CHANNEL ISLAND authorities have welcomed a cut in the multi-million pound VAT subsidy the Isle of Man receives from the UK. They said that the move, which followed criticism that the Isle of Man received much more than it put in, would make tax competition fairer.
A ‘common purse’ deal with the UK pools VAT receipts and then determines a payment to the Manx government.
It is expected that the change will see a ’significant reduction’ in the island’s income.
The Isle of Man’s substantial VAT income has enabled it to lead the way on introducing zero corporate tax - a move which Guernsey and Jersey have followed - and better cope with the loss of direct taxation.
Its latest budget reveals that it expects to make £376m. from the common purse deal in 2006-7, reducing to £340m. the following year - about the same amount of income that Guernsey expects to raise this year, including direct taxation.
Jersey’s chief minister, Frank Walker, said that any loss of an unfair subsidy was good news for the finance industry.
‘It will almost certainly mean that there will be less pressure on our tax structure, less Isle of Man-led pressure than would otherwise have been the case.’
He did not know the figures involved, but understood that there would be a significant reduction in the Manx tax receipts ‘and, as a result of that, a more level playing field’.
Guernsey’s Treasury and Resources minister Lyndon Trott noted an interesting development.
‘I met with Senator Walker informally over the Easter weekend, and we discussed this matter, among others,’ he said.
‘He and I have agreed to keep in close contact over all fiscal matters that impact on our islands’ competitive position over the coming months.’
Isle of Man Treasury minister Allan Bell has admitted that the island has done well out of the common purse agreement over the past 25 years.
Mr Bell said the scheme had proved ‘very beneficial’ to the island and had helped its government achieve the zero rate of corporate tax.
‘We have been able to ride out any shortfall from corporate taxation, unlike Jersey and Guernsey where they have no VAT and have had to bring in fresh measures and sales tax.’
Article posted on 1st May, 2007 - 12.00am
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