Scottish Landfill Tax (Qualifying Material) Order 2015 (SSI 2015/45)
Scottish Landfill Tax (Standard Rate and Lower Rate) Order 2015 [Draft]
Item 3 is evidence from the Cabinet Secretary for Finance, Constitution and Economy on two Scottish statutory instruments relating to Scottish landfill tax. The cabinet secretary is joined by Colin Miller, David Kerrouchi and John St Clair from the Scottish Government. I invite the cabinet secretary to make an opening statement to explain the instruments; I remind him not to move the motions at this point.
The Scottish Landfill Tax (Standard Rate and Lower Rate) Order 2015 specifies the first standard rate and lower rate for the Scottish landfill tax. The rates will be set to ensure parity with UK landfill tax rates for 2015-16. In setting these rates, I am acting to avoid any potential for waste tourism brought about by material differences between the tax rates north and south of the border.
As I outlined to the committee last week, I have designed devolved tax rates to be revenue neutral in aggregate against the block grant adjustment. The Scottish Government forecasts that we will generate revenue of £117 million from Scottish landfill tax in 2015-16, net of contributions to the landfill communities fund. That full-year forecast has been endorsed as reasonable by the independent Scottish Fiscal Commission.
The Scottish Landfill Tax (Qualifying Material) Order 2015 sets out material that qualifies for tax at the lower rate and the qualifying conditions that have to be met. The lower rate of tax recognises that there is a relatively low level of environmental impact associated with the landfilling of wastes that are less active or less polluting in the environment. Those waste materials are inert; they do not biodegrade, they do not produce landfill gas and they present a low risk of pollution to groundwater and surface water. Landfill sites handling the material can be subject to a much shorter period of aftercare and returned more readily to other productive uses.
The list of qualifying materials in the order largely replicates the equivalent UK provisions that are currently in place. However, it is my intention to engage further with the waste processing industry in the course of the next year to review the position as Scottish landfill tax becomes more established. In particular, consideration will be given to the possibility of bringing forward legislation that sets out requirements for loss-on-ignition testing for trommel fines from April 2016. The aim of that would be to provide greater certainty to the waste industry regarding the tax treatment of residual waste from mechanised screening processes, referred to as trommel fines. The proposition is that measuring the proportion of material in the waste that is combustible, and therefore active, gives a much more reliable and fairer way of determining what tax is due.
12:00
You said that you are matching the UK landfill tax rates for 2015-16. Are you 100 per cent certain that the UK rates cannot change?
I suppose that they could change at the budget in March.
We have had a problem with this issue before when you have given proper notice after consulting on what the rates would be for other taxes. In this case, you are obviously trying to match the UK tax rates. However, I would be concerned if the UK changed its rates in the meantime, because that would create all the problems that you are trying to avoid.
It remains a possibility. The likelihood is low, given that the UK policy approach that underpins landfill tax will be similar to ours, in the sense that it is about creating the incentive to avoid landfill. I would be surprised if the UK decided to move to a lower rate, for example, because that would run against the thrust and direction of the policy position. The UK could of course move to a higher rate, which might create the conditions whereby there might be an incentive in the north of England to transport waste to Scotland under waste tourism, but I think that the probability of that is very low.
Thank you.
You have set rates to be revenue neutral against the one-year adjustment to the block grant, with the landfill tax revenue estimated at £117 million, and you have set the rates at the same level as the UK rates. Is the assumption about how much waste there is notional, based on how much material is required for the revenue from that rate to reach £117 million, or is there any separate estimate? It just seems to be a bit of a coincidence that it is all working out. Is there a separate estimate of the amount of waste, or is it just a derivative of the other two figures?
I have settled the question of revenue neutrality across all the devolved taxes that are coming to us—that is between land and buildings transaction tax, made up of residential and non-residential transactions, and landfill tax. My point on revenue neutrality is at the level of £494 million, as set by the block grant adjustment.
Our estimate of how much we think will be raised by landfill tax in Scotland is £117 million. The Office for Budget Responsibility’s estimate is £103 million. We have constructed our assessment based on the use of the rates that I have set out—the same rates as the UK—but we have also taken into account our estimate of what we believe the volume of landfill tax and the incidence of landfill tax payments made by operators will be and we have come to a different conclusion from the OBR. We built a distinctive Scottish model based on our information from SEPA. I assume that the OBR estimate is a subset of the wider UK position. I am confident in our estimate, but the whole question of the impact on the budget will be felt across the three components of the position—between landfill tax, and residential and non-residential transactions.
In your negotiations on the block grant adjustment, did the UK Government assume a £103 million impact?
