Businesses wary of new fees

Reactions to a slew of new fees expected to raise nearly CI$95 million for the Cayman Islands government this financial year ranged from apprehension to disappointment.

Specific areas of concern included a new 10-per-cent business premises tax on commercial property rentals, remittance fees charged to money transfer companies but not to banks, and what was perceived as a lack of willingness by government to reduce operating costs.

The 10-per-cent business premises fee drew particular ire from representatives of both of Cayman’s major industries.

‘(The fee is) an unjust burden put on businesses that don’t own their own premises for no reason,’ said Steve Broadbelt of Ocean Frontiers. ‘It’s creating a bigger government and most business owners…it’s not something they support.’

Former Cayman Islands Monetary Authority Chairman Tim Ridley also believed the business premises tax was ill-conceived.

‘The proposed 10 per cent business premises levy on rents…is wide open to non-payment, collusion and even fraud by landlords, in the same way as health insurance and pension contributions,’ he said. ‘I seriously doubt it will actually lead to significant new construction or purchase of premises.’

Cayman Finance Chairman Anthony Travers said there was extensive consultation between his industry and the government about the charges, and several recommendations the group made were accepted by the administration.

‘Premier Designate McKeeva Bush and his Cabinet have wisely not fallen into the trap suggested in some quarters of mixing indirect and direct tax systems, which would be a seismic shift not justified by the current short-term funding issue,’ Mr. Travers said in response to Caymanian Compass questions.

Mr. Travers said there was no clear indication that direct taxation would increase government revenues anyway, as it could also increase government administrative costs and cause businesses – which pay most of the country’s taxes – to pull up stakes.

Mr. Ridley, who has previously supported the imposition of a small property tax or community service fee, noted that another charge, a two per cent tax on money remittances, could send a bad message to the financial industry even if the measure does not affect banks.

‘It sets an ill-advised precedent as it is effectively a tax on cross border fund transfers,’ Mr. Ridley said. ‘(It’s) a real negative message to the global financial industry.’

Even those who advised government on crafting the budget agreed that not enough had been done to reduce operating costs and the size of Cayman’s government service. Analysis done by the Compass earlier this year showed that government’s payroll costs had increased by some 50 per cent within the past five years.

‘The (United Kingdom) Foreign and Commonwealth Office recommendations with respect to major cuts to the public sector expenditure seem appropriate,’ Mr. Travers said.

Mr. Broadbelt was more direct.

‘All we’ve been told is that civil servants are not going to be allowed vehicles for their personal use and not allowed to use cell phones as much,’ he said. ‘You wonder why these were in place before and why tax-paying dollars are going for these in the first place.

‘All private sector businesses are having to make serious cutbacks just to survive; we don’t have the option of putting our prices up.’

Cayman Islands Financial Secretary Ken Jefferson said the private sector may not realise it, but serious cuts have already been made in the current budget plan. However, he said these cuts, in some cases, have been gobbled up by increased costs over which government has little control.

For instance, projected overtime costs were reduced by some CI$4.3 million in the current budget; travel reduced by CI$665,000; wages cut by about CI$2.8 million largely due to attrition within the civil service; and telephone charges cut by CI$2.8 million.

However, government health care costs went up CI$3.8 million this year, professional fees were boosted by CI$2.1 million mostly because extra accountants were hired from the KPMG accounting firm to update government’s backlog of annual reports; and insurance costs on government buildings went up CI$2.4 million.

In addition, government expects to cover CI$6.7 million in operating losses from public authorities such as Cayman Airways and Boatswain’s Beach.

Although the UK has conditionally approved borrowings to help get Cayman through the current fiscal year, the foreign office has urged the Islands to make real cuts in public expenditure this year and has asked Cayman to commit to further ambitious cuts in the next fiscal year.

The UK has asked for a report on those plans no later than January.