Zero 10

WHAT YOU NEED TO KNOW ABOUT GUERNSEY’S NEW TAX STRATEGY
 
WHAT IS “ZERO-TEN”?
In June 2006 the States of Guernsey agreed that from 1st January 2008 the standard rate of income tax on company profits will be 0%, with only a limited number of specific banking activities being taxed at 10%. This is what is referred to as the “Zero-Ten” regime. As part of this “Zero-Ten” regime, the profits of regulated activities of utility companies, that is companies such as Guernsey Electricity and Guernsey Post, will continue to be taxed at 20%, in addition to the income from Guernsey property which arises to any Guernsey or overseas company.

WHY IS GUERNSEY DOING THIS?
There are two main reasons for adopting the “Zero-Ten” regime:
1. To remain competitive with other jurisdictions, including Jersey and the Isle of Man.
2. To meet international standards and obligations (in order to secure continuing access to world markets). Most of Guernsey.s competitors made announcements to the effect that they intend to introduce a Zero-Ten tax system.
The overall package of implementations is designed to ensure that Guernsey remains a good place for businesses to operate and to provide well-paid jobs, therefore enabling wages to remain high and to increase.

WHAT IS THE “BLACK HOLE”?
As a result of the move to the “Zero-Ten” regime, there will be a reduction in public sector income. This has been widely referred to as the “Black Hole”. It is intended to address this shortfall through a combination of measures, which are set out below.
 

WHAT IS GUERNSEY DOING TO FILL THE “BLACK HOLE”?
It is vital that Guernsey maintains an acceptable level of essential public services and infrastructure, therefore income collected from other sources will have to increase. In order to make this happen, a two stage approach has been agreed.

Stage One
These measures were partially introduced in December 2007 Budget Report and came fully into effect 1st January 2008:
. Promote economic growth
. Restrain public sector expenditure
. Utilise up to half of the States of Guernseys Contingency Reserve Budget
. Increase indirect taxes
. Increase collections from Social Security contributions
 

Stage Two
It is currently anticipated that Stage Two will come into effect between 2011 and 2013. Stage Two implementations will depend on the performance of Stage One implementations, with consideration given to the performance of the economy and the levels of public sector income that have been achieved. Stage Two will focus on producing a package to sustain Guernsey's
competitive economic position, whilst also generating sufficient income to ensure that public services can be continued to the required level.

HOW EXACTLY WILL THIS AFFECT ME?

Will I have to pay more income tax? No - The standard rate of income tax that you pay will not increase. Individuals resident in
Guernsey will continue to pay a 20% rate of income tax on assessable income. 
Will I receive the same relief for mortgage interest in my income tax assessments? If your main private residence mortgage is no more than £400,000 then you will still be entitled to full tax relief on this amount. If your mortgage is over £400,000 then you will in future only be able to claim interest tax relief on the first £400,000 of that mortgage. You will no longer be able to claim tax relief for personal loans that you may have for luxury items such as holiday homes, boats, cars, and holidays. 
Will I still receive income tax relief on my life assurance policy? No – although consideration is currently being given to how the allowance is to be withdrawn and over what period. 
Am I going to have to pay tax on any inheritance or capital gains? No - Guernsey has decided at this stage not to introduce wealth taxes such as Inheritance Tax and Capital Gains Tax.

Are taxes other than income tax increasing? Yes - increasing such existing taxes is seen as an appropriate and efficient way of raising income to fill the "Black Hole". The States of Guernsey has agreed that over the next few years, through its annual Budget Reports, indirect taxes will be increased. This means that the cost of buying items such as motor fuel, tobacco and alcohol will become more expensive.  
For 2007, petrol duty was nearly doubled (from 6.8p per litre to 13p per litre), which costs the average motorist approximately £1 more per week, alcohol duty was increased by 20%, which is the equivalent of up to 5p more on a pint of beer, 18p more on a bottle of wine and £1.11 on a litre
of spirits. 
I understand that the Tax on Rateable Value (Cadastre) system is changing, what is the new system?  The new system, Tax on Real Property (TRP), involves the external measurement of properties, based on size only. This new system is a much more user friendly, resource and time efficient assessment method.  It is important to note that parochial rates that you pay will remain calculated by the individual parishes. 
Does this new TRP system mean I  have to pay more? Increasing property tax is seen as another key way in which to raise income to fill the „Black Hole. and so this tax is set to increase. Cadastre.s rates of TRV on domestic property were increased by 25% as a result of the 2007 Budget Report. This equated to an increase of approximately £20 per year on the average domestic property.s Cadastre bill. The levels of property tax under Cadastre.s new TRP system will be set out in the annual Budget Reports. 
Is Guernsey going to implement a Goods and Services Tax? Guernsey has decided not to implement a Goods and Services Tax (GST) at present. However, in June 2006, the States agreed that research should be carried out into the feasibility of
introducing a GST in Guernsey, and the intention is to develop proposals for a system of GST, which could be introduced, if absolutely necessary, as part of Stage 2 of the Strategy. Guernsey is also closely monitoring the developments and impact of the GST system in Jersey, where it is intended to implement a GST in 2008, at a rate of 3%.

Am I going to have to pay more Social Security contributions? For all employed, self-employed and non-employed people, the social security contribution percentage rates will stay the same in 2008. So, as always, if you earn more money you pay
more contributions, but at the same percentage rates. A copy of the current contribution rates can be found on the Government website, www.gov.gg , under the Social Security Department link.
Two main changes will take place:
Firstly, employers will have to pay an extra 1% in their contribution rates, increasing from 5.5% to 6.5%. This will only impact employers, not you as employees.
Secondly, there will be substantial increases in the upper earnings limits, which will affect people on higher earnings or income, and their employers. The upper earnings limits are where you pay the maximum social security contribution. You don't pay contributions on income above these limits. The principle of the more you earn, the more you pay. It is estimated that this will only affect the top 25% of earners in the Island. The 75% on lower incomes will not be affected.

My personal view and how I voted on Zero 10

I voted against the zero 10 strategy as I felt decidedly uncomfortable that the population will be asked ANNUALLY to dig deeper in their pockets taking the brunt of the corporate shortfall in the tax take following the massive giveaway of our yearly income. The Zero 10 debate split Government and as the result showed 26 - 19 it was not an overwhelming winner. Some changed their stance on the day and voted for Zero 10 after being told that Deputy Parkinson's amendment would not be Code Compliant, we now know this was not the case as others outside of Guernsey have had theirs approved.  Its also interesting that those involved in supporting zero 10 are now squealing they do not have enough money in their budgets to manage their services owing to the restraints which are now in place.  I believe amendments will be necessary to ensure that those living here will still experience the service and facilities that they have become accustomed to.