The UK’s position overall was that between stamp duty land tax and landfill tax, we would raise £524 million in total; we believed that the existing taxes would raise £461 million in total. That was the source of the difference between the two estimates. We reconciled that at £494 million. As I have explained to Parliament before, because I was not changing my assumptions on landfill tax on non-residential transactions, I viewed them as fixed estimates within the £494 million because they had not been changed by the UK Government, and then I decided how I was going to raise the £235 million that was required under residential LBTT to fill the gap.
It just seems a bit odd that the UK Government thinks in general that you will raise far more than your assumptions, but the opposite is the case on the landfill tax. It thinks that you will raise less than that.
That is a point of difference that illustrates that we arrive at the estimates by different mechanisms and methods. It is not as if—heaven forfend—I might be accused of suggesting that we will in all circumstances raise less in taxation to get a lower block grant adjustment. I am just trying to go through things in as objective and neutral a fashion as I possibly can.
I thank Malcolm Chisholm for that. I will not comment on the cabinet secretary’s facial expression.
I seem to recall that, when we went through LBTT at stage 1, the Scottish Government considered all the estimates that the OBR had put forward to be higher than your estimates, whereas they now seem to be lower. Because of the zero-waste strategy, we are talking about getting down to £40 million to £50 million over four or five years. Members—Malcolm Chisholm and I were two of them—expressed concern that the OBR was overestimating the amount of revenue that would come in in that particular area.
If my memory serves me right—I think that I am correct in saying this—one of the points that I made to the committee during the passage of the landfill tax when the legislative process started, probably back in 2012, was that the OBR had estimated a number that was not far away from £150 million. In the space of around 18 months, it revised that number down by around a third.
The convener is absolutely correct. The OBR estimates started out significantly higher. Indeed, I was concerned that the estimates were well adrift of where we considered the position to be. We now find ourselves with an OBR estimate of around £103 million.
I have a question on the Scottish Landfill Tax (Qualifying Material) Order 2015. The policy note says that the Scottish landfill tax
“list of qualifying material largely replicates the equivalent UK order.”
Does it exactly mirror the UK order or largely replicate it, as you have suggested? If it is the latter, are there any significant differences?
The principal difference is that a slightly different approach will be taken on the testing regime that has to be in place for assessing whether the final waste product, once all the processes have been undertaken, should be treated at the higher rate or the lower rate. We have injected some flexibility into that element simply because we do not believe that the testing equipment is available on as comprehensive a basis as it would need to be for us to make that hard and fast as a rule. There is an element of discretion. Obviously, the assumption would be that, unless it can be proven that the waste should be treated at the lower rate, it would be charged at the higher rate, but to be absolutely confident that we had the ability to mandate that point, we believe that the testing regime would have to be stronger than it is. I would expect to be into that in year 2. I think that that is the principal difference.
That is correct. It is hard to legislate and not make it mandatory in the first year. The aim is to allow industry time to procure equipment and put contracts in place for the testing regime in year 2.
As that is the end of our questions, we move to item 4, which is consideration of motions S4M-12437 and S4M-12438.
Motions moved,
That the Finance Committee recommends that the Scottish Landfill Tax (Qualifying Material) Order 2015 (SSI 2015/45) be approved.
That the Finance Committee recommends that the Scottish Landfill Tax (Standard Rate and Lower Rate) Order 2015 [draft] be approved.—[John Swinney.]
Motions agreed to.
Proceeds of Crime Act 2002 (Disclosure of Information to and by Lord Advocate and Scottish Ministers) Amendment Order 2015 [Draft]
Revenue Scotland and Tax Powers Act (Reimbursement Arrangements) Regulations 2015 [Draft]
Revenue Scotland and Tax Powers Act (Record Keeping) Regulations 2015 [Draft]
Revenue Scotland and Tax Powers Act (Interest on Unpaid Tax and Interest Rates in General) Regulations 2015 [Draft]
Scottish Tax Tribunals (Voting and Offences etc) Regulations 2015 [Draft]
Revenue Scotland and Tax Powers Act (Postponement of Tax Pending a Review or Appeal) Regulations 2015 [Draft]
Item 5 is evidence from the Cabinet Secretary for Finance, Constitution and Economy on six Scottish statutory instruments relating to the Revenue Scotland and Tax Powers Act 2014. I invite the cabinet secretary to make an opening statement explaining the instruments. I remind him not to move the motions at this point.
I would like to set out some details on the six affirmative SSIs under the Revenue Scotland and Tax Powers Act 2014. All of them were published in draft last October for consultation and have been revised in the light of responses to the consultation.
