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Guernsey Minister Defends Corporate Tax Decision

by Jason Gorringe,, London

24 December 2012

Defending decisions made in the territory's 2013 Budget, Guernsey's Treasury and Resources Minister, Gavin St Pier has said that the measures proposed, including an expansion to the scope of the island's 10% corporate tax rate, are a necessary evil to begin reducing the size of the recurring budget deficit and improve the fairness of the tax regime.

St Pier said he had presented a "cautious" and "dull" budget, one involving less fiscal retrenchment than was available to him, in light of the stagnant growth experienced in Guernsey during 2011 and 2012, and weak growth projections for 2013.

Budget 2013, which included a reduction to mortgage interest relief, and increases to excise and property taxes, will slash Guernsey's budget deficit from GBP31-32m (USD52m) in 2012, to GBP17m in 2013.

He said that the burden of new policies to correct Guernsey's finances "should be equitable, appropriate and reasonable." He observed that "as a direct result of the reduction of some GBP100m in corporate tax receipts, following the introduction of Zero Ten Tax in 2008... the proportion of taxes derived from individuals increased."

Therefore, the decision to extend the 10% income tax rate to cover the activities of licensed fiduciary businesses, licensed insurers in respect of their domestic business, and licensed insurance intermediaries and managers, from January 1, 2013, had been taken to distribute the tax burden more fairly, towards companies, he explained. The measure will raise GBP12m, he said, more than offsetting the GBP4m tax shortfall expected from the repeal of the island's deemed distribution regime, which the European Union has deemed "harmful" under its Code of Conduct on business taxation.

He underscored that the government would be reviewing all taxes, duties and contributions in the New Year to ensure the tax regime is equitable. This will include consideration of proposals to address the current separation of personal income tax allowances and social security benefits, as well as a review to establish an appropriate level of property taxation, he said. A consultation is to be launched in the first part of 2013, with changes to be proposed in next year's 2014 Budget report in October 2013.

TAGS: individuals | tax | business | fiscal policy | law | international financial centres (IFC) | budget | corporation tax | Guernsey | offshore | tax rates | standards

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