Budget and Deficit
The Chief Minister’s 2022 budget address came amid Gibraltar’s recovery from the pandemic, continuing treaty negotiations, the ensuing conflict in Ukraine, and rising global inflation and interest rates. The Appropriation Bill for 2022 published in May estimated a consolidated fund expenditure of £553 million and a capital fund expenditure of £70 million for the year ending March 31st, 2023, which does not include recurrent and public undertakings expenditures. Net government borrowing rose to a forecasted £653 million, and the deficit stands at £51 million. These figures pair with a drop in GDP of 0.4% down to £2.41 billion, less dramatic that the previous year’s drop of 4.9%, but a decrease, nonetheless. This year’s budget was a tougher pill to swallow, with increases in taxes and utilities being utilised to offset the effects of the last couple of difficult years.
Category 2 and HEPSS Schemes
For a second year in a row, changes have been made to the Category 2 tax rates. The maximum assessable taxable income for Category 2 individuals has increased from £105,000 to £118,000, meaning that the Category 2 minimum and maximum annual payable tax has increased to £37,000 and £44,740 respectively. The changes come into effect as of July 1st, 2022.
Further to this, Category 2 individuals will have until November 30th, 2022, to pay an amount equal to the maximum tax payable (i.e., £44,740) as a form of deposit or advance. The new measure aims to mitigate tax positions being unsettled upon the departure of Category 2 individuals. This amount will also be payable by all individuals newly qualifying, along with the application fee which has now been slightly increased to £1,100. The advance is fully refundable (as adjusted) once a Category 2 individual chooses to revoke the Category 2 status, with overpayments being credited or rebated as appropriate.
Changes to HEPSS are less dramatic, however. The tax assessable income amount for a HEPSS individual still stands at £160,000 of earned income but will be subject to a 2% increase for the next two years in line with the rise in income tax rates for regular resident taxpayers. The maximum annual tax payable by HEPSS on earned income is effectively increased from £39,940 to £43,140.
Covid Recovery Charge
The Chief Minister announced that each Gibraltar company will be levied with a £25 weekly charge for the next two years collected as part of the Annual Return payable to Gibraltar Companies House. This Company Covid Charge was proposed to help cover government spending during the pandemic. However, after subsequently engaging with the industry, Minister Albert Isola stated that the Government considers “limiting the charge to those companies that are actively trading in Gibraltar.” Non-trading companies or companies solely trading outside of Gibraltar will therefore be exempt from the additional £2,600 to be collected in total from the next two years.
Understandably, the Company Covid Charge has nonetheless seen little support from the public, since small and medium sized local trading companies, many of which were negatively impacted by the pandemic, will incur the same charge as large local businesses.
While there has been no increase to Gibraltar’s 12.5% corporate tax rate levied on income accrued and derived in Gibraltar, the Government is looking to clamp down on companies that use creative means to reduce the taxes paid by them. The Government announced an amnesty up to the end of the year of 2022 for companies that have been “over creative” with their tax filings and encouraged such companies to undergo a voluntary review of their tax compliance. For uncooperative companies that may have underdeclared taxes, tax officials, with secondment from the UK Treasury, will conduct reviews and charge penalties accordingly.