What can be done, and what is being done, to counter the scams of tax-evading builders, asks Colm Keena, Public Affairs Correspondent
The construction industry, the main driver of the Irish economy, is "totally deregulated" and awash in tax evasion, according to Siptu.
The chairman of the Revenue Commissioners, Frank Daly, was quoted this week in the Comptroller and Auditor General's report as saying that some players in the industry view tax evasion as a way of gaining competitive advantage.
"You have to remember that the construction sector in Ireland today is something like the Klondike," says one Revenue source, referring to the 1898 Alaskan gold rush.
The figures are huge. The Construction Industry Federation (CIF) estimates that output for the sector this year will be more than €28 billion. Employment in the sector will be 300,000 or more.
The Revenue says it is giving the sector special attention this year and devoting huge amounts of its resources to clamping down on tax evasion, but Eric Fleming, Siptu's construction branch secretary, Dublin, says the size of the sector and the extent of the deregulation that has occurred has caused the Revenue to adopt a defeatist approach to collecting taxes.
The sort of activities in which the Revenue is engaging indicate a significant level of concern and not just about small building operations. The Revenue has mounted surveillance operations and conducted research on major infrastructural projects, prior to conducting, on some occasions unannounced, on-site visits to check whether serious tax fraud is occurring.
"Sometimes we see people running as we arrive," says one Revenue source. "We don't run after them."
In the East/South-East region, the Revenue has devoted 50 per cent of its available audit resources to the construction sector. In the first six months of 2005, 500 audits have produced €12 million in taxes and penalties, with more to come. This, however, seems a small amount of money in relation to the massive size of the construction sector. Forty site visits have also been conducted.
In the South-West region there have been inspections of major infrastructural projects, as there have also been in the Border/Midlands West region, where 70 site visits to date this year have involved 245 principal contractors and subcontractors.
At the heart of the matter is the issue of subcontracting and the use of self-employed labour as against employed labour. The construction industry is awash with compulsory schemes covering pensions, holiday entitlements, death-in-service payments, and so on. However, by using self-employed people and subcontractors, employers can avoid the obligations they have towards direct employees. This saves them money and gives an obvious competitive advantage.
In an effort to control subcontracting, the Revenue has a scheme whereby those who have not registered with the Revenue suffer a 35 per cent withholding tax.
According to Siptu's Eric Fleming, this is a widely abused system. A contractor will engage a subcontractor, who will work for a certain price. That money will be paid over, minus 35 per cent, if the subcontractor is not registered with the Revenue, and the 35 per cent sent to the Revenue. What happens to the workers hired by the subcontractor then falls under the Revenue's radar. Many are engaged by the subcontractors as self-employed persons; others are simply paid under the table.
The 35 per cent deduction is withheld from the subcontractor until he or she comes forward to settle affairs with the Revenue. However, as Revenue chairman Frank Daly told the Comptroller and Auditor General (C&AG), John Purcell, some subcontractors simply never approach the Revenue.
Fleming says the Revenue, in effect, is happy enough to get the 35 per cent and doesn't bother too much about pursuing the matter. Indeed, Daly told the C&AG that "while the unregistered contractor who does not apply for a refund or offset is not being monitored at this point in time, they have suffered a deduction of tax of 35 per cent, which might not otherwise be achievable".
According to the C&AG, there are now 33,800 principal contractors in the State, 40,329 registered subcontractors, and 56,580 unregistered subcontractors. In 2004 €612 million was collected by the Revenue in 35 per cent deductions, and €90 million was not subsequently repaid or offset. Daly told the C&AG that the serious problems the 35 per cent system was set up to address still exist.
A final ingredient in the mix is the tens of thousands of non-Irish workers who are entering the system without any knowledge of their rights or entitlements. Tagged as "self-employed", the subcontractors take no responsibility for them.
"We've seen fellas carrying shovels and working in canteens whom we've been told are self-employed," says Fleming. "People with good jobs are being made redundant. It's like Irish Ferries."
He says the union recently assigned 30 officials to study sites in Dublin and didn't find one that was not "deregulated. We've met employers who employ nobody".
Don O'Sullivan, director of main contracting with the Construction Industry Federation, says he is surprised by Daly's comments about the sector and would be concerned if they turned out to be correct.
He says the federation's membership represents the bulk of the turnover in the sector and he would be surprised if any were involved with "dodgy tax situations". It was probably the case that any non-compliance was at the smaller end of the market, he suggested. Asked if it was not the case that some of his members were engaging non-compliant sub-contractors, he said that was not the case as far as he could see.