Tax reform decision in sight as sub-committee recommends no major changes to corporate regime and pressing on with GST-plus instead

• Sub-committee says fundamental corporate tax reform would present considerable economic risk and cannot deliver sufficient revenues
• P&R will make its final recommendation on 8 June
• It has ask committees to draft up major service cuts to show what the options are
• Introduction of annual charge for vehicle ownership and luxury car surcharge being worked on

Now is not the time to make any major moves on corporate tax, a sub-committee reviewing the options has said.

Their work was one strand of investigations into how to plug a reported £98m. annual deficit in what forecasts suggest the States needs to spend compared to what it brings in.

Policy & Resources will publish its final recommendations on 8 June as it works on the GST-plus package agreed by the last administration.

If members do not accept that route, and with substantial corporate tax changes both out of favour and unlikely to deliver the amount of money needed, then hefty public service cuts, which have also been investigated, will be on the table.

Transport tax changes are also on the agenda whatever is decided.

Policy & Resources President Deputy Lindsay de Sausmarez said: “When I stood for this position, I promised to leave no stone unturned in our efforts to examine all the options before bringing recommendations to the States, and that’s what we’re doing.”

She said the Tax Review sub-committee’s report will be carefully considered when making the final recommendations.

The group was chaired by Deputy Charles Parkinson, with Deputy Gavin St Pier the other political representative working with three tax experts, Bill Dodwell, Professor Peter Harris and Mike Williams.

It does not recommend fundamental reform at this time.

“This report considers a range of options, from modifications to the existing corporate tax structure, which pose limited risk, but also offer limited returns; to wholesale reform of the corporate tax system, which might address issues of fairness, but come at the risk of increased international scrutiny in the medium-term with the uncertainty and economic risk that might accompany that,” their report stated.

“What has become evident is that there is no simple answer and no silver bullet. There is a gap between what might be the longer-term objectives for the tax system, and what is practical and prudent in the short-term given both the local and global economic environment in which this decision rests.”

Global tax changes are already expected to increase corporate tax revenues by £40m. a year, although there is some uncertainty about that figure.

“While the sub-committee might make different recommendations were the tax system being designed from a blank slate, major corporate tax reform (such as a move to a territorial system) would present considerable economic risk and cannot deliver sufficient revenues to address Guernsey’s immediate financial challenges. 

“Guernsey’s reliance on highly mobile international financial services means that any substantial change could expose the island to uncertainty, including potential review by the Code Group and the OECD Forum on Harmful Tax Practices (FHTP), and make Guernsey less competitive.”

Major reforms to corporate tax within the same timeframe as introducing a GST also risk overloading the businesses community, the report said.

It does suggest some short term measures, like applying the intermediate 10% company rate to the entire corporate entity rather than only on the specific activities (raising up to £500,000 a year), and extending it to cover accountants, legal firms and other professional service providers (to raise up to £2.5m. a year).

It says workstream one - which is the GST package - was well developed and has the potential to deliver around £50m. in new revenue.

“It includes measures designed to mitigate the impact of a new consumption tax on lower and middle income households. Although implementation would be complex for both government and business, the package offers a credible means of placing public finances on a more sustainable footing in the near term.

“While not risk-free - particularly regarding short-term inflation and consumption effects - the risks are materially lower than those associated with major changes to the corporate tax system.”

Deputy de Sausmarez said that to plug the financial gap through spending reductions alone can only be done with service reductions.

“P&R and the committees alike are keenly aware that any significant reduction in services we provide for the community would be unacceptable to most islanders, but it’s important that we explore where that line between reasonable and unacceptable might be so we can find the best balance between expenditure restraint and increasing taxes to inform our recommendations to the States,” she said.

The States has already committed  to target efficiencies that by 2029 should save £17m annually. This should be achieved by measures such as adopting e-rostering and e-billing, especially in Health & Social Care.

“We’ve also worked with the Committee for the Environment & Infrastructure to move forward with the long overdue work on transport taxes. The States has already directed that we need to find the best way to address the growing unfairness and the erosion of revenues from fuel duty, as the community move towards more fuel efficient and electric vehicles, which currently don’t contribute much at all to the public purse.”

Options being considered include a reduction in fuel duty rebalanced by yearly charges on vehicle ownership to bring electric vehicles into scope, and introducing a surcharge on first registration duty for very high value personal vehicles.

Next steps

18th May: The sub-committee will hold events for industry and the public to discuss the findings.

May: Public drop-ins so P&R members can discuss work on tax reform with the public prior to finalising its policy letter (further details to be announced soon).

2nd June: the 2025 States Accounts will be published. These will show an improved outturn for the year. 

8th June: P&R will publish its final proposals in a policy letter in time for a States debate in July.

July: States debate on tax reform proposals.