Thursday, 17 June 2010

A Taxing Time Presages Finance Centre Changes and Lower Personal Taxes

The Chief Minister is to be congratulated for having had the political acumen and maturity to seek, heed and help to improve, with his personal input, on the ideas of those lawyers, accountants and other finance centre operators who have devised a tax system for  Gibraltar that is EU compliant but still delivers also to Gibraltar's finance centre one of the tools by which it can continue to succeed.  However, it is no longer the same world of pile them high and sell them cheap.  Operators in the finance centre will be operating in a more sophisticated environment where cross-disciplinary co-operation, professionalism, knowledge, expertise, specialism, innovative and unique thinking will be required.

Before I develop that theme a little more, let us dwell on some other significant achievements of the new tax laws.  Aside from safeguarding the finance centre, the opportunity has been taken, at long last, to improve the system of collection of taxes from business, companies and the self-employed.  This was long overdue.  The PAYE system has meant that the employed have, for years, paid tax throughout promptly, whilst all others have been paying in a delayed fashion, some even delaying payment far too long.  This inequality could not continue and it was not politically sustainable any longer.

In addition, the strengthening of anti-avoidance measures and the imposition of deterrent policies was equally long overdue.  The laxity (not to describe it as total disdain) with which certain taxpayers have dealt with their tax affairs in Gibraltar is widely known to the degree of notoriety. Such behaviour is unconscionable.  it is a crime against all society.  It is with tax revenues that a government functions, provides for the common good, delivers essential services and helps to improve the lot of the less fortunate.

There are those that will squeal and complain.  The majority will be the very people that the new tax laws are intended to catch.  They have no reason to squeal.  They have reason to hang their heads in shame.

If one is to be critical at all it, it is by reason of the lack of discretion given to the Commissioner of Income Tax.  There will be good grounds, on occasion,  for some to justify a slight delay, not least in the initial stages of the introduction of the new tax system.  There is also good reason for the accountancy profession to squeal about this lack of discretion, at least initially, the resources are simply not available to catch everyone up in such a short period of time.  There again, that is life, and a superhuman effort will be required.

It is, as the Chief Minister pointed out, on the basis of full compliance, acceleration of payment and improvement of collection of tax, together with added revenue from those that have in the past not paid any tax due to their tax exempt privileges, that further reduction of personal taxes will be achieved.  When this occurs, those who have squealed may be pleasantly surprised; not only will they be tax compliant and not be constantly looking over their shoulders but their tax burden will be at a bearable level.  In order to achieve this, the tax office will need to be better resourced and also ensure proper training, otherwise the system will simply not operate as intended.

To return to the theme in the opening paragraph.  The finance centre will need to adapt quickly to the new regime.  It will need to become more sophisticated but, equally importantly, so will those in the public sector on whom reliance will be placed to oil the wheels of the finance centre.  The persons in the tax office dealing with sophisticated finance centre financial instruments and structures will need to develop the necessary expertise. Good and quick response times are essential. .

Gibraltar will no longer be competing with the traditional Crown Dependency Tax Havens.  It has joined a club in which the competition includes Luxembourg, Malta and Cyprus.  All these are very hungry jurisdictions. .

The finance centre may be seen by voters as resourcing the rich and capitalists and so will not be popular amongst them.  The message that must be propagated is the true message, which the Chief Minister has himself vocalised  already:

"Thousands of local jobs, much Government revenue and thus our public services, depend on Gibraltar having an internationally competitive tax system.... banks, insurance, investment, gaming and other companies ... are vital  to our economy and to the social prosperity of all of us in Gibraltar". 

In shorthand, the finance centre is vital to all of us, do not think otherwise.


  1. Dear Llanito was you along with others who drafted the new Tax Bill. So are self congratulating yourself??

  2. I do not congratulate anyone other than the Chief Minister. I did not draft it all. I did draft parts. The achievements that I refer to are in relation to brave political decisions taken by the Chief Minister, so who drafted the legislation is irrelevant.

