Public Accounts Committee Hearing, 17 January, 2008.
Revenue Vote 2006 Opening Statement by Revenue Chairman, Frank Daly.
1. Chairman, thank you for the opportunity to make this opening statement in relation to the paragraphs of the 2006 Report of the Comptroller and Auditor General which are being examined here this morning, namely paragraphs 3.7 to 3.10.
2. Paragraph 3.7 of the report deals with the Control of Alcohol Tax Warehouses. An efficient and secure system of tax warehouses is essential in safeguarding the excise duty receipts from alcohol products. These receipts amounted to €1,105 million in 2007. The current system is based on the long established bonded warehouse model that has been adapted to meet European Union requirements for the intra-Community control and movement of products liable to excise duty. The system is built on a multi-layered framework of controls relating to:
- the approval of warehouses, proprietors and operators;
- hands-on administrative controls with the assignment of a Revenue Control Officer to each warehouse, and
- regular periodic audits of warehouse records and accounts.
Following the establishment of the Single European Market in 1993 there were fears that abolition of internal EU customs controls would lead to widespread fraud. However, this has not turned out to be the case, and our system has continued to be very effective with few instances of fraud. The vast majority of tax warehousekeepers are compliant and their number is small enough to allow for ample monitoring and control. But we are not naïve and recognise that the risk of fraud is always real. Our aim is to identify the risk, manage it and have effective controls that achieve the right balance between protecting revenue and facilitating legitimate trade. If there is a weakness in the present system, particularly in relation to intra-Community movement of alcoholic products, it relates to the fact that it is essentially a manual system dependent on the processing of paper records across the EU. This will be rectified when it becomes fully computerised with the Excise Movement and Control System referred to in the Report. This computerised system is scheduled to become operational in 2009.
3. The next paragraph of the Comptroller and Auditor General's Report for consideration today is Stamp Duty on Property Transactions. This is a very significant tax and accounted for €2,376 million in 2007. Our customer service and collection system works efficiently and effectively and delivers a quick turnaround of cases with relatively low staffing. The incentive for honesty on the part of the taxpayer in relation to stamp duty is high because title to a property depends on the instrument being properly stamped. Instruments that are not properly stamped are not admissible as evidence in civil proceedings. That incentive of itself is normally sufficient to ensure compliance. In fact so strong is this as a compliance mechanism that prior to November 1991 payment of stamp duty was not even mandatory. As mentioned in the Report, we have already taken on board the need for procedural improvements identified by the Comptroller and Auditor General in a number of areas. In addition, we are currently engaged in a major strategic development which will see the introduction of a self service E-Stamping system. That system will allow a full 24/7 self service on-line process where the user can file, pay and receive an instant stamp without Revenue requiring to see the deed in up to 90% of cases. We are in ongoing communication with the major stakeholders – they have shown a strong interest in the system and it is hoped to deliver it in the second quarter of 2009.
4. The next paragraph for consideration is Passenger Controls at Airports. No doubt because of the predominance of Dublin Airport from a Customs compliance perspective, the audit examination focussed primarily on it. As indicated in this paragraph, customs control at airports has received considerable attention in recent times. Broadly speaking Revenue has a dual function at airports – to facilitate international trade (including tourism) and to detect smuggling. The main smuggling threats are drug smuggling and organised cigarette smuggling. Personal smuggling by otherwise legitimate travellers is on a very small scale compared to these threats. The threat posed to the Exchequer from organised cigarette smuggling is significant as is the threat to the welfare of society from drug smuggling. We put the focus of our anti smuggling activities at airports on those threats. In dealing with smaller scale personal smuggling, in 2007 as in previous years, our Customs Service mounted operations to address the perceived risk of mass smuggling of consumer goods from the US in the period leading up to Christmas. As in previous years, we found that the perceived risk seemed to be overstated. From early October to the middle of December last year, 635 flights from the US into Dublin, Shannon and Knock Airports were checked. 6,756 passengers were challenged and 4,599 items of baggage searched. In total, 108 detections were made of passengers exceeding the duty limit. The value of goods involved was €88,347 and a total of €22,921 in VAT and duty was collected.
During this same period, the same staff at those airports seized €1,946,078 worth of drugs and 8,767,650 cigarettes with a potential loss to the Exchequer of €2,411,104.
5. Finally Paragraph 3.10 deals with Aspects of Rental Income Taxation. Revenue has over 2.2 million PAYE taxpayers on its register. We also have over 750,000 self employed taxpayers and companies registered for tax. Potentially, any one of these taxpayers could have rental income.
We are entitled to receive what is called third party information where a government body makes a payment (including rent) to any person or group. As is mentioned in the paragraph, we get information on rents from the Department of Social and Family Affairs and the Department of the Environment. The Department of Social and Family Affairs gives us substantial information on rent supplements paid, including some landlord information, for example, name, address and amount of supplement.
Matching the information received to our records is a huge task. The Department recently gave us 95,000 records for rent supplements for 2006. To match these against nearly 3 million tax records is not straightforward for a number of reasons - one of which is the absence of landlord PPS Numbers. However we did match 40% of the Department's records and 42% of the money on the 2006 file with our own register. The Finance Act 2007 now requires the Department to give us the PPS number of all landlords covered by rent supplement payments. This situation will start to improve from 2008 onwards with the changing of the Department's records and computer systems to capture PPS numbers of landlords. I should add that unmatched information is not lost as it is captured on Revenue's Integrated Business Intelligence System where it can be accessed by any Revenue officer working on a case.
There is also a relatively new Rental Accommodation Scheme. This scheme is for tenants who need financial support with rent over the long term. In the case of this scheme the Department of the Environment gives us an annual file of money paid to landlords for rent subsidies. The numbers in the scheme are small but will grow. We are getting excellent cooperation from the Department in making sure that the data will be sent to us in future in a standard format with PPS numbers for landlords.
Thank you Chairman.