us they are in hardship does not make sense. It is very restricted. All of the other exemptions are available on a self-assessed basis, but this one is very narrow and specific and relates to serious, significant and unexpected issues. The number of people who will fulfil all of these criteria will be quite small. The revised version of the booklet, which will be in the letter when the legislation is processed, will state that if one is applying under this ground, one must get another form. It will also indicate where to get the form.
Kieran O'Donnell (Limerick City, Fine Gael)
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Deputies deal daily with people who are under huge financial strain. They are aware of the financial position of the country. This is a new tax and if people are experiencing financial hardship, they should be given a fair hearing. When will the Revenue Commissioners commence a publicity campaign on this issue? Ms Feehily has provided considerable detail today which has not been available thus far, which is welcome. Many elderly people like to have queries dealt with by telephone. When will the campaign begin?
Ms Josephine Feehily:
It will begin towards the end of the first week of March, in advance of the letters' being issued. Our experience of previous publicity campaigns is that the nearer they are to the event, the more real and useful they are. Publicity will begin in the first week of March and letters will start to roll out during the second week of March. Online valuation guidance will be available when the letters start to roll out.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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I welcome Ms Feehily and her colleagues. I am sure she is aware that there are very many tax-compliant citizens who regard this not as a just or fair measure but as a sort of Big Brother tax and an unfair imposition on them. I note Ms Feehily was amused by the story in the media about GPS data and the notion of Revenue officials hovering overhead taking satellite photographs of homes. Most people did not find the story amusing and it is a measure of just how odious this tax is considered that many people believe it to be the truth.
Ms Feehily set out the process she envisages will be used for acquiring information and for estimating and collecting the tax. I want to explore with her the issue of non-compliance. A great number of the 1.6 million persons or households the Revenue will write to are in what any reasonable person would be consider to be financial hardship. Sadly - and this does not fall to the Revenue Commissioners - the definition of financial hardship will not include someone who is on jobseeker's allowance or a State pension because, bizarrely, such categories of person are not considered to be in financial hardship. All of these categories of persons are captured as qualifying to pay the tax. What will happen to a person who does not file any return?
Mary Lou McDonald (Dublin Central, Sinn Fein)
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The crucial point is that it is a deferral, not a waiver, and persons on jobseeker's allowance are still fully liable for the tax, albeit at a later point in time.
Ms Josephine Feehily:
I accept that. I simply wanted to make that clear in order that people on jobseeker's allowance understand they do not have to pay and can defer. If somebody does not send back the return, two things will happen. We will obviously engage in publicity at that point, warning people of the consequences and reminding them to send back the return. What we will then do, which is what I was discussing with Deputy O'Donnell, is to write to them stating they have not sent back the return, and we will move to enforce the Revenue estimate. This estimate will have been received in the letter in March and April and we will move to enforce it using the full range of enforcement options available to us.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Will Ms Feehily set out those options?
Mary Lou McDonald (Dublin Central, Sinn Fein)
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What are they?
Mary Lou McDonald (Dublin Central, Sinn Fein)
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May I just say-----
Ms Josephine Feehily:
If I may finish, the Deputy mentioned social welfare categories. With regard to categories of persons on social welfare pensions who have not sent back a return - this brings me back to the discussion with Deputy O'Donnell - we will write to people in those categories and give them a much longer time of reminder.
We will be looking at this next year in the context of the Comptroller and Auditor General. My target this year is to collect €250 million. The legislation requires this to be paid by 1 July.
11:10 am
Mary Lou McDonald (Dublin Central, Sinn Fein)
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That of course-----
Mary Lou McDonald (Dublin Central, Sinn Fein)
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I understand, I am just simply trying to ascertain what faces the individual who, for whatever reason, is not in a position or chooses not to file a return. The witness has said the Revenue will deduct at source. Presumably that means there will be contact with the person's employer-----
Mary Lou McDonald (Dublin Central, Sinn Fein)
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-----and the sum will be deducted as though it were a PAYE payment. Attachment orders to bank accounts have been mentioned. Will the witness explain how that happens? Does Revenue contact the financial institution concerned, AIB, Bank of Ireland, and assess that the person has a deposit account?
Mary Lou McDonald (Dublin Central, Sinn Fein)
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And the money will be deducted from-----
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Will that be from a deposit account or could that be deducted from a person's current account?
Mary Lou McDonald (Dublin Central, Sinn Fein)
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From any account that an individual might hold. What about people's welfare payments? Let us not get distracted by the deferral issue. Let us assume I am a social welfare recipient and I choose not to seek a deferral - let us not get into the rationale - what happens to me then?
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Revenue has reminded me-----
Mary Lou McDonald (Dublin Central, Sinn Fein)
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And I seek not to take it.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Okay.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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To deduct from a social welfare payment at source. Will Ms Feehily confirm for the committee that each of these actions - deduction at source from payroll, attachment orders to one's bank account or direct deduction from a social welfare payment at source - are entirely lawful?
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Presumably Revenue has had some level of contact with the banks and the Department of Social Protection in respect of these compliance mechanisms.
Ms Josephine Feehily:
We certainly have had detailed engagement with the Department of Social Protection. We must remember this is offered in the first instance as a service. This is a voluntary option that people can opt for in the form. They can opt to pay their local property tax by deduction at source, so we have set up a deduction at source arrangement with the Department of Social Protection which primarily - this is my strong expectation - will be used almost exclusively on a voluntary basis. If people want to spread the payments and do not have salary then their regular payment is their pension and if they want to pay through a deduction at source in their pension, it is entirely voluntary in the first instance. We have had detailed engagement with the Department and arrangements are in place. I have to say I do not believe we have had engagement with banks because, quite frankly, this is a normal part of our toolkit. Attachment orders involving financial institutions would be used a number of times a year in any event, so banks would be familiar with that.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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I understand the conversations Revenue has had in respect of people volunteering to have a deduction made from their payment but my concern is around the compliance approach. I say directly the reason that, to my way of thinking, is the more important part of the puzzle is that the vast majority of people who rely on social welfare payments are not in a position to pay this tax. One does not have to be an economist or a mathematical genius to do the sums to understand that if is on a payment of €200 or less, and that is one's source of income, one cannot afford to pay a property tax at any level. One cannot afford to pay it now and unless one's circumstances change dramatically, which sadly for many will not be the case, one will not be able to pay it next year or the year after or the year after that. Ms Feehily told us she had made a request for 100 additional staff. I imagine that large numbers of those staff will be dealing with compliance issues. I emphasise that this is not among a cohort of people who wish to be non-tax compliant. It is a group of people who simply cannot afford to pay the tax. It is extremely heavy-handed. To be honest, I have some sympathy for the Revenue because I would not relish the task of deducting this tax at source, from bank accounts or, worse still, from the social welfare payments of people who cannot afford it.
Ms Josephine Feehily:
I do not particularly want to be in a position of enforcing any tax. Our tax system is a self-assessment system and if it is not backed up with enforcement, across all the taxes, we have a non-compliance problem, which will get worse.
The strong message we will be sending out to people is that the most sensible thing to do is fill in the return. The legislation provides for a range of deferrals. That is a policy matter; obviously, it is not for me. I remind people, and I will be reminding people in the categories the Deputy mentioned, that if they have not sent back their return on time we will be writing to social welfare recipients reminding them that they had deferral options. I understand the Deputy does not want me to say this but I need to say it because critical to our fairness approach is to remind people whom we know are on low income because we have the welfare file that they have a deferral option and to claim it they must send in the form. I do not want to get to the point of mandatory action. The strategy is for them to send in the form, claim their deferral if they are on low income, and they will qualify. That will ensure we do not have to get to the place the Deputy is discussing.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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However, Ms Feehily is prepared and she has the instruments to make this mandatory.
I understand the point Ms Feehily made about the definition of "financial hardship". I understand it is not her job but the job of the Government and the Oireachtas to make the law and to-----
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Yes.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Does Ms Feehily understand my frustration and the frustration of many people who might tune in to this committee session? There is a deferral but no exemption for people who clearly and fairly fall into "persons experiencing financial hardship", and Ms Feehily also used the term "fairness" in terms of the application of this tax. The big problem that all of us face, and that Revenue faces, is that Revenue is administering a taxation measure which is not fair. It is not fair to simply offer deferral to somebody on a very low income or on a welfare payment. This is a policy decision by the Government and it is ironic that Ms Feehily would come in here, and whatever about being questioned vigorously by Opposition Deputies, to be questioned by Government Deputies also who have supported this measure. I am not laying the unfairness piece at the feet of Revenue but as public servants the witnesses face a real dilemma.
There is every likelihood the Department will use mandatory instruments to take money from people it knows cannot afford to pay the tax. This proposal is mind-boggling and it is a great pity we have come to this pass.
Is a deferral something people must seek on an annual basis? For example, if a person is on jobseeker's allowance in May 2013 and still in that position in May 2014, must he or she return to Revenue to seek a deferral? Is a deferral granted for a 12 month period only?
11:20 am
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Six months, is it not?
Ms Josephine Feehily:
No, that is the payment period. The tax is stable for three and a half years, until November 2016, the new valuation date for 2017. A deferral is available until a person's circumstances change in most cases. Therefore, people should come back if their circumstances have changed. However, if the person remains on jobseeker's allowance, the deferral will continue. Some deferrals have a specific time period such as the one being proposed for homes affected by pyrite, which is three years. If a person is and remains on jobseeker's allowance, he or she is not expected to come back every year to say this. We will have that information.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Therefore, the Department will not write to people on the issue.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Will Revenue write to people annually?
