Sales Tax Looming For Guernsey

Lisa Ugur, Tax-news.com, London

28 July 2000

It looks as though Guersey's taxation laws could be subject to an upheaval soon and an unwelcome one at that. It is faced with attacks from the OECD, which has labelled its tax practices 'harmful', and from the British Government, its one-time 'protector', which is pressurising the island to set up an information exchange system as part of a defence against Brussels' threatened withholding tax.

Guernsey residents could be forgiven for thinking that they were being sacrificed in order to preserve the City of London and the Treasury's tax-base, but they are phlegmatic about the need for change if they are to survive and prosper in the new century. The distinction in the tax system between residents and non-residents might be the first thing to go if the island gives in to international pressure, leading to a lower but uniform tax rate for all. This is the route already taken by Ireland, and being considered also by the Isle of Man.

The island's budget was already under pressure, and in a policy planning debate this week, the Guernsey states were warned by Deputy Mike Torode that the threat of a local sales tax, similar to Value Added Tax, could be looming very close.

Guernsey has already recognised the need for other ways of obtaining revenue, and that its reliance on income tax needs to be reassessed. In the debate Mike Torode stated that it was 'time to bite the bullet' and that Guernsey should lower income tax and introduce a sales tax of betwwen 5 per cent and 7 per cent. Mr Torode said 'It's a bullet I think we are probably going to have to bite within the next two or three years.'

There is widespread agreement across the board that Guernsey's taxation regime needs overhauling, and Advisory and Finance Committee president Laurie Morgan conceded that the tax system may need looking at, but that the process should be conducted with due caution, with no rash decisions being made. It is likely that December's budget will hold the first clues as to what any future changes might be.

Guernsey's partner in the Channel Islands, Jersey, is under similar pressures, and also understands that major changes to its tax regime are unavoidable. Mr Morgan said that decisions made were likely to have repercussions on both islands. But he denies that the islands have to keel over and give in to all the demands coming from London, Paris and Brussels: "For now we are spending a lot of time trying to make the OECD understand that we are ready to co-operate. But what kind of sanctions could the OECD impose on us?"

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