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As the treaty discussions continue in their frenzied attempt to reach some sort of
conclusion, the purdah which had been observed by all sides has begun to unravel. A
few details of the negotiations which have remained secret since they began three and
half years ago are now coming into the public domain. Some of them should come as
no surprise as they were heavily alluded to in the framework document published by
the EU at the outset of the discussions. This is more than just pre-electoral positioning
by Spain.
One of these is the proposed introduction of a new transaction tax on physical goods.
In effect this will replace import duty but at a higher rate. It will be charged as a one-off
tax on all goods subject to the tax at the point of importation. However, the additional
cost of this tax will have to be passed on through the buying chain from importer to
wholesaler and then on to the retailer and finally to the consumer.
The Government must have some projections of the revenue which will be generated
by the new transaction tax. Currently import duty is levied at between 3, 6 and 12
per cent depending on the product category with the exception of alcohol, cigarettes,
tobacco and petrol which have specific rates of duty. Current estimates show that
import duty generates around £100m a year. This is down from £176m a year in 2017/18
largely because of the fall in sales of tobacco due to price convergence between
Gibraltar and Spain and other factors.
It looks as though businesses importing and selling physical goods, many of which
mostly employ cross frontier workers, will see increases in the taxes they pay as the
price for agreeing to the treaty. Businesses in Gibraltar already face higher costs than
similar businesses across the border and it goes without saying that they will need
assistance in facing the challenges of the new environment whatever that may be.
As taxes rise, consumers spend less or shop elsewhere and government revenues fall
as a consequence. On the other hand, one of the benefits of the Treaty could be the
opening up of new markets.\
The rationale for the new transaction tax is to prevent distortions in the EU market
from different tax rates. This argument does not stand up to scrutiny though as there
are all sorts of different taxes and tax rates across the whole of the EU so for example
excise tax in Spain is much lower than in France.
Few people talk about the prices of Spanish goods causing market distortions in France
though. Even though all EU member states must comply with the EU parameters on
tax and VAT, the range of prices differs considerably across the different countries in
the EU.
Against the EU’s annual GDP of around 16 trillion euros, Gibraltar’s potential to
distort any part of the European market is infinitesimally small with a comparative
economic output of just 2.9 billion euros.
If a new transaction tax is the quid pro quo for giving Gibraltar freedom of movement
it should also be given the freedom within reason to set the tax at a rate where it can
retain a degree of competitiveness and thus continue to generate the prosperity which
is to be shared by communities on both sides of the border. If this is lost then everyone
will be the poorer.