Michael D'Arcy (Wexford, Fine Gael) | Oireachtas source

Last month when the Minister for Finance, Deputy Paschal Donohoe, made his Budget Statement he said that this was a budget to safeguard our national finances and to help rebalance our economy. It was a budget to promote fairness and provide for modest but sustainable improvements in people’s lives. Many of the measures to help us achieve those goals are contained in the Finance Bill 2017 which we will discuss today and I would like to set the scene by looking at some of the Bill's key components. In order that we can have as much time as possible for our discussion, I will be as brief as I can. I do not propose to go through the Bill section by section. Instead, I will focus on particular sections which I think may be of interest to Senators. I will also describe some of the measures introduced on Committee and Report Stages in the Dáil .

In budget 2018, the Minister is continuing to fulfil the Government’s commitment to make steady and sustainable progress in reducing the income tax burden, with a particular focus on low and middle income earners. He has been very clear that his intention is to preserve a broad and stable income tax base. Therefore, in order to ensure that he does not narrow the tax base, the USC measures to be introduced in section 2 of this Finance Bill focus on reductions to USC rates while maintaining the current entry threshold to USC of €13,000. In section 3 of the Bill, the Minister is increasing the entry point to the higher rate of income tax by €750.

As part of the reform agenda, the Minister also intends to establish a working group to plan, over the coming year, the process of amalgamating USC and PRSI over the medium term. Throughout this process, the income threshold of €13,000 will be maintained as the general point of entry to the new amalgamated charge. A key objective of the group, and of the Minister for Finance, is that this process does not narrow the tax base but ensures that our personal taxation system is both competitive and resilient in the future. He aims to set up the working group after the passage of the Finance Bill and it will include officials from all relevant Departments and agencies.

Section 7 of the Bill provides for the introduction of a 0% rate of benefit-in-kind taxation on electric vehicles. While this relief is provided for in the Bill for an initial period of one year, the Minister has made it clear that the zero rate will remain in place for a period of time, a minimum of three to five years, sufficient to incentivise the uptake of electric vehicles. This section also provides for a tax exemption from benefit-in-kind when these vehicles are charged in the workplace.

The Minister and I are conscious of the challenges facing small and growing businesses around the country due to the changing international environment. Research has shown that employee financial participation can be effective in increasing competitiveness and helping companies to attract and retain staff in a competitive labour market. Therefore, section 10 of the Finance Bill provides the details of the new key employee engagement programme announced in budget 2018, which will support small to medium enterprises in their efforts to attract and retain key employees in a competitive international labour market. This programme will facilitate small to medium enterprises in providing key employees with a financial incentive in the form of share options linked to the success of the company.

Section 12 of the Bill introduces a scheme of accelerated capital allowances for the construction of buildings and structures for use in the provision of child care services or fitness centre facilities by employers to employees. The scheme also provides relief for expenditure incurred on related equipment. The rationale for introducing this relief is to help tackle the cost and availability of child care facilities, both of which have been cited as barriers to work. The measures will also support the Government’s vision for a healthy Ireland by supporting the provision of fitness facilities by employers. The tax relief will not commence immediately, as approval by the European Commission from a state aid perspective is required, on foot of which the scheme will commence by ministerial order.

Section 13 introduces a new, time limited deduction for pre-letting expenses in order to encourage owners of vacant residential property to bring that property into the rental market for a minimum of four years. Section 16 reflects an amendment which the Minister brought forward on Committee Stage in the Dáil in respect of the employment and investment incentive. This is to ensure that it is consistent with EU general block exemption rules on eligible investors so as to ensure that private investors in the scheme are independent of the management of the company.

Sections 23 and 30 together form a package of anti-avoidance measures being introduced in order to deal with a number of specific tax avoidance schemes which have been uncovered by Revenue. Essentially, the schemes involve converting what should be taxable income payments into capital payments in order to avail of the lower capital gains tax, CGT, rates. The potential charge to capital gains tax is then often avoided by the use of CGT reliefs such as retirement relief and entrepreneurial relief, resulting in funds being extracted by shareholders entirely tax free or at a significantly reduced tax liability. It is unfair that some individuals are engaging in these tax avoidance structures solely to take advantage of lower tax rates. This leads to unfair outcomes and puts other taxpayers who do not engage in such avoidance arrangements at a competitive disadvantage. The Minister is therefore taking steps to counter these avoidance schemes.

Section 25 amends section 291A of the Taxes Consolidation Act 1997 to limit the deduction for capital allowances for intangible assets and any related interest expense, to 80% of the relevant income arising from the intangible asset in the accounting period. This measure was recommended in the Coffey review in order to ensure some smoothing of corporation tax receipts over time. It applies in respect of capital expenditure incurred on intangible assets after 11 October 2017.

