A proposal to reduce the rate of corporate tax to zero in five years time could cost the Jersey government some £100 million a year in lost taxes Senator Terry le Suer revealed last week.
Talking to the BBC, Senator le Sueur warned that when that time comes, the island will be faced with a choice between increased taxes or higher levels of borrowing, with the latter of the two representing the least attractive option.
"If the island borrows, it has to pay back even if the interest rates are at an all-time low," le Sueur explained. "The fact remains it is an interest rate, you have to pay back not just the interest but the capital," he added.
"To carry on borrowing is just to delude yourself that you can live within your means. The island may need to borrow a certain extent if there are obvious ways in which we can see the money can be paid back. By 2008 or 2009 we are looking at deficits of up to £100m to be funded," the Senator warned
The idea of a zero rate of corporate tax has been mooted in response to fears that the jurisdiction will become uncompetitive to banking and financial firms, the economic life blood of the Channel Islands. Earlier in the year, Deputy Gerald Voisin warned that Jersey will almost certainly have to eliminate corporate tax to keep "business in the Island that is currently held under exempt company and international business company regimes".
The States of Jersey is currently deciding which route to take regarding the European Savings Tax Directive, which is aimed at curtailing tax evasion by EU residents, and was finally agreed by all member states last week. It is believed that the preferred choice of most in the finance industry is a withholding tax, as this will retain the option for the client to permit the exchange of information with other member states.
A comprehensive report on the OECD, FATF and other 'offshore' initiatives, including the EU's Savings Tax Directive, is available in the Tax News Reports Shop at http://www.tax-news.com/reportshop