    Anyway if I am congratulating myself ... so what ... do you have a problem with that LOL?

  3. The parts of these reforms that deal with the self-employed fail to recognise that being self-employed is not, for the majority, a tax-beating cake walk.

    It is a risky endeavour which requires guts, entrepreneurial spirit and a little bit more flexibility than an employee who has the certainty of a wage packet at the end of the month.

    The tax system has hitherto recognised this and taxed the self employed once an assessment has been carried out – it will no longer do that requiring taxes to be paid on account based on the previous year.
    For many individuals and companies such an arrangement will hit them hardest when good time turn bad, and when business is already tough.

    It is in my opinion an inflexible and badly though out element of the new proposals, which combined with the strict enforcement of tax obligations, could cripple many small companies in Gibraltar – and possibly even larger companies.

    I welcome any change which puts an end to the practice of allowing companies to build up substantial PAYE and Social Insurance debts. Too many companies have gone bust in Gibraltar owing hundreds even millions in PAYE and Social Insurance. Those debts have been allowed to build up with either the tacit of explicit agreement of the Government through the Tax Department. Another example of the big guys walking and the small guy getting clobbered which is a typical experience with this administration be it in Tax, Town Planning, or Immigration.

  4. Hi Anonymous at 15.32;

    Agreed it is not a cake walk but neither is it a venture that should be financed at the cost of the public purse. It needs to be financed like any other businesss venture. The flexibility cannot extend to taking advantage of laxity in the tax system. The same argument could be deployed by an employee, advance me the money on a tax break and i will pay you back in time : the public purse is not a risk business nor is it rewarded as such.

    The tax system has not recognised any of what you argued. Its abuse has been used to that end. That is very different. It will not hit prudent busienesses at all because in law a business should be making provision for its tax liabilities as it earns. That is what PAYE does. That is what my businesses/professional partnership does.

    The new system will only cripple badly managed business that are technically insolvent in law anyway and as such unfairly competing with properly managed businesses.

    The managem,ent of PAYE and Social Secuirity debts goes without saying. With that statement comes a responsibility to manage all other tax debt. There are not two classes of citizenship just one! Your final example contradicts your own argument the big guy equally walks away not just if he does not pay PAYE and Social Security but als if he/she/it does not settle its own tax liabilities and trades at public expense.

  5. The tax office needs to catch up with the rest of the world, as a self employed person I have no problem in paying tax and social security like everybody else. What I do object to is not being able to do this online or by bank transfer.

    There should also be an independant section that when one complains of unfair competition due to illegal labour and non payment of tax, this is properly investigated and explanations given as to what action was taken.

  6. How does Government the explain the Haymills, Bruesa, etc., PAYE & Social Insurance fiascos? Hundreds of thousands, if not millions,of arrears were allowed to build up by these companies over very short periods of time. Companies that run almost,if not exclusively on government contracts. Irrespective of how lax the current legislation may have been it cannot explain the level to which these arrears were allowed to build up. It certainly smells of "ley para alguno, pero no ley para todo"! Y pa postre ahora lo queremo aregla todo overnight. He adds insult to injury when he now pontificates on matters that he probably was an expert at when in private practice. Viva la cara dura

  7. I agree - my business is compliant and therefore i have no fear of the new regime since it will provide fairer trading conditions in that we will feel that we are not having to compete against other businesses who might be undercutting because they are not meeting their fiscal commitments quite so fully. I just hope that the new measures are applied to all equally.

  8. Easy says

    Am I right in saying that under the existing rules/law directors are personally responsible and liable for unpaid PAYE to Govt.? If so why has not one director of Haymills or Bruesa been taken to court.

  9. Hmm, i wonder whether the new all powerful legislation will be enforced equitably on the chronic or the Caruana Broadcasting Corporation?
    It'll also be interesting to see how the name and shame listing will be structured. i can think of a few firms that won't be headlining that list!!!!

