Guernsey Press

Mileage tax will not address loss in revenue

WHAT a hare-brained scheme the concept of a mileage tax is, the idea being that it is fairer than fuel duty. Not only is it not fairer but it would be costly to collect. One of the reasons for changing is that the revenue generated now is falling and the States need to increase it and are scared of raising fuel duty again. So they should be, because people will use their cars less and more will consider hybrid or electric vehicles.

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They should address the potential increase in electric vehicles, but there must be an easier way than a mileage tax. A simpler way would be an annual registration tax on such vehicles.

There is no doubt in my mind that the States are punching above their weight – I mean spending far more than their income. This is a common fault of government, as unlike businesses or individuals who have to balance their budgets or face bankruptcy, they can simply raise taxes or print money. If, as it appears, they are facing another year of ‘poverty’, then why, oh why do they not address a major area of loss of revenue? I have raised this with several members of the States and always seem to be met by arguments for leaving the subject well alone – don’t rock the boat.

The zero-10 tax regime means that there is zero tax on company profits arising in Guernsey. The tax of 20% is collected from the shareholders when they draw money out. However, if the shareholders are not resident in Guernsey there is no means of taxing them, which means they do not pay any income tax. Not only is this ridiculous but it is also extremely unfair on locally-owned businesses which have to compete against them.

They have partially addressed this anomaly by taxing profits in excess of £500,000 p.a., which I understand only deals with three companies. If they can do it for these companies, why on earth can’t they do it for all companies trading in Guernsey owned by non-resident shareholders?

If they fail to address this injustice I am sure the matter will be forcefully raised in the next election campaign.

T. C. TILDEN-SMITH

Les Landelles,

Rue de la Foire,

Castel,

GY5 7DJ.

Editor’s footnote: a Policy & Resources spokesman replies:

Your correspondent raises some valid points about our proposals with regards to distance charging, and others that do need to be challenged. Firstly they are right to recognise the biggest problem we face when it comes to fuel duty. Fuel duty is the main way Guernsey taxes motorists, and it generates around £20m per year, providing around 5% of total revenue to fund all of our public services including health care, education and law enforcement. That revenue is falling already, but it will drop dramatically in the coming years, particularly as the move to electric vehicles speeds up. This creates a real challenge in ensuring those essential resources are maintained, but it also creates an opportunity to design a system that is fairer.

A flat, annual registration tax would be an option but, in terms of fairness, it would see those who use their car all day every day charged the same as those who hardly ever drive. A distance charge on the other hand means that those who use their vehicles more, contribute more. It could be designed to be a lot fairer than the current flat charge per litre of fuel with differential rates being given for different vehicle usage, such as public service or delivery vehicles or at different times of day. If desired, rates could vary between different fuel types or vehicle sizes. Distance charging allows for a much more finely-tuned system than a blanket, flat registration tax or motor fuel duty.

But it does present challenges, too, and your correspondent is right to point to the cost of administering a distance charge. It is likely to be more complicated than a flat tax or fuel duty. A system that costs so much to administer that it no longer serves as an effective means of raising revenue is clearly no good. If the system is going to work, we will need to find a cost-effective way of implementing it. That piece of work will have to be done if the States agree that a distance charge is in principle the model they wish to pursue.

A move to a distance charge system is not intended to raise any more money for public services, only to maintain revenues at their current levels, ensuring we have a sustainable tax base as the switch away from combustion engines inevitably gathers pace.

Finally, I’d like to address one final point your correspondent raises about the overall health of public finances. Since the global economic downturn a decade ago, the States of Guernsey and the community have worked hard to ‘balance the books’. In recent years we have seen small surpluses return to the annual accounts. That is an excellent position to achieve but a challenging one to maintain. Still, we are in far better health than many other jurisdictions who are right now struggling to address significant deficits.

With regard to the corporate tax regime, your correspondent seems unaware of the significant changes that have taken place in that regime since it was introduced in 2008. The whole of the regulated financial services industry is now subject to corporate tax along with the regulated utilities, hydrocarbon importers and large retailers. In consequence, it now raises £60m a year, three times the amount that comes from motor fuel duty.