The Treasury Minister, Richard Corkill, presented his third Budget Speech to Tynwald this morning. He emphasised the impressive record of sixteen years successive economic growth with a real rate of 6% being maintained last year. The probable tax revenues in 1998/99 are stated to be £286m an increase of 7% over both the original estimate and the previous year.
In the early part of his Speech he dwelt at some length on what he chose to describe as "local difficulties" guaranteed to create uncertainty in the market place. The main issues surround moves by the EU on greater tax harmonisation and the OECD initiatives to combat harmful tax competition. In this context Treasury Minister stressed that the Government will "not do anything unilaterally which will damage the Island's economy". The Government will continue responsible dialogue with the EU via the UK and with the OECD direct.
None the less, the Treasury Minister announced that he had commissioned a strategic review of the financial sector. This should not be construed as a reaction to external developments but more as a positive step to determine an overall five year plan for the financial sector. The Chief Executive of the Financial Supervision Commission has been asked to draw together a team for this purpose and its deliberations will cover banking, investment and advisory, fund, insurance and the company administration sector, together with their related activities.
On the overall economy, the Treasury Minister reported that capital spending plans follow closely the October Policy Report. Revenue spending for the current year is broadly in line with estimates, resulting in a £23m surplus for the current year; in consequence Treasury intends to transfer £14.2m to Reserve - £10m more than originally envisaged.
On taxation matters, Treasury Minister confirmed that the report of the Focus Group on taxation strategy had now been received by Treasury. The strategy will result in the implementation of Treasury of a programme of taxation improvements which will enable individuals to continue to retain the majority of their earnings and companies to maintain their cost competitiveness.
As is usual, Treasury Minister introduced detailed changes to a range of tax allowances. The most notable change was the introduction of a 15% lower rate of Income Tax on the first £100k of profits for companies. This announcement will be very much welcomed by small business across all elements of the economy.
The conclusion to be drawn is that Government continue to manage the economy of the Isle of Man with a conservative and cautious approach. Of equal importance is a recognition that change may result from external factors and the Government is putting in place initiatives that are expected to counter them.
One interesting change to the rate of taxation paid by trading companies and a number of minor amendments to the tax system were announced this morning. The study of how we can move from a prior year basis to a current year basis of taxation for individuals was also announced and is to be welcomed.
1. New 15% Band For Trading Companies
The first £100,000 of taxable profits of trading companies carrying on the whole of their activity within the Isle of Man will be taxed at 15% rather than 20% as at present.
The new rate will be introduced from 6 April 1999, and will provide a tax saving of up to £5,000 p.a. for such companies. The new rate does not apply to investment companies or investment income of over £10,000 in trading companies. Steps have been introduced to apportion the £100,000 between "associated" companies and for short accounting periods.
2. Income Tax Rates, Allowances And Thresholds
These have all been increased by approximately 4% and further details are overleaf. A new disabled person's allowance of £2,020 has been introduced for those claiming disability allowance or attendance allowance.
3. Non-Resident Company Duty ("NRCD")
NRCD has been increased from £750 to £775 with effect from 1 June 1999. Consideration is being given to the future of these entities.
4. Family Taxation Matters
The Treasury Minister announced a number of measures affecting the way husbands and wives, and co-habiting couples with children, may be taxed.
- A system of independent taxation is to be introduced from 6 April 2000 for married couples who elect to keep their taxation affairs separate. Each spouse will be entitled to their own personal allowance rather than an appointment as currently happens under a separate assessment election.
- A wife's income will no longer be viewed as that of her husband for taxation purposes. The legislation will be amended to reflect that income may be separately or jointly owned and provisions will be introduced to enable the Tax Division to discuss the marital income with either partner.
- Couples who have children but are not married will be able to claim an additional personal allowance where this is currently not being utilised due to one partner remaining at home. This will put an unmarried couple with children on the same tax footing as a married couple.
5. Actual Year Basis of Assessment
A study will be undertaken during the next year to design a tax system where all income is assessed on an actual year, or current year, basis as opposed to the prior year basis in use at present. This should simplify the tax system. A similar review for companies has already taken place and provisions are awaited introducing such a system.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
To receive further information please contact:
Deloitte & Touche PO Box 250 Grosvenor House 66-67 Athol Street Douglas Isle of Man IM99 IXJ Tel No: +44 (0) 1624 672332 Fax No: +44 (0) 1624 672334 E-mail: Click Contact Link Website: Click Contact Link