While all the actual details relating to the Government’s proposed 10 per cent income tax on expats have yet to be released, just the notion of such a tax has sent prospective real estate buyers running and some expats declaring they no longer want to remain on-island. To some extent this is may be just a knee-jerk reaction to the proposition; nevertheless, the very idea raises serious concerns for everyone on-island, expat and local alike.
Government has yet to inform the public as to how the tax will be implemented, collected or utilised, yet the effect of simply announcing the possibility of such taxation has created negativity amongst the business community, which should be of concern to everyone in Cayman. We also do not know if this latest proposal is simply a scare tactic to soften the blow of an alternative measure of which we know nothing about as yet.
The potential negative impact the proposed tax could have on the real estate industry in particular should be of particular serious concern to the country. A few years ago Government made the first discriminatory step against foreign ownership by reducing stamp duty for Caymanians only. This latest proposed move will only hit expats harder – not only do they have to pay more for purchasing their property; they now will have less money to purchase it.
Within 24 hours of the announcement of this new income tax, associates at RE/MAX Cayman Islands noted at least 10 real estate deals falling through as nervous buyers decided to pull out of the buying process, at a cost to government of about CI$250,000 in stamp duty revenue. I believe Government should be working harder to attract foreign ownership and not focus on giving breaks for local ownership necessarily.
After all, Cayman is home to local people, so they will hopefully always have the long-term benefit and are not forced to sell as persons on work permits are impacted by the rollover policy; expats will now be less likely to buy and other foreigners can easily go elsewhere for their second home as the cost of living here increases uncontrollably. The economy will suffer without foreign investors purchasing property to the extent that locals will be detrimentally affected more as a secondary effect than directly.
New developments will also now become more costly, should the tax actually be implemented.
This is because of the clause known as a force majeure in contracts between construction companies, developers and buyers, which states that any additional taxes imposed after the signing of the contract will have to be passed on.
The developer in turn must reap their costs back from buyers, forcing the price of new developments up. As prices go up people are less likely to invest, thereby having a detrimental effect on the economy in a market place that might have been showing signs of improving, but will only now be further hindered by this type of tax.
At the end of the day it will most likely be business that will suffer from the implementation of this tax as expats either ask their employers to pay the additional fee or will simply up sticks and move away from Cayman. Both scenarios will hurt the business owner.
After a succession of hits on the business community by Government attempting to increase its revenue in recent years, such as duty hikes and work permit fee increases, I believe that businesses will just not be able to tolerate this latest squeeze.
The real estate industry would welcome the chance to provide their input as to how they believe the Government could increase revenue, but they would most likely focus on the reduction of cost, primarily the size of Government itself. There just seems to be too many ongoing costs that Government and the private sector cannot afford to pay for, and something has to give.
But the real estate industry would appreciate the chance to forge a proper public/private sector relationship, which I believe is the only way Cayman is going to improve its economy for the good of everyone living on the island – expat and local alike.