Taking 10,000 people out of the tax net and scrapping the 10 per cent band is a ‘political risk’, admits Treasury Minister Eddie Teare.
Mr Teare confirmed the proposed measure will cost the Manx Exchequer £5m.
He said he hoped that revenues could be found from elsewhere to cover the shortfall but added he could not give a commitment that taxpayers would not end up paying more.
‘This is a political risk. I want to reach a point where nobody is paying any more but it depends on our revenues. I will do my level best but it depends on cash flow. I cannot give a commitment,’ he said.
Mr Teare announced his proposals to simplify the island’s tax system in last week’s Budget.
He said that from April 2016, he intends to abolish the 10 per cent tax band and increase the personal allowance tax free threshold to over £14,000 from the current £9,500.
The Treasury Minister told Tynwald: ‘It will mean that over 10,000 low paid people will no-longer have a tax liability. It will also significantly simplify the income tax system and reduce the instances where income tax acts as a disincentive to paid employment. This will also enable us to divert resources to ensure that those who should pay do pay.’
To ensure that none of the remaining taxpayers pay more at 20 per cent, the level of the personal allowance would have to be set at £14,750.
Mr Teare said he hope to make up the lost tax income of £5m though changes to the Personal Allowance Credit and on the increase of the tax rate for companies on income from local land and property from 10 per cent to 20 per cent.
The so-called ‘Tesco tax’ - the 10 per cent corporate tax rate introduced in last year’s Budget for major retailers with annual profits of more than £500,000 – will also help. This is bringing in receipts of £2m in the current year but these are expected to rise to £3.5m in the following year.
Mr Teare said concerns had been raised by some property investors about the proposals to tax companies on local land and property at 20 per cent. He said the current 10 per cent could encourage tax planning. ‘My driving principle is fairness,’ he said.