GUERNSEY’S proposals to fill its £45 million tax gap by increasing social security contributions and higher company registration fees will drive business towards Jersey, specialists predict.

The proposals announced last week by the Guernsey fiscal and economic policy steering group rejected both a Goods and Services Tax and a flat tax and opted instead for: Basic rate on company profit of zero per cent, from 1 January 2008, to include captive insurance companies and collective investment schemes.

Certain types of business liable to tax of 10% (probably financial services, but as yet unspecified).

lUtility companies and individuals to be taxed at 20%.

A cap on the tax liability of wealthy individuals, for example no tax payable on non-Guernsey income after the first £1 million or £1.

5 million.

Guernsey resident shareholders to be taxed on company investment income, but not the trading profits.

Social security contributions increased to seven per cent for both employers and employees, compared to the current rates of 5.

% and 6% respectively.

(Jersey social security is currently 6.

% for employers and 6% for employees.