No one really wants to hear it, but some sort of direct taxation on the residents of the Cayman Islands now seems inevitable.
The UK has no faith in the various fees derived by Cayman’s financial services industry being able to sustain the country in the long run. They believe that international efforts to rein in what they call “offshore tax havens” is going to permanently reduce the business, and thus the fees, derived from this segment of Cayman’s economy.
Leader of Government Business McKeeva Bush doesn’t agree with the UK’s assessment of the future of offshore financial centres, but he does agree the Cayman Islands needs a more sustainable revenue base to help get it through times of economic downturn.
Regardless of Mr. Bush’s beliefs, the UK has insisted, as part of the conditions for receiving permission to borrow past prescribed limits, the Cayman Islands commit to further broadening its revenue base for the 2010/11 budget. It also insisted that Cayman commission a feasibility study of direct taxation.
All of this just means taxes are still coming.
The good news is there will be a proper feasibility study to determine what kind of direct taxation might have the least effect on the ability of the Cayman Islands to remain competitive in the global market.
Income or payroll taxes, which would have to be collected and paid by employers, are problematic in that the government already has a difficult time collecting deducted employee pension and insurance payments from employers. They would require an expansion of the civil service to create a taxing authority.
Property taxes could impact the lucrative real estate market and adversely effect lower income Caymanians who own family land.
Although any kind of direct taxation will likely receive protests from those who will have to pay it, it is better that the Cayman Islands study the probable effects of particular taxes and then make a decision based on what is best for the country.
In the meantime, Mr. Bush hopes that imposing some other revenue measures and significantly reducing the operating costs of government can decrease the overall need for taxation.
It’s doubtful the UK would allow the Cayman Islands to opt out of imposing some sort of direct taxation, but if it has to come, it’s better the form and amount of taxation is chosen by us rather than for us.