The 2018 Budget proposals, which were announced by Treasury Minister Alan Maclean on Tuesday, included plans to tax shops whose annual profits exceed £500,000 in a move that could boost States coffers by more than £5.5 million a year.
Currently, retail companies pay no tax on the profits they make in the Island. Should it be approved, the new business charge would affect companies owned locally and those owned elsewhere, including the bigger UK retail chains that sell a large amount of goods in Jersey.
But the Chamber of Commerce has warned that this could set a precedent to tax other sectors of industry – impacting on economic growth and eroding the Island’s current tax structure that has previously supported business development.
While creating a more level playing field and making the tax system fairer is a noble goal, it says, the Treasury risks damaging the retail sector and the service it provides its customers. And the Chamber suggests that the Treasury is intent on ‘drip feeding’ a raft of new taxes and charges without properly examining the consequences.
The Chamber statement added: ‘Our members and commerce as a whole are looking to government for business-friendly and innovative policies, that encourage growth and ultimately secure the future prosperity of Jersey. Quick wins and a constant erosion of the Island’s existing tax policy is not the way to achieve this.’
Mark Cox, vice-president of the Chamber of Commerce and chairman of the organisation’s Retail and Supply Committee, said that there had been a ‘constant drip feeding’ of levies and charges on businesses – including a proposed commercial waste charge – and said that the States may be looking to roll out similar taxes across other sectors.
It is expected that the new tax, which follows on from similar schemes in the Isle of Man and Guernsey, would have an impact on around 20 businesses, including five locally owned companies. The tax, which was dubbed the ‘Tesco Tax’ in the Isle of Man, would be charged on a sliding scale on profits between £500,000 and £750,000, when it would reach the maximum 20 per cent rate.
Mr Cox said: ‘It is important that commerce makes a fair contribution towards the Island and the introduction of this tax appears to provide a degree of continuity for all retailers with a presence in Jersey.
‘However, throughout 2017 there has been a constant drip feeding of business levies, charges and taxes. The budget is proposing this new retail tax, along with the widening definition of financial services, in order to capture more companies that pay the ten per cent rate. All of these measures are ultimately pointing towards the need for a thorough review of the Island’s tax system.
‘Chamber is concerned that once a precedence is set with the retail sector, the States will then look to roll out this type of tax across all sectors of commerce, which would go some way to eroding the current tax structure.’
Senator Maclean said that he did not expect the new tax to deter businesses from setting up in the Island, or for existing companies to start downsizing to avoid the retail charges.
‘The measure impacts only the largest businesses that have profits of over half a million pounds,’ he said. ‘Jersey is still an attractive place to operate and we see no reason why that shouldn’t continue in the future.
‘Jersey is not the first place to introduce a retail tax and our economic impact assessment shows that the impact is likely to be very minimal.’
Meanwhile, more finance companies are set to come under existing tax measures, which would see them charged a ten per cent rate, raising £3 million for the States.
The definition of a ‘financial services company’ – which requires payment of ten per cent tax on company profits – will be widened to include firms providing credit and financing and general insurance brokers among others.
Geoff Cook, chief executive of Jersey Finance, said: ‘We are aware of the revenue-raising measures, including extending the definition of financial services to bring more firms within the ten per cent tax bracket, which we expect to capture only a relatively small number of firms in niche sectors.
‘Equally, the proposed increases in the international service entities fees [which allow companies to pay their annual GST bill in one lump sum] for financial services companies would appear to be proportionate and we do not expect them to affect Jersey’s overall competitiveness.’
The 2018 Budget is due to be debated on Tuesday 28 November.
