Paschal Donohoe (Dublin Central, Fine Gael) | Oireachtas source

I move: "That the Bill be now read a Second Time."

We are here to start our consideration of the Finance Bill 2021, which will give the necessary legal basis to the decisions announced in the budget and make a number of other necessary changes to tax legislation. The budget addressed the major issues facing Ireland: climate change, Covid and housing. In this budget we aim to support households, families, individuals and businesses to deal with the current challenges and to look to the future with more optimism.

Beginning with the income tax package, for next year it will have a value of €520 million. As I announced on budget day, I will increase the standard rate income tax band by €1,500, and the personal tax credit, employee tax credit and earned income credit will all be increased by €50. These changes will benefit everyone who pays income tax. The Finance Bill also contains changes in respect of the universal social charge, USC, which will ensure that a full-time worker on the minimum wage will remain outside the top rates of the USC and that medical card holders will continue to pay reduced rates of the USC for 2022.

Since the onset of the Covid-19 pandemic, the Government has provided unprecedented supports for businesses and workers. Some of this support has been provided by legislation under the aegis of my Department. The temporary wage subsidy scheme in the Emergency Measures in the Public Interest (Covid-19) Act 2020, the employment wage subsidy scheme in the Financial Provisions (Covid-19) (No. 2) Act 2020, the Covid restrictions support scheme in last year's Finance Act and the business resumption support scheme in the Finance (Covid-19 and Miscellaneous Provisions) Act 2021 all demonstrate a swift and effective response from the Government to provide timely and ongoing support for those whose livelihoods have been impacted. This support has been as important to individual employees as it has been to businesses. A total of 677,700 employees were supported by payments under the employment wage subsidy scheme, with €5.26 billion now paid out by Revenue in addition to €830 million in PRSI forgone.

I have always emphasised that there would be no cliff-edge to business supports. Therefore, the employment wage subsidy scheme will remain in place in a graduated form until 30 April. No change was made to the scheme for October and November. Businesses availing of the scheme at the end of the year will continue to be supported until the end of April. For the three months from December to February, a two-rate structure of €151.50 and €203 will apply. For the last two months of the scheme, March and April, a flat-rate subsidy of €100 will be put in place and the reduced rate of employer's PRSI will no longer apply. The scheme will close to new employers from 1 January 2022.

The pandemic has obviously resulted in changes to how we work. Remote working has enabled organisations to continue to provide services without having everyone physically in the office. This has allowed many people to achieve a better work-life balance, and Government policy is to support remote working. The Finance Bill will allow 30% income tax deduction for the vouched cost of expenses for heat, electricity and broadband incurred while working from home. This enhances and formalises existing arrangements which are currently operated by Revenue.

The Government recognises the great challenges posed by the housing issue and is addressing them through its Housing For All strategy. At the heart of this approach is the building of more homes. A key element of this strategy is the need to release land for construction of housing. This Bill aims to address that requirement by introducing a zoned land tax, the objective of which is to facilitate the public policy requirement that when suitable land is zoned and serviced for housing, it should be made available for residential development at the earliest opportunity. As part of the process of putting this tax in place, local authorities will first prepare and publish maps that will identify the land that will come within its scope. These maps will be updated by local authorities annually. There will be a lead-in time for the measure whereby land zoned before January 2022 will become liable for the tax from 1 January 2024, and land zoned after January 2022 will become liable for the tax after three years.

The Bill provides for a rate of 3% to be applied to the market value of land. I am satisfied that this is an appropriate rate to apply at the outset, and that it will have the desired effect of encouraging the timely activation of zoned and serviced residential development land for housing. To those who would argue that the rate is insufficient, I argue that this tax represents a significant charge on the income being generated by the land in question, and in many cases it will be uneconomic for a person to hold onto the land without developing it. I believe this measure will encourage landowners to develop this zoned and serviced land or to sell it to others to develop. In summary, I see the purpose of this tax as primarily being about changing behaviour rather than raising revenue.

I am aware that there are some who believe that a two-year lead-in time is too long. In response, however, we are dealing with a large body of land - in the region of 8,000 ha to 9,000 ha according to the Department of Housing, Local Government and Heritage - and therefore there is a need to get all the procedural matters right from the start, including the mapping, as well as a person's right to challenge their inclusion on the map. Failure to get this right could result in the whole process being undermined from the outset. It is vital, therefore, to provide a stable foundation for this new tax by ensuring that the necessary preparation is done properly. We will no doubt have further discussions on this matter on Committee Stage.

