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Guernsey To Delay Tax Reform Debate To Explore Corporate Tax Options

Friday, April 29, 2022

The Guernsey Government on April 26, 2022, announced that a parliamentary debate on tax reform, scheduled for July, will now be delayed until the end of the year, to allow time for consideration of corporate tax options. Earlier, Guernsey's Policy and Resources Committee proposed that the territory could implement a goods and services tax to buoy the territory's finances.

The Policy and Resources Committee announced that it had decided on April 26 that it "should bring the Policy Letter on the Tax Review to the States Assembly for debate later in 2022, and not at the July debate as originally intended."

The Government said the Committee is finalizing an agreement for an external review of corporate tax options for Guernsey and Alderney. It said "the review will provide a thorough assessment of plausible corporate tax options, looking at what potential they may have to generate additional revenues to fund essential services and whether they allow the Bailiwick to continue to compete internationally or if they would present risks for the local economy."

The Government said: "It is now expected the review will be completed in the summer. As it is important its findings are made available before an informed debate is held, the Committee is proposing to postpone the debate until Q4 of 2022. The Committee is also mindful of the feedback from the community to take into account the considerations around population which are the focus of the ongoing population review, and the delay will allow for this work to be part of the public and political discussion on revenue raising measures."

"The Committee believes the debate should be held before the end of 2022. Already, the impacts of the changing population make-up are being felt, putting greater demand on health services and other costs, and there is an urgency in agreeing a long-term solution so that the detailed work on reforming the tax and social security systems can happen. That detailed work to develop and implement any changes that the States ultimately agrees would take some time and so it is not anticipated that the changes would take effect for at least two to three years."

Background

In February 2022, Guernsey's Policy and Resources Committee had committed to also studying potential revenue-enhancing changes to Guernsey's corporate tax regime. The announcement came in response to concerns raised by taxpayers about proposals earlier put forward by the Committee, and supported by the Government, to fix the territory's finances, chief among them being the introduction of a goods and services tax.

In a February 15, 2022, statement, the Government said: "The Policy and Resources Committee is commissioning further work on the issue of corporate taxation as part of its work on the Tax Review. The Committee is engaging with States Members, industry and most recently, the wider community on the Tax Review. Already this engagement has seen many questions raised on the role of corporate tax, the evolving offshore tax landscape and whether it can play a larger part in any solution whilst ensuring that Guernsey's finance sector remains competitive and internationally compliant."

"The Committee is expecting additional revenues to come from taxes on business as part of the overall tax reforms that will be needed to meet the forecast shortfall of around GBP85m per year. Its current assumption is that an additional GBP10m will come from corporate taxes. This continues to be reviewed and updated based on the latest available information and it is also subject to the ongoing discussions taking place internationally on corporate tax rates, and Guernsey alongside the other Crown Dependencies is engaging actively in those discussions. This means the amount of revenues raised could ultimately be more or less, however it is very unlikely it could generate the full GBP85m per year."

In March 2022, Mark Helyar, Treasury lead for Guernsey's Policy and Resources Committee, indicated that the Government is under pressure to consider options other than a goods and services tax, stating the committee is not "ideologically wed to [the implementation of] a Goods and Services Tax".

He said: "We are listening to islanders, to businesses and to states colleagues in both Guernsey and Alderney. We will keep engaging and keep listening. The Committee is not ideologically wed to a Goods and Services Tax, or any other tax for that matter. It is simply looking for the best, workable solution to a very difficult problem. We want to find that solution in an open and constructive way."

The introduction of a GST with either a five or eight percent rate was included in two of three options put forward by Guernsey's Policy and Resources Committee, which was asked to identify potential sources of revenue for the government. The alternative was proposed to be a three percent "health tax", levied through the social security system.