Jersey Considering Major Tax Hikes

June 22, 2010 Tax HavensTaxation in Jersey

Still Waiting for BonaparteThe Government of the British Crown Dependency of Jersey has released a new public consultation paper which examines possible tax changes to plug the Government’s emerging budget gap.

On June 21st the Government of Jersey released a public consultation paper dealing with the possible implementation of increased tax rates, with the ultimate aim of sustainably decreasing the current budget deficit without serious cuts to public services. According to Government estimates, an extra JEP 60 million of tax revenue will be needed annually to support current level of public services, like education, children’s services and health infrastructure. It was conceded that most Governments would borrow funds in a similar situation, but this option is considered to be unsustainable for Jersey.

The Government of Jersey has specified that it is evaluating the possibility of increases to Good and Service tax (GST) rates, an increase to Social Security contributions, rises in Domestic Property rates, and the introduction of a new Income Tax rate. Each proposal will be examined by potential monetary outcomes, economic and social impact, along with an overall sense of fairness, economic efficiency and effects on Jersey’s international competitiveness.

Under the consultation process, the Government has proposed increasing the GST rate by 2 percent, to a level of 5 percent. The change is expected to garner an additional JEP 30 million per year, although concerns have been raised on the mildly regressive effect it will have on taxpayers. To counter any disproportionate impact on low-income earners, GST exemptions were also proposed for food and essential items.

Currently, income earners are required to pay a Social Security contribution of 6 percent on incomes up to JEP 43 752. The payment is matched by a 6.5 percent contribution by the employer. The Government has proposed raising the income threshold to JEP 115 000, which could raise a total of JEP 30 million annually. While this is considered to impact all sectors of society equally, concerns have been raised about the economy’s subsequent ability to draw skilled high-income earners.

According to the Government, the average Domestic Property payment made in Jersey amounts to approximately JEP 350 per property per year. To increase revenues from such taxation to a total JEP 30 million per year, the Government has proposed tripling the rates on all properties in Jersey.

The Government has also proposed introducing a new income tax bracket. If approved, taxpayers earning in excess of JEP 100 000 will face a marginal tax rate of 30 percent. income earners currently face a 20 percent flat-rate. The measure is expected to raise an estimated JEP 30 million annually, but could result in an unspecified number of high-income jobs transferring to competing “low tax” jurisdictions.

Additionally, the Government has proposed investigating possible changes to Company Registration Fees, International Service Entity fees, Land Development taxes, and Stamp Duties. However, the Government has explicitly ruled out introducing any form of Capital taxes.

Photo by spratmackrel

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