Area groups issue statements on expat payroll tax

Chamber 

The Chamber of Commerce is reviewing the budget statement delivered 25 July by the Premier W. McKeeva Bush. We intend to provide an analysis after consultation with the Council of Associations and the wider Chamber membership to determine the impact that the proposed revenue measures will have on the business community and wider economy.  

Following a quick initial review, the Chamber Council supports the recommended reductions to Government expenses and the fundamental policy shift that will now require the public sector to contribute to their pension and health care costs, which has been required by the private sector for many years. This is a positive step forward and an approach that the Chamber has advocated and supported for several years. The introduction of a Community Enhancement Fee requires much more analysis and review. These types of fees (apparently a payroll tax) have long term consequences that must be evaluated carefully. We have already received expressions of concern from various industry sectors and we plan to share our views with Government shortly. We are also seeking more information on the introduction of a fee to enhance the regulatory environment for the funds industry.  

A full statement will be released once the Chamber and Council of Associations has had time to evaluate the proposals which, to the best of our understanding, were not shared with any industry association prior to the Premier’s statement. 

 

Cayman Islands Tourism Association 

The leadership of the Cayman Islands Tourism Association has commented that it understands the need for sustainability and fiscal prudence, and that to be credibly sustainable the Government’s budget will require a mix of expenditure savings and means of increasing Government revenues. CITA further stated that it is however closely watching the details of announcements and developments in regard to the Government budget as a whole and in particular the recent announcements of the proposed Community Enhancement Fee as well as the expenditure cutbacks in marketing and public relations. In regard to the details of these proposals, the CITA executive office is reaching out to its members to obtain feedback and input especially relating to the Community Enhancement Fee, and to gauge likely outcomes that would result from implementation of this fee so as to enable an informed response. CITA remains concerned of potential negative impact to business a new tax may have and urge Government to consider the possibility of long term damage to the economy that would be at risk. 

 

Cayman Finance 

Cayman Finance has not yet received any details on the proposed “payroll tax” beyond that which has been reported in the media. We are therefore unable to offer any technical or specific feedback on the proposal at this stage.  

We do, however, have some serious concerns about what is being proposed and its potential negative impact on the financial services industry and the Cayman Islands as a whole. 

While we welcome the proposed expenditure reductions as a positive step, we support the general opinion held by many within the wider business community that the Government should place the further reduction of recurrent expenditure as a priority in its current efforts to balance the budget. Such cost cutting measures should take precedence over any additional revenue measures. 

It should also be noted that the Cayman Islands is already a relatively expensive place to do business, in particular in regards to work permit fees and trade and business licenses. The proposed tax will undoubtedly lead to a further increase in the burden faced by all businesses in the Cayman Islands, despite the suggested optional pension contributions for expatriates.  

We encourage the Government to carefully consider the wider implications for the economy, and to engage in a comparative analysis of the cost of doing business across the various competing jurisdictions before taking any decisions on this proposed tax.  

We further encourage policymakers to take a more balanced approach to resolving the current fiscal challenges which includes significant efforts in the area of expenditure reduction. As always, Cayman Finance stands willing and keen to assist Government in these efforts to create a sustainable budget. 

 

Sister Islands Tourism Association 

The Executive Committee of the Sister Islands Tourism Association has taken note of the suggested Community Enhancement Fee and would like to offer the following statement: 

As a tourism entity, our primary function is to assist our membership with regard to issues that affect their ability to participate at a competitive level in the tourism industry. The proposed tax will no doubt have a detrimental effect on our industry as it is based in large on the expat community, who are the backbone of the Sister Islands tourism industry. 

The industry surrounding tourism in the Sister Islands has suffered greatly in the recent past because of the economic downturn as well as the corresponding dramatic increase in the cost of doing business due to increased government fees along with increased costs in food, gas and electricity. In addition to these serious financial considerations, hurricanes Gustav and Paloma devastated Cayman Brac in 2008, the effects of which are not only still reverberating through our community, but can visibly be seen in person four years later. In Little Cayman, tourism is the only industry of significance, without which the community would collapse. 

