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I attended a very interesting meeting last night organised by the Isle of Man Junior Chamber of Commerce (“JCC”) at the Hilton Hotel. A packed audience was addressed by Chief Minister Tony Brown on the subject of the recent change to the VAT agreement the island has with the UK. This change is likely to mean a shortfall for the Isle of Man of some £140 Million in a full year.

For those who are unaware of the situation, although the Isle of Man is an independent country with its own tax raising powers under a centuries old agreement (designed to allow free trade between the island and the UK) certain taxes and duties such as VAT, alcohol, tobacco and fuel duties, are imposed on the island at the same rate as in the UK. In the case of VAT the tax raised by the UK and Manx authorities are paid into a “common pool” and by a rather complex and private formula the Isle of Man is paid a share of the total pool. For some years now the UK Treasury has been concerned that the Isle of Man has been getting more than its fair share. Frankly this is probably true but the whole area is highly complex. For example UK businesses, such as Boots, Tesco etc actually pay the VAT collected on the island to the UK authorities. Also island residents who order online or by mail order will be paying the VAT to UK businesses so who pays what to whom is hard to calculate.

The sharing agreement is revised from time to time and the last such revision was in March 2007. VAT makes up a large proportion of the Isle of Man’s income so when the UK Treasury announced, without any warning, that it was tearing up the March 2007 agreement and imposing another one without any discussion this has caused a great deal of concern.

The Isle of Man is probably unique in that by law the government is not allowed to borrow money. There are no Manx “Gilts”. The government must deliver a balanced budget and to do so does have some sizeable reserves, but whilst these will help plug the hole in our finances in the short term, some other way must be found to make up the shortfall – which amounts to just under 30% of the country’s income.

Mr Brown’s message was that we should not panic as he and his government had the matter of plugging the gap in hand. Unfortunately I could not help myself visualise Corporal Jones in Dad’s Army dashing around wailing “don’t panic, don’t panic”. There is a certain facial resemblance too.

Many of those present, myself included, took the opportunity to question Mr Brown more closely and he handled most of these questions fairly well. However when pressed on the specifics of the new VAT agreement all he could say was that he wasn’t the best person to ask not being, or ever having been, the Treasury Minister. This led to mutterings of “why isn’t he here then?” from several sources.

Time will tell how well the Manx government deals with this matter, but yet again it shows the astounding arrogance of the present UK government which having entered into agreements simply tears them up when it suits them.

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Category: Taxation

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