Balanced budget marred by disappointment over corporate tax.

The Chamber has now had time to contact many of its members following June’s budget announcement. Based on soundings taken from members across most of the business sectors, the Chamber’s Board believe that it was a balanced budget in social terms.

The Board is glad to see that the Government has continued its policy of progressive reductions in personal taxation although Gibraltar remains a high tax jurisdiction. The Chamber also believes that personal tax thresholds are still very low compared to other jurisdictions and these should be raised each year at least by inflation.

In the Chamber’s recently completed Trading Conditions survey one quarter of respondents said that staff recruitment and retention was the issue most likely to have the biggest impact on their business in the future. The high cost of recruiting and employing people from elsewhere to come and work in Gibraltar continues to be a burden on employers. The Chamber welcomes the introduction of the Dual tax system which will go some way towards alleviating this although it remains to be seen whether this will be enough especially since personal tax rates will still be higher in Gibraltar than in the UK from where Gibraltar historically recruits…

The biggest disappointment, particularly for members in the finance centre, is that corporation tax rates have not been cut by as much as was expected. Nevertheless the Board is re-assured to some degree that the Government has made a public commitment to introduce a low corporate tax rate by mid 2011. If there is a favourable early outcome to the ECJ case the Chamber would of course welcome the introduction of a lower rate in advance of the mid-2010 deadline. Budget surpluses could help to subsidise a lower corporate tax rate in the interim.

Many members have commented to us that the minimal cut in corporation tax will make Gibraltar less competitive and less attractive to companies looking to set up operations in a European jurisdiction. These companies are now more likely to choose other centres. Further more those company’s already in Gibraltar whose tax exempt certificates expire before 2011 will be pondering their future in Gibraltar. The Chamber strongly encourages the Government to meet with the various sectors that are affected to see what measures it can introduce to smooth the way until the introduction of the low tax rate on 1st January 2011. The minimal cut in corporation tax also puts local companies at a significant cost disadvantage against those competing from outside as, for example, the Gibraltar tax rate continues to be above the UK rate.

Other measures announced, such as the increases in duty on fuel and tobacco will boost Government revenues significantly as these two items make up by far the largest proportion of import duty. We would encourage the Government to go further in future and streamline the duty system for traders by abolishing import duty on all imported goods except tobacco, fuel and alcohol. Personal imports of all goods other than food would continue to dutiable but at a single flat rate.

The Board is encouraged by the Government’s commitment to continue improving Gibraltar’s heritage infrastructure and supports the initiatives to make Gibraltar an attractive and unique tourist destination. The Chamber encourages the Government to invest further in improving the Tourist product and in particular in the Upper Rock Nature Reserve.

The Chamber welcomes the Government’s commitment to working with the Board to address the many issues affecting local business and looks forward to meeting with the Government at the earliest opportunity.