As of Wednesday no Isle of Man resident is to pay more than �100,000 a year in income tax and corporation tax will be cut from 10% to zero.

Isle of Man officials said it is not their intention to get the upper edge on the Channel Islands.

But Richard Murphy, of the Tax Justice Network, said the move was "too aggressive" and Guernsey could suffer.

'Global approach'

But an Isle of Man Government spokesman countered: "Our approach is global we are not looking at other islands."

The Manx Government hopes the new tax regime will encourage greater e-commerce and e-business on the island

Guernsey States is abolishing corporation tax in 2008 to keep the island competitive as an off-shore banking centre.

That's a very outrageous suggestion Laurie Morgan

But it is relying on 4% economic growth to fill the financial gap, which Mr Murphy said is too ambitious.

He said: "The Isle of Man has very little reliance on company profit taxation and as a result it is in a strong position. It can afford to play hard and fast on this.

"Guernsey can't and Guernsey seems to be the territory that is relying on fairly heroic levels of economic growth to pay for the changes.

"I don't believe Guernsey can achieve that level of economic growth. Nowhere else is, so why should Guernsey?"

Sales tax

But Guernsey's Chief Minister Laurie Morgan said the predictions for financial growth were realistic and there was the fall back of introducing a Guernsey Sales Tax (GST).

He said: "That's a very outrageous suggestion. We certainly won't go bust within five or 10 years.

"The Policy Council is going to put forward to the States in June a policy to allow us to use some of our reserves until about 2011 and see how much growth is actually coming.

"If that didn't happen then in the background there will still be the dreaded GST."