Finally, on housing, I would also like to highlight the fact that the Finance Bill extends the help-to-buy scheme in its current form for a further year to the end of 2022. The scheme will be comprehensively reviewed in the course of next year. In addition, the Bill extends the relief for pre-letting expenses for landlords for a further three years. This measure is aimed at ensuring the supply of rental property and is consistent with the Housing For All strategy.

I shall now turn to climate change. On budget day I said that the world is burning. We must take action. One of the ways available to us to reduce the temperature is through coherent and effective taxation policies. Carbon taxation is and will continue to be one of the main ways in which we can encourage changes in behaviour. It is important that we are clear and consistent in what we are doing. Last year, the Finance Act provided for annual increments in the carbon tax of €7.50 out to 2030. This was intended as a clear and firm signal for producers and consumers in terms of the price of carbon. It would have been absolutely wrong to resile from that signal as we experience the first change in fuel costs since this policy was implemented. As I outlined on budget day, moneys raised from carbon tax will be invested in targeted social welfare initiatives to prevent fuel poverty, be invested in a socially progressive national retrofitting programme, and be used to ensure a just transition.

We made significant changes to the vehicle registration tax, VRT, system last year in line with Government commitments to reduce emissions radically. The Finance Bill 2021 will continue this important work. The Bill makes further changes to the upper bands of the VRT table and extends the €5,000 relief for battery electric vehicles to the end of 2023. It also extends for three years the accelerated capital allowance scheme, ACA, for gas vehicles and refuelling equipment and extends the scheme to include hydrogen-powered vehicles and refuelling equipment.

The Bill exempts from tax the first €200 of income arising from the domestic generation of electricity supplied to the grid. This is intended to remove a barrier for entry for those who engage with the clean energy guarantee scheme.

The Bill extends a number of tax concessions for farmers including extending general stock relief measures for a further three years to the end of 2024. Young farmers stock relief, young trained farmer stamp duty relief and the registered farm partnership measures will be extended for one year to the end of 2022. This shortened period is necessary pending the outcome of CAP and related state-aid negotiations at EU level.

I will now go through some of the sections in the Bill in more detail but I will not have time to cover them all. Section 1 is one of a number of standard interpretation sections in the Bill.

Section 2 implements the USC changes announced in the budget. It raises the USC 2% threshold from €20,687 to €21,295 for the 2022 year of assessment in line with the increases in the national minimum wage applicable in 2022. This will ensure that the 2% rate remains the highest rate of USC that is charged on the income of full-time minimum wage workers. It also extends the reduced rate of USC for full medical card holders under 70 years of age whose individual annual income does not exceed €60,000 for a further year until the end of the 2022 tax year.

Section 3 provides for income tax relief for remote working, in the form of a tax deduction, allowing employees who work from home to claim 30% of the cost of electricity, heating and broadband, apportioned on the basis of the number of days worked from home during the year.

Section 4 provides for an exemption from income tax for the payment known as the pandemic placement grant made by or on behalf of the Minister for Health to qualifying nursing and midwifery students. The exemption applies to a maximum amount of €2,100 per qualifying student.

Section 5 extends the enhanced help-to-buy scheme by 12 months to 31 December 2022.

Section 6 gives effect to the budget announcement to increase the standard rate band and the main tax credits, with effect from 1 January 2022. As I said, the standard rate tax band will be increased by €1,500, with this increase applying to every individual. The basic personal tax credit available to married persons and civil partners jointly assessed to tax will increase from €3,300 to €3,400, while in all other cases the value of the tax credit will increase from €1,650 to €1,700. Both the employee tax credit and earned income tax credit will also increase by €50 from €1,650 to €1,700.

Section 7 provides a legislative basis for a number of concessionary exemptions from benefit-in-kind tax on employer-provided health benefits.

Section 9 provides relief from the benefit-in-kind charge applicable to employer-provided electric vehicles which are made available for use in the period from 1 January 2023.

Section 10 extends the sea-going Naval Service personnel credit by one further year, to the 2022 year of assessment. The value of the credit remains unchanged at €1,500.

Sections 12 to 15 provide for a number of pensions tax-related amendments to advance some recommendations made by the interdepartmental pensions reform and taxation group to simplify and harmonise the pensions landscape.

Section 16 extends the pre-letting expenses relief I mentioned earlier.

