The States of Guernsey Policy & Resources Committee published its 2018 Budget proposals on 9th October 2017
The principal headline is that the States has recorded a budget surplus for 2017 of £9 million. This allows for a transfer of £5million to the Core Investment Reserve (formerly the States Contingency Reserve), which is the first transfer since 2007. There is also a project balanced budget for 2018.
Behind the positive headline there are a number of noteworthy tax proposals for debate by the States on 7th November.
Following on from previous budgets, this Budget includes further moves towards a more progressive personal tax regime, with increases in personal allowances funded by withdrawal of all allowances for higher earners.
KPMG Channel Islands Comment
While the changes to business taxes of themselves are not significant, we are seeing further tweaking of the Zero-10 regime at a time when international business is seeking stability and certainty. The other effect is that the island’s business tax regime will be very similar to its closest competitor jurisdiction. However, following Jersey’s proposed extension of its 10% rate, the key difference between the two regimes arises from the Guernsey principle of taxing business streams within a company rather than the entire company profit. This difference can benefit companies that generate profits from unregulated activities in Guernsey.
The introduction of a new higher rate of property tax for law firms does not seem to raise material levels of revenue and is somewhat incongruous.
On the personal tax side, it is hard to find fault with making the tax regime more progressive. Even once the full effect of the withdrawal allowances are felt, the maximum income tax rate is still 20%, one of the lowest rates in Europe, and the absence of capital taxes retains Guernsey’s attraction for high net worth individuals. Added to this, the temporary tax cap for new Open Market residents may help stimulate the Open Market. Whilst it looks generous, arguably the combination of the document duty and tax paid means that any new residents will be paying £100,000 in taxes that would not otherwise have been paid.
The proposal to amend the residence rules to enable resident only individuals to take up principal residency without altering their prior year status is welcomed as it would remove an anomaly that has been seen to discourage individuals from spending more time and taking a more active role in Guernsey.
Overall, the P&R Committee’s tax proposals seek to “raise additional revenues as far as possible from individuals and entities most able to bear the burden”. It is important to remember that there will only be higher tax receipts where there is economic growth. There may still be a need to consider other revenue raising measures in future and care should be taken to ensure that such measures do not inadvertently stifle growth and innovation in our local economy. It is welcome that Guernsey is balancing its books but a small economy operating in a turbulent and competitive world can be disproportionately affected by changes in tax policy.
Full details of the proposed changes can be found on the States of Guernsey website here.
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