Territorial tax regime will not make it on to P&R’s options for reform
- The Policy & Resources Committee is advancing dual workstreams related to tax reform.
- One focus is the implementation of a tax package agreed upon by previous States which includes a GST.
- The second track centres on exploring corporate tax alternatives.
- Findings from the Tax Review Sub-committee are expected by mid-April, but it has now dropped the territorial tax option.
- Public engagement sessions will follow, alongside a final proposal publication in July.
A sub-committee working on options for corporate tax reform has dropped the option for a wholesale shake-up.
Moving to a territorial regime had been the favoured option of Deputy Charles Parkinson who is leading the part of the investigation looking at how business should contribute in the future.
“I continue to believe that corporate tax reform can play a significant role in what we ultimately recommend to the States in the summer,” he said.
“There is an expectation from the public that businesses pay their fair share of tax, but this must be in a way that doesn’t affect our attractiveness as a good place to do business.”
“To that end, the Sub-committee has agreed that territorial tax will not form part of our recommendations to the rest of P&R. While on a personal level I continue to believe in its merits, I accept the need for the Sub-committee to narrow the options it’s considering and now is not the right time.”
Territorial tax was considered to have the biggest revenue raising capabilities of the sub-committee’s work, but it was also see as very risky with a big downside.
Estimates suggested it could raise between £3.3 million and £18.4 million if there was minimal behavioural change, but the 15% rate could lead to a £5.1m. loss in a worst case scenario.
The States is looking to come up with a package that raises an extra £98m. a year - driven by the need to invest in major infrastructure projects at the hospital, schools and ports among others.
The final decisions on tax reform are anticipated by the States this summer.
It has two workstreams.
The first workstream focuses on implementing the GST tax package previously agreed by the States.
The second by the Sub-committee is set to provide its findings to the Policy & Resources Committee around mid-April, which will then be made public.
Following this, the Sub-committee will conduct events to engage with industry stakeholders and the wider public regarding its findings.
In July, the Policy & Resources Committee will publish its conclusive proposals via a policy letter, preparing for a States debate.
The States have agreed that should they opt to include a GST, food would be exempt.
P&R says that the package is designed to protect low and middle-income households - it would involve reducing the standard income tax rate to 15%, increasing personal tax allowances, introducing an annual social security contributions allowance, and enhancing existing benefits systems through a new Essential Costs Relief payment.
Deputy Gavin St. Pier, Vice-President of the Policy & Resources Committee and a member of the Tax Review Sub-committee, said: “At the start of this term we committed to reviewing other tax options, but we were also clear that work to prepare for the implementation of the tax package of measures agreed by the last States should continue as planned, to avoid any delay in its introduction if the States ultimately decide to include it as part of the solution to our financial challenges.”
He added that the committee’s approach to tax reform does not presume any final recommendations or decisions by the States, but it is making good progress towards a final debate expected in the summer.
He emphasised the importance of ensuring that the States could make fully informed decisions regarding fair tax reform while maintaining a focus on expenditure restraint.
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