Section 17 removes a double tax charge on interest earned by a trust.

Section 18 brings companies not resident in the State that are in receipt of Irish-sourced rental income within the charge of corporation tax. This is in place of the income tax charge that currently applies. This change will result in the rate of taxation for such companies increasing from 20% to 25%, thereby equalising the treatment of these non-resident companies and that of those companies resident in the State. It will also ensure that such companies come within the scope of the new anti-tax avoidance directive interest-limitation rule also being introduced in this Bill.

Section 20 provides for the previously mentioned exemption from income tax of the first €200 of income arising from the domestic generation of electricity supplied to the grid.

Section 21 excludes capital expenditure on equipment that operates on fossil fuel from the accelerated capital allowances scheme for energy-efficient equipment.

Section 22 is another climate change-related amendment. It extends the accelerated capital allowances scheme for capital expenditure on gas vehicles and refuelling equipment up to 31 December 2024, and includes hydrogen-fuelled vehicles and equipment in the scheme.

Section 26 makes several changes to the employment investment incentive, the start-up relief for entrepreneurs and the start-up incentive. It extends the scheme for a further three years, broadens the range of investment vehicles that can be used, relaxes the rules concerning the so-called "capital redemption window", and removes the 30% expenditure rule.

Section 28 provides for the application of the "authorised OECD approach" for the attribution of income to a branch of a non-resident company operating in the State.

Section 30 introduces new anti-reverse-hybrid rules, in line with Ireland's commitment to implementing the EU anti-tax avoidance directives, and provides for several corrective amendments to the anti-hybrid rules introduced in 2019.

Section 31 introduces an interest limitation rule, as required by the EU anti-tax avoidance directives. It will impose an earnings-based limit on the amount of interest that a company may deduct in calculating taxable profits. The introduction of this measure, together with the anti-reverse-hybrid rules in section 30, sees the completion of Ireland's transposition of the anti-tax avoidance directives.

Section 32 relates to the film tax credit and confirms that payments made directly by a qualifying company to an individual involved in the provision of labour-only services for the purpose of the production of a qualifying film qualify as eligible expenditure.

Section 33 provides for the introduction of a new tax credit for qualifying costs incurred in the development of digital games. This relief will not be available for games primarily made for advertising or gambling and will be subject to a cultural test administered by the Department of Tourism, Culture, Arts, Gaeltacht, Sports and Media. This section will be introduced subject to a commencement order, pending State aid approval.

Section 34 extends the tax relief for start-up companies to 31 December 2026 and extends the claim window available to five years.

Section 39 confirms the budget increase in the rate of tobacco products tax, of 50 cent on a pack of 20 cigarettes, in the most popular price category, with pro rataincreases on other tobacco products.

Section 43 waives the excise duty due on the renewal of certain intoxicating liquor licences for the second consecutive year – in other words, the licensing year 2021–22. This arises from the Government's decision of 21 July 2021 to provide support to vintners and other licensed premises, recognising the economic impact of Covid-19 on their businesses.

Section 45 makes a further climate-related change. The vehicle registration tax, VRT, rates for category A vehicles remain unchanged for low-emission bands 1 to 8, with a 1% increase for bands 9 and 12; a 2% increase for bands 13 to 15; and a 4% increase for bands 16 to 20.

Section 46 extends the VRT relief provisions for electric vehicles to 31 December 2023.

Sections 47 to 53 make changes in respect of VAT.

Section 55 makes several changes regarding the regime of the higher stamp duty rate of 10% where more than nine individual residential units are acquired.

Section 57 extends the bank levy for a further year, to 2022. As I indicated previously, no charge will arise for KBC Bank Ireland plc and Ulster Bank Ireland in order not to further disrupt their withdrawal from the Irish market. I expect to collect in the region of €87 million in 2022 from this levy.

Section 67 deals with changes to the employment wage subsidy scheme, EWSS.

Section 69 covers warehousing matters.

Section 70 relates to double-interest charging.

Sections 71 to 73 make changes to the penalty regime for deliberately or carelessly submitting incorrect forms, or failing to return forms.

Sections 74 and 75 make changes to the publication regime for tax defaulters.

Section 77 deals with the zoned land tax.

Section 79 transposes DAC 7, the EU directive on administrative co-operation.

Much of the work on this Bill will be done on Committee Stage. It continues to deliver on the objectives set out in budget 2022. I commend it to the House.

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