Public Accounts Committee Hearing, 9 November, 2006

I thank the Chairman and members of the Committee for this opportunity to make an opening statement in relation to Paragraphs 2.1 to 2.6 of the Comptroller and Auditor General's Annual Report for 2005.

The first paragraph under consideration by the Committee today, reporting as it does on Revenue collected, involves all of the staff in Revenue to one degree of another. The impressive receipts shown are underpinned by an equally impressive growth in the volume of our business. For example, the annual increase in 2005 for PAYE employments was 6%, for self-assessment income tax cases it was over 10%, personal callers to Revenue offices increased by 13%, telephone callers increased by 22% and correspondence by 11%. All this growth meant that in 2005 Revenue had well over 2 million PAYE employments on its records, there were over half a million self-assessment income tax cases and over a quarter million VAT registrations. We received over 5 million telephone calls, over 3 million items of correspondence and over three quarter million personal callers to our offices.

The Net receipts for 2005 were €39.490 billion which represent an increase of over €3.7 billion, or 10.4% on the corresponding figure for 2004 and some €1.8 billion above the Budget estimate. The increase over the Budget estimate was mainly due to much better than forecasted yields from Stamp Duties, VAT and Capital Gains Tax.

Paragraph 2.2 deals with write-offs. The amount written off in 2005 was €143.3m in comparison to €172.5m in 2004. The decrease is mainly due to a reduction in insolvency write-off following on from an increase in such write-offs in 2004. Almost 78% of the debt written off was over 5 years old. As I have previously indicated to the Committee, Revenue, like every other tax administration or business, inevitably experiences some bad debt. The Revenue objective is to minimise this in every way possible and it is only written off when it is genuinely uncollectible or uneconomic to pursue. Amounts written off should be viewed in the context of the amount collected. As a percentage of the total gross tax (including PRSI) collected the amount written off was just about a quarter of one percent.

Paragraph 2.3 which deals with outstanding tax, shows the balance outstanding at 31 March, 2006 at €1,085m (€832m of which “available for collection” and €253m “under appeal”). This is down substantially by €132m from the 31 March 2005 figure of €1,217m. Arrears of tax as a percentage of total gross receipts now stand at an all time low of 2%. The goal of less than 2.5% for arrears of taxes targeted for 2007 in our Statement of Strategy has already been reached against a background of large increases in charges raised this year. A recent OECD Report places Ireland 3rd best in the OECD in terms of the size of the tax debt. The OECD Report, however, only includes figures for up to 2004. Given the improvement that I have just outlined it is possible that even since then we may have moved into the leading position worldwide in this regard.

Taxes outstanding have now fallen every year from a high of €5.466 billion (62.5% of gross receipts) in 1985, to €2.6 billion (15% of gross receipts) 10 years ago to the 2% published in the current Comptroller and Auditor General's Report.

As reported upon in Paragraph 2.4, the Revenue audit programme is an established and successful means of ensuring compliance with the self-assessment system. In recent years the routine audit programme has been overshadowed somewhat by the various special investigations but it has always been, and continues to be, hugely significant both in terms of compliance and tax yield.

A total of 14,214 audits and investigations were completed in 2005. The total yield from these interventions (and Assurance Checks) was €575.4m. In addition to this yield, Revenue officers collected €7.79m in arrears of tax in the course of audit interventions.

Details of 629 of the cases settled in 2005 were published under the provisions of Section 1086 of the Taxes Consolidation Act 1997. The total amount of the tax interest and penalties in published cases was €116.94m.

Reference is made in Paragraph 2.4 to the computerised Risk Analysis System which categorises taxpayers in accordance with defined risk criteria. This was successfully piloted in four of our local offices during 2005 and is being rolled out nationally this year. We have done some preliminary analysis on this system which is encouraging. The analysis basically involved generating two streams of audit cases in a particular tax district, one stream of audit based on the risk analysis system and the other based on the traditional approach. A comparison was then made of the audit yield from these two methods. What this comparison showed was that the risk analysis system produced both a greater number of yielding audits and a higher average yield. As I have said, these are preliminary results but they do suggest that our capacity for identifying riskier cases will be enhanced by this system.

In relation to the Taxpayer Compliance Testing Programme or Random Audits as it is more commonly called, the number of cases finalised is now 332, up 34 from the 298 mentioned in Paragraph 2.4. I am, of course, fully conscious of this Committee's, and indeed the Comptroller and Auditor General's, deep interest in this area. One of the lessons we have absorbed on the learning curve with this activity is the difficulty in bringing to finality in a set time span a pre selected fixed number of audits. It may not be possible, with the best will in the world to bring audits to a quick conclusion for a variety of reasons, for example, difficult family circumstances, serious legal issues arising or points of law being raised in the context of the formal appeal system which is a taxpayer's right. As I said at previous Committee meetings, one would have to be extremely careful about drawing general conclusions from the results of this type of sample and we will require results from future years before any such conclusions can be drawn. I am happy to say however, that this process has now well and truly begun and that it will be of significant benefit to Revenue in the future.

Paragraph 2.5 deals mainly with prosecutions for serious tax offences which, as the Committee is aware, are now managed by a dedicated Investigation and Prosecutions Division following the restructuring of Revenue. In two of the 12 successful prosecutions in 2005 custodial sentences were imposed and suspended sentences were imposed in 4 others. The figures for the year reflect both the highest ever number of prosecutions and the highest number of cases under investigation with a view to prosecution.

In addition to the prosecutions for serious tax evasion reported upon there were also a considerable number (over 450) of Revenue prosecutions in the Customs and Excise area. As well as this over 1,000 convictions were obtained for summary offences relation to the non-filing of tax returns. In 2005, Revenue began publishing details of significant tax and duty cases on the Revenue website (www.revenue.ie)

Finally, Paragraph 2.6 deals with Special Investigations. The running total for these investigations stands at €2.261 billion which is an increase of over €124.5 million since I last reported to the Committee on 8 December 2005.

Thank you Chairman.