  10. Fred says:

    Easy, maybe no one has been taken to court because the AG was wasting his time with police shennanigans?

    Mrs Sene and Anon 20:38 are right about the need for equality, all folk want is for the state to provide a level playing field on fiscal matters.

  11. Better late than never but I wonder if the horse has already bolted.Many of the companies that gorged on the construction madness have gone under leaving millions in unpaid taxes. Before Mr. Caruana is congratulated about anything he owes an explanation from his why he did not act against them when they were still banking the profits. Now we are in a completely different financial situation where many busineses are feeling the pinch and some are laying off staff or closing down altogether. It would have been much better if the sensible approach now announced by the governmant had been done in the better financial climate of the last few years.

  12. Fred is right. We need a fair playing field in fiscal matters but also in allocation of tenders and government work. In today's Gibraltar there are two types of businesses, those favoured by the regime who are of course guaranteed success and the others who not only have to compete in the normal way but have no chance when they have to compete with government favoured companies.

  13. Mr. Vasquez the need to "congratulate" the CM for finishing a long overdue tax reform shows how democratically backward Gibraltar is. In advanced communities such minor initiatives are considered to be part of the government's job for which they are paid well and need not be thanked let alone congratulated. On the other hand we wait with bated breath for the government of Gibraltar to disclose its plans for shielding Gibraltar from the global finacial turmoil. Are you part of that think tank? Indeed is anyone at all thinking about that? En Gibraltar nos conformamos con muy poco.

  14. Since we are talking about tax why not talk about how our taxes are spent? Today's Gibraltar Chronicle reports that:
    The pay for the new press secretary Gareth Flower, a direct No6 appointment, is £52,000 per annum plus a 25% annual gratuity. Now this sort of income is very hard to come by in the private sector and businessmen have to work extremely hard to earn £65,000 in this economic climate (with no summer hours or guaranteed holidays etc). Mr. Flower strikes me as a person of quality who comes from a fine Gibraltarian family and has served our country well as an officer in the Army. What I did not know is that he had any real experience in press and media. Is this money well spent? I think that having had a press secretary of the great standing and competence, internationally as well as locally of the late Francis Cantos this news is greatly disappointing. Reading between the lines I fear that Peter Caruana is going to take a greater hand in public relations. He wants a disciplined miltary type to be at his beck and call even if he has no expertise in PR. This will be a disaster for the GSD like the amateurish embarasment that is "7 Days"(though I dont care about the GSD and the GSLP propaganda machine is also rubbish) but it will also be bad for Gibraltar's international profile, which needs professional care and attention. That I am of course concerned about.

  15. Fred says:

    I read Mr Caruana's interview by Mr Searle in the Chronic with an open mind, and to be honest I found myself thinking that Mr Caruana's reasoning actually sounded fair and well structured.

    Then in today's Chronic I see that Mr Flower, the new press secretary, is being paid a very handsome salary for a post that was not advertised.

    I am now back to thinking how can one trust Mr Caruana on the big issues like the bankrupt construction companies and the awarding of government tenders when he is inclined to indulge in what looks like patronage? What exactly qualifies this gentleman for the post of press secretary? Or what qualifies him more than the many other talented young strategic communications specialists in Gibraltar?

    I give up!

  16. Fred says:

    It seems that Anon 10:50 and I are of the same mind, although I would not be so generous with the description of the individuals in question.

    I fully agree that Gibraltar needs a proper strat comms specialist, quite separate from party propaganda machines. Mr Poggio is a super lobbyist, but where we are heading needs more.

  17. Easy

    Because they're now working for JBS and the Govt needs them to complete almost every construction work that needs completing in Gib in time for next year's general election.

  18. Well, £52,000 plus 25% annual gratuity makes £65,000 per annum. Not bad if you can get it. At least he doesn't have HEPSS tax status!

