The government in Jersey has taken steps to stop UK retailers from selling cut price mail-order CDs and DVDs from the Channel Island. Well, I say its taken steps - really it's just released a statement (and not for the first time) - but it might be a move in the right direction.
As previously reported, retailers base their mail order CD operations on the Channel Island because doing so allows them to avoid paying VAT because Jersey is outside the EU, and EU law allows the import of VAT-exempt products under £18. By using this loophole, independent retailers have argued, the supermarket and online retailers who base their mail order operations in Jersey have an unfair advantage over traditional music sellers. The scam also costs the UK Treasury an estimated £80 million a year in lost tax revenues.
Responding to criticism of the tax loophole, the Jersey government last November said they would not issue any further licences to companies looking to base mail-order departments on the island to benefit from the tax saving. Yesterday they went further, saying that as companies already taking advantage of the loophole reapply for licences the island will look to "gradually reduce and eventually discontinue their activities".
Economic Development Minister Philip Ozouf said: "We welcome and we want to see a continuing online retailing business which is properly established in Jersey. What we don't want to see is a UK business serving its UK customers by simply using Jersey as a post-box. It is not economically beneficial to Jersey to any great extent and also undermines its business reputation."
However, critics of the loophole say that yesterday's statement is too vague, and adds little to the island's November commitment. What's more, the new rules would only affect UK based companies who locate mail-order operations on the island. Companies like Play.com, who base all their operations in Jersey, but who also trade in the UK, would not be affected and could continue to benefit from the tax loophole.
Nick Goulding of the Forum Of Private Business, who have been most vocal against the loophole, said yesterday: "To a certain extent we have been here before. Jersey put out a similar statement in November and they didn't follow through with it, so there's a lot of rehashing here. If the UK companies are pushed out, others will step into that space and we shall see a continuation of the problems, so we are concerned that the UK Government plugs it at this end. It's a question of whether you want a sustainable market space with local stores and knowledgeable staff that you can talk to. Consumers value that. This kind of unfair competition means you are much less likely to have that. We are not objecting to competition from the internet, but consumers will recognise that if only one side has to pay tax, that just isn't fair."