Jersey's Ozouf Rejects Zero-Rate For Food

by Phillip Morton, Investors Offshore.com

18 May 2011

Jersey Treasury Minister, Phillip Ozouf, has rejected a proposal to exclude food and fuel from Jersey's goods and services tax (GST) in the interests of retaining a broad-based, simple tax, which is easily managed and encourages prompt, accurate payments.

According to Ozouf, GST has a 92% compliance rate among businesses, compared with 65 to 70% for the UK VAT system, which is recognized as being complex and outdated.

Calling for an end to the debate, Ozouf said:

“GST has already been comprehensively debated in the States at least six times. The first such debate was in 2005, the last as recent as December 2010 – that’s just five months ago."

“Our system is simple and the rate is one of the lowest in the world for instance, France has a reduced rate of 5.5% for food, with a standard rate of 19.6%. Introducing exemptions in Jersey, after 3 years' efficient, cost-effective tax collection, would not be sensible and no jurisdictions introducing a sales tax now would include them," Ozouf continued.

“In the UK, even after nearly 40 years they are still struggling to define the items that should be subject to VAT. There is a constant stream of legal challenges on items like jaffa cakes, gingerbread men, tea cakes, rabbit food and german sausage. A recent series of cases on whether Pringles could be considered to be crisps for VAT purposes went as far as the Court of Appeal, with different decisions at every stage!"

“Marks and Spencer had a similar issue with its tea cakes. After 12 years of litigation and 2 trips to the European Court of Justice, tea cakes were finally deemed to be a chocolate cake and not a biscuit and therefore zero-rated. The company then filed a claim for £3.5m in overpaid VAT. And now there is a challenge to the definition of hot food, which could cost the UK government millions in VAT revenue."

“I do not believe this is what we want to see in Jersey. It is easy money for litigators but represents time wasted and earnings lost for business. And when businesses see these measures costing them more in administration, their costs will be passed onto the public through price increases."

“It is people who pay taxes, not businesses whether we pay directly through income tax or indirectly through the cost of goods and services. We need to keep our taxes simple so we can keep the rates as low as possible for the benefit of the whole community."

“I recognize the hardship that a combination of the recession and an increase in GST will have on low income families, especially pensioners. That is why additional money has been allocated to reflect these higher costs for people on income support and for those who do not pay tax and receive a GST bonus. These benefits are guaranteed, but there is no guarantee that exempting food and fuel from GST will result in a requisite drop in prices, as retailers may not pass the full reduction on to their customers.”

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