Ms Josephine Feehily:
Until we analyse the shape of the population subject to deferral, which will happen towards the back end of the year, I cannot answer as to what administrative model we will put in place to manage the situation. For example, if almost all of the people subject to deferral are on social welfare payments and we receive a file from that Department, we will not need to write to them because we will have the social welfare data. Why would we write to them asking them to tell us something we already knew? However, if a large proportion are not on social welfare and we need the information, we may build an administrative model to write to them. The Deputy must leave that question with us until we see what happens. We are looking into the unknown. We will receive a lot of returns and have significant work to do to get the shape of the population of who is paying, subject to deferral and exempt. We must then work out treatment models for all of these categories for next year and the year after.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Will Ms Feehily set out for us the charges and penalties that will be levied should somebody such as a person out of work on jobseeker's allowance who does not have a waiver avail of a deferral? What will the additional charge be for that individual?
Mary Lou McDonald (Dublin Central, Sinn Fein)
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Is there an additional charge?
Mary Lou McDonald (Dublin Central, Sinn Fein)
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I am talking about the additional charge attracted in seeking a deferral.
Mary Lou McDonald (Dublin Central, Sinn Fein)
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To illustrate the utter lunacy of this taxation measure, a person out of work who happens to own his or her own home receives no exemption or waiver from it. The only relief available is that the person can ask not to pay it now but at a later date. To add insult to injury, in seeking that deferral, the State will levy an additional 4% interest charge. That is insane.
I thank Ms Feehily for setting out the details of this taxation measure. I do not envy her the task before her because, like most public servants, she is a decent and honourable servant of the State. This tax is wrong. It is bananas.
Paschal Donohoe (Dublin Central, Fine Gael)
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I, too, want to focus on a particular issue relating to the operation of the property tax. I am concerned about properties that have been flooded in the past or which face the risk of flooding in the future. There are hundreds of such homes within my constituency and I am aware that this is also an issue nationwide. These houseowners cannot get insurance and are in a situation where the market valuation of their property is very low. In situations where a property has been flooded in the past and runs the risk of being flooded again, what valuation should somebody put on that property?
Ms Josephine Feehily:
The definition in the law is market value. Usually, despite comments to the contrary, most people have an idea of the market value of their house. If a house or residential property has certain characteristics to do with location, that will influence the market value, either positively or negatively. Therefore, it seems that in the case of people whose properties are vulnerable to flooding, that will have an impact on the market value. They would be perfectly entitled to assess their property themselves, based on their best judgment, at quite a low value.
Paschal Donohoe (Dublin Central, Fine Gael)
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A specific example is where somebody cannot insure his or her home, a terrible situation which faces many through no fault of their own. They cannot insure their home because of the risk of it being flooded. How should that person respond to the tax?
Ms Josephine Feehily:
Usually, I find that local knowledge informs people's assessment of their property's value. The minimum tax amount is €45 this year and €90 for a full year in the bottom band. Therefore, that is what would apply to a property that had a very low market value because of extraneous issues. People are entitled to assess the tax themselves at a very low value and pay that low amount. I do not want to say to people that if their house has been flooded, its value is very low or that if it has not been flooded, it has a high value. They must make their own judgment. That is the essence of self-assessment. I am simply saying it is reasonable, in making that self-assessment, to take account of location factors and whether there is a market for the house. It is perfectly reasonable to reach quite a low value in that self-assessment. What is important is that if we come to challenge the assessment in due course that that self-assessment be reasonable. As I said to Deputy Kieran O'Donnell, our challenges will start where there is a wide margin between the norms for the area and the value in a particular case. If we come to challenge an assessment figure, the only question we will ask is whether the assessment was honestly and reasonably made because the presumption of honesty will apply.
Paschal Donohoe (Dublin Central, Fine Gael)
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I am thinking of a situation where one side of a road has been flooded in the past and could be flooded in the future and the other side of the road does not face that risk. I could name a dozen such roads off the top of my head. What I want to ensure is that there is consistency. If we say the tax is based on market valuation, that is what it should mean. In the case of those who face the injustice of being flooded through no fault of their own, I want to ensure the market valuation they face is one that reflects that risk of flooding, not a value that would be applied to their property in the absence of a risk of flooding. Would Ms Feehily agree that if a homeowner cannot have his or her house insured, that is a decisive factor in influencing its valuation and should play a decisive role in influencing how he or she values the home for the tax?
Paschal Donohoe (Dublin Central, Fine Gael)
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Let me restate that I am referring specifically to cases involving flooding.
In a situation where somebody has been refused insurance by his or her own insurance company and by all other insurance companies and he or she can provide material proof of that fact, will this be acceptable to the Revenue Commissioners?
11:30 am
Paschal Donohoe (Dublin Central, Fine Gael)
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In terms of how this could be communicated to people - and I hope this exchange will play a role in informing people about it - is this something that can be included in the information campaign and something that can be made clear to citizens?
Paschal Donohoe (Dublin Central, Fine Gael)
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Would that then be available to the public?
Paschal Donohoe (Dublin Central, Fine Gael)
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Within that FAQ answer, some thought must be put into the issue of flood risk. I will give an example to illustrate my point. I met a lady recently whose property has not been flooded since 1954 but a property on a road around the corner from her has been flooded twice in the last decade. She cannot get any kind of insurance for her home now. Even though she has never been flooded and is unlikely to face flooding in the future, when she goes to sell her house in the future, the market valuation for it will be the same as that for houses that have been flooded. In a situation like that, is it reasonable to include that fact in the valuation put forward by this lady and her neighbours to the Revenue Commissioners?
Paschal Donohoe (Dublin Central, Fine Gael)
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Will that information be included in the FAQ data?
Paschal Donohoe (Dublin Central, Fine Gael)
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Yes, and within that we are recognising that flood risk is a significant factor. Just to develop this point further, a large proportion of the revenue raised through this tax will be redirected to the local authorities. That is the objective of a tax like this. I hope this will result in the realisation of how gigantic an issue this is across the State, where homeowners cannot get insurance. This will be crystallised by virtue of the revenue lost to the State because of this fact. I hope this process will feed into solving this problem once and for all. There are people all over the country listening to this exchange who thought they would be paying tax on the basis of a market value that their properties simply do not have but we are establishing here that flooding risk is a germane factor in how they price their homes. The Revenue will include that information in the FAQ, is that correct?
Paschal Donohoe (Dublin Central, Fine Gael)
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I thank Ms Feehily for that clarification because this is a really important issue for many people.
The lowest band of the property tax is between €0 and €100,000. When people are filling in the form and providing a response to the Revenue regarding the market valuation of their property, what proof must they send in?
Paschal Donohoe (Dublin Central, Fine Gael)
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Nothing at all?
Ms Josephine Feehily:
Nothing at all. It is a self-assessment tax. What they need to put on the return is a band number. They do not need precision, which is one of the beauties of the band system. People are worried as to whether their house is worth €160,000 or €170,000 but that does not matter. It is a band system so they just put in a band number. The band number in the booklet will tell them how much they need to pay. They simply fill in the band and the amount and then return the form.
Paschal Donohoe (Dublin Central, Fine Gael)
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Then what we are saying here is that if people have proof of their inability to obtain insurance due to flooding ---
Paschal Donohoe (Dublin Central, Fine Gael)
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They keep it and then they can use that to underpin the value they put forward if they are asked to provide proof by the Revenue Commissioners in the future.
Paschal Donohoe (Dublin Central, Fine Gael)
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I thank Ms Feehily. That is a very helpful clarification.
In terms of people supplying information to qualify under the financial hardship conditions, I know Ms Feehily is slightly restricted in terms of what she can say at the moment. However, she made a point regarding the need for people to supply lots of information in order to meet the criteria. Is it not the case that an awful lot of the information people would need is already residing with other agencies of the State? Perhaps an example would be useful here. Let us say a person applies on the basis of a rapid decrease in income due to a situation beyond his or her control. What can happen then is that such a person becomes entitled to a social welfare payment or, if it happened in the preceding tax period, the Revenue Commissioners would have captured that data in a tax return or it would be evident, in the case of a PAYE worker, through a fall in income. Is there not a way for Revenue to gather this information instead of asking people to assemble it, particularly if the information is already held by the State? Can we not take that additional hardship off people by using the information that is already available to us?
Ms Josephine Feehily:
It is important to distinguish between the deferrals and the new provision in the Bill. The deferrals are on a self-assessment basis so if people have lost their jobs last year or filled in a tax return last year, certainly they will claim a deferral on the basis of the thresholds we already mentioned and we will have that data and will risk-assess, using that data, in due course. The new provision refers to "significant" and "unexpected". The "unexpected" part means that the data is most unlikely to be anywhere, given the prior-year arrangement with tax returns, income tax and so on. Last year's information could hardly be regarded as "unexpected" this year. We have to work out what this provision means.
The dilemma I face with this is that I have an Act which specifies the terms under which people should pay and should get a deferral or an exemption. Now I am overlaying onto that something which is a little different but it cannot be different to what is already in the law. It cannot add to the legislation. As a Revenue Commissioner, I am not allowed to turn an exemption limit into something that is not contained in the law. I cannot turn something into a multiple of the exemption limit. It is a very narrow provision and uses language like "significant" and "unexpected" hardship. The first thing a person will have to clarify is why the hardship was "unexpected". We will have to come up with definitions for those words and that is the guidance I am working on at the moment. With those definitions will come requests for information to support the contention that the hardship was "significant" or "unexpected". In other words, if a person knew it last year, then it cannot be "unexpected".
Paschal Donohoe (Dublin Central, Fine Gael)
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I have no further questions but wish to thank Ms Feehily for the clarification on the flooding issue, which is really important. I look forward to seeing the booklet that includes the FAQ response that we have discussed here.
Paschal Donohoe (Dublin Central, Fine Gael)
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If Revenue can put that on the website and include it in future editions of the booklet, that will go an awful long way towards allaying the concerns of many residents who are already having a terrible time.
Paschal Donohoe (Dublin Central, Fine Gael)
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I am sure the Revenue Commissioners will do their best and putting it on the website will be an important first step.
Paschal Donohoe (Dublin Central, Fine Gael)
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That is really important and if we can have the information included in a future edition, that would be great.
Simon Harris (Wicklow, Fine Gael)
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I thank Ms Feehily and her team for their attendance today. I am struck by the huge contrast between Ms Feehily's appearance today and that of officials from the Department of the Environment, Community and Local Government in the past concerning the household charge.