The Revenue Scotland and Tax Powers Act (Postponement of Tax Pending a Review or Appeal) Regulations 2015 allow Revenue Scotland to consider applications for the postponement of payment of land and buildings transaction tax pending review or appeal, but only if Revenue Scotland is satisfied that there are exceptional circumstances that justify doing so. There is no such discretion in relation to landfill tax, because the landfill operator will already have collected the relevant tax from the person who has made a deposit and must pay the tax that is due pending an appeal.
The Scottish Tax Tribunals (Voting and Offences etc) Regulations 2015 provide for majority voting by members of the first-tier and upper tribunal and for the chairing member to have the casting vote in the event of a tie. The regulations also create various criminal offences relating to proceedings before a tribunal, such as making a false statement or destroying material that is required to be produced, but it is a defence if a person can show reasonable cause for acting in the way charged.
The Revenue Scotland and Tax Powers Act (Interest on Unpaid Tax and Interest Rates in General) Regulations 2015 provide that interest will be charged by Revenue Scotland on late payments of tax or penalties at 2.5 per cent above base rate, and that Revenue Scotland will pay interest on repayments to the taxpayer at base rate. The reason for the higher rate in relation to late payments is to provide an incentive for prompt payment of tax that is due, but we have decided to narrow the differential from 3.5 to 2.5 per cent, in the light of responses to the consultation.
The Revenue Scotland and Tax Powers Act (Record Keeping) Regulations 2015 specify exactly what records must be preserved for the purposes of landfill tax and land and buildings transaction tax respectively.
The Revenue Scotland and Tax Powers Act (Reimbursement Arrangements) Regulations 2015 are designed to ensure that a taxpayer who is reimbursed by Revenue Scotland is not unjustly enriched. For example, the regulations require a taxpayer who is being reimbursed by Revenue Scotland to pass on the relevant amount to the person who paid the original amount. That would be expected to apply to landfill operators who have already collected landfill tax from persons who make deposits at landfill sites where tax is subsequently reimbursed to the operator for some reason. The regulations would oblige the operator to repay tax to the person who made the taxable deposit in the first place.
Finally, the Proceeds of Crime Act 2002 (Disclosure of Information to and by Lord Advocate and Scottish Ministers) Amendment Order 2015 permits the disclosure of information by Revenue Scotland to the Lord Advocate for the purposes of proceedings relating to the confiscation of the proceeds of crime and to the Scottish ministers in relation to civil recovery of the proceeds of unlawful conduct.
As members have no questions, we move to agenda item 6, which is consideration of motions S4M-12464, S4M-12465, S4M-12466, S4M-12467, S4M-12468 and S4M-12469.
Motions moved,
That the Finance Committee recommends that the Proceeds of Crime Act 2002 (Disclosure of Information to and by Lord Advocate and Scottish Ministers) Amendment Order 2015 [draft] be approved.
That the Finance Committee recommends that the Revenue Scotland and Tax Powers Act (Reimbursement Arrangements) Regulations 2015 [draft] be approved.
That the Finance Committee recommends that the Revenue Scotland and Tax Powers Act (Record Keeping) Regulations 2015 [draft] be approved.
That the Finance Committee recommends that the Revenue Scotland and Tax Powers Act (Interest on Unpaid Tax and Interest Rates in General) Regulations 2015 [draft] be approved.
That the Finance Committee recommends that the Scottish Tax Tribunals (Voting and Offences etc.) Regulations 2015 [draft] be approved.
That the Finance Committee recommends that the Revenue Scotland and Tax Powers Act (Postponement of Tax Pending a Review or Appeal) Regulations 2015 [draft] be approved.—[John Swinney.]
Motions agreed to.
I thank the cabinet secretary. We will have a one-minute suspension before we move to item 7.
12:14 Meeting suspended.Revenue Scotland (First Planning Period) Order 2015 (SSI 2015/16)
Revenue Scotland and Tax Powers Act (Fees for Payment) Regulations 2015 (SSI 2015/36)
Revenue Scotland and Tax Powers Act (Involved Third Party) Order 2015 (SSI 2015/37)
Revenue Scotland and Tax Powers Act (Privileged Communications) Regulations 2015 (SSI 2015/38)
Land and Buildings Transaction Tax (Transitional Provisions) (Scotland) Amendment Order 2015 (SSI 2015/71)
The final item is consideration of five negative SSIs. I see that members have no comments on the instruments.
The committee will publish a short report to the Parliament setting out our decision on all the instruments that we have considered today.
I thank members for their contributions.
Meeting closed at 12:15.Previous
Devolved Taxes Implementation