  19. To the best of my knowledge Mr Flower worked in a Bank and then was in the Gib regiment.

    Hardly the backgound that suggests he will make a brilliant press secretary?

    This appointment smacks of 'jobs for the boys',a criticism very often levelled at the previous administration.

    Mr Flower has hopefully retained his Gib regiment helmet as it may come in handy as protection from flying telephones!

  20. Whilst continuing to hound PAYE(yes, pay as you earn) tax payers for supposed arrears the Government appears to be almost flippant about Andalus airlines debt to all of us.

    Chronic says .. Mr Holliday said that although it was not a substantial sum of money, “on a point of principle the debt has to be pursued and settled.”

    £100,000 pounds may not be a 'substantial sum of money' for the likes of Holliday and PC but it sure is for the rest of us!

    Gibraltarians lost money on paid for tickets when Andalus did a runner...Is the Minster (who hopes to attract Andalus back)going to compensate them??

  21. Easy says

    By the way I do not like political appointees by any party.

  22. Easy.....Easy to say that....but expand your argument just a little!!

  23. Easy says

    Anonymous 23.38

    I had commented concerning tax recovery etc by someone appointed by the GSLP administration and the lack of action since then after 14 years of GSD government, the millions lost etc.
    and a reference to the highly paid appointees by the current Govt

    It appears that for some reason such comments before that 'I do not approve of political appointees by any party' has not been published.

  24. Flowers appointment is a bit reminiscent of Napoleon's rearguard action at the battle of Waterloo...Call in the 'Old Guard' !!!!!!!!!!!!! (with military experience) Lol.....

  25. Fred says:

    The Old Guard was not directly committed, it was a second line. It was the Imperial Guard that advanced at 1930 as it was Napoleon's last reserve. Also it was not a rearguard action as Napoleon was not withdrawing.

    Having said this: where are the GSLP's Prussians?!

    (Humour us RV!)

  26. The GSD Government places most of its advertising in the little read Seven days according to figures released by Government! How laughable is that! Do they honestly think that advertising in Seven Days is their best option - will reach the widest audience possible??!!!! Or is Peter Caudillo merely helping out a ageing struggling wannabe journo who runs a completely irrelevant, useless , harmful to the environment propaganda pamphlet??

  27. OK Fred maybe I got my history of El Emperador slightly mixed ...Imperial Guard, Old Guard?

    Still I assume you get my point!

  28. Mark A, Independent Commentator23 June 2010 at 12:28

    When is an enchufe not an enchufe? Well, to be fair (and impartial) if you look under 'Job Profiles at No. 6' under 'Services' in the Govt's website, you'll see that Gareth's ADC role appears first and his press functions appear to occupy a secondary role. Ideally, the roles of ADC and press secretary should be separated, I would presume, but that would cost us even more. I guess that if there isn't enough work for a full-time ADC and, let's face it, probably not enough for a press secretary either in the dying days of the GSD this seems to be an appropriate compromise solution. See job profiles below:

    "Private Secretary to the Chief Minister

    The Chief Minister’s Private Secretary, Gareth Flower manages his diary appointments organising his attendance at official functions and Government business engagements. He liaises with his opposite numbers at the Convent, other ministerial departments and in the private sector as required to ensure the smooth flow of attendances by the Chief Minister in his heavy and varied schedule of work.

    Press Secretary

    Gareth Flower works directly to the Chief Minister as his Press Secretary procuring and organising his media appointments and PR engagements both at home and abroad. He is the Government spokesman in reply to questions from the media and is responsible for the issue of press releases and Government notices. Overall, his responsibilities encompass the positive projection of Gibraltar’s image internationally. He functions as Co-ordinator on behalf of the Chief Minister with entities in Spain. In addition, Mr Flower is the Information manager for the Government Website."

  29. All of which I suspect he will struggle with Mark!