Section 33 provides for a change being made to section 604A of the Taxes Consolidation Act 1997. This ensures that CGT relief in respect of chargeable gains made on a disposal of land or buildings which were acquired between 7 December 2011 and 31 December 2014, will now apply where the asset involved has been owned for at least four years, with the full relief applying from the fourth to the seventh anniversary of acquisition and tapering off thereafter. As things currently stand, that is before this amendment, no relief from CGT on any chargeable gain made on disposal of qualifying land and buildings was available until seven years after acquisition. A full relief was then available at the seventh anniversary and a taper applied to the relief thereafter. This measure is being introduced at this time to incentivise the release of additional development land and buildings onto the market so as to help boost the supply of new housing, sooner rather than later.A similar measure in section 19 of the Bill removes the five-year exemption which applied to capital gains arising on the disposal of Irish lands that have been held by an Irish real estate fund for more than five years.

Sections 34 and 71 allow that the leasing of agricultural land for solar panels will be classified as qualifying agricultural activity for the purposes of specific CGT and capital acquisitions tax, CAT, reliefs subject to certain conditions. CGT retirement relief and CAT agricultural relief will now allow solar panels on agricultural land to be considered qualifying assets. In order to ensure that genuine agricultural activity will continue to be carried out on the farms concerned, no more than 50% of the total farm holding can be used for solar panels. This will maintain the overall objective of agricultural relief in particular. This might also be an appropriate point to mention another agriculture related issue. Following discussions with the Minister for Agriculture, Food and Marine, the Minister for Finance has committed to undertaking an update of the 2014 review of agricultural tax measures ahead of next year’s budget. This will include a particular focus on the issue of income stabilisation. The issue of data collection relating to the operation of schemes will also feature and there will be engagement with all relevant stakeholders.

Sections 35 to 47, inclusive, of the Bill relate to the taxation of sugar sweetened drinks. Senators will be aware that the Minister announced in the budget that he would be introducing such a tax in April of next year, subject to approval from the European Commission, to coincide with the introduction of a similar tax in the UK. The tax will apply to non-alcoholic, water and juice-based drinks which have an added sugar content of 5 g per 100 ml and above. Sugar sweetened drinks with less than 5 g of sugar per 100 ml will be outside the scope of the tax. If the sugar content is 5 g or more but less than 8 g per 100 ml, a tax of 20 cent per litre will apply and for sugar sweetened drinks with a sugar content of 8 g or more, the rate will be 30 cent per litre. These figures are inclusive of VAT.

Section 60 gives effect to a number of measures relating to stamp duty. The rate of stamp duty applicable to conveyances and transfers of non-residential property is increased from 2% to 6% as of 11 October 2017. Transitional provisions apply for purchasers with binding contracts in place before 11 October and where the instruments for the transfers are executed before 1 January 2018. The end date for consanguinity relief is extended for another three years to 1 January 2021 while the upper age limit of 67 years for availing of this relief is removed. The rate of stamp duty where consanguinity relief applies is being fixed at 1%. The threshold above which residential leases are chargeable to stamp duty is increased from the current €30,000 to €40,000 per annum. This higher threshold should ensure that the vast majority of renters will not be liable to stamp duty.

Section 61 of the Bill provides for a stamp duty repayment scheme for land purchased for the development of housing. This is to ensure that the increased rate of stamp duty does not contribute to house price inflation. The scheme will also provide a stimulus to the timely delivery of much-needed new residential accommodation. The scheme has a number of conditions that are designed to ensure that only those builders and developers who provide completed housing units within a reasonable period of time can qualify for a refund of the difference in the amount of stamp duty payable at the rates of 2% and 6%.

Section 67 allows a farmer to claim relief from stamp duty where he or she both sells and purchases land for the purpose of consolidating an existing farm holding, subject to a number of qualifying conditions. Where the qualifying conditions are satisfied, stamp duty will be paid only to the extent that the value of the land that is purchased exceeds the value of the land that is sold. A reduced rate of 1% will be charged on the excess, if any, of the purchase value. A number of qualifying conditions must be satisfied before the relief can apply, the most important of which is that Teagasc must issue a certificate stating that a sale and purchase or an exchange of farmland was made for farm consolidation purposes.

I said at the outset that I would be brief so the last item to which I will draw to Senators' attention is section 76. Over the last year Revenue has committed significant resources to a PAYE modernisation project. It is the most significant review of the PAYE system since its introduction in the 1960s and will result in a move to a real time PAYE system from January 2019. This section introduces a number of technical provisions necessary to give effect to the new processes, including two preparatory changes having effect from 2018.

I look forward to hearing Senators' views and of course, we have Committee and Report Stages coming up where we will have an opportunity to discuss matters in more depth. I understand that in advance of Committee Stage a briefing with officials is being scheduled for any Senators who may wish to attend. I commend the Bill to the Seanad.