Guernsey’s long-awaited tax review has effectively ruled out the idea that corporate tax reform alone could save the island from introducing GST+.
In an exclusive in-depth report Express looks at the five options Deputy Charles Parkinson’s Tax Review Sub-Committee considered and explains why they were each ruled out.
After months of looking at alternatives, the report concluded that sweeping changes to Guernsey’s corporate tax system would either fail to raise enough money or carry major economic risks.
Policy and Resources has now said the States debate in July will be focused on the introduction of the GST+ package with the support of the Tax Review Sub-Committee.
The bottom line is that none of the proposed alternatives can raise anywhere near enough tax on their own to fill the £77m hole in the States’ finances.
Instead, the Tax Review Sub-Committee has backed a cautious approach, with modest tweaks to the current Zero-10 regime along with the previously-agreed GST+ package.
While Guernsey’s top political committee, Policy and Resources, could still theoretically decide to adopt some form of corporate tax reform instead of GST+ or another option, the sub-committee’s report makes this all but unthinkable.
Deputy Lindsay de Sausmarez, P&R President, said the review had “added clarity where there wasn’t clarity” before.
Option 1: Taxing all finance firm profits at 10%
One of the least-controversial proposals was extending the existing 10% corporate tax rate so it applied to all profits made by regulated finance firms, not just profits directly linked to regulated activities.
The move would bring Guernsey into line with Jersey and simplify the tax system.
But the financial impact was modest.
The sub-committee estimated it would raise only about £500,000 a year — a tiny contribution towards the estimated £77m structural deficit facing the States.
Even then, the report warned firms could simply restructure themselves to avoid the changes.
Option 2: Expanding corporate tax to more sectors
The sub-committee also examined whether more sectors should start paying either the 10% or 20% corporate tax rates.
Potential targets included:
- accountants
- legal firms
- estate agents
- retailers
- and construction companies
This option was one of the most politically-sensitive, because it would have widened the number of local businesses paying corporate tax.
The report estimated that taxing registered professional firms at 10% could raise up to £1m, while applying taxes to construction and retail could potentially raise several million more.
However, the sub-committee repeatedly warned about unintended consequences.
Retailers and builders argued higher taxes would increase prices, reduce reinvestment, and worsen existing pressures on housing and local businesses.
The report also acknowledged concerns that construction and retail were already likely to be hit hard by GST and higher employer social security contributions.
In the end, the sub-committee cautiously supported extending the 10% rate to some regulated professional firms, particularly accountants and lawyers.
However, it stopped short of fully endorsing broader taxation of retail and construction.
Option 3: Raising the 10% rate to 15%
Another proposal was a move from Zero-10 to Zero-15.
Most companies in Guernsey pay no corporate tax, but certain industries pay a 10% tax – a system known as Zero-10.
The Zero-15 proposal would do what it says on the tin; increase the corporate tax rate for regulated firms to 15%.
On paper, it looked attractive and could have raised up to £5.8m a year, according to estimates.
But the proposal ran into a major obstacle: Jersey and the Isle of Man.
The report warned that if Guernsey acted alone, businesses could simply relocate to rival Crown Dependencies still offering lower rates.
In the most pessimistic modelling, the States could actually lose money overall because of reduced economic activity and falling personal tax receipts from finance workers.
So the sub-committee rejected any unilateral move to Zero-15.
Instead, it recommended opening discussions with Jersey and the Isle of Man after their elections later this year.
Option 4: A full territorial tax system
This was by far the most radical option considered – and the one most-firmly rejected.
A territorial system would have abolished Guernsey’s 0% corporate headline rate and replaced it with a broad corporate tax on profits generated in Guernsey.
Depending on the rate chosen, the report estimated this could theoretically raise between £3m and £18m annually.
But the sub-committee felt the risks were too high.
Business feedback was overwhelmingly negative:
- 70% of respondents said a territorial system would damage business growth
- over 80% believed it would hurt Guernsey’s competitiveness
- and more than half said they would consider downsizing or relocating operations
The insurance industry reportedly described the proposal as an “existential threat”.
The sub-committee also warned the move would trigger intense scrutiny from international tax regulators and could leave Guernsey in a period of prolonged uncertainty.
Ultimately, the report said bluntly that the risks “significantly outweigh the rewards”.
Option 5: A company levy
The final option was simpler: charging all companies a flat annual levy.
At a flat rate of £250, this could raise £5m a year – or £10m if the rate was doubled to £500.
Businesses were much less hostile to this proposal than most of the others, because it was predictable and relatively straightforward.
But the report identified several problems.
Critics argued the levy would unfairly hit small businesses regardless of profitability, while Guernsey’s existing company fees were already far higher than Jersey’s.
The sub-committee also noted much of the same revenue would already be captured through the proposed International Services Entity scheme linked to GST.
As a result, the real additional income could be far lower than headline figures suggested.
The sub-committee supported considering a limited levy, but only as a short-term supplementary measure.
Why GST+ survived
Winston Churchill famously said: “Democracy is the worst form of Government except for all those other forms that have been tried.”
Like democracy, the consensus seems to be that when it comes to fixing the States’ finances, GST+ is the worst option – except for all the others.
The States faces a structural deficit of around £77m a year.
The simple truth is that none of the other options will raise anywhere near enough money on their own, and all carry significant risks.
The GST+ package is expected to raise about £50m a year.
None of the other options raise that much money – even ignoring the warnings about the knock-on consequences to the island’s economy and finance industry.
Of course, nobody’s ignoring those warnings – with the report keen to stress that finance accounts for more than 40% of our economy and nearly half of all direct tax revenues.
Again and again, the report returns to the same concern: that aggressive tax reform could destabilise the finance sector, undermine confidence – and ultimately leave Guernsey worse off.
So the sub-committee largely rejected radical alternatives and instead argues for stability, caution and gradual change.
Even if that means GST+ remains central to Guernsey’s financial future.
Spending gap
Deputy de Sausmarez told Express there was a “gap” between the amount the government raised in revenue and the amount it spent.
“There are two ways of bridging that gap,” Deputy de Sausmarez said, “One is to raise more revenue – and another is to reduce the amount that you’re spending.”
So which how much will P&R opt to reduce spending, and how much will it decide to raise more money through taxes and other means?
We should find out later this year.