I assume a significant number of lessons have been learned as a result of how the campaign to collect the household charge was rolled out versus the implementation of the property tax. There was a situation at this committee whereby one of the most senior officials responsible for the roll-out of the household charge conceded that she had not received a letter informing her that she had to pay the household charge or the associated booklet in the post. Whatever people think about the property tax, I have been struck by the competence of Ms Feehily and her team in the Revenue Commissioners in terms of the preparation that has gone on behind the scenes, and I am grateful for that.
I wish to address some issues relating to the property tax and then I will move on to some other Revenue issues. The publicity campaign has been referred to a good deal. I presume it will take the form of television and radio advertisements. What type of publicity campaign does Revenue envisage?
11:40 am
Ms Josephine Feehily:
It will probably not be a television campaign because that is terribly expensive and one cannot get a great deal of information out. It will certainly involve radio and local radio, which we have found to be very useful in the past for our type of messages. We will have the usual press launches and some print media involvement and so on. We have trained several people from local Revenue offices and they will be made available to local radio stations throughout the country. Much of our publicity effort will be of this quieter type and involve engaging with groups of people. Certainly, there will be print media and radio advertising.
Simon Harris (Wicklow, Fine Gael)
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Will the Revenue use online media?
Simon Harris (Wicklow, Fine Gael)
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Ms Feehily had referred extensively to the valuation model that Revenue has in place. If I am living in a house and I put in an extension next year, for example, a downstairs bedroom and bathroom, in my house, is there some way the Revenue model can work that out? If I am in that scenario will I have to pay for a valuation?
Ms Josephine Feehily:
The model does not get into the number of bedrooms, whether one has built a 14 bedroom extension or anything dramatic like that. We took the view that most normal extensions will be within the band. Valuers maintain that the impact on the market value of a house is not greatly enhanced by sticking on an extra bathroom. A €50,000 band gives a great deal of room in that sense.
There is another message that is important for people to hear. The valuation date is 1 May. Any enhancements or additions after that date are not relevant or captured. It is important that people do not think this should stop them from enhancing their houses in June and July of next year and the year after. The valuation date of 1 May lasts for three and a half years.
Simon Harris (Wicklow, Fine Gael)
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If I am going to put in an extension, it would be best to wait until June or July. In the interests of public information, what is the position on the issue of proof? Let us suppose I decide to get a private valuation.
Simon Harris (Wicklow, Fine Gael)
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I should keep it rather than send it to the Revenue. Then, if Ms Feehily or one of her colleagues comes looking for it, I give it up at that stage. Is that correct?
Ms Feehily has dealt with the issue of aerial photographs. We have been hearing a good deal as well in the media in recent weeks about the snitch clause. If I buy a house from another party and that party has under-declared then I have a responsibility to liaise with the Revenue. Will Ms Feehily address this issue? There have been contrary reports in the media about it and I am somewhat confused myself.
Ms Josephine Feehily:
This is largely designed as a transparency clause between the buyer and the seller. It is in the Bill and, therefore, I am somewhat constrained. It is still before the Houses. A certain amount of administration relating to the property tax must take place at a conveyance. Charges will have to be discharged and so on. In the context of the conveyance, we maintain that the seller should tell the purchaser the value he or she put on the property for property tax purposes. The purchaser will assume the responsibility from 1 November following the purchase. Presumably the purchaser will wish to assure herself that there is no bill stuck on the property because of a deferral. The issue is part of that discussion.
One thing the public debate on this clause taught me is that we need to prepare some dedicated guidance on what will happen or on the implications for a conveyance in the context of this new tax. We have not done that yet but we will get to it. That is what it is all about. It is simply because the charge continues. A new person is liable and that person must be told. To echo our earlier conversation, at that point we have a responsibility for compliance as well, whatever about the rights or wrongs of it. If someone has made a significant under-declaration, we maintain the purchaser should tell us because if the purchaser is paying a vast price for a house, it is material for her to know how the seller valued it. The purchaser will have to take up the responsibility for meeting the obligations of the tax from the following 1 November. That is the context for it.
Simon Harris (Wicklow, Fine Gael)
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It is helpful to put that message out. Ms Feehily referred earlier to the option of paying by cash. She indicated that the Revenue was in discussion with various service providers. I presume the Revenue is in discussion with An Post.
Simon Harris (Wicklow, Fine Gael)
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Deferrals and exemptions have been mentioned. Does Revenue have an estimate of the number of people who will be eligible for an exemption?
Simon Harris (Wicklow, Fine Gael)
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Can Mr. O'Leary break that down between exemptions and deferrals?
Simon Harris (Wicklow, Fine Gael)
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I would be interested if the Department could do so. That would be useful. My understanding is that there will be a liability on local authority housing but that the liability will be met by the local authorities. This means the Revenue will be corresponding with the local authorities in the same way as with private owners.
Ms Josephine Feehily:
We are currently in discussions. An interdepartmental group has examined all aspects of this issue. The group included the Department of the Environment, Community and Local Government. We have met some of the local authorities as well. We need to put modalities in place because it does not make sense. We have to work out with the local authorities how we will manage that relationship. It would make sense for them as well. The Bill proposes changes in that category of housing. Such houses will be taxable at a flat rate, the lowest rate. The ideal for us would be to get a list and a single amount of money.
Simon Harris (Wicklow, Fine Gael)
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That work is ongoing.
Ms Josephine Feehily:
We are still talking. The changes in the Bill are relevant in that regard because they will not be affected by the payment and filing dates this year. The Bill proposes a different arrangement in respect of local authorities.
Permit me to be cheeky for a moment. I wish to avail of a slight opportunity. Another relevant category is that of social housing associations. We have had a good deal of engagement with the representative body for the social housing associations. We are asking them to get in touch with us and to list their properties for us such that we do not write to them, but they have not all done so. We are telephoning them but it would be most helpful if those in social housing associations would tell us who they are and the names and addresses of the properties in order that we do not write to them. We have approximately two thirds of them and we have dealt with them but approximately one third have not responded. We are running a telephone campaign at the moment. Some are rather small organisations and we will keep on the telephone campaign until we begin to issue letters. Inevitably, we have made the offer but if it is not taken up, some people in those situations may get letters.
Simon Harris (Wicklow, Fine Gael)
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That is interesting. The delegation has been here for one and a half hours. The property tax is probably the most pressing issue on the minds of the public but Revenue is involved in some other bits and pieces on an ongoing basis.
Simon Harris (Wicklow, Fine Gael)
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I would like to get a sense from the delegation of what, if anything, is suffering in Revenue as a result of the property tax. Obviously, it has presented a significant onus or task, as outlined by Ms Feehily today, and it seems to me that the Revenue is meeting it well. I hope that I will be able to say as much when Ms Feehily is next here after the tax has been implemented. What is not being done? How is Revenue managing this within its resources? Ms Feehily referred to this issue earlier. Surely something must be suffering. Revenue must not be giving every area the same level of attention as it did before it had to put a focus on this.
Ms Josephine Feehily:
I think that is true. A couple of things are suffering. We always have a pipeline of very significant information technology developments every year and obviously that is suffering.
Quite a number of the new things we would like to do have been moved back into next year and the year after. This is very big for us but it is not unusual for a new provision to be introduced which requires us to readjust our scheduling.
The most immediate impact has been on our IT schedule of improvements and enhancements. It has had an impact in that we have had to close down a tax district in County Clare, with the work being moved to Limerick. The impact has been solely on the counter service, not on the availability of staff to do audit and compliance work and to provide a telephone service. It has diverted some of my best and brightest from devising new policies. For example, normally at this time of the year, we would be updating our audit policy or our policies and strategies relating to PAYE. The team is instead heavily involved in the business analysis and will also be involved in publicity regarding the local property tax.
I have tried to ensure at this point that its impact is confined to new things that we would have liked to do and should be doing in order to keep ourselves up to speed. However, when the returns are sent out, the volume of business could impact on our telephone service for other taxpayers. I hope this will not be the case. We will try our best to ensure it does not. It could also impact on our debt management area. The letters will be sent out in the name of the Collector General and that office will receive the payments which will need to be processed. It could impact on collection timeliness at our end, not out there. We are doing our best to ensure it does not. I will not be able to answer that question until I see the extent. The online system is very simple. If that system helps with diminishing the confusion and volumes, the impact will be minimised.
11:50 am
Simon Harris (Wicklow, Fine Gael)
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I do not expect Ms Feehily to delve into the area of policy. I refer to a story in the media which has been circulating around these corridors, that Revenue made it clear to Government officials that it could only take on one additional project this year. It was said that Revenue told Government it could not deal with any other project this year if it were to deal with the property tax. It is said the other project mentioned was to deal with child benefit. Did that discussion take place?
Ms Josephine Feehily:
The discussion that took place about taxation of child benefit principally took place within the expert group on which Revenue is represented. I can say that I would have conveyed to officials in places like the Department of Public Expenditure and Reform and the Department of Finance that in the context of taking on this particular project, if they had any other projects they wanted us to do at the same time, I would want lots of notice and lots of resources. Revenue tends not to say we cannot do things. Once we have clarity about what has to be done and with enough time and some resources, we can do a lot of things. I can see how people might interpret it another way.
Simon Harris (Wicklow, Fine Gael)
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It has been useful to hear that clarification from Ms Feehily. The numbers of Revenue staff have been reduced in line with all other public service organisations. The Revenue Commissioners said that cuts of €15 million to their budget could lead to losses for the taxpayer of €434 million in 2013. That seems an astonishing assertion.
Simon Harris (Wicklow, Fine Gael)
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I think they did. It was in a response to a parliamentary-----
Ms Josephine Feehily:
It was the other way around. We were looking for resources - as we always do - because that is our natural state. We would have engaged with our colleagues from the centre Departments. We would have warned them of the impact of cuts to our resources. That has been turned around at some point in the reporting. We always underline that the impact of a deep cut in Revenue resources will be felt on the other side.
