Tax revenues continue to grow in Gibraltar

This year's increased tax revenues, in both personal and corporate taxation, is the latest success in Gibraltar's tax collections. Looking at collections in the last ten years shows this year is continuing two key trends: a growth in income tax and a decreasing reliance on import duties. 

Examining the budget books, we can see that income tax (counted as personal tax plus corporation tax) as a percentage of total government revenue has risen from around 39% in the financial year 2013/24 (£213m) to 55% in 2023/24 (£410m). The rate of the rise has been gradual but consistent and has seen a doubling in gross collections, owing especially to the growth in corporation tax revenue - there has been a more than five-fold increase in collections since 2010/11 (£29m to £155m in 2023/24). Actual income tax revenues regularly beat forecasts. 

In contrast, receipts from import duties (mainly on tobacco, fuel oil, and alcohol) have dropped considerably from the pandemic as a share of government revenue. In 2013/14, import duty consisted of around 31% (£174m) of revenues; in 2023/24, it was just 13% (£95m). The decline was slow in the years from 2013 to 2018 but have fallen off a cliff since 2018/19 – from 24% to 13%. 

Looking at taxation more generally, Gibraltar’s current tax-to-GDP ratio of around 18% remains well below the OECD average of 33.9% (2023 figures), sitting at the bottom of the OECD range, suggesting we are not an overtaxed jurisdiction. In the United Kingdom, the ratio climbs to 35.3% and in Spain to 37.3%. This is of note because Gibraltar provides a similar, if not more comprehensive, welfare system than Spain and the UK while keeping its tax-to-GDP ratio relatively low, closer to the level of Singapore (around 15%). And rather than rising, as is the case with most OECD countries, Gibraltar’s tax-to-GDP ratio has fallen six percentage points since 2010/11. This likely owes to the disproportionately strong services sector, an outsized and growing tax base, and outsourcing defence spending to the UK. 

The proposed sales tax must also be fit into this regime. First, it must be distinguished from the UK's VAT because it will be collected once rather that passed down the supply chain, as VAT is. Second, our tax-to-GDP ratio suggests we are on the right side of the Laffer curve, meaning an increase in our tax burden will increase overall revenues rather than discourage tax collections to the point that they actually decrease. 

Geopolitically, Gibraltar’s move away from import duty as a key pillar of revenue and the potential introduction of a sales tax may help the coming of a Treaty with the European Union. On that point alone, a sales tax and declining import duties are welcome developments. The growth in corporate and personal tax collections meanwhile more than covers the drop in import duty collections, ensuring we do not need to raise income tax rates to cover the shortfall. 

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