CORPORATE tax will be increased to 12.5% in Gibraltar following a ‘revenue wrecking’ pandemic.
In July’s 2021 Budget speech, Chief Minister Fabian Picardo announced a hike of 2.5% for corporate tax and an increase in electricity rates, as he looks to ‘rebuild’ Gibraltar’s economy and public finances.
The last full budget was in 2019, and two years on, Picardo said he has no doubt that it falls on him to deliver ‘the hardest budget in our history’, as he considered everything from the pandemic to Brexit, and the possibility of a ‘no deal’.
In Picardo’s speech, he noted that the cost of responding to the pandemic has topped £250m, with most of it used to fund shortfalls in government revenue.
Gibraltar’s GDP for 2020/21 is forecast at £2.44 billion, down 4.9% from £2.57 billion in the preceding year and £2.46 billion in 2018/19.
Picardo said his government was projecting shortfalls of £158m for the 2020/21 financial year and £50m for the following year, with a return to surplus by 2022/23.
He also said that Gibraltar had been one of the ‘world’s fastest-growing economies prior to the pandemic’ and was well-placed to bounce back, adding that the measures in the budget sought to offer incentives to generate new jobs and training, while protecting those who were most in need.
Talking about the increase in corporate tax, Picardo said that it is part of an Organisation for Economic Co-operation and Development (OECD) initiative for international tax reform, which aims to ensure large multinational businesses pay tax where they operate and earn profits.
The increase in corporate tax means any company beginning a financial period after the budget will pay 12.5% tax on profits instead of the current 10%.
He noted that this would ‘provide for a more gradual increase when Gibraltar is required by the OECD to increase the rate to 15%’.
Picardo also announced a series of tax initiatives, aimed at helping businesses recruit, train, and make capital and green investments.
The initiatives will be available until June 30, 2023, and include: an allowance of 50% of basic salary for every new job created, a 10% increase in the training allowance to 60%, a 50% allowance for marketing costs, and an increase in plant and machinery allowances, and a new definition to include fully electric vehicles used in a business.
The Category 2 regime is also subject to changes, with the minimum tax payable to increase to £32,000 from £22,000 and the tax cap increased from £27,560 to £37,310. The changes will apply from August 1, 2021.
Picardo also announced that the cost of electricity would increase, duties would be raised on cigarettes by 50p to £15.50 per 200, and 12p per litre levy on fuel supplied to pleasure boats and super yachts.
Minimum wage will also increase to £7.50.
Picardo closed saying: “As we move forward, we will spend on things that matter. We have invested millions already and will invest more on the right projects for our people.
“We must deliver a renewal and a regeneration to return to sustainable growth.”
Read the full announcement here.