Budget tax plans criticised by Jersey Finance

Tuesday 21 November 2017

Jersey Finance have warned new tax proposals in the Treasury’s Budget 2018 may deter wealthy residents from investing in the island.

In a statement submitted to Scrutiny by Deputy CEO Amy Bryant (pictured), the body, which normally steers clear of local political matters, also expressed concerns over the proposed Retail Tax, and criticised the amount of time available to comment on the proposals before they were finalised.

On the Retail Tax their concerns have also been echoed by the Jersey Retail Association, a body set up with a one-off grant of £100,000 from the States to provide a voice for local retailers.

In their submission, JFL says generally it is supportive of Budget 2018, but it then goes on to list points where it would have liked to see "more clarity."

Although phrased diplomatically, JFL targets the proposed new Retail Tax, saying it is “not fully articulated” and that “the ultimate intention of the provisions is unclear.”

“The risk is that this could lead to uncertainty regarding whether the long-term plan is to expand a number of companies that will be caught by this law by amending the definition of a 'Large Corporate Retailer.'

“In addition, an indication in respect of whether there is any intention to ultimately seek to tax digital retailers would have been useful,” Ms Bryant wrote. 

Also in the firing line was Treasury Minister Senator Alan Maclean’s plan to amend the definition of ‘financial services’ – therefore bringing more companies under the 10% tax band. “It may have been helpful to provide an explanation regarding why the definition is being amended, so as not to, through uncertainty, discourage companies from doing business in Jersey.”

Pictured: Jersey Finance questioned whether the Treasury will ultimately seek to tax digital retailers making profits in Jersey.

JFL's strongest comments come in relation to the proposed changes to the High Value Residency regime which would see wealthy immigrants taxed more heavily. Jersey Finance said that these could make Jersey vulnerable to competition from Guernsey and “close the door to certain businesses which in our view are exactly the type of businesses that the island wishes to attract.”

“For example, successful start-up funds can generate significant income, employ high earners and typically have a low footprint… The proposed amendments… may serve as a disincentive, both in respect of individuals looking to establish a fund in Jersey, as well as to individuals who are simply looking to invest locally in taxpaying entities.”

Finally, JFL's attacks the consultation process ahead of the Treasury deciding on its plans:

Jersey Finance’s concerns over the Retail Tax were an equal cause of “serious” concern for the newly-founded Jersey Retail Association, which was created with a one-off grant of £100,000 from the States to provide a voice for local retailers.

Reiterating the words of fashion guru Dr Tessa Hartmann and Voisins owner Gerald Voisin, the JRA claimed that a 20% tax could “damage the retail industry in Jersey and commence a period of decline that will ultimately reduce GST revenues received by the States of Jersey.”

Pictured: The Jersey Retail Association (JRA) said that the industry was already struggling under lowering footfall and issues associated with Brexit, and that it was being unfairly discriminated against with this new tax.

They said that members were “at a loss” to understand why the already struggling retail industry had been “singled out” to be subjected to a “discriminatory tax” and “more burdensome treatment than any other sector.” 

“It was the States of Jersey that decided to adopt a Zero-Ten tax regime to protect the finance industry in Jersey, if the States no longer like this regime then it should be amended in a non-discriminatory manner and the JRA calls for a complete review of the Zero-Ten system before embarking on piecemeal tax increases,” the association wrote in a scathing letter.

They said that the Retail Tax formed part of a larger picture of increasing taxes across the whole island spanning healthcare, waste, construction and employment licences, and that it would undoubtedly result in higher prices for consumers – a move that would above all hit those on low income

“The JRA has been informed that food retailers that are operating under extremely small margins may be forced to increase prices in order to make sufficient returns to justify their capital investment. There is a risk that prices may rise by 3%, which will hit all consumers but the poor and those on fixed incomes the most.”

Pictured: The JRA said that a Retail Tax would be likely to hit shoppers' baskets, as supermarket retailers tend to operate under "extremely small margins".

They have since come up with a series of recommendations that they say would avoid the “long-term negative effects” of the current plans.

“The alternatives to consider are: 

a. Instead of singling out the retail industry for tax, apply the 10% rate to all businesses that operate in Jersey.
b. Apply a 10% rate on all business profits and remove the threshold that will discourage investment and expansion of smaller businesses.
c. Make the tax effective from January 1st 2019 or another date to avoid retrospective taxation.
d. Reduce the GST de minimis level on imported goods to zero, requiring UK based retailers to pay the GST due before parcels are shipped to the Island. This will also provide a level playing field for Jersey retailers, whether based in the Island or UK.
e. The introduction of capital allowances which would be pre-tax and encourage investment.”

The JRA are now putting pressure on the Treasury to undertake a “full and serious review” of their Budget proposals, and issued this warning: 

“You and your panel should not underestimate the change that is running through the retail industry, with physical retailers battling for customers against pure play Internet retailers, this at a time when the Brexit vote has driven a collapse in consumer confidence. If physical retailers fail in Jersey then there will be a very large hole in the State’s GST receipts and the best way to protect this is to encourage investment. The proposals on tax discourage this investment and risks the future of the retail industry in Jersey.”