Treasury minister Eddie Teare recently conceded that the island’s share of VAT receipts could go down again.
As reported in the Examiner recently, Mr Teare was speaking as it was announced that a data collection exercise, that will be used to determine the size of the VAT share in the future, is being widened to cover business revenue and expenditure.
The Manx government has lost about a third of its income following changes to the VAT revenue sharing arrangement.
Here, Sandra Skuszka, head of VAT Services at KPMG in the island, comments for Business News on the future of the VAT agreement between the Isle of Man and the UK
She said: ‘With the Isle of Man’s VAT sharing agreement with the UK in the news once more, the benefit of remaining in the so called ‘‘common purse’’ is a perennial question likely to once again raise its head.
‘Should we stay in or should we “go it alone”?
‘This is, of course, a huge debate with many political and economic considerations, but what are the practical issues?
‘For a start, going it alone would mean the IoM would no longer be part of the EU for VAT purposes unless a separate agreement could be reached with the EU Commission.
‘This could make it difficult for any IoM business selling goods into the UK or EU, as the goods would need to go through border customs controls in the respective jurisdictions just as if they were being imported from China or the USA.
‘Goods coming into the IOM would need to go through customs procedures: for example, if you bought a sofa from the UK, the UK supplier would treat it as an export without 20 per cent VAT but it would be subject to any duties and VAT the IOM government deemed appropriate.
‘That said, other crown dependencies have introduced border controls which seem to operate efficiently with minimal disruption to the flow of goods in and out of the jurisdiction.
‘The essential economic question would be, what business would the island lose and what business would it attract by leaving the EU VAT system?
‘Going it alone may make life more difficult for manufacturing industries but may make the island more attractive to service industries such as eGgaming, banking, insurance and funds.
‘These business sectors currently incur VAT on costs that they cannot recover because the services they provide are exempt from VAT.
‘The Isle of Man government would have the ability to design a VAT system to attract certain industries but it would be a fine balance between ensuring we have the revenue we need and remaining a competitive jurisdiction in which to do business.
‘It may mean that the island could compete on an equal footing with other crown dependencies as far as tax is concerned, but it doesn’t automatically mean these businesses would flock to our shores. With limited information available it is very difficult to predict with any certainty the effect on the island’s economy of leaving the VAT sharing agreement. By staying in, we at least have some degree of certainty. Perhaps the survey of the island’s households and businesses currently being undertaken will provide some insight.’