Simon Harris (Wicklow, Fine Gael)
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I take Ms. Feehily's point. Regardless of who said what or the order of it, could a cut of €15 million actually result in nearly half a billion less in tax being taken in?
Ms Josephine Feehily:
The Revenue Commissioners often discuss this issue with commissioners from other countries when we meet. We are not the best at figuring out the marginal return. However, this work has been done in other countries. If dedicated resources are put into just audit and compliance - not for all of Revenue's work - the international benchmarks are for a return of between one to ten and one to 12. The UK uses one to 11. I wish to emphasise that not every person coming into Revenue can make such a return. It is work for qualified, trained and dedicated auditors.
We have carried out some experiments on the debt recovery side. We have implemented the recommendations in respect of our management information on debt such as the age analysis. This has resulted in very interesting new information about debt management. An overtime project cost €200,000 but this resulted in a collection of €4.5 million. We used some of the new data from the recommendations in the report.
When our staff numbers began to be reduced, we made a strategic decision corporately that we would bias the reductions and not apply them evenly. We have maintained staffing in debt recovery, in collection, in IT and in what we call excise enforcement, the uniformed staff. Early in the period the Collector General proposed to us that if we gave him 30 staff he could collect a lot of money. We begged, borrowed and stole 30 staff from other parts of Revenue. The process took a year. By using some of the new management information and for an investment of 30 staff, we have collected €79 million. The Collector General would not have had enough staff to reach these tiers of debt. Those examples are indicative backup figures to support that assertion. I admit that we are not the best at the marginal return for every extra auditor but I know that other commissioners have the same difficulty. We need to improve our management information.
Simon Harris (Wicklow, Fine Gael)
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That is very useful information. I have three further questions. What joint investigations have been carried out with the Department of Social Protection in the past year? What have been the yields from those investigations? What sectors produced those yields?
Simon Harris (Wicklow, Fine Gael)
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This is an issue that rings alarm bells in the minds of every public representative. I suppose that is the challenge for the Revenue because we are always telling Departments to talk to each other and when that happens, we give out about the way it is done. With hindsight, the issue caused a lot of concern. I ask Ms Feehily to evaluate how that was dealt with.
Ms Josephine Feehily:
I appeared before another committee in January at which I said I was sorry for causing so much upset and confusion. I am happy to repeat that apology.
Many people have asked me if I would take the same action again. This is pertinent to the question of tax-gap analysis. It is a classic tax-gap analysis study. We had macro-data which showed that the Department of Social Protection was paying out X million. We knew from our files that we were getting tax on minus X million, something less than X million. We asked for the data and we received it in November. We did not have time to be as sophisticated with the information as we should have been but the money involved was so material in the context of the national budget arithmetic that we felt we needed to move quite quickly to secure those funds for 2012. We could have frightened every pensioner but instead we frightened a sub-set of pensioners, albeit a big sub-set. If we had gone public, every pensioner would have been frightened. That was our assessment but lessons have been learned, obviously.
For the information of the committee, we stated at the time that we estimated that in 2012 there would be €45 million extra and that the amount in a full year would be €50 million. We will not know for sure whether that has been achieved until the P35 data is submitted and we can compare two exact cohorts. However, I am absolutely confident it has been achieved. My confidence is based on the level of uplifts in PAYE payments from pension providers. We will be obliged to carry out an analysis in order to remove uplifts caused by USC, additional early retirements and so on. We have to do some work and we will not know for a time. However, I have no doubts about this.
We are now in the compliance phase. We indicated publicly last April that we would be beginning our compliance campaign with pensioners who have €50,000 or more in income in addition to their social protection pensions. We thought at the time that there were approximately 2,500 of these individuals but it emerged that there were 2,975. We have now closed 2,600 of those cases. Some 57% of them were yielding cases. In other words, we obtained money from them and the average yield per case was €4,177. I indicated that when we had looked at this cohort, we decided what to do thereafter. With that kind of yield, the decision was obvious and we moved on to the next cohort. Again, we achieved a yield of over 50% of cases and the average yield per case was €4,300. We are now examining the next tranche, which relates to people who have incomes of between €30,000 and €40,000 in addition to their social protection pensions. In all of the cases to which I refer, those involved had not reported their additional income. Our current operation is in the early stages but we have closed over 1,000 cases. We are finding that only a third of these cases are yielding, whereas in the higher cohorts over one half were doing so. The average yield per case from the current tranche is €2,300.
Chargeable persons, namely, the self-assessed, had the opportunity to make declarations up until it was necessary for them to make their tax returns in October or November. We alerted the tax agents and pre-populated the return with the social welfare information. In other words, the returns would have indicated that we know people have particular income. Despite the reminder, 6,600 individuals did not declare their social protection pensions for prior years. We have analysed these and some of them are fine. However, 14,700 individuals with earnings of over €30,000 - to be consistent with the PAYE group - did not report their social protection pensions in prior years. The compliance project in this regard will be starting next.
We are still working through this matter. The total yield, on top of the €45 million we included in the arithmetic, has been €11 million to date. That was recouped in just 12 months. That is sort of our biggest project. We have a high-level group which works closely with the Department of Social Protection. One of the things we have done is to carry out a REAP run for the Department in respect of social protection cases where there are indicators of economic activity on our files. REAP is our risk evaluation analysis and profiling system. I cannot discuss this matter in technical terms because I do not understand cloud computing but the Revenue and the Department have a cloud and we have placed the data to which I refer in this. Our respective officials are working collectively and collaboratively on cases by using the data collected by the Revenue and the Department. This data has been risk analysed and the officials are working together on it in the cloud.
12:00 pm
Simon Harris (Wicklow, Fine Gael)
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Very good. There are two final issues to which I wish to refer. A very interesting story appeared in the national media last October which indicated that Revenue believed that Government Departments and public bodies had been involved, on a number of occasions, in offensive tax avoidance or in abuse of the tax system. As far as I am aware, this related to the classification of employees. Will Ms Feehily expand on that and outline the current position? We know how Revenue deals with Joe Public but how does it deal with Government agencies? If it is discovered that abuse is taking place within a Government Department or agency, can interest and penalties be imposed?
Ms Josephine Feehily:
The short answer is that they are dealt with in the same way as everybody else. The initiative which attracted attention last year is one I have taken on a number of occasions. I have written to the Secretaries General a number of times - as a service, not as a threat - and the third time happened to be in the middle of last year. There are many new Secretaries General and agency heads. A couple of years ago legislation was introduced which requires all public bodies to report all payments to us - automatically and electronically - for risk analysis purposes. The context to my communication was to remind people of the range of taxes that impact on public bodies. I would have written to them and stated that they needed to be aware of all of those taxes and that the payment of VAT and RCT can arise. There were some who were of the view that said payment did not arise. Many public bodies do not use tax advisers. In that context, this was a customer service initiative on my part which ended up being seen in the opposite way. I was drawing their attention to the range of taxes which apply and the circumstances in which they are payable by public bodies and asking them to pass the information I was imparting down through their systems to their agencies.
There is a code of practice for the governance of State bodies. I am kind of hot on governance. I have given this speech at a number of venues and not just to State bodies. I am of the view that tax is a governance issue which should be dealt with by boards. The latter should pay attention to it and State boards are no different. I would probably have written that in the letter as well. As already stated, there is a code of practice for State bodies which requires them to be tax compliant but also to stand off of aggressive tax planning. I would simply have drawn their attention to the existing code of practice. If I wanted to inform a public body that I believed it was engaging in aggressive tax planning, I would write a different kind of letter and send it directly to that body. In addition, I would not discuss the matter with the committee because it would be subject to taxpayer confidentiality. It was a general informational piece.
Simon Harris (Wicklow, Fine Gael)
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I appreciate that Ms Feehily is a very helpful individual and I am sure her letter was of assistance to the State agencies involved.
Simon Harris (Wicklow, Fine Gael)
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Ms Feehily need not provide specific examples but is she of the view that State agencies are doing enough to ensure that they are meeting their tax liabilities? She made some comments, which are both helpful and alarming, in respect of the fact that State agencies do not use tax advisers. Before she arrived, we engaged in a discussion on the substantial sums of money with which some of these agencies deal, the various places in which they deposit them, etc. Given that SMEs use tax advisers, it is astonishing that large State agencies do not. I would appreciate Ms Feehily's general take on this matter.
Ms Josephine Feehily:
The word "adviser" sometimes conjures up an image of big firms, even when one is referring to qualified, in-house tax practitioners. It is not as widespread in the public sector as it is in the private sector. I am referring to in-house, ordinary tax expertise and that is just an observation I would make. Public bodies are extremely anxious to be responsible and compliant. I do not have any reason to believe otherwise. Sometimes, however, the lack of expertise in-house may perhaps cause them not to understand the full extent of their obligations. What we wanted to do was invite them to talk to us if they had any concerns, namely, to ask rather than to assume, and they have taken the opportunity to do so. The committee will be familiar with the fact that public bodies will often make disclosures in respect of their tax affairs in their own accounts. I am precluded from discussing the tax affairs of individual public or private bodies or private citizens because those affairs are confidential and the entitlements of these entities are no different.
12:10 pm
Simon Harris (Wicklow, Fine Gael)
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It is useful for us to know and a matter we can take up with individual Accounting Officers in relation to their particular agency.
The issue of interaction between the Revenue Commissioners and businesses in a difficult economic climate arises time and again. I do not want to take up too much time so I will ask just a couple of questions, to which Ms Feehily may respond together, if she wishes. In 2011, the Revenue Commissioners petitioned to have companies wound up on 62 occasions. What was the figure for 2012?
