What is GST and how might tax changes look?

The States of Guernsey is due to vote later this year on what the future of tax will look like in the island.

One option being discussed is a package called 'Workstream 1' - often referred to as GST Plus, which includes a Goods and Service Tax of either 5% with food or 6% without.

There would also be revisions to income tax allowances and new laws in place to help low income families from increases in taxes.

Before deciding if GST will even be part of tax changes, the States needs to decide what it will look like.

Under the proposals, there would be changes to income tax with the standard rate falling to 15%.

The higher rate would remain at 20% applying on income higher than £32,400, while the personal allowance would be increased to £600.

Social security contributions would be restructured with allowances aligned to income tax.

The States said it would mean lower contributions for low and middle-income earners and higher contributions to the top earners.

There are two options for GST which the Policy and Resources (P&R) Committee has put forward.

Option one would be a 5% tax on most goods and services including on food, which aligns with Jersey's system.

P&R said it would be simpler and avoid disputes over what counts as essential food.

Option two would have a 6% GST on most goods and services, but food would be exempt.

According to P&R, this option would add complexity, provide limited benefit to low-income households and raise fairness concerns.

Deputy Gavin St Pier, P&R vice-president said: "It's important to be really clear that no final decision has been made on any of the tax reform options the States may ultimately decide to implement."

The States estimated GST would raise £63-68m from local spending and £6-8m from visitors from the following sources:

• Restaurants
• Cafes
• Snack bars
• Pubs
• Takeaways
• Canteens
• Caterers
• Hotels
• Guest houses

Both options include exceptions for medical, childcare and burial services.

Charities would be exempt from charging GST, but would be able to reclaim it on their costs.

There are goods which are excluded and others which would have a zero rating.

Being exempt means no GST is charged and none can be claimed back.

Zero-rated means no GST is charged, but businesses can claim it back.

Other exemptions include:

• Goods which are exported out of the bailiwick
• Transport of passengers and goods to or from Guernsey or Alderney and outside the bailiwick
• Transport of passengers and goods between Guernsey and Alderney, Sark or Herm
• Postal services
• The sale or lease of a residential home

Other zero-rated goods and services include:

• All services provided by the States of Guernsey
• Domestic financial services
• Primary medical care
• Ambulance services
• Dentists
• Opticians
• Registered long-term care provision
• Childcare

The three fee-paying schools in Guernsey however would likely be standard rated.

The impact of GST would be different for different households, depending on their circumstances and spending habits.

For example, for those who rent or have a large mortgage, a greater share of their spending is likely to be exempt or zero-rated than those who own their own home outright.

This means those who are paying rent or a mortgage are likely to be less impacted by GST than those that are not.

Support measures would be introduced to offset the impact of GST.

An essential costs relief payment would be available to low-income households not receiving in come support.

Depending on which GST option is voted for, the payment would be if food is taxed at 5%:

• £520 a year for single households

• £860 a year for couples

If food is zero-rated and GST is 6%:

• £400 a year for single households

• £670 a year for couples

Pensions and benefits would also be increased in advance to help with price rises.

There are also proposals for any increase in GST to be accompanied by an increase in tax allowance, benefits or additional relief payments.

P&R is also considering any future GST rise should require a super majority of two-thirds.

The States is due to make a final decisions later in the year.

If approved, income tax and social security changes would come into effect in January 2028 with GST introduced later on in the year.

However, P&R warned that delaying a decision beyond the middle of 2026 could push implementation back to 2029.

This could lead to a potential cost of up to £50m in lost revenue.

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