The report of a three-member
commission that provided an analysis of the government’s current financial
difficulties – the Miller Report – states the Cayman Islands faces a major
The report basically concludes the
government must either reduce its spending and change its business model or embark
on the slippery slope of direct taxation.
We’re not sure the options are
mutually exclusive – for there could be hybrid solutions – but we feel strongly
that the establishment of income or payroll tax at any level would be extremely
harmful to the Cayman Islands
The problem with income or payroll
tax is that it most assuredly will lead to higher government expenses and a
decline in other government revenues, increasing the need to tax.
Income or payroll taxes require
extensive administration and compliance personnel, necessitating the expansion
of the civil service at a time when government wants to trim its numbers.
Unlike the case with private sector
health insurance and pensions, the government could not turn a blind eye on
employers who don’t comply with the payments of income or payroll tax. Employers
who disobey the law would have to go to prison – just like in other places in
the world – or there would be mass non-compliance. This would put companies out of business and
increase government expenses even further.
The establishment of income or property
tax would also increase overhead costs to businesses, which would have to
provide proper accounts if they were audited by the tax authority.
On the revenue side, the
establishment of income or payroll taxes would remove part of the allure of the
Cayman Islands for the financial services industries and its required expatriate
workers. This would make Cayman less competitive
and businesses and people will leave. A
contracting population will not only prevent economic growth, but will also put
more of the tax burden on Caymanians.
The Miller Report states that
Cayman’s preferable course of action would seem self-evident. Although we believe the Miller Report offers
something of a false dichotomy in its solution, we do believe the Cayman
Islands’ least preferable course of action is the establishment of income or