Opening Statement of Mr. Niall Cody, Revenue Chairman, to the Committee of Public Accounts on 28 June 2018

Thank you, Chairman, for this opportunity to make a short opening statement.

The focus of today’s meeting is Chapters 21 and 22 of the 2016 Report of the Comptroller and Auditor General, entitled "Tax Debt and Write Outs” and “Allocation of Encashment and Film Withholding Taxes” respectively. The meeting is to also consider the Appropriation Accounts 2016; and the Revenue Account 2016 and 2017.

I will first address the findings of the Comptroller in these two chapters of his 2016 Report, setting out some of the background for context, and providing an update on progress in implementing the recommendations that were made.  

Tax Debt and Write Outs

Revenue plays a vital role in the economy by collecting taxes and duties due to the State and in 2017 we collected a net €50.76 billion in tax and duty. This is the seventh consecutive annual increase and was €2.8 billion (or 5.8%) more than in 2016. Provisional net tax collection to 31 May 2018 was €20.48 billion, which was €1.2 billion (or 6.3%) ahead of the same period last year.

Revenue’s core strategy is to maintain and improve timely voluntary compliance, tackle non compliance and prevent the occurrence of tax debt. The maintenance of high rates of timely compliance, categorised by case size, in other words by the amount of tax at risk in the event of late or non-payment, is a key measure of our performance and is closely monitored. Table 1 sets out the rates of timely compliance each year in the period from 2013 to date:

It is clear that the overwhelming majority of taxpayers want to be and are voluntarily compliant, and we acknowledge and value the important role of compliant taxpayers, businesses and their agents. One of our core targets over the next three years is to reduce debt levels by increasing the rate of timely compliance for ‘all other cases’ from 89%, to the mid 90s range. 

The Comptroller’s 2016 Report explains that tax debt falls into two main categories; debt that is available to collect; and debt that is not available to collect. The latter comprises mainly debt that is the subject of appeal to the Tax Appeals Commission, and insolvency related debt. The Comptroller’s Report reflects €2.29 billion in total tax debt outstanding at 31 March 2017. Of this, €1.19 billion (52%) was not available for collection and €1.1 billion (48%) was available for collection, equating to 1.68% of gross collection.

By comparison, at the end of March 2018 total tax debt was down 4% (or €93 million) to €2.2 billion. This includes €1.24 billion that is not available for collection and €958 million that is available for collection, representing 1.35% of gross collection. The Committee will be interested to hear that the amount available for collection at 31 May 2018 was down to €845 million.

To safeguard tax receipts due to the Exchequer and in support of the compliant majority, Revenue intervenes early when tax payment and filing obligations are not met. Recognising that the more entrenched the debt becomes, the more difficult it is to resolve, our approach offers businesses and taxpayers an opportunity to deal with tax payment problems before they become unmanageable, through early engagement. When viable businesses or taxpayers with temporary payment problems engage with us honestly, we work with them to reach an agreed solution. At 31 March 2017, there were 12,437 such businesses and taxpayers in phased payment arrangements in respect of €116 million in tax debt. At the end of March 2018, there were 10,833 phased payment arrangements in place, covering €99 million in tax debt.

The small minority of taxpayers who either refuse to engage with us or refuse to pay their tax are met with enforcement action. At 31 March 2017, €328 million of debt available for collection was subject to enforcement proceedings. During 2017, we referred more than 40,000 warrants to the Sheriffs and over 3,700 cases were referred for Court recovery action, yielding a combined €181 million in debt collected. In order to secure a tax debt, Revenue may place a Notice of Attachment on a third party. Attachment is an escalated option and is normally only used where Sheriff or solicitor enforcement has failed to secure payment of a debt or it is likely to be the only effective collection option. In 2017 we issued 6,440 Notices of Attachment yielding €32 million for the Exchequer. During 2017, we successfully petitioned the courts to liquidate 34 defaulting companies; 22 individuals were adjudicated bankrupt by the Courts on foot of a Revenue petition and 273 Personal Insolvency Arrangements were agreed.

