Tuesday, 15 April 2003
Adjournment Matters. - Meal Vouchers.
In 1958 a tax was introduced on benefits-in-kind but at that time canteens were excluded from the provision. However, because employees earning less than £1,500 at the time were not liable to benefit-in-kind tax, employees on an ordinary wage were not affected. As inflation increased, however, the £1,500 limit did not and, therefore, more ordinary workers became liable to pay the tax.
In 1965 the Revenue Commissioners introduced a practice whereby meal vouchers up to a limit of three shillings were, by concession, not liable to the benefit-in-kind tax. This maintained an equity between employees in organisations which had canteens and those which provided meal vouchers instead. The terms of the concession for meal vouchers ensured the voucher was non-transferable, used for ready-to-eat meals and generally available to employees. This prevents any abuse of the concession. However, as neither the limit of three shillings – which became 15p with decimalisation and 19 cent when we changed over to the euro – nor the £1,500 limit was adjusted for inflation, the treatment has become more unequal. An employee who is able to get a meal in a canteen has gained substantially over one who is provided with a meal voucher.
This unequal treatment will be made worse by the provisions in the Finance Bill whereby it is proposed to introduce PRSI on benefits-in-kind, as employees provided with canteens will still remain exempt. It is almost certain that employers, both in the public and private sectors, currently using meal vouchers will cease to provide them in future. This inequality is borne by employees in smaller companies or those who work unsocial hours where it is uneconomic for an employer to provide canteen facilities. I will now provide a list of countries showing when their relevant laws were last updated, with the relevant exemption limits.
Austria last updated its law in this area in 1994 and an exemption limit of €4.40 applies, Belgium increased the exemption limit to €4.44 in 1998, the Czech Republic increased it to €1.52 in 2002, France increased it to €4.60 in 2001, Germany increased it to €3.10 in 1999, Greece increased it to €2.70 in 1995, Hungary increased it to 80 cent in 2002, Ireland increased it to 19 cent in 1965, Italy increased it to €5.29 in 1998, Luxembourg increased it to €5.60 in 2001, Poland increased it to €2.30 in 1998, Portugal increased it to €5.93 in 2000, Slovakia increased it to €1.71 in 2002, Spain increased it to €7.81 in 1999, Switzerland increased to €4.74 in 2004 and Turkey increased it to €4.44 in 2002.
One can note from that list the ludicrous position in Ireland in regard to these vouchers, with the value of one voucher being only 19 cent. The law providing for these vouchers has not been updated since 1965. In addition, injustice will now be heaped on those 30,000 people who benefit from these vouchers by categorising them as a benefit-in-kind under the budget. I ask the Minister of State to seriously examine this matter and to readjust the position.
I assume the Senator is referring to the announcement by the Minister for Finance in Budget 2003 in connection with benefits-in-kind. In this regard, the Finance Act 2003, together with corresponding provisions in the Social Welfare Act 2003, provides for the direct application of PAYE and PRSI to benefits-in-kind with effect from 1 January 2004. The effect of this measure is that employer-provided benefits such as cars, loan accommodations, subscriptions to health insurance schemes and sports clubs and vouchers – including luncheon vouchers, bonus bonds, etc. – which are all currently liable to income tax, will, from next year, be brought within the PAYE system and, therefore, be subject to employer and employee PRSI and health levies as well as income tax. The application of PAYE and PRSI to benefits-in-kind is the norm in most EU countries.
This treatment of benefits-in-kind from 1 January 2004 will be in line with the procedures for charging tax, PRSI and levies on normal wages and salaries. The measure will serve to reduce the effect of salary substitution schemes which may be introduced to avoid or reduce the payment of tax or PRSI. Evidence that this practice was growing was part of the reason the Minister for Finance announced this change in the budget. It will make the system fairer because it will ensure that remuneration, from whatever source, will be treated the same way for the purpose of income tax, PRSI and levies.
The Revenue Commissioners will draft the necessary administrative regulations for employers in respect of the practical implementation of this change. Publication of these regulations will occur well in advance of the January 2004 introductory date and will, therefore, facilitate those involved in updating payroll systems.
Regarding the issue raised by the Senator, the strict legal position is that the value of luncheon and other meal vouchers is chargeable to tax. However, an administrative concession was agreed in 1965 to exempt the value of luncheon and other meal vouchers provided by an employer for his or her employees where the value of the vouchers did not exceed three shillings for each workday. For all years up to and including 1986-87, where the value of the voucher exceeded that amount per day, the full value of the voucher was chargeable to tax and not just the excess. Following representation made in 1987, the concession was extended to provide that where the value of the voucher exceeded that amount per day, then only the excess was to be regarded as taxable in the hands of the employee.
Representations have been made over the years to increase the amount, now 19 cent in euro terms. However, it was not considered desirable to extend the concession any further because to do so would give employees in receipt of luncheon vouchers an unfair advantage over employees without such benefits. It should be noted that the benefit for the employee of not taxing such vouchers fully is, at most, 8 cent per day.
With the application of PAYE to all benefits-in-kind from 1 January 2004, it may be necessary to review this particular concession as part of the detailed consideration and discussion with employers and others on implementation measures. Whereas the use of vouchers in 1965 was limited, their usage today is widespread and covers a broader range of items. Any extension of the concession in respect of luncheon vouchers could lead to request for similar concessional treatment for other vouchers.
The Minister for Finance is aware that canteen facilities provided by an employer for employees are exempt from benefit-in-kind tax, however, a move now to enhance the exemption for luncheon vouchers is inappropriate in current budgetary circumstances when the emphasis is on base broadening and protecting the tax base. A concession on luncheon vouchers is likely to lead to other such concepts evolving over time at the expense of the State's tax revenues. As stated earlier, the growth in such practices was part of the reason the Minister for Finance introduced the changes in the treatment of employer provided benefits in the first instance.