Islands' VAT criticism 'unfair'

Mr Borwn says VAT-free goods are costing the UK £90m a year

Guernsey's Deputy Minister for Commerce and Employment says it is unfair the Channel Islands were singled out by Gordon Brown for exploiting VAT laws.

Island companies use the rules to sell VAT-free DVDs and CDs to the UK.

In his pre-Budget report, the UK Chancellor said it was costing the British Government about £90m a year.

Minister Carla McNulty Bauer said she was disappointed he did not mention places such as Singapore and Hong Kong, which also supply VAT-free goods.

Economy benefits

VAT does not have to be paid on goods costing less than £18 imported into the UK from outside the European Union.

Larger UK retailers, such as supermarket giants Tesco and Asda, took advantage of the rules to sell cheaper CDs and DVDs imported from the islands, which are not members of the EU.

It led to the UK Government threatening to ban retailers from exporting goods to the islands before re-importing them in order to save on VAT.

Britain's Treasury may change the VAT threshold

Companies also suffered clampdowns from the governments of Jersey and Guernsey following pressure from the UK, criticism in some of the news media, and concerns the practice was damaging the islands' reputations.

However, local companies still offer the goods without VAT.

During his Pre-Budget statment on Wednesday, Mr Brown said the tax threshold was remaining in place for now, but added that he was continuing to monitor its impact.

The UK Treasury said it planned to look closely at whether to change the VAT threshold.

Minister McNulty Bauer said the status quo was good news for the island's economy and for consumers in the UK.