AN MHK who is also a qualified chartered accountant is questioning the function of a tax credit system operated by Treasury which is claimed to be creating a “perverse disincentive to work” for 1,300 people on the Isle of Man.

Rushen MHK Juan Watterson, who was a chartered accountant before being elected to the House of Keys five years ago, has produced a report looking into the strengths and weaknesses of the Personal Allowance Credit (PAC).

His report, published today, has highlighted shortcomings in the present arrangement and offers practical recommendations to improve fairness to those on low incomes.

“For many on very low incomes, the PAC has been a very welcome move, adding up to £650 on their annual income,” he said. “However, for those earning near the income tax threshold, the effect has been mixed.  The removal of the taper has created large inequalities and a perverse disincentive to work.”

He added, “The Personal Allowance Credit (PAC) has been a feature of low income households since 2003, but no study has been done of how it is actually changing the lives of approximately 1,300 people whose income is on the margins of the income tax system.

“This paper reviews the impact of the PAC, demonstrating the effects of the changes over the seven years since its introduction.  It concludes by highlighting the massive inequalities in its present operation and offers some solutions as to how Government could better target this £2.5m to assist those on low incomes and ensure people are better off in work, whilst better supporting the benefit system.”

Mr Watterson said that the timing of the report is not coincidental. “With the Island’s budget less than a week away, it is important to review all aspects of the Island’s tax system, and I hope that Treasury will use this opportunity to refine the system to support those on low incomes whilst removing the disincentive to work that has been allowed to increase over time.”

Mr Watterson added that he had submitted his report to Treasury on December 3.