New Treasury Minister Alfred Cannan says he intends to review the island’s tax cap.
But he insisted in the House of Keys that the policy has been a success in encouraging jobs and investment as well as generating millions of pounds in tax receipts.
He was responding to a question from David Ashford (Douglas North) who suggested that in the current financial climate the tax cap was ‘just not equitable’.
The income tax cap for residents was introduced in 2006 as part of government’s policy to attract wealthy entrepreneurs to the island.
Last year it was increased to £5,000 to £125,000 a year for new entrants to the scheme. The rate remained unchanged in this year’s Budget.
Mr Cannan told MHKs: ‘All tax policies are under review as part of the budgetary process but I can confirm that I do intend to carry out a review of the effectiveness of the tax cap as part of that process.
‘However, we must acknowledge that the tax cap has been a successful policy. But it is the intention of Treasury to ensure all our policies are consistent with the Programme for Government being developed.’
Mr Ashford said the tax cap does need to be re-examined, especially in light of the fact that 61 individuals with £7.3m in assessed tax are paying an effective tax rate of 3 per cent, whereas the average effective tax rate for all taxpayers in the same year was 8 per cent.
‘Would the Minister agree with me that in the current climate that is just not equitable?’ he asked.
Mr Cannan said that half the individuals on the tax cap list appear to be making a significant contribution to the economy. In the 2014-15 tax year, 30 of the tax cap electors had companies employing about 1,748 staff paid in excess of £77m of remuneration, and contributing more than £10m in ITIP and £11m in National Insurance.
‘In the current climate it is absolutely vital we continue to build our economy and continue to offer our people the right jobs, attracting the right investment, and the right people to the island,’ he said.
But Mr Ashford asked: ‘Is he really saying that in the event that the tax cap disappeared, all those jobs would disappear as well?’
Mr Cannan replied: ‘This is a very competitive environment. Multiple jurisdictions offer the same or better incentives for high net worth individuals.
‘What is vital is that we maintain effective tax policy to ensure economic growth and that these individuals – the people with significant wealth – are investing properly, are creating jobs.’
Lawrie Hooper (LibVan, Ramsey) suggested that the eligibility for the tax cap should be linked to an individual’s direct or indirect contribution to the economy.