The costs associated with doing business in the Sister Islands have always been significantly greater because of extra shipping charges, port fees, which don’t exist elsewhere as well as food, gas and electricity charges, which are far higher than those incurred by businesses in Grand Cayman. Correspondingly, salaries reflect this higher cost to do business and therefore salaries in the Sister Islands are significantly lower than elsewhere. The proposed tax combined with these factors will certainly be a significant detractor in attracting the qualified staff needed to contribute to the quality tourism product for this industry in the future. 

The Miller Commission Report of 2010 concluded that “The Cayman economy and its Government’s revenue are highly dependent on the financial services and tourism industries, and additional levies on either would likely be counterproductive,” and recommended “Do not impose direct taxation.” 

It is the hope of the SITA membership that Government will take note of the unique and delicate balance, which allows tourism to be competitive in the Sister Islands. 

The expansion of the Cayman Brac airport to allow direct international return flights to the Sister Islands is a step in the right direction; however, other tourism related threats like the post hurricane derelict buildings in Cayman Brac and the Lionfish invasion are yet to be addressed with any significance, both of which have been highlighted to the Tourism Ministry. 

We remain committed to working in association with the Cayman Islands Tourism Association, Department of Tourism and the Cayman Islands Government to advise our membership in manors to remain competitive in such a way as to allow for the required growth and advancement of the Sister Islands and the communities within, ensuring the future of this industry. 

On behalf of the SITA Executive Committee. 

 

Neil van Niekerk 

President 

 

 

Civil Service Association 

The Cayman Islands Civil Service Association writes on behalf of our members, the wider Public Service and Pensioners regarding the recent statements on the 2012-13 budget. On July 25th, 2012, the Office of the Premier issued a statement, which was the first knowledge we had of plans to unilaterally cut contracted benefits of Civil Servants. Then on July 26th, 2012, the Office of the Deputy Governor announced that staff would be expected to participate in “healthcare cost sharing” and some would have to make a “pensions contribution” as well. We are appreciative of the Acting Deputy Governor for this formal communication to staff. 

It is unfortunate that prior to this point there was no opportunity for discussion of these proposals. This has been compounded by the lack of clarity and specificity in various media reports, which have in some instances been confusing. In seeking clarification of intentions we were able to meet with the Acting Deputy Governor and the Chief Officer of the Portfolio of the Civil Service on the afternoon of July 27th, 2012. However we were not provided with significant additional pertinent information. 

In order for us to properly assess and respond in an informed manner to the present situation the Association needs to have knowledge of all options available. We therefore hereby request the release of all alternative cost ‘saving’ and revenue ‘generation’ methods which relate to the benefits and terms of employment of the Civil Service, not just the few pension and health care taxes so far identified in public. 

Regarding the minimal information available, which can not in any way be considered an appropriate level of consultation under section 68 of the PSML, we wish to register the following issues while there is still time for discussion: 

1) We note from the Premier’s statement that “we have also achieved an $83 million surplus”. 

a. It implied that part of this surplus would be used to pay towards the Past Service Pensions Liability. We would therefore like to know what amount of the PSPL the Government intends to fund this financial year? 

b. Similarly, we would like to know what is the expected value Government intends to realise from the mooted pension and health co-pay? 

2) Pension “Contribution” 

a. As discussed during our meeting with the Acting Deputy Governor and the Chief Officer of POCS, you will find that the history of civil service pensions show that civil servants are already contributing. 

b. Regarding the proposal that persons renewing their contracts will be expected to pay a pension contribution, 

i. We were heartened to learn that this would not apply to staff on open term contracts who advance position, move within the Civil Service or whose contract of service otherwise changes. 

ii. When applied to staff on fixed-term contracts, however, this may lead to some supervising staff being paid less than open contract subordinates and could create two pay scales within the Service, one for those paying the pensions surcharge and one for other staff, which we know has been a point of objection in the past. 