The job and statutory function of the Revenue Commissioners is to collect tax. While they can come to agreements with people, they must ultimately bring in the money, and we will criticise them if they do not bring in enough money. I take the point in that regard. However, is consideration or weight given to the impact of an attachment order on the loss of jobs? There was the high-profile case involving one of the haulage companies. The Revenue Commissioners put an attachment order on a business and there was a loss of 400 jobs. In the current climate, how do the Revenue Commissioners approach dealing with businesses? What is considered by the Revenue Commissioners at the stage of applying for attachment orders? How many petitions to have businesses wound up were applied for in 2012, as opposed to 2011, in which there were 62?
Ms Josephine Feehily:
Off the top of my head, I am not sure if we have the petitions figure. My colleagues will look for it while I am speaking to the Deputy. If I do not have the figure to hand, I will write to the Deputy.
In 2011, there were 4,463 attachment orders. In 2012, there were 4,039, representing a reduction of nearly 10%. Under a previous Finance Act, we were given a new power to attach salary, and we have used that in only five instances. It is a power we use very sparingly. We never use it without having exhausted multiple reminders, all sorts of other avenues, instalment arrangements and time-to-pay arrangements. In the end, we are very conscious of the impact it can have.
The Deputy made a point on our job. In addition to that, I need to make two other points. If we do not act against the non-complier or non-payer, we are creating a very uneven pitch for the payer, the business next door. The second point is that, in many instances, the taxes that are not being paid have been deducted from employees' wages. The impact is not just on tax as there is also an impact on the Social Insurance Fund because PRSI is not being collected. It is not just the deducted PRSI but the employer's PRSI.
I will not talk about cases. The Deputy has referred to a particular case and jobs. If there are many jobs, one can take it that there is considerable revenue from PAYE tax. Where there are many PAYE employees, there is a lot of PRSI at risk. This is a consideration. Certainly, we are very conscious of the level playing field.
In addition to the active instalment arrangements, at the end of 2012 we had 16,052 cases under time-to-pay arrangements. I am pretty certain that there was approximately €102 million in tax represented in those cases. This is evidence that it is not just talk when we say we engage with business. The cases would be moving through; it would be a different 16,000 cases if I gave the committee a figure this time next year.
Last year, when I was talking about this subject, the figure that stuck in my mind was €85 million in tax under time-to-pay arrangements. It might be the figure for 2011 that is in my head but, certainly, I know that the figure in tax under time-to-pay arrangements is now over €100 million.
We consider the cases made by businesses that come in to us. Businesses have to be viable. If they are not, it is an unfortunate feature of the current environment. If a business is not viable and cannot meet its current obligations in a reasonable fashion, and if its current level of economic activity is not sufficient to meet its current tax liabilities, this poses a question. Time-to-pay arrangements can arise for historic debts and even current debts if there is a decent business plan such that the business can show how it is working its way out of its problems. There has to be a viability test in relation to current taxes. If the level of current business or economic activity or sales is not sufficient to support one's current liabilities, there is a question that we must take into account.
We do not seem to have found the number of petitions. I will get that for the Deputy.
Quite often, there are petitions and receiverships caused by Revenue's actions, but we do not petition ourselves. Our action may cause a creditor's voluntary liquidation. That will often happen. We will get the Deputy some data and send it to the committee.
Simon Harris (Wicklow, Fine Gael)
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The struggling business owner at home watching these proceedings will wonder whether it is part of Revenue's remit to consider potential lost revenue caused by the winding up of the company. Is it Revenue's job just to collect the tax for which the business is liable? Is any consideration given to potential lost revenue?
Ms Josephine Feehily:
There is no mathematical weighting given to it.
Coming back to my discussion with the Deputy on the viability of business, if there is a decent business plan in place showing a reasonable prospect of returning to normality, we will certainly listen. We are mindful always of the number of jobs. However, I have to keep saying that the level playing pitch argument is important. If a business with a lot of jobs is operating in such a way that it cannot afford to pay over the PAYE and PRSI that it has deducted – if I may put it as bluntly as that – what about the guy next door who is offering the same service? There may be undercutting of the market taking place at the expense of the Exchequer. On the one hand, there is the question of future tax streams but there is also the question of the current tax liabilities and the impact this is having on the business next door, which also has a tax stream, income stream and profit to look after. It is a tricky space. We do not have a mathematical weighting.
I am always struck by the extent to which business representative organisations have been quite content with the level of engagement with Revenue. They are not complaining. Therefore, we must have got the pitch between the compliant and the non-compliant about right.
Simon Harris (Wicklow, Fine Gael)
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I thank Ms Feehily.
Shane Ross (Dublin South, Independent)
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I would just like to elaborate on a couple of questions that Deputy Harris was asking. Would Revenue normally have an input into the property tax legislation? Would it be consulted prior to the introduction of such a tax?
Shane Ross (Dublin South, Independent)
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What was Revenue's advice to the Minister on this?
Ms Josephine Feehily:
My advice to the Minister last summer was that if he wanted Revenue to implement the tax, I needed to know last summer because the logistics would be considerable given that we needed to learn from issues that arose in regard to the household charge. Considering that the Local Government Management Agency was starting from standing still, it has given us a fairly respectable database. I compliment it on that.
My advice was that it was a huge job and that I would need bodies, resources and an early decision. Normally when we engage with the Department of Finance and the Minister on any new development that might be budget sensitive, we have to be very careful that the discussion takes place in the appropriate manner. In this case, we needed to be out and about gathering databases and talking to people. Therefore, I needed a Government decision early.
As I said, our business is to implement policy. My point to several Ministers down the years has been that if the Government gives us clarity early, we will proceed. Since administrators have networks, we would certainly have advised the Minister to the extent that we have knowledge of how property taxes operate in other countries. One of my officials was a member of the Thornhill group so we were represented there. In the end, the drafting of the legislation, under the Government's decision, obviously, is done by my officials.
Shane Ross (Dublin South, Independent)
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Does Ms Feehily know why she was chosen to do this?
Shane Ross (Dublin South, Independent)
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Has she no idea?
12:20 pm
Shane Ross (Dublin South, Independent)
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Yes, but the household tax obviously was enforced by someone else.
Shane Ross (Dublin South, Independent)
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The household tax?
Ms Josephine Feehily:
Yes. Once the decision was made that we were doing it, it sort of just went away. We are the tax administration and it is very common for the tax administration in other countries to collect local charges for redistribution. A number of years ago, my opposite number in Denmark told me they abolished a whole range of collection agencies in local authorities and gave all the stuff to the central tax and customs authority as an efficiency measure or a kind of shared service. No, I did not ask "Why me, Lord?" or anything like that.
Shane Ross (Dublin South, Independent)
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Were the Revenue Commissioners reluctant to do it?
Shane Ross (Dublin South, Independent)
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Okay, so Revenue just took it on and said it would do it.
Shane Ross (Dublin South, Independent)
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Presumably, the Revenue Commissioners were chosen because they could enforce it.
Shane Ross (Dublin South, Independent)
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Yes, and the household tax had not been so rigidly enforced as was possible.
Ms Josephine Feehily:
I guess we were also chosen because we have 90 years of experience of administering taxes and, since 1988, 30-something years of administering self-assessed taxes, which the Local Government Management Agency did not have. Self-assessed tax is quite different from the old-fashioned idea whereby we write out to people telling the amount and then they pay. Self-assessed tax requires a strong element of service to support voluntary compliance and a strong element of deterrent. These are the characteristics and we have 30-something years experience of self-assessed taxes. VAT is a self-assessed tax and consequently, I would say that our experience in tax administration generally and in particular in respect of a self-assessed environment probably was one of the factors.
Shane Ross (Dublin South, Independent)
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So we can take it that the enforcement causes have got Revenue's input in them, that is, its expertise on enforcement-----
Shane Ross (Dublin South, Independent)
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-----was required for that and that Revenue is happy with them.
Shane Ross (Dublin South, Independent)
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But Revenue knows it will.
Shane Ross (Dublin South, Independent)
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Yes, know they it will.
Shane Ross (Dublin South, Independent)
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Has Revenue an estimate of how many defaulters it will have in this particular case?
Ms Josephine Feehily:
No. It would be impossible unless I had a crystal ball to figure it out. As I stated earlier, I do not know the characteristics of this population. We are beginning to develop an understanding of the characteristics of the properties. I do not know whether we will have the same kind of voluntary compliance levels. Generally speaking, if one takes the random audit programme as a sort of metric, we have 70% compliance across the self-assessed taxpayer base. This is just in terms of the value or in other words, the amount of income they return. However, in terms of the submitting of tax returns, for the largest cases we get 98% tax compliance in terms of submitting a form and really, all that is required in most cases is to submit a form in the first instance. This reduces to 80% compliance at the smaller tiers of these self-assessed cases. These are the kind of numbers that exist for other taxes. Between 80% and 95% of those in the self-assessed taxpayer base send in their tax return more or less on time.
Shane Ross (Dublin South, Independent)
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May I go through this very quickly? Revenue has various enforcement procedures, which Ms Feehily has gone through, and that is absolutely fine. There is not going to be much resistance because there is no capacity for resistance in this case. Revenue will just take the money out of people's social welfare cheques, employees' cheques or PAYE. Is that not correct? Consequently, non-compliance is not really going to be a major issue, is it?
Shane Ross (Dublin South, Independent)
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How could people not comply if Revenue intends to take the money out of their cheques?
Shane Ross (Dublin South, Independent)
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Yes, but compliance will be enforced anyway.
Shane Ross (Dublin South, Independent)
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Will that mean Revenue will not be resorting to the courts, or will there be prosecutions in some cases?
Shane Ross (Dublin South, Independent)
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For instance, how will Revenue enforce payment by the self-employed?
Shane Ross (Dublin South, Independent)
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Yes, but that is not enforcement. What about enforcement?
Shane Ross (Dublin South, Independent)
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Consequently, there could be prosecutions in those cases.
