Securing our VAT income

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MORE than 1,000 households are being asked to take part in a historic major survey of consumer spending to help the island secure its fair share of VAT revenue.

Results of the first-ever survey of spending on indirect taxation will be used to help confirm the amounts due to the island under its Customs and Excise agreement with the UK.

This arrangement provides more than half of the Manx Government’s annual income and is used to fund vital services such as health, education and social care.

Organised by the Treasury’s Economic Affairs Division, the survey will take place over the next 12 months and will involve more than 1,000 households selected at random. Each will be invited to participate in an interview and then keep a diary of all their spending over a two-week period.

Stephen Carse, government economic adviser and head of the economic affairs division, said: ‘When the Customs and Excise agreement was revised it was announced that updated information about the island’s spending patterns would be required to underpin the calculation of our share of VAT and customs revenues.

‘The importance of this household survey cannot be overstated. With 57 per cent of Government’s revenue coming via the Customs and Excise agreement, the outcome will potentially be critical for the public finances.’

Customs bosses deny it will lead to a major revision of our VAT income as the amount of indirect tax generated in the island by VAT-registered businesses is already known. What hasn’t been known up to now is the amount of VAT local spend generated by consumers – and the size of this locally generated VAT could be used as evidence in negotiations with the UK over the basis for the new-look revenue sharing arrangement which is to use a tax base measurement method.

Paul Gelling, deputy collector of Customs and Excise, said: ‘While the Treasury’s economic affairs division has previously conducted household income and expenditure surveys and produced detailed reports, it has not asked within the survey how much VAT was incurred by consumers and whether that VAT spend was on or off-island.

‘By including questions relating to VAT spend in the current household income and expenditure survey we hope to acquire such data as it will help ensure that the island gets its fair share of VAT under the revenue-sharing arrangement in future years.

‘While collecting this data is important to underpin the fairness of the TBMM it is not envisaged that it will lead to any significant change to the island’s future VAT share.’

Letters will be sent out over the next week to randomly-selected households asking them to take part in the survey. The main survey will take an hour to an hour and a half to complete. It will ask what items have been bought and whether they were bought from the island, the UK or further afield.

Economic assistant in the economic affairs division, Peter Hannay, said: ‘This will give us a firm basis for the level of VAT we should be getting. We don’t know what the results are going to be. It’s the first time such a comprehensive survey has been done. It’s being done with the agreement of the UK to provide a firm basis for the new VAT agreement.’

Mr Carse said it was by necessity a huge survey and there will be a small monetary gift for those who agreed to take part. But he added: ‘I hope the major inducement will be the chance to be part of an historic exercise to make sure our island gets its fair share of revenues for the future funding of important public services.’

He stressed that all information provided would remain completely confidential.

Apart from duty on fuel, betting and the Lottery and Air Passenger Duty which is collected locally, most indirect tax (VAT, beer wine and spirits, tobacco, Customs and Pools duties) paid by island consumers goes into the shared pool with the UK, from which we get a share of the revenue based on an agreed formula. Shared and non-shared income totals around £300 million.

We get a share back even if you buy goods from an online retailer VAT-registered in the UK, such as Amazon.

The Manx government has lost a third of its income due to the UK’s forced revision of the revenue sharing arrangement.

Plans to carry out income and expenditure surveys were announced when details of the new Tax Base Measurement Method (TBMM) for calculating our share of VAT revenue were made public in August last year.

The TBMM will only be used to calculate our share of VAT while other duties are shared using a different method.

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