VAT Will Secure Jersey's Future Tax Revenues, Report Suggests

by Jason Gorringe, Tax-News.com, London

13 May 2004

As Jersey prepares to undergo a quite dramatic reform of its taxation system, a report by accounting firm PricewaterhouseCoopers sees the introduction of a sales tax as the most effective way of making up revenues lost from the changes to company taxation.

“VAT is our preferred route for raising significant tax funds,” stated tax partner John Whiting who prepared the report.

He points out that an indirect tax such as VAT will be very effective at taking the pressure off income tax revenues and spread the tax burden more evenly. Whilst the implementation of VAT will be complex, Whiting sees a “wealth of experience” from the UK and other jurisdictions that Jersey can draw on.

Still, Whiting believes that the retention of the 20% income tax will remain the “core component” of the Jersey tax system, although he advises against raising the level of income tax or introducing higher rates.

He also argues that the government must resist the temptation to introduce a capital gains tax, with the existing form of probate duty significantly more preferable to a wider inheritance or wealth tax.

Meanwhile, the 0/10 company tax proposals are thought “sensible and are acceptable to the relevant authorities,” especially those in the financial services industry, although the report cast doubt on the longevity of the system, recommending the tax system should come under regular review.

In summary, given that the tax reforms are aimed primarily at ensuring a favourable climate for the island’s financial services industry, the firm recommends that the aims of the reforms are clearly set out.

“More can be done to explain the aims; more needs to be done on planning and developing diversity strategies,” noted Mr Whiting.

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