Plans for 5% GST in tax package to be voted on by Guernsey's politicians

Small businesses would not have to register to collect GST if they make less than £300,000 per year. Credit: ITV Channel Television

Guernsey's politicians will be asked to vote on whether to bring in a 5% tax on goods and services as part of proposed tax reforms.

The Policy and Resources Committee have put forward the tax plan to raise essential funds for public services across the island.

As well as the introduction of GST, there are other proposals to raise essential funds which would hit those in the highest income bracket the hardest.

Those on lower and middle incomes will see the least impact of the changes on their annual spending.

A new income tax band of 15% on the first £30,000 will be introduced. That means that someone earning about £37,000 per year would see their tax bill reduced by £900 per year.

The social security contribution system is also set to be restructured. A contribution rate of 8.5% for employers and 8% for employees is estimated to raise £19 million.

There are also proposals for a new social security allowance which would be the same as the personal income tax allowance, at £600.

It comes as part of a tax review which looks at ways to raise more money for public services and reduce the structural deficit which is currently at £58 million.

Chief Minister Peter Ferbrache and Peter Roffey presenting the tax package Credit: ITV Channel Television

If the tax proposals are approved, P&R estimate an extra £50-60 million would be raised by 2025. This would address the £70 million structural deficit projected for that year.

Head of retail development at the Guernsey Retail Group, Korrine Le Page, says: "I think it's being 'sold' to the public and I think there's some sweeteners in there such as reducing tax, but those are taps that can be switched on again later.

"The fear is that GST, once it's in, is not going to be switched off."

Head of Tax at KPMG, Tony Mancini, believes these proposals are "the most efficient ways" to get tax out of an economy.

He says: "there's only about 7 or 8 countries in the world that don't have it (GST.

"It's places like North Korea and Iraq and the US that don't have GST, so most other countries do. 

"So if you look at it and ask, is it damaging to look at in terms of competitor jurisdictions... Jersey for example has had GST since 2009 and they're doing very well."

Overall, the tax package aims to raise an extra £52 million per year. This would be £19 million from households, £27 million from businesses and £6 million from visitors.

Guernsey States members will be asked to vote on the proposals in January.