3) Healthcare “Contribution” 

a. That this proposal has come forward in its current form, despite the long-standing discussions between the Civil Service Association and the Government on this very issue is disappointing. 

b. As we have stated many times in the past the Service is open to discussion on health insurance but only if it includes some form of choice of healthcare provider. Whether those discussions should also include choice of health insurer or not is also open as it must be recognised that alternative insurance providers may be able to provide better cost-effective access to health care without reducing existing benefits. 

c. We note that the proposals include that spouses of civil servants may need to pay an additional ‘individual’ premium on top of the premium paid for a ‘member and dependent’ or ‘member and family’. We seek clarification on the specifics of the proposal. 

d. We also ask if civil servants who can get health insurance through a private provider, for example as dependent of a working spouse, will be allowed to remove themselves from the Civil Service CINICO rolls? 

4) We request clarification on whether the healthcare and pension surcharges will apply to all categories of public servants, including the Judiciary and members of the Legislative Assembly. 

5) We request clarification on what is meant by “the rationalisation of remuneration in Statutory Authorities” and also whether this applies to government companies. 

Unless and until the Government is ready to discuss all options of achieving savings within the budget we will continue to be saddled with unacceptable, unworkable and unsustainable recommendations such as two and three above. 

We assume, from previous rounds of budget discussions, that the Government is again taking advice on the legality of unilaterally voiding the mutually agreed contracts of thousands of employees. We expect that these reviews will, again, show that such unilateral actions are wrong and expose the Government to serious liability. 

However, the human impacts of these proposals significantly outweigh any potential legal implications. We must ask whether any assessment has been done of the very real economic impact these changes will have on civil servants and their families? The Management Council cannot ignore the realities facing its members who are already struggling against the ever increasing cost of living and for whom these proposals have already created significant uncertainty and anxiety. 

Has the government considered the knock-on effects of these measures to the local economy? It is easily recognised that any reduction in purchasing power of Public Service employees will have an immediate and adverse impact on the economy. Indeed the UK Government has seen a contraction to its economy due to its recent economic policy decisions, which included cuts to the UK civil service. Similarly, when the COLA was rolled-back, it was observed locally that the affected persons reduced their discretionary spending and it was the private sector which bore the brunt of this in the form of reduced purchases of goods and services by the now poorer staff of the largest employer on the islands. 

We also call on you to publish the analysis that has been carried out on the ability of the service to attract and retain top quality staff in comparison to the remuneration packages being offered in the private sector. 

We are convinced that when all of these social and economic costs are considered they will outweigh the anticipated benefits of the proposals. 

For decades the hard, reliable and honest work of the Public Service has been the backbone of this society and our economy. The Public Service has consistently throughout the current financial crisis done its part in supporting the Government to meet the needs of the people. 

Every Ministry and Portfolio has added services for the public while at the same time reducing overall headcount. CICSA has in the past contributed effective revenue generating and cost saving measures to the Government’s budget discussions. Public Servants stand ready to do our part in finding sustainable, realistic, balanced and fair solutions. 

There is still time to have an honest, open and productive discussion on what civil servants’ contributions to balancing the budget might be. Unfortunately this opportunity is rapidly slipping through our fingers and unworkable proposals on civil servants’ remuneration are not the solution. While Management Council remains willing to engage in open dialogue with your office, we again request the release of all cost saving or revenue generation methods identified, not just the few so far publicized, so that a transparent and fully informed discussion can be held. 

We also offer to provide a venue for a meeting where your office could address public servants directly and explain the true position regarding the budget and any proposals that might affect them in order to alleviate the growing fear and uncertainty amongst public servants. 

 

James T. Watler 

President, CICSA 

7 COMMENTS

  1. I would like to hear from Cireba as many property deals already fell through last week due to the mooted TAX.

    A statement from the DART group will also be appreciated as this will affect the value of his land and property the most.

