PHILIP Dearden, managing director of PKF (IoM) LLC has revealed his initial thoughts on the UK Budget.
He said: "The most immediate consequences will flow from the VAT increase to 20 per cent.
"A 2.5 per cent increase does not sound too dramatic but on 17.5 per cent this is an increase of 1/7th, ie a 14.4 per cent increase.
"This is a very significant increase. As the Isle of Man Treasury's largest source of revenue is VAT this will represent a welcome windfall to the Isle of Man Government.
"Included in the Budget for 2010/11 was an estimate of VAT revenue of ?244m, if this were to increase in proportion to the rate increase, the government would receive an extra ?34m.
"Our MHKs would also be able to claim, quite rightly, that this was a tax increase that they had nothing to do with. They will, of course, enjoy the extra revenue. This is especially the case as the Budget was only balanced by the use of brought forward reserves and some careful accounting.
"The Treasury Minister, Mrs Anne Craine, has suggested that the initial forecast of extra revenue the Isle of Man is only ?25m, this will still be a welcome boost for government coffers.
"Capital Gains tax rises to 28 per cent for higher earners. This will assist the life companies and fund providers who provide products which produce profits that, in many cases, are taxed at 40 per cent, whereas profits on the disposal of Unit Trusts and Investment Trusts were taxable at 18 per cent. The increase in CGT eases the Life Product's and Fund's competitive position.
"An increase in CGT to 28 per cent adds to the effect of the 50 per cent top rate of income tax. The margin between UK rates and IoM rates is a significant driver which motivates wealthy individuals to move to the Island,
Insurance Premium tax also increases from five per cent to six per cent.
"Some big-ticket assets are owned by Isle of Man corporate vehicles in order to avoid this charge, the potential saving is now greater.
"The potential extension of the disclosure regime for 'tax avoidance schemes' to Stamp Duty Land Tax and Inheritance Tax will be unwelcome in some corners of the Island.
"The disclosure regime is UK legislation which requires providers of tax 'schemes' to register those schemes with HMRC who then have a chance to bring forward legislation to counter the schemes.
"Overall, in the long-term the economic health of the Isle of Man is intertwined with and dependent on the health of the United Kingdom economy so we all need George Osborne's judgements to pan out the right way.
"Much of the business that comes to the Isle of Man relies on the UK being prosperous, although this dependency is reducing.
"Increasing VAT is an easy way to collect tax as small changes result in large increases in revenue and the tax is also efficient to collect and less easy than some other taxes to avoid.
"However, increases in VAT mean significant funds are taken out of the economy and this must dampen down economic growth."
