Tynwald has voted against a bid to end the tax cap which allows high income residents to pay a potentially lower rate of income tax.
The motion by Lawrie Hooper was defeated as members supported the government position, which some say lacks evidence, that it attracts investment and creates jobs on the island.
Mr Hooper argued that the discount offered to high income residents “could actually have cost the bank’s taxpayer something like £272m in lost income”.
He added: “Treasury doesn’t say, okay, you can have the tax cap, but you must invest it on the island, but you must employ people, [it] doesn’t say anything like that.
“It just says, here’s a discount on your taxes, please can you invest that locally?
“So the idea that you would change this policy and all of a sudden these individuals doing all of these things would suddenly stop all the things they’re doing is quite weak.”
The Lib Vannin leader continued to say that he wants to see investment and investors brought to the island, but that the policy is a “sledgehammer to crack a nut”.
Additional Revenue?
Treasury Minister Dr Alex Allinson said he respected that people have issued with the tax cap and said he has previously committed to reviewing it “as part of the budget process, while acknowledging the important conclusion that high net worth individuals make to this island”.
He added: “are”At present in order for a tax cap to be financially beneficial, at £200,000, an individual’s income needs to be greater than £909,090 that’s their income.
“Many of the island’s wealthiest residents do not receive consistent incomes in this region, instead receiving capital receipts which are not liable to income tax, the removal of the tax cap will therefore not necessarily generate additional revenue.”
Dr Allinson went on to say: “The true economic value of tax cap individuals is not easily quantifiable and is considerably more than the direct tax take.
“They invest in businesses locally generating jobs. Invest in and improve housing stock, employing local trades people, but also paying land registry fees.
“Invest in and improve commercial infrastructure. Bring additional entrepreneurial thinking of spirit, often providing entrepreneurial mentorship, increase the demand for quality goods and services and support our local economy, use professional services, as the Honourable Member said, and provide community support, often through an anonymous philanthropy and charitable giving.”
He also said that the tax cappers are responsible for securing up to 1,100 jobs on the island.
The Minister went on to move an amendment, which was supported, that committed to continuing to review the tax cap and for the Department for Enterprise to monitor its economic benefits.
Consequences
Onchan MHK Rob Callister opposed Mr Hooper’s motion, saying it could have “serious consequences for the Isle of Man, if supported”, including job losses and a “considerable delay or even the withdrawal of several major infrastructure projects that are already underway”.
He added: “I fully acknowledge the higher net worth individuals and corporations have attracted considerable attention in recent years, particularly those seeking low tax jurisdictions to minimise their tax liabilities.
“Nevertheless, I maintain that there are significant advantages for supporting high net worth individuals, particularly those who invest in local businesses and infrastructure here on the Isle of Man, their contributions foster economic growth, generate jobs and enhance the overall prosperity for the everyone in the Manx community.”
No Answers
Manx Labour Party leader Joney Faragher (Douglas East) said that she has previously not received any information on the value of tax cappers when she’s about for it.
Ms Faragher added: “We just voted in this court to continue to unfairly tax low and middle earners when Treasury have already ruled out of the taxes that would be fairer, and importantly that would meet the goal in the economic strategy to reduce inequality using the tax system.
“So we have voted to continue with a simplistic, unfair tax in the face of all the evidence globally that shows us how damaging inequality is, and the KPMG report specifically telling us how damaging it is locally, here on our island, yet without any evidence whatsoever, we have been willing to cap taxation for the wealthiest.”
Paul Craine MLC, said he could not support Mr Hooper’s motion, but hoped to see evidence on the benefits of tax cappers going forward, saying: I sincerely hope that the monitoring of economic benefits can help to increase our understanding of those benefits, if indeed they exist.”
While Chris Thomas (Douglas Central) said he used to be able to receive the information as former ministers Allan Bell and Eddie Teare had published it when they introduced the tax cap.
Saying he couldn’t support the motion, he told members “we need a tax strategy that reflects 300 years of tax culture, not just some sort of global ideology about taxation policy”.
Amendments
Members voted to support an amendment from Juan Watterson SHK to Dr Allinson’s amendment, which said that Treasury should continue to review the current level of the tax cap and work with the Department for Enterprise to monitor its economic benefits, with a report being presented alongside February’s Budget.
That motion was passed by a majority in the Keys, with only three voting against and one against in LegCo.
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