  2. I shall be telling this with a sigh
    Somewhere ages and ages hence:
    Two roads diverged in a wood, and I,
    I took the one less traveled by,
    And that has made all the difference.
    Robert Frost

    In 1962 Jamaica chose independence and its destiny as a taxable nation. In the same year, instead of the glamour of independence, Cayman took the road less traveled by. Cayman elected to no longer be administered by Jamaica (http://en.wikipedia.org/wiki/History_of_the_Cayman_Islands#Dependency_of_Jamaica), to become a British overseas territory and begin the path towards emerging as a tax neutral jurisdiction in1966. Taking the road less traveled by has made all the difference for Cayman.

    Today, the per capita GDP of Jamaica is 5,402 (http://en.wikipedia.org/wiki/Jamaica) — slightly above the levels of Cuba, Namibia, Algeria and Angola and Turkmenistan — while the per capital GDP of Cayman Islands is 47,000 (http://en.wikipedia.org/wiki/Cayman_Islands) which is above the per capita levels of Belgium, Japan, France and Germany. Indeed, Prior to 1966 when the Cayman Islands became a tax haven, you’d have found the capital Georgetown to be a sleepy little backwaterbut with tax haven status came almost overnight sophistication. And today, with more than 9,000 mutual funds, 260 banks and 80,000 companies operating through the islands, Georgetown is a thriving and exceptionally wealthy hub. http://www.shelteroffshore.com/index.php/2/expat-tax-cayman-island-tax-haven-11181

    It has taken decades of leadership by courageous Caymanian statesmen and stateswomen — and the Caymanian people who supported them — to achieve this result. As of a week ago, Cayman was known the world over as one of the world’s leading tax neutral jurisdictions — and the fees charged to the businesses and expat employees financed (together with import duties and other indirect taxes) MLA and civil service salaries, unemployment benefits, social services etc. without the need for direct taxes for anyone.

    In less than one week, these decades of work by the Caymanian people and its leaders have been carelessly thrown overboard through the proposal to introduce a new direct tax which has been broadcast all around the world.

    Cayman is now beginning to get the reputation as a taxable jurisdiction (not a tax neutral jurisdiction) in publications ranging from Forbes to to Reuters — from the Vancouver Sun to the Los Angeles Times.

    Here is a small selection of articles promoting Cayman’s new strategy as a taxable (not tax-neutral) jurisdiction:

    1. Forbes: You Know It’s Bad When The Cayman Islands Calls For Income Taxes: http://www.forbes.com/sites/walterpavlo/2012/07/26/you-know-its-bad-when-the-cayman-islands-calls-for-income-taxes/

    2. Reuters: Cayman Islands proposes income tax on foreign workers http://in.reuters.com/article/2012/07/27/cayman-tax-idINL2E8IRBUW20120727

    3. Vancouver Sun: Cayman Islands may adopt a payroll tax for expats, a first in famed tax haven http://www.vancouversun.com/business/CaymanIslandsadoptpayrollexpatsfirstfamedhaven/7002275/story.html

    4. LA Times: Taxes? In the Cayman Islands? New budget could tax foreigners http://latimesblogs.latimes.com/world_now/2012/07/taxes-cayman-islands-budget-foreigners.html

    By choosing the road less traveled by, Cayman has — for over half a century — been a beacon of light and progress in the Caribbean through its strategic choice to become one of the world’s leading tax neutral jurisdictions. As a result, the per capita GDP of Jamaica is 5,402 while the per capita GDP of Cayman Islands is 47,000.

    Over the last week, by proposing a direct tax, Cayman has abandoned its path of light and success, and is now broadcasting to the entire world — through Forbes and Reuters — that it intends to take a different road, the one characterized by direct taxation. This was the road chosen by Jamaica in 1962 and resoundingly rejected by the proud Caymanian forefathers when Cayman chose to become a tax neutral jurisdiction in 1966.

    Taking the road less traveled by has made all the difference for Cayman. Choosing the Jamaican path of becoming a jