In the face of continued long-term tax uncertainty in the finance sector, Chief Minister Peter Caruana signalled that he favoured a corporate tax rate “at the bottom end” of the 10-12% range as from 2010.
He made the comment in a budget address where he also announced a 6% cut in corporate tax from 33% to 27% for the 2008/9 financial year, advancing the Government’s tax reduction timetable by one year. Until now, Mr Caruana had reduced the tax rate for businesses by three percent annually.
“I envisage a further cut in the rate next year, before moving to the rate of between 10% and 12% from 2010, to which the Government remains firmly committed,” he said.
“My strong preference will favour the bottom end of that range.”
Mr Caruana said the financial sector continued to develop and grow in terms of product and activity range, employment levels and international standing and reputation.
He described the finance sector as a major activity and a vital segment of our economy.
“It is a major employer, has high employment and income multiplier values and drives up the skills set in our economy,” he said.
The number of jobs in the whole of the finance centre – including law and accountancy firms, as well financial entities - stood at 2378 in 2007, up by 162, or 7% from 2006.
Mr Caruana highlighted developments in the insurance sector.
There are now 100 licensed insurance operations, 60 in licensed companies and 40 in six licensed protected cell insurance companies.
“The sector continues to grow [and] the critical mass that has been achieved in this sector now makes Gibraltar a mainstream insurance domicile within the European Union,” he said.
“There are 33 investment firms, 32 Experienced Investor funds, 12 protected cell funds companies, 86 trust and company managers, and 18 banks with total assets of £11 b, and funds under management of £10.3bn.”
“Given this robust performance in the current climate of tax uncertainty, the prospects for our finance centre are huge when the new tax system can be introduced.
Not everyone shared his bullish sentiments however, particularly because as this edition went to press, there was still no sign of the long awaited judgement from the European Court of Justice on Gibraltar crucial challenge to the European Commission on tax-related matters.
The Government has opted not to confirm its new tax proposals ahead of that ruling, creating deep unease amongst many finance centre professionals.
Shadow finance spokesman Fabian Picardo MP said the Government’s refusal to provide firm guidance on its long-term plans for corporate taxation had left Gibraltar with “no serious corporate product to sell”.
Finance practitioners were being forced to look at other jurisdictions when structuring corporate vehicles for their clients, and with competition between finance centres vigorous, Gibraltar increasingly risked losing out on business.
“We have now been told that [Mr Caruana’s] preference is for 10%, but there is no certainty in what will occur,” he said.
“Absent an unfavourable decision by the Court – which none of us expect – the financial services industry is clamouring for clarity on the new corporate tax system that will be implemented if we succeed in the case against the Commission.”
“I accept, unhesitatingly, that [Mr Caruana] might not want to implement a new system until after the decision of the Court, but we should at least have knowledge of what the new system will provide.”