ON 28 JUNE, GIBRALTAR’S CHIEF MINISTER, FABIAN PICARDO QC, DELIVERED “A TOUGH BUT NECESSARY BUDGET” AND “REMAINS DEEPLY OPTIMISTIC THAT A SAFE AND SECURE [EU] TREATY IS POSSIBLE AND NOW INCREASINGLY PROBABLE”.
BACKDROP
- Currently annual expenditure exceeds annual revenue, due to the truly exceptional circumstances of the past two years, and this needs to be corrected.
- Immediately necessary for those who can, to pay a little more.
- Consequences of external factors (e.g., Brexit, Covid, Ukraine war) have to be managed.
ECONOMIC POSITION
- Preliminary GDP estimate 2020/21 £2.41bn
- 2021/22 forecast GDP £2.59m above pre- pandemic GDP level. Solid performance when the economy opened up as soon as possible in the circumstances.
- In 2021 whilst the pandemic critically affected worldwide unemployment, the yearly average for Gibraltarians registered as unemployed was 27.
- Forecast 2021/2022 tax revenue collected in personal tax is £202.5m and in corporate tax is £122m.
- Stamp duty revenue was almost double predicted estimate (£14.9m versus £8.5m estimated), signifying the strength of the property market. Import duties were down on estimate though (£111.3m versus
£150m initially estimated) due to lower visitor numbers. - Overall recurrent revenue 2021/22 forecast is £756.7m, versus £689.2m initially estimated.
- Covid response fund was double estimated (£135.1m versus £67.5m estimated).
- Estimated 2022/23 revenue is £637m and expenditure is £682m.
- Projected net deficit of £45.3m estimated.
- Prognosis is for increasing costs.
TAX CHANGES
- Category 2 residency – Change to tax payment dates. Need to pay annual Category 2 tax upfront. Existing Category 2 residents need to pay tax in advance, from 1 July 2022, so for 2022/23 this tax is to be settled by 30 November 2022. This has been introduced because some Category 2 residents leave Gibraltar and do not settle their final year tax liability. With this new payment system, final year Category 2 tax will be settled from this payment, with any balance repaid to the Category 2 when final tax bill has been settled. This measure will also apply to any new Category 2 residents.
- Category 2 tax increase – Assessable annual Category 2 income will increase to £118,000 from £105,000, which leads to £5,070 more annual maximum tax. Minimum annual tax will also increase to £37,000 (2021-22
£32,000). - A new tax will be introduced for any non- Gibraltar national, who is resident in Gibraltar, is not in possession of a Category 2 or HEPSS certificate and is not in true third- party employment. He/she will be taxed on their full savings income, including pension income, interest income, dividend income and income from other passive sources. Retrospective Category 2 applications will be allowed.
- Personal tax changes – Currently personal tax rate dips for income in excess of £500,000 under Gross Income Based System (GIBS). Currently tax rate after that level of income drops to 18%, then 5%. Going forward, these rates (of 18% and 5%) will be abolished, with 25% rate applying instead.
- Two year only measure – all tax rates in all bands under ABS and GIBS will increase by 2%.
- Government will not levy tax on pensions.
- Tax compliance measures – stricter but fair tax penalties will be shortly introduced.
- From September 2022, for applications for Certificates of Ordinary Residence there will be an administrative fee charged.
- Covid recovery charge – every company to pay a charge of £25 per week for two years, from 1 August 2022.
- Following the change in the corporate tax rate from 10% to 12.5% on 1 August 2021, the Income Tax Office has received representations that the legislation is not sufficiently prescriptive in providing a basis how the transitional year containing the change in tax rate is to be computed. An amendment to the Rates of Tax Rules will therefore be published, along with explanatory notes.
- In order to assist auditing practitioners, £1.25m audit threshold exemption increased to £1.5m.
- Terminating tax incentive announced last year for businesses that invest in marketing (i.e., the additional deduction amounting to 50% of marketing costs). This is now only available in the current year if the marketing is marketing of Gibraltar (for which this incentive was initially intended) not generic marketing of a business’ own product. Legislation will be amended.
- Tax amnesty announced, all companies who have filed accounts during the last 2 financial years and should have filed accounts up to December 2022, will be invited voluntarily to review their tax returns. If they consider they have underdeclared, they will be allowed to resubmit these returns and pay the corresponding tax without penalty. The Government are conducting a review of those companies that they consider are under declaring. This amnesty is due to end on 1 January 2023. At the end of this period, if companies have underdeclared there will be tax related penalties imposed. Legislation to be enacted.
- Import duties – the 10% flat rate of import duty levied on all personal imports will be revoked. Private importation will now be charged at the import duty rates in place prior to the introduction of these measures.
- Ban on importation of cars over 5 years old (other than classic cars and light commercial vehicles).
- First £2,000 of private cost of installation of electric charging mechanism to be offset against tax liability.
- Mopeds fuelled by diesel or petrol will become prohibited imports as of 1 July 2023.
- Sustainable tourism tax to be introduced from 1 August 2022. Hotel and Air BnB visitors to pay £3 per person per night to stay in Gibraltar.
- Cruise ship passengers will pay £1 passenger environmental levy per passenger.
- Electricity and water tariffs will increase by 8% from August 2022. This will be fixed for at least 12 months and will be means tested utilities credit to be introduced. Going forward these tariffs will increase annually on 1 April by cost of living percentage.
- Income Tax Office continuing to process taxpayers tax refunds.
OTHER BUDGET MEASURES
- Huge progress made with the EU regarding a Schengen Agreement. Talks are progressing through a deeply technical stage.
- AquaGib to be taken back into Government ownership this year.
- Terminating sale and leaseback, and instead acquiring St Bernard’s Hospital.
- Those on minimum wage, receiving old age pension or disability benefit will obtain increases in line with estimates for inflation (estimated 8%). Minimum wage will increase to £8.10 per hour (from £7.50).
FULL BUDGET SPEECH
The full Budget Speech is available here:
449-2022.pdf (gibraltar.gov.gi)
The Estimate book is also available here:
Final – Draft Estimates.pdf (gibraltar.gov.gi)
For further information contact:
Lynette Chaudhary
tax.gib@SovereignGroup.com