Ms Josephine Feehily:
Prosecutions are more likely to arise at the end of a very long compliance campaign in which one has an under-declaration or in other words, a lie. It will be a major lie because we risk-assess our prosecution cases. It is not even on my radar at this point, frankly, to figure out what kind of cases might, sometime, after a couple of years, find their way into our prosecution programme. It is not even on our radar. The only example I can possibly think of is someone who declares a house that is worth more than €1 million and tells a barefaced lie by calling it a couple of hundred thousand euro. As I stated earlier, the compliance treatment we will apply to the different cohorts will be something we will work out when we see the shape of the non-engagement and the extent of the non-compliance. I do not think we can plan for the extreme 0.00001%. At this stage of the project would never plan anyway. This simply is not on our radar at this point. I am not saying that we will not do it but it is not on our radar at this point.
Shane Ross (Dublin South, Independent)
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I wanted to ask Ms Feehily about prosecutions anyway, because I was looking at Revenue's annual report, which includes lots of cases of prosecutions. I do not think I have had the opportunity to ask the Chairman this before now and while it is somewhat historic, a fair number of prosecutions are under way at present. How does Revenue make decisions of this sort? For instance, historically, as far as I am aware there were no prosecutions in the Ansbacher cases. Why not?
Ms Josephine Feehily:
As to how we make the decisions, first we have a prosecutions admissions committee, the terms of reference of which are to make sure that cases are only admitted to the prosecutions programme where we have sufficient evidence and where we are likely to secure a conviction. The cases the Deputy mentioned, I am working from memory, were extremely old and our experience has been that very old cases are unlikely either to be acceptable to the Director of Public Prosecutions or to secure a conviction. There is plenty of case law to support that view although I do not have it to hand. Consequently, very old cases and very elderly people, which was the position in many cases in respect of the Ansbacher group, were considered unlikely to be suitable for prosecution due to the justice delayed and the lengthy time involved, as well as the lack of sufficient evidence. That is my recollection but I must admit I did not review Ansbacher for today's discussion. I have not reviewed Ansbacher for several years.
Shane Ross (Dublin South, Independent)
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Does the Chairman see the point I am making?
Ms Josephine Feehily:
No, I take the point the Deputy is making but I am just qualifying my answer by saying I have not reviewed that particular cohort of files. However, those are the riding instructions to the admissions committee, namely, sufficient evidence and likelihood of conviction. We have a very small resource available for prosecution. It is hugely labour-intensive. The return on investment in terms of cash is modest and, consequently, we must be highly selective and very careful. The cases that go into prosecution will be ones we believe are likely to succeed in securing convictions.
Shane Ross (Dublin South, Independent)
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I understand what the Chairman is saying. I do not agree with it but understand it. In the summary of prosecutions in respect of compliance, it states that 1,083 convictions were secured for 2011, amounting to small amounts of fines for non-filing of income tax, corporation tax and relevant contracts and tax returns. When one contrasts that with Ansbacher, it very much looks as though Revenue picks soft targets. Not filing tax returns is hardly on the same scale as tax evasion on that massive scale.
Ms Josephine Feehily:
However, non-filing of returns is a large programme for which the consequences, generally speaking, are a modest enough fine.
In the Ansbacher investigations, my recollection is that we collected approximately €112 million or €113 million, and without checking - I can write to the committee, if Deputy Ross wishes - I am quite certain a very large proportion of that contained financial penalties of a very significant kind. The treatment in the Ansbacher cases was fully in accordance with the law. My colleague has just advised me that the penalties and interest on Ansbacher cases was €62.59 million out of a total yield of €112.69 million.
12:30 pm
Shane Ross (Dublin South, Independent)
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It was over half.
Shane Ross (Dublin South, Independent)
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Does that indicate a certain degree of guilt?
Shane Ross (Dublin South, Independent)
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And that prosecutions might have been successful.
Ms Josephine Feehily:
I am really at a disadvantage because I have not reviewed this group of cases for today. Deputy Ross will be familiar with my predecessor who was active in this space. If cases could have been prosecuted, we would have prosecuted them. I am pretty certain that there was an evidential time issue that led to those decisions but I am at a disadvantage because I simply have not reviewed that file in quite a while.
Shane Ross (Dublin South, Independent)
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That is reasonable, from Ms Feehily's point of view. Is there any way she could give us a written response at some stage as to why no prosecutions were ever taken against any of the Ansbacher offenders?
Shane Ross (Dublin South, Independent)
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Then, more recently, on the same theme, where there was evasion of DIRT tax there was an Oireachtas committee of inquiry. Why was a banker never prosecuted for encouraging clients to evade tax?
Shane Ross (Dublin South, Independent)
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It is still current in terms of what is happening. No banker was ever prosecuted for encouraging clients to evade tax, and yet those clients who evaded the taxation were prosecuted.
Shane Ross (Dublin South, Independent)
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Guess.
Ms Josephine Feehily:
No, I really would not be comfortable. The inquiry made certain recommendations. It gave certain direction to Revenue on how we should behave. We had very long and exhaustive compliance campaigns which resulted in a huge amount of money. There were issues to do with the definition of the offence, and that is as much as I can recall. I think the DIRT inquiry report was issued in 1998 or 1999.
Shane Ross (Dublin South, Independent)
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Yes.
Ms Josephine Feehily:
I just do not remember that with precision and I have not reviewed at that level of precision. I can tell the Deputy how much money we collected as a result, if that is any assistance, but in getting into questions of evidence for something that is that old, I would be afraid I might mislead the committee.
Shane Ross (Dublin South, Independent)
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Nevertheless, Ms Feehily sees the problem. It seems the big fish get away and the small guys, who do not fill in their tax returns or who have undoubtedly committed an offence, are prosecuted.
Ms Josephine Feehily:
What I will say to Deputy Ross, if we could just maybe move it forward a small bit, is that in 2000-2001, we completely reorganised the organisation. For the first time, we set up a dedicated investigation and prosecution section. Since then, we have had a dedicated prosecution programme. It has included the creation of the submissions committee, that I mentioned to the Deputy, which has criteria for the admissions of cases. At any given time, and certainly right now, there is a couple of hundred in a pipeline being investigated in that programme, some for tax and some for duty evasion. Last year, we had 37 custodial sentences imposed between tax and duty evasion. We had an additional 28 suspended sentences imposed. On any given day last year, I would guess that there were 12 or 15 people in jail for tax or duty evasion, and on 30 September, we had 22 people serving custodial sentences for tax and duty evasion.
Bringing it forward, I certainly take Deputy Ross's point. Revenue reorganised itself very fundamentally to focus on criminal investigation and prosecution. We have staffed that division with some of our most technically qualified staff. Year on year, we have increased the number of prosecutions, but more importantly, our conviction rate is very high. I have just read out to the committee the results in terms of sentencing.
Shane Ross (Dublin South, Independent)
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Can we take it that a curtain has closed over all the activities of bankers at that time to which I referred?
Shane Ross (Dublin South, Independent)
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As a general rule, does Revenue have a squad looking at that or has the chapter been closed?
Shane Ross (Dublin South, Independent)
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In the DIRT situation, are there any?
Shane Ross (Dublin South, Independent)
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I thank Ms Feehily. Returning to the property tax which is less contentious, Ms Feehily stated it would cost €25.9 million.
Shane Ross (Dublin South, Independent)
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That is the provision Revenue is making for it.
Shane Ross (Dublin South, Independent)
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Ms Feehily stated it might cost much more as well. What are these regular resources that Ms Feehily has?
Shane Ross (Dublin South, Independent)
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Sure.
Ms Josephine Feehily:
Normally, it is a wonderful engagement between us and Mr. Quigley. I say, "I need more", and he says, "You are not getting it." We get a budget. On top of that this year, they have given us an additional allocation for local property tax. I have to do this job and if the allocation is not sufficient, I may have to dip in. When I say, "dip in",-----
Shane Ross (Dublin South, Independent)
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How much have they given Revenue? Is that the €25.9 million?
Shane Ross (Dublin South, Independent)
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Ms Feehily may have to go back for more.
Ms Josephine Feehily:
It is not that I go back for more. I am sure I will ask him. What I meant earlier when I was discussing this was that, because the tax is being handled in our existing systems, we may have to divert staff, other IT resources or other normal parts of the overtime budget, or whatever, to support it. Those are decisions we will make on an ongoing basis.
Shane Ross (Dublin South, Independent)
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Is this an expensive tax to collect?
Shane Ross (Dublin South, Independent)
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How much is this?
Ms Josephine Feehily:
For this year and next year, we are estimating this one at 2%, including start-up costs. I would expect that it will settle down at the same level as all the other ones, that the cost will be less than 1% of the annual yield. I would be disappointed, by the time we get into year 3, if that is not where we are.
Shane Ross (Dublin South, Independent)
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I will ask about the internal workings of the Revenue Commissioners. Is Ms Feehily chairman?
Shane Ross (Dublin South, Independent)
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That is one of those anachronisms which still exists.
Shane Ross (Dublin South, Independent)
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Has the Revenue a board?
Shane Ross (Dublin South, Independent)
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How much are all the commissioners paid?
Shane Ross (Dublin South, Independent)
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Ms Feehily is capped at €200,000.
Shane Ross (Dublin South, Independent)
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So Ms Feehily gets €200,000.
Shane Ross (Dublin South, Independent)
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Ms Feehily gets more than the Taoiseach.
Shane Ross (Dublin South, Independent)
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Does Ms Feehily get any perks?
Shane Ross (Dublin South, Independent)
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Nothing, not even a car?
Shane Ross (Dublin South, Independent)
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That is fine.
Shane Ross (Dublin South, Independent)
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I do not know the answer to this question. Quite often we ask questions here and we know the answer to them in advance. How are appointments inside the Revenue Commissioners made? How was Ms Feehily's appointment made?
12:40 pm
Ms Josephine Feehily:
The legal position is that we are a board of three commissioners. Our order states that the commissioners are appointed by the president of the executive council, who is the Taoiseach. In practice, however, we are appointed by the Government, like all Secretaries General. We are three officials at Secretary General level. We have the same terms and conditions as Secretaries General and we are appointed by the Taoiseach under statute but in practice by Government and the normal TLAC process for Secretaries General applies. Appointments in recent years have been publicly advertised and subject to TLAC.
