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Jersey Government Publishes GST Consultation Responses

by Jason Gorringe,, London

24 October 2006

The Jersey government has published a summary of the responses received in connection with its consultation on the introduction of a goods and services tax (GST).

The recently published document summarises the views expressed in the public consultations held between 28 March and 31 August this year concerning the implementation and operation of the levy, which is due to be introduced in 2008.

In 2004, the States agreed two major changes to Jersey’s tax structure - a reduction in the general rate of tax on corporate profits, from the current 20% to a rate of 0% for most companies but with a higher (and yet internationally competitive) rate of 10% for financial services providers.

These changes, known as “zero/ten” were considered to be vital to secure a sustainable economic future for Jersey since they would enable European Union demands for nondiscriminatory taxes to be met, whilst combating competition from other business centres seeking to attract the highly mobile and economically important financial services industry away from the Island.

However, an effect of “zero ten” will be to reduce the States’ future annual tax revenue by an estimated GBP80-100 million. The main impact of this is expected to be felt in 2008 and the full effect by 2010.

In order to fill this anticipated ‘revenue gap’ the States agreed a package of measures that included restrictions on its spending, an economic growth plan, an Income Tax instalment system, legislation to ensure that shareholders in zero per cent companies would ultimately pay personal Income Tax on their share of profits and a phasing out of certain Income Tax allowances for higher income groups.

Nevertheless, even after these provisions, there remained a GBP40-45 million annual revenue shortfall and some form of new tax, or taxes, became inevitable to ensure the continued provision of high quality public services.

However, in addition to producing the required GBP40-45 million of annual revenue, the aim was to design a tax, or taxes, which would be as simple as possible for all concerned, while maintaining Jersey’s economic competitiveness and having the minimum possible impact on the cost of living and on business activities.

After detailed consideration, and following comprehensive public consultation, the States decided in 2005 to adopt a GST as the best of the alternative tax-raising measures - with a proviso that an income support scheme would be introduced to mitigate the effect of the tax on lower income groups.

It was agreed that Jersey’s GST should be broad-based but levied at the lowest possible rate and with the highest possible registration threshold (below which businesses would not be required to register for GST). It was therefore decided that a single standard rate of three per cent (the lowest in the world) should be applied to most goods and services supplied in or imported to Jersey and that the registration threshold should be set at GBP300,000 of taxable turnover (one of the highest in the world).

Crown Agents, which is consulting on the GST implementation project, and oversaw the consultation, observed of the submissions that:

"With the exception of detailed submissions from the Financial Services Industry and business associations, Crown Agents was surprised at the relatively low level of responses to the consultations - especially in the light of the importance of GST to Jersey and the widespread publicity that it has received."

"A total of over 150 written responses to the three consultations were received from individuals, groups, representative bodies and/or companies by the closing dates - more than half of which concerned a single subject."

"In addition to these, a number of representations were made in response to requests made by the Corporate Services Scrutiny Panel for comments on various aspects of GST. Although not part of the main consultations, the comments made directly to the Scrutiny Panel, where obtained by the GST Consultation Team from the Scrutiny Panel website, have been included in this summary."

It continued:

"Among the submissions received, some simply requested information. Others expressed opposition to the principle of introducing a GST system in Jersey and there were a number of demands for economies in States spending and even a reduction in the number of States members. These were, strictly, outside the scope of the three consultations and have not been included in this report."

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