Manx Budget Awaited Expectantly

by Jason Gorringe, Tax-News.com, London

13 March 2002

As the Isle of Man anxiously awaits Treasury Minister Allan Bell's March 19 budget, finance experts have warned that the Government's stated targets of 10% and 15% on the standard and top rates of personal and corporate income tax are unlikely to be reached this year.

When the tax reduction strategy to increase the island's international competitiveness was announced in 2000, the Government put a five year time frame on achieving the lower headline tax rates. However, hopes were raised by last year's budget, in which the standard and top rates of tax were reduced to 12% and 18% respectively. Richard Corkill, the then Treasury Minister, predicted at the time that the targets could be reached in three years.

However, according to recent reports, Ian Kelly, the Isle of Man's Income Tax Assessor, has sought to dampen the jurisdiction's high expectations over income tax reductions, stating in a public address that the momentum on the issue established by last year's budget is unlikely to continue.

Tax experts on the island are divided over the extent to which the Government can afford to cut income tax in line with its previously stated aims. Speaking to the Isle of Man Online news service this week, Nick Williamson, a director at Deloitte & Touche, argued that cutting headline taxes is well within the Government's budgetary capability. He added that expectations that Gordon Brown will increase VAT in the UK will provide the Manx authorities with an even greater capacity to cut income tax.

'To my mind, if you've made a bold public announcement that you are going to reduce rates and you've got the flexibility within your budget process to be able to go down, why not seize the opportunity?' he observed. However, IOM Online revealed that Mr Williamson expects that the tax cutting provisions in the March 19 budget will be somewhat miserly, with the higher rate likely to drop by just 1% to 17%.

Gregory Jones, a partner at KPMG, was reportedly more optimistic, stating that: 'I consider it unlikely that the rates this year will be lowered to 10% and 15%; however, I would not rule out the possibility of a cut in the higher rate down from 18% to perhaps 16% and a further extension of the lower rate band for trading companies.'

However, Mr Jones admitted that the Treasury Minister will have to weigh up a number of factors before making the final 'leap of faith' over tax cuts, including the economic effects of continuing pressure from the European Union, and the ongoing effects of the September 11 attacks.

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