By convention, one of the commissioners is appointed by the Minister for Finance to be the Accounting Officer for the purposes of the Comptroller and Auditor General Acts and the head of office for the purposes of the Public Service Management Acts. That individual is the chairman. Although the chairman does not have a legal status in the statute establishing Revenue but the files of the discussion of the first board in 1922 show that the Minister for Finance appointed one of the three commissioners as chairman. According to the narrative that used to be written years ago in the IPA diary, one of the three commissioners acted as chairman but the role is more than that because the chairman is appointed as Accounting Officer and head of office by the Minister.
Shane Ross (Dublin South, Independent)
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There is an advertisement and interview process for the appointments. Is it an internal competition?
Shane Ross (Dublin South, Independent)
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Why is that?
Ms Josephine Feehily:
I do not know. I do not make decisions about appointments. The opening up of the process of appointing Secretaries General to public competition is relatively recent but from the time the Government decided to open up Secretary General posts, commissioners were opened up in line with everyone else. It is no different.
Shane Ross (Dublin South, Independent)
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The end result seems to be the same. People are appointed and promoted internally.
Shane Ross (Dublin South, Independent)
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No, but it is interesting.
Ms Josephine Feehily:
An area in which we have had good experience in the past couple of years was in opening recruitment at assistant principal and principal officer level to the private sector. In 2010, we advertised for principal officers for our large cases division. We made four appointments and they all came from the private sector. We advertised for principal officers in information technology and two out of three or four appointments came from the private sector. We advertised for assistant principals for audit and investigation in 2010 and made 23 or 24 appointments, of whom 22 came from the private sector. We are very open to taking in qualified individuals from the private sector at the levels at which we make the decisions. We have also engaged a number of administrative officers - I do not have the numbers to hand but a significant proportion of them came from the private sector or directly from college. In recent years we have certainly opened up middle and senior management grades and have had a number of interesting applicants and good candidates. We are happy to be able to make appointments from the private sector.
Shane Ross (Dublin South, Independent)
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So the Revenue is slowly being infiltrated.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Is there much public interest in advertisements for the position of commissioner?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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There was none.
Ms Josephine Feehily:
I cannot say there was none but there was not much. Working from memory, it was advertised at the back end of 2011 by the Public Appointments Service in the normal way. My recollection is that there was not much interest. I discussed the matter at the time with the head of that office and I know that she engaged in a certain amount of encouragement and made use of various executive search tools. She assured me that she had spread the word through the various channels her office uses to encourage applicants.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Ms Feehily wrote to Departments and State agencies in regard to their tax obligations. Without naming Departments or agencies, what did she find?
Ms Josephine Feehily:
I saw this as a positive intervention on my part. One of my compliance tools is to alert people to their obligations and then help them to comply. We got a significant reaction from a number of Departments which asked us to send Revenue officials to meet their officials and provide information sessions. We have done that for several Departments on foot of requests. I regard that as the correct way to proceed. We write to the Departments to tell them, in case they do not know, that they have a range of complicated obligations and they can read a variety of publications, and we also offer them our assistance. Quite a few of them took up our offer and we arranged information sessions for a number of Departments. That was the most positive outcome from my point of view.
We also have a positive engagement with some of the larger public authorities, for which we have put in place a central liaison to allow them to engage with us on a regular basis if they have a complex range of agencies under their control. I do not think I am breaching confidentiality by pointing out that we have centralised liaison arrangements with the HSE.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Having been so helpful, did Revenue collect any money?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Did they find that they were in breach of the tax code?
Ms Josephine Feehily:
Some of them engaged in a self-review process in respect of non-regular payments, if I may put it that way. We are satisfied that the majority of cases would be categorised as innocent or technical errors if voluntary disclosures were to be made. Innocent error and technical error are categories in our code of practice for disclosures. Everybody knows how to do payroll and our involvement was limited to ensuring they understood the employment classification issues. A code of practice on that topic is publicly available. Sometimes they might wonder whether something is an employment. Cross-border VAT issues arise in other cases which are very complex for public bodies. In the event that they were procuring across borders we advised them to speak with us if they had any doubts. In the case of non-regular or not recurring engagements - I do not mean irregular in an accounting sense - they would have needed advice.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Approximately €2 billion was outstanding at the end of March 2012. What is now outstanding as we approach March 2013? Is the figure similar?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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To go backwards, what were the figures for 2011 and 2010? The 2008 report from the Comptroller and Auditor General suggests that debt in the five year bracket is approximately the same amount.
What is the figure and why is it there? As the debt and the analysis age, the money must become harder to collect. For example, what is the value of the debt in the five year bracket in the past few years?
12:50 pm
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I understand that. For example, in terms of the age debt for 2012, there is an amount of tax for a five year period. The figure seems to be the same for 2011 and 2010 on the graph. What is that figure?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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What is its value?
Ms Josephine Feehily:
The total debt was €2 billion and value of tax under appeal was one third of this amount, €669 million at 31 March 2012. When that figure is released from the appeals process, it goes back into the amount for the relevant year. This is the new and better analysis that we need to be doing. We have started the process of analysing the debt by age, but when one looks at the old debt, we need to overlay it on when it was put on record. In many instances, the oldest debt was subject to an appeal stop until a more recent time. When the appeals process is exhausted and the figure is released, the debt is allocated to the year in which the charge was raised. Therefore, the old debt can be misleading from that point of view.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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According to the graph, it is 40% covering a five year period.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Within it, taking account of what Ms Feehily said, approximately two thirds is subject to appeal.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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What is happening with the remainder?
Ms Josephine Feehily:
The other two thirds is subject to active collection. That is what I mean about it not being a static figure. In a given year we will dispose of, using the various collection, enforcement, write-off instruments and so on, approximately 98% of the charges raised. Therefore, the amount is moving all the time. A significant proportion of the debt will be subject to active collection, which means it is being moved using some of the enforcement tools we discussed. Another proportion of it - the figure of €106 million I mentioned - will be subject to time to pay arrangements but will still be classified as debt until it is discharged. There is an active process of managing the debt and the Chairman is absolutely right. The newer it is and the quicker we get at it, the better. This is where the age analysis will come into its own. We have undertaken the developments needed to enable us to do this and increased the number of debt management teams. We had 20; we then went to 25 and these teams will be given targets based on the age analysis to focus on the newer debt. That will not make the picture any prettier, but it means we have a better chance of recovery.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Does it mean the amount of debt written off will reduce?
Ms Josephine Feehily:
The debt write-off, strangely enough, is not always that old because most years between 70% and 80% of it concerns liquidations, examinerships or ceased trading arrangements. It tends to be current and not aged. We have an automatic write-off programme every year for small amounts. They can be quite old, but they are tiny amounts. The average figure in the last automatic write-off run was €13. I am ignoring it for this purpose. The write-off tends to be relatively current, but the issue is what we will do with all of this. The oldest part has generally been put on record when an appeal is concluded and then it starts to be subject to case work. We ask for the money. In the current climate when an old debt is put on record after exhausting the appeals processes, quite often the underlying money in the economic transaction is gone. Certainly, in that instance, the write-off will increase for these cases. We tend in our simple minds to think of them as current because it is only available to us once it is released from the appeals process.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I would not say it is a simple mind.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I will give Ms Feehily the benefit of my simple mind on it. Revenue collected €36 billion last year and is expected to collect €38 billion this year. The Government parties by way of policy decided that they wanted more taxes and then asked Revenue to collect them. They are, therefore, asking it to collect €250 million this year in the local property tax and double that amount next year. If I was in private business, I might not be able to increase demand that easily. Therefore, I would have to refer to my aged debt and my ability to collect and insist on collecting the money I was owed. There will always be someone who will not pay and there will always be a write-off. Running an aged debt figure of approximately 40%, taking all of what Ms Feehily said into consideration, including the fact that it reverts to the year it was owed and so on, is a considerable amount. If Revenue had the €669 million tied up in the appeals system sorted earlier and the investment in the various teams she described in place, the policy makers might not look at a new tax because Revenue was efficient in collecting taxes and sorting out the problems within the current tax system. Is that fair?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I am sure they would not want to go near a property tax now. If Revenue had collected the outstanding taxes, they might not have gone near the tax. I do not want Ms Feehily to comment on that, but I would like her to address the question of efficiently collecting and establishing the taxes due, including the appeals, in order that there is a little write-off at the other end. That requires the type of investment she outlined where Revenue invests a small amount to generate a significant collection figure.
Ms Josephine Feehily:
I could not argue that if I could devote more resources to these tiers of debt management, I am quite confident we would get a return on that investment. I could not disagree with this and it would not be fair to ourselves if I did. However, we receive mixed messages. If we went after aged debt ruthlessly, there is no doubt that we would be in a situation involving business closures and job losses. Therefore, as I discussed with Deputy Simon Harris, we try to strike a balance in getting the money. As I said, 98% of the charges raised is disposed of the following year. The appeals process is entirely different, as it is completely outside our control. We are a protagonist in the appeals system. We do not run it. People think that because they are known as the appeal commissioners that somehow we have control.
We have no control over the timelines and the money is simply not accessible to us. For example, a very long-running case that went to the Supreme Court in relation to our general anti-avoidance rule took 15 years to go right through the various appeal stages up, down, over and back, so that money was just not there for 15 years. The average length of time for appeals that do not go to the multiple courts is about 2.5 years. We cannot improve the efficiency of the appeals system. That one third is out of our reach. Certainly in relation to the others, I cannot disagree that different application of resources might lead to a different outcome in terms of the disposal of the debt, but it might not lead to collection if we are too ruthless. It might lead to a ballooning write-off, a ballooning closure of businesses and then the consequences. Earlier Deputy Harris asked me if we took into account future income streams. It will certainly impact on future income streams so I do not think it is that simple, but, at the same time, the Chairman's basic premise that if I had bodies I could collect money-----
1:00 pm
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I am not suggesting that the Revenue should be ruthless. I am just suggesting early intervention with some of those that will obviously subsequently appear on its aged-debt list. While I know encouragement and management at an early stage takes up resources, it might be a better way than having them end up in the hard core of debt based on Ms Feehily's analysis.
