Jersey Publishes Fiscal Strategy Review

by Jason Gorringe, Tax-News.com, London

01 July 2010

The Jersey government has outlined a number of new tax proposals in a Green Paper, summarizing the findings of its Fiscal Strategy Review, aimed at establishing new revenues to ensure the sustainability of government finances going forward.

The Green Paper is as part of a consultation with islanders on how best to generate an additional GBP60m in tax revenue every year, to prevent a ongoing budgetary deficit of around GBP100m.

The four major possibilities, as discussed in the document, involve increases to:

• Goods and Services Tax (GST);
• Social Security contributions;
• Domestic property rates; or
• Income Tax

These would each provide at least GBP30m to government coffers, the document says.

Income Tax

Firstly, the Jersey government has identified that a rate of 30% on incomes above GBP100,000 would generate an extra GBP30m a year. There are however fears that highly skilled workers will flee the island as a result, and this could have an adverse impact on the island's financial services industry, and on tax revenues.

The Goods and Services Tax

The government has proposed an increase to Jersey's Goods and Services Tax rate to 5%, from 3%, again raising around GBP30m. Jersey currently has one of the lowest GST/VAT rates in the world, but hiking it would be moderately regressive, the government said.

Further it said that GST law would likely be revised to ensure the hike does not damage the island's competitiveness. The Green Paper explains that banks, trust companies and fund services would be negatively affected by the increase as they pay GST on ISE fees, and has indicated that this may be reviewed, should the hike to the GST rate go ahead.

Social Security Contributions

Thirdly, the government has proposed raising the social security ceiling. Compared to other jurisdictions in its vicinity, Jersey's rate of 6% on employees on incomes up to GBP43,752, is considered low. An increase in the threshold to GBP115,000, would equate to additional contributions of GBP4,300 on Jersey's highest earners, and provide GBP30m in additional revenue.

Property Rates

Lastly, the government has identified hiking the property tax levied by parishes, levied at a rate of GBP350 on the average household annually. It is proposed to triple this rate, bringing it closer to the average council tax rate levied in the UK, at GBP1,100.

Identifying additional measures, the Paper noted that the review of business taxation, to bring the island's 0/10% tax regime in line with international standards, would generate extra revenue, but that one or more of the aforementioned measures may be needed to provide for the GBP60m adjustment.

Finally, the green paper identified a number of other measures under investigation by the government. These include hikes to company registration fees, and the removal of mortgage interest relief on a transitional basis.

A comprehensive report in our Intelligence Report series giving detailed information on offshore jurisdictions in tabular form, titled "The Lowtax Offshore Charts: Country Characteristics and Taxation; Residence Guide", is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report4.asp

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