As post Brexit negotiations continue, we’ve heard lots about transaction vs sales tax – but what do you think ? Do you have a preference ?

While Gibraltar has ruled out introducing VAT, the Government has referenced a transaction tax and more recently a sales tax as forming part of the negotiations that may lead to an agreement with the EU. They would each have different impacts on businesses and consumers.

We know that a a central tenet of the Customs Union is the removal of trade barriers between member states by, amongst other things, attempting to harmonise VAT rates across the EU. Does this mean a transaction or sales tax could be set in accordance with EU levels? The EU mandates a minimum VAT rate of 15%, but there is no maximum. How might that impact your business ?

Sales Tax: A Consumer Cost?
If the sales tax was implemented in a similar manner to some other jurisdictions, the USA for example, it would be added at the point of sale, meaning businesses would charge customers a set percentage on goods sold in Gibraltar ( services do not come within the scope the negotiations with the EU and would not form part of an agreement with the EU). This could mean:

• Increased prices for consumers, depending on the tax rate.
• Businesses must collect and report tax, adding to administrative costs.
• All local purchases are affected, potentially making cross-border shopping more attractive.
• No tax would be payable unless a product is sold.
  

Transaction Tax: A Business Cost?
A transaction tax has been explained as applying when importing goods from the EU into Gibraltar on a wholesale basis thus adding a charge at the point of entry into Gibraltar. This could:

• Increase the cost of importing goods, given that our current import duty is less than the EU minimum for VAT particularly for businesses reliant on EU suppliers.
• Be paid upfront by businesses potentially affecting cash flow.
• Apply before goods even reach the shelves, rather than at the point of sale.
• Retain a system that is closer to a system that Gibraltar businesses are already with – import duty.

What’s Next?
Negotiations continue and as yet it is not clear what sort of charges on goods entering Gibraltar might form part of an agreement – but businesses must think about prepare for potential changes.

What do you think? The GFSB is gathering views from members on how these tax options could impact business. Join the conversation in the GFSB Community feature in the Glue Up membership platform.