The States is considering reversing the UK’s tax structure and reducing the amount paid by the island’s richest residents

Guernsey has businesses and individuals which, because of high profits or wealth, can pay income tax far in excess of any possible drain on public services. They could be tempted away by other jurisdictions.

Guernsey is considering the introduction of a system whereby ‘significant’ contributors pay tax at the standard rate to a certain ceiling and then at a reduced rate.

Treasurer Dave Clark said that the move was not unusual, but such openness was.

‘Every jurisdiction does deals for high earners,’ he said. ‘We don’t, but if we do we think it’s much better to have a transparent approach. We’re not in the business of doing grubby little deals.

‘We’d rather have a reasonable percentage of a great deal than a big percentage of nothing.’

The proposal, is part of the consultation document on future taxation strategy published today.

The report, which was prepared by the States fiscal and economic policy steering group, stated: ‘For those activities where significant extra income can be attracted to the island, with very little or no increase in employment, a reduced rate of income tax above a certain ceiling could be introduced. Such a system could apply to individuals, finance sector and non-finance industries.’

The value of that ceiling and the reduced rate, the authorities have no figures at the present, could be set to complement business objectives and the island’s overall economic strategy.

‘Such a system would mean that the individual taxpayer would be paying the standard applicable rate of tax on income well in excess of most normal taxpayers, but overall would be liable at rates much lower than in the UK, Continental Europe and the USA,’ said the report.

The report raised no specific proposals for filling the £45m. black hole expected to result from tax changes in 2008.
But it does cover all issues which could be considered in what Guernsey Treasury and Resources minister Lyndon Trott described as ‘genuine consultation’.

Some of the ideas raised included a general sales tax, more precise targeting of tax allowances, removal of the States grant from the Social Security system and increasing indirect taxes to raise income.

A zero-10 system of corporate income tax is certain to be introduced from 2008, though a flat rate of 10% has been considered. And States spending will come under the microscope too. In an attempt to fight the financial difficulties, the fiscal group said: ‘It is important that whichever strategy is finally adopted, all measures, including the proposed direct tax strategy, indirect tax matters and public sector expenditure policies are taken together as a total package.’

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