Reduction of tax allowances for wealthy residents

1240/5(2003)

QUESTION TO BE ASKED OF THE PRESIDENT OF THE FINANCE AND ECONOMICS COMMITTEE ON TUESDAY 18th NOVEMBER 2003,

BY DEPUTY G.P. SOUTHERN OF ST. HELIER

Question

Will the President inform members in relation to the reduction of tax allowances for wealthy residents, the introduction of sales tax, and PAYE –

( a ) when the Committee expects to finalise its proposals in respect of each of these matters?

( b ) how much additional revenue the Committee expects to raise by each of these three measures? and, ( c ) w  hether each of these three measures will be ready for implementation in 2005?

Answer

1. AstheBudgetBook 2004 made clear, the Committee intends to launch a consultation next yearon the proposals to phaseout allowances for those with pre-taxincomeof £80,000 ormore. I do not wish to pre- empt the results of that consultation period but I can confirm that itis the Committee's intention tointroduce legislation innextyear'sBudgetwhichmay take effect from the year ofassessment 2005.

I n relation to PAYE, the Committee's aim in the short term is to bring in a simplified form of PAYE relating

to the construction industry, as introducing a system across the board would be much more complicated and have considerable staff and resources consequences at the Income Tax Office. I also ought to make it quite clear that PAYE is not a solution for the problem that will face us in 2009 but that it is something we are looking at to further increase equity in the tax system and for reasons of good governance. However, we must not lose sight of the fact that any form of PAYE puts a considerable administrative burden on employers, who will effectively be acting as unpaid tax collectors. PAYE needs consideration and careful thought but I anticipate a decision being made early next year.

A s members will be aware, the Island faces a potential taxation revenue shortfall of up to £80-£100 million in

the coming years. In addressing this issue the Committee is currently considering various packages of tax reform measures.  Much research work is currently being undertaken and it is hoped that the results from this work will be available early in the new year, soon after which we hope to present a range of options, including the Committee's preferred tax reform 'package', for consideration.

2. It is estimated that reducing and removing allowances forthose with pre-taxincome of £80,000ormore would generateapproximately£8 million. It is estimated that a simplified form of PAYErelating to the construction industrywouldgenerate between £1 and £2 million whilst a comprehensivePAYE system could yield upto£5 million.

W  ith regards to the potential revenue generated from the possible introduction of a sales tax, I wish to

emphasise that no decisions have yet been taken on the package of tax reform measures to be proposed. In terms of the potential revenue a sales tax could raise, this could be anything from zero to up to £100 million depending, of course, on the rate of the sales tax to be applied. The gross yield would be in the region of £8.5m per 1% depending on the level of exemptions, such as food and children's clothes.

T h e Committee does not believe, however, that a single measure, particularly one such as a sales tax/VAT,

should be used in isolation to raise the possible tax revenue shortfall. As I have previously stated, the Committee believes that a 'package' of tax reform measures is preferable.

3. It is expected that theproposalto reduce andremove allowances couldbeready for implementation at the very earliest for the year ofassessment 2005 and yield additional tax revenues in 2006.

The earliest date that a simplified form of PAYE could be introduced, because of all the significant administrative, operational and resource consequences of such a system, would be from 1st January 2006.

Should a sales tax be proposed as part of a 'package' of tax reform measures it could not be ready for implementation during 2005. The possible introduction of a sales tax would require a lead time for introduction of between 3 and 4 years.