Ms Josephine Feehily:
I completely agree with that. This new aged-analysis tool that we have introduced, which we have referred to in the report, will give us the data to do even more of that. We have had a focus on early intervention. We are now going to do more of it and all of the debt-management units will be given targets to focus on the debt, with the newest first, to try to stop problems getting worse. I absolutely agree with that.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I ask about the relationship between Revenue and the sheriff. What happens up to the point when Revenue decides to send a case to the sheriff for collection? I have seen cases where matters are resolved with the sheriff. If they could resolve them with the sheriff, taking into consideration all the penalties that attracts, why do they not resolve them directly with the Revenue before they are allowed to go to that point?
Ms Josephine Feehily:
If only I knew the answer to that. First of all, nothing goes to the sheriff without being positively decided on by a senior officer. Nothing goes to the sheriff just by a button in the computer - there is no automatic referral. It is regarded as a serious enforcement tool and we do not allow it just to happen. The case is assessed. There will be a debt. There will be a debt that has gone on for a while. There will have been either minimal or no engagement. There will have been reminders and then the case is assessed for the most appropriate enforcement tool, which can range from referral to our external solicitors to the sheriff or the use of attachment order that I discussed earlier.
We do find that the referral to the sheriff causes a reaction that we seem to be unable to cause in some cases. They settle with the sheriff having just refused or failed to engage with us in some cases. My colleague, Mr. Gerry Harrahil, is just reminding me that at the point where we are issuing the reminders and the demands after the case decision has been made, we point out the cost consequences of not engaging. So, in other words, we point out that "If this goes to the sheriff, you'll have to pay the sheriff fees". I have experience of this myself where somebody has actually sent a payment into my own office the day after they got sheriff notice. Then we have this big mess about who pays the sheriff and if they cross in the post, we will pay the sheriff.
The answer is that I do not know, but if there are specific cases I would be happy to hear about what we might have done to get them to engage with us because we will have offered them instalment arrangements. Inevitably in the kind of case the Chairman is describing, they enter into an instalment arrangement with post-dated cheques with the sheriff and then they have to pay his costs. We would have given them the same deal without the costs.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Do people believe that the sheriff is just an extension of Revenue's office and not an independent entity? That is what it is and Revenue refers it to the sheriff-----
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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----- and it has no control over it. It would appear that the customer just does not understand that if it goes to the sheriff it is completely out of Revenue's hands. That is an independent office that incurs costs the customer must pay. Is it something on which they need to be educated?
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Perhaps that should be part of the message.
Ms Josephine Feehily:
The cost consequences are, but I will review the wording to see if it also says the sheriff is independent and is an officer of the court, and it will be out of our hands. We can certainly review that and anything we can do. We do not really want to be doing this. Referrals to sheriff between 2011 and 2012 are down somewhat - not hugely, but they are down about 10%. I think we sent about 30,000 cases last year.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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If that explanation was included with the information Revenue gives about the costs, it might be a help to the customer to understand-----
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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-----that it is out of Revenue's hands once it goes there.
Kieran O'Donnell (Limerick City, Fine Gael)
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Was the Revenue consulted in respect of the Director of Corporate Enforcement's investigation into Anglo Irish Bank?
Ms Josephine Feehily:
Again, we do not talk about cases. We do have a memorandum of understanding with the Director of Corporate Enforcement. We do have exchange of information arrangements in place with the Director of Corporate Enforcement. If he needed anything that we could give him, I am sure he would ask for it.
Kieran O'Donnell (Limerick City, Fine Gael)
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Given the losses in the banks and that IBRC has now gone into liquidation, has Revenue calculated what it expects the impact of that in terms of losses? The banks have now indicated they are willing to engage regarding mortgages. What view will Revenue take of the write-off of mortgages in banks? What has been the level of corporation tax receipts from Irish banks since 2008?
Kieran O'Donnell (Limerick City, Fine Gael)
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It is an interesting point and I believe it is valid.
Kieran O'Donnell (Limerick City, Fine Gael)
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I am feeding that into the whole issue of losses.
Kieran O'Donnell (Limerick City, Fine Gael)
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Yes, in particular the pillar banks.
Ms Josephine Feehily:
I do not know the corporation tax yield. We do not have it for that narrow group, but we will get whatever we can and send it to the Deputy.
The position in relation to the losses is that very early on in the current difficulties it became very obvious to us that there was likely to be huge losses and that they would impact on corporation tax receipts. I approached the Department of Finance at the time to bring its attention to this.
Kieran O'Donnell (Limerick City, Fine Gael)
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When approximately was this? I will not hold Ms Feehily to a precise date.
Ms Josephine Feehily:
I rang Mr. Kevin Cardiff - 2009 maybe. That resulted in a provision in the finance legislation restricting losses for the NAMA banks so that they can only use up to 50% of their losses in any given year.
Kieran O'Donnell (Limerick City, Fine Gael)
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So that is 50% of their losses in any given year in terms of their losses forward.
Ms Josephine Feehily:
It is of their losses forward in any given year. That was the first sort of intervention. Then the Comptroller and Auditor General rightly pointed out to us that we had not enough data about losses so we gathered a lot of data.
Members see the result of that in the report - the figure of €119 million. All of the banks are managed in our large cases division. We have ongoing, regular dialogue with all of them. We would be aware at case level of what their expectations are in respect of losses. We feed that into the tax forecasting discussion. We have calculated the impact of the liquidation of IBRC and Irish Nationwide on that losses figure, which will go down quite significantly.
1:10 pm
Kieran O'Donnell (Limerick City, Fine Gael)
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Is Ms Feehily at liberty to divulge what that figure is?
Kieran O'Donnell (Limerick City, Fine Gael)
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The figure is €30 million of-----
Kieran O'Donnell (Limerick City, Fine Gael)
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Does Ms Feehily anticipate that she will be looking at 12.5% on €30 billion as a net gain to the State?
Kieran O'Donnell (Limerick City, Fine Gael)
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The figure is €30 billion.
Kieran O'Donnell (Limerick City, Fine Gael)
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It is €30 billion in respect of IBRC alone.
Kieran O'Donnell (Limerick City, Fine Gael)
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In the banks?
Kieran O'Donnell (Limerick City, Fine Gael)
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In banks or in general?
Kieran O'Donnell (Limerick City, Fine Gael)
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By €30 billion?
Kieran O'Donnell (Limerick City, Fine Gael)
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Of the order of €30 billion.
Kieran O'Donnell (Limerick City, Fine Gael)
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When Ms Feehily talks about €30 billion, is she talking about 50% of that amount? When she refers to the figure of €129 billion, is she saying that this is the restriction by 50% already built in or would the allowable losses be 50% of that figure?
Kieran O'Donnell (Limerick City, Fine Gael)
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Available.
Kieran O'Donnell (Limerick City, Fine Gael)
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That is the 50% restriction already built in.
Kieran O'Donnell (Limerick City, Fine Gael)
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There is no restriction on the losses forward.
Kieran O'Donnell (Limerick City, Fine Gael)
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In essence, if one made €100 billion of loses in a year, what Ms Feehily is saying is that in that particular year, the most one could use would be 50%.
Kieran O'Donnell (Limerick City, Fine Gael)
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Yes but one could have €50 billion and the other €50 billion could be written off into the future.
Kieran O'Donnell (Limerick City, Fine Gael)
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So, effectively, there is a restriction of only 50% of the losses forward?
Kieran O'Donnell (Limerick City, Fine Gael)
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That is agreed. I am quite happy with that.
Paschal Donohoe (Dublin Central, Fine Gael)
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Could I ask Ms Feehily a brief question about that? I concentrated on a very specific area earlier on in my contribution but I looked at the chapters in preparation for the session. In respect of the point made by Deputy O'Donnell, the point is made in the chapter on Revenue outturns that in 2011, while 36,000 taxpayers paid corporation tax, 129 were accountable for two thirds of that tax. A taxpayer in this case is, of course, a company or unit as opposed to an individual. It goes on to say that a large proportion of the losses, which I assume are what we have just been discussing, is accounted for by a relatively small number of taxpayers.
Paschal Donohoe (Dublin Central, Fine Gael)
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They are not counted in the 129?
Paschal Donohoe (Dublin Central, Fine Gael)
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I understand. I assume that the latter sentence relating to a large proportion of the losses would refer to banks.
Paschal Donohoe (Dublin Central, Fine Gael)
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Is Revenue engaging with the banks and the Department of Finance concerning mortgage arrears and indebtedness? There will clearly be consequences as we emerge from this difficulty and the issue of mortgage arrears is dealt with in terms of the estimated future corporation tax yield from the same banks. If we are asking them to crystallise a loss and do something about it, that will have a knock-on impact on the corporation tax yield we can expect from them.
Ms Josephine Feehily:
It could add to the losses. We are engaged at a macro level with the Department of Finance to make sure we are aware of developments. More importantly, our case managers in the large cases division will sit down with the individual institutions and get an assessment from them year on year, which is how we get the data as to their expectation for next year. It happens at two levels. We are also monitoring the developments very closely because, right now, it is a bit unclear to us precisely what way banks are going to respond, particularly in the personal insolvency area, which has potential relevance to us in all sorts of ways. We are monitoring it centrally and at the level of cases. What we will do will depend on what happens.
Kieran O'Donnell (Limerick City, Fine Gael)
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In respect of the restructuring of mortgages and the question of whether banks will engage in write-offs, will that feed into the 50% that will form part of their normal losses? What view is Revenue taking?
Ms Josephine Feehily:
As long as it is a so-called covered bank or NAMA bank, the legal position is that it is restricted in respect of old or new losses.
John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I thank the witnesses for attending today's meeting and the members for their contribution. I propose that we dispose of Vote 9 and chapters 7, 8, 9 and 10. Is that agreed? Agreed.