Gibraltar must remain competitive on tax on goods or “everyone will be the poorer”, the Chamber of Commerce said, stressing concerns over changes to taxation if a UK/EU treaty on Gibraltar is secured.
The statement from the Chamber comes after Fernando Sampedro, Spain’s state secretary for the EU at the Ministry for Foreign Affairs in Madrid, said Spain and the European Commission hope the treaty would achieve the “smallest possible differential” between taxes on goods on either side of the border.
In a foreword in their newest edition of Gibraltar Business, the Chamber called for Gibraltar’s import tax rates to remain competitive to avoid increased costs to businesses.
The Chamber said this tax would “replace import duty but at a higher rate”.
“It will be charged as a one-off tax on all goods subject to the tax at the point of importation,” the Chamber said.
“However, the additional cost of this tax will have to be passed on through the buying chain from importer to wholesaler and then on to the retailer and finally to the consumer.”
In the Chambers view, if a new transaction tax “is the quid pro quo for giving Gibraltar freedom of movement” it should also be given the freedom within reason to set the tax at a rate where it can retain a degree of competitiveness and continue to generate the prosperity which is to be shared by communities on both sides of the border.
“If this is lost then everyone will be the poorer,” the Chamber said.
The Chamber added that the Government must have some projections of the revenue which will be generated by the new transaction tax.
“Currently import duty is levied at between 3, 6 and 12 per cent depending on the product category with the exception of alcohol, cigarettes, tobacco and petrol which have specific rates of duty. Current estimates show that import duty generates around £100m a year,” the Chamber said.
“This is down from £176m a year in 2017/18 largely because of the fall in sales of tobacco due to price convergence between Gibraltar and Spain and other factors.”
“It looks as though businesses importing and selling physical goods, many of which mostly employ cross frontier workers, will see increases in the taxes they pay as the price for agreeing to the treaty.”
According to the Chamber, businesses in Gibraltar already face higher costs than similar businesses across the border.
“It goes without saying that they will need assistance in facing the challenges of the new environment whatever that may be,” the Chamber said.
“As taxes rise, consumers spend less or shop elsewhere and government revenues fall as a consequence. On the other hand, one of the benefits of the Treaty could be the opening up of new markets.”
“The rationale for the new transaction tax is to prevent distortions in the EU market from different tax rates.”
“This argument does not stand up to scrutiny though as there are all sorts of different taxes and tax rates across the whole of the EU so for example excise tax in Spain is much lower than in France. Few people talk about the prices of Spanish goods causing market distortions in France though.”
“Even though all EU member states must comply with the EU parameters on tax and VAT, the range of prices differs considerably across the different countries in the EU.”
“Against the EU’s annual GDP of around 16 trillion euros, Gibraltar’s potential to distort any part of the European market is infinitessimally small with a comparative economic output of just 2.9 billion euros.”