The Comptroller reported that at the end of March 2017, €661 million in debt available for collection was not the subject of either a payment agreement or enforcement action. While €390 million of this was more recent debt, €271 million was more than one year old; had no payment agreement in place; and no enforcement action initiated. The Comptroller recommends that Revenue conduct an annual review of such debt.

I want to assure the Committee that entrenched debt is always the subject of regular close oversight and as at 31 May 2018, the recovery process has been finalised in respect of €148 million (55%) of that older debt. Of the remaining €123 million, 93.5% (€115 million) is under active collection involving direct engagement between Revenue and the taxpayer, while the balance of €8m is likely to conclude in write off as uncollectable debt due to the circumstances of the taxpayers involved.

As at 31 March 2018, the comparable figures to the €661 million and the €271 million are €569 million (down 14%) and €221 million (down 18%).

Turning to debt write out, it is inevitable that business failure or individual circumstances will sometimes make collection impossible. In such circumstances, Revenue may write out the debt and suspend all collection activity. Most debt write out is on a case-by-case basis and debt may be the subject of partial write out, where the taxpayer is able to make some payments towards the tax due but unable to pay the debt in full. Our write out procedures and controls facilitate closer focus by us on the debt with a reasonable prospect of collection. During 2017, Revenue wrote out €147 million in tax debt. This related mainly to insolvencies (€85 million) and ceased trades (€29 million) and was a reduction of 30% on the write out figure of €211m in 2016.

Chapter 22: Allocation of Encashment and Film Withholding Taxes

The Comptroller’s Report refers to receipts of almost €31 million in Encashment Tax in the period 2012 to 2016; and €1 million in Film Withholding Tax in the period 2015 to 2016; that remained unallocated to taxpayer records at the end of 2016. Unallocated receipts are transferred daily to the Exchequer. The only exception to this occurs in December each year when the transfer is suspended, to facilitate the end of year balancing of the Revenue account (tax receipts account) by Revenue’s Accountant General. Unallocated receipts are reported in the Annual Revenue Account on the Balance Sheet as an Asset (Balances in Revenue Accounts held at the Central Bank) and under the corresponding liability (Amounts awaiting Receipting and Allocation).

In June 2016, Revenue introduced RevPay, an online payment facility for all major tax liabilities, including Encashment Tax and Film Withholding Tax. RevPay facilitates online payment by debit or credit card, or using a single debit authority and the taxpayer record is updated when the payment is made. This new facility reduces reliance on EFT as a payment method and over time will help to reduce the level of unallocated tax balances for all taxes. In 2017, Revenue completed a project which updated the customer record for all payments of Encashment Tax and Film Withholding Tax and there are currently no unallocated receipts of Encashment Tax or Film Withholding Tax.

The Comptroller’s Report recommends that systems should be quickly updated when new taxes are introduced, and this is in keeping with Revenue’s objectives. However, the prioritisation of IT development resources requires their proportionate allocation. For example, PAYE Modernisation and the introduction of real time PAYE reporting on 1 January 2019 is a priority project for Revenue this year. As such, smaller developments may not always be completed as quickly as otherwise would be the case. However, like Film Withholding Tax and Encashment Tax, all required changes will be assessed and prioritised in the IT development schedule and integrated with other taxes at the earliest opportunity.

Conclusion

In summary, in keeping with Revenue’s responsibility to protect Exchequer funds, our resources are allocated based on risk. Our debt management framework prioritises early intervention and action to drive positive taxpayer behaviour. This gives the tax paying public confidence that the system is fair, which in turn drives the very high rates of voluntary compliance. In 2017, Revenue introduced a new case segmentation and compliance tracking system, providing greater oversight, enhanced whole case management and flexibility in matching debt management resources to business needs. The new system is being implemented on a phased basis and all key elements are planned to be operational in early 2019. The system has contributed to strong compliance outcomes and will also provide enhanced online customer services, thereby supporting positive compliance behaviour.

I will be happy to answer any questions raised by the Committee and in this context, I draw attention to my obligation to uphold taxpayer confidentiality, as provided for in section 851A of the Taxes Consolidation Act 1997, and which prevents me from commenting on the tax affairs of any individual or entity.