The customs agreement with the UK gives the island stability, says Treasury Minister Alfred Cannan.

Withdrawal would lead to customs controls on travellers to and from the UK, he warned.

Mr Cannan was asked in a written House of Keys question last week, by Kate Beecroft (LibVannin, Douglas South) to outline the advantages and disadvantages of any withdrawal from the customs agreement.

Under the agreement, the Isle of Man keeps its indirect tax regime largely in line with the UK’s in return for free movement of goods between here and the UK.

Mr Cannan said: ’Without the agreement there would be a border between the Isle of Man and the UK and goods would be unable to move freely and could be subject to tariffs/duties.

’Additional customs controls would need to be adopted for travellers to and from the UK.’

Revenue

In 2017-18 the Isle of Man’s share of consolidated revenue receipts was £357 million, which Mr Cannan described as a ’substantial source of government revenue’.

He added: ’The agreement provides a degree of assurance and stability when planning for expenditure on vital services.’

If the island withdrew from the agreement, goods exported to the UK would be subject to UK customs duty, VAT and excise duty where applicable.

’This would potentially increase the price of goods supplied by Isle of Man businesses to UK customers, due to the increased administrative cost in declaring such goods to HMRC,’ Mr Cannan said.

’The UK would need to apply border controls for all goods entering the UK from the Isle of Man which may slow the movement of goods and increase administration, compliance and cash flow costs for island businesses.’

Customs declarations would have to be completed by importers of goods and carries would have to make security declarations.

The added costs and administration burden could make the Isle of Man a less attractive destination to supply to and slow down the movement of goods - particularly costly with perishable goods.

While customs controls are already in place for goods entering the island from outside the EU, the increase in volume if goods from the UK were included would require ’considerable government investment in technology and staff’.

Mr Cannan added: ’If the Isle of Man adopted its own customs, excise and indirect tax regimes aimed at replacing the revenue received through the agreement there would be an additional cost to collection due to the loss of support - including technology, training, technical expertise etc - currently provided by the UK.’

Introducing the indirect tax regimes required to raise the revenue needed to continue the current level of government services, including the NHS and education, would take time.

Negotiations

Mr Cannan added: ’If the UK negotiates a deal with the European Union which includes a customs arrangement, the island may not be included within such a customs arrangement if the agreement is terminated.’

On the upside, Mr Cannan explained that withdrawal from the customs agreement would give the Isle of Man ’the potential to determine its own indirect tax regime’.

But it would have to find ways to raise revenue to match the current amounts received.

Withdrawal could also stimulate more local production, but there was ’no certainty’ about this, said Mr Cannan.