A proposed Cayman Islands payroll tax that would affect only work permit holders within the Islands may not stay limited in that way for long, according to Opposition Leader Alden McLaughlin.
“For those who think that somehow they’re insulated from this … once government implements this system, it just takes a stroke of a pen to include Caymanians or to raise the rate from 10 per cent to 15 or 20 per cent,” Mr. McLaughlin said Thursday during an interview with the Caymanian Compass. “It is one thing to say the country is moving from a system of indirect taxation to direct taxation, it is quite another to say it is moving from no income tax to having an income tax.”
During an address to the territory Wednesday, Premier McKeeva Bush said he had proposed implementing a 10 per cent payroll tax – not an income tax – for work permit holders only. The tax would not apply to non-Caymanian permanent residents, non-Caymanian government contract holders or Caymanians.
As a balancing measure, Mr. Bush said he would remove legal requirements that companies and employees pay a combined 10 per cent into a work permit holder’s retirement savings accounts. Currently, 5 per cent of a worker’s salary and a matching 5 per cent contribution from their employers must be paid into a Cayman Islands pension account.
Mr. Bush referred to the 10 per cent tax as a “community enhancement fee” during his broadcast address. He said government had a choice of taxation options and opted for the “softer”, “community enhancement fee”.
“We have made extremely deep cuts to get the budget to this stage,” Mr. Bush said. “This still did not produce enough savings to satisfy the [United Kingdom’s] Foreign and Commonwealth Office.“
The premier said government would not accept proposals to layoff 500 to 700 government workers and decided instead to charge the payroll tax to work permit holders that earn more than $20,000 per year.
Opposition Leader McLaughlin said the “income tax”, as he referred to the payroll tax, was the worst possible option for Cayman and that he understood the United Kingdom had made no such requirement during Cayman’s budgeting process.
“There are other direct taxation methods to consider: property tax, sales and excise tax, a value-added tax,” Mr. McLaughlin said. “This income tax is going to be hugely damaging to the country. It’s going to completely alter the view, from a perception standpoint, of investors.
“I don’t have, and I don’t think the government has, the assessment necessary to make those choices right now.”
In proposing the payroll tax, the government has gone directly against advice it was given by outside consultants in the Miller-Shaw Commission report of 2010.
Quoting from the report: “Adopting any form of income or payroll tax would remove much of the fiscal allure that has boosted the economy. Any form of income or payroll taxation would require the imposition of an entirely new tax system with both high set up costs and potentially significant and permanent compliance costs.
“It is also unlikely that a tax on income, regardless of form, would solve the problem of variation in revenue collections.”
Mr. McLaughlin said he viewed it as “nigh on impossible” that the government would be able to implement the payroll tax by the end of August, as has been proposed.
The Caymanian Compass website, www.cayCompass.com was abuzz with opinions about the proposed payroll tax on Wednesday and Thursday.
The vast majority of the comments were not supportive of Mr. Bush’s proposal.
“The expat tax or community enhancement fee (which, for the avoidance of doubt, wouldn’t apply to me) wouldn’t benefit Cayman, or Caymanians,” said website commenter ‘Lex’. “To the contrary it would likely cause irreparable damage to the Cayman economy”
In some way you have to laugh at this idiot and his reasons behind it,” another commenter opined. “How illegal can this be? I propose all ex-pats on the island STRIKE for a week.”
About 24 hours after Premier Bush made his broadcast address about the payroll tax, a Facebook page called “Caymanians and expats united against taxation” was created and had 1,500 people sign up as group members within three hours.
Local social media marketing manager Nick Pitman started the page, stating the issue was about a proposed tax he called “discriminatory”.
“We hope you will wake up and see that you are killing Caymanian businesses more with this proposal, more empty houses Caymanians cannot rent,” Mr. Pitman wrote in one of his posts on the site.
Other page commenters stated their views: “I think this will seriously damage the nation’s economy. I have been seriously planning to move back there and invest in the Islands again. Now, I don’t know what to think.”
Another commenter noted: “This tax idea is idiotic, ill-timed and short-sighted.”
By press time Thursday the Facebook page had more than 4,000 members.
Governor asks ‘Where is the budget?’
The following statement was released by Cayman Islands Governor Duncan Taylor’s Office Thursday: “I have seen reports of a statement issued by the Honourable Premier on the budget yesterday. I think it would be helpful to clarify that negotiations on the budget with the Foreign and Commonwealth Office are ongoing: we do not yet have an agreed budget.
“The FCO’s Economic Advisor sent to the Cayman Islands by the Minister for the Overseas Territories, Henry Bellingham, to work with the Cayman Islands Government on the budget has returned to London but remains fully engaged in the process.
“He has set out to the Cayman Islands Government the broad framework for a sustainable and credible budget. He would need to see a draft budget which fits that framework before he could recommend to Minister Bellingham that he approve it.
“He has made clear that he would expect the Cayman Islands Government to achieve this through a combination of expenditure savings and measures to raise revenue: the “precise nature of these is largely a matter for the Cayman Islands Government but they must be credible and sustainable.
“At this time, the Economic Advisor is still awaiting detailed proposals on the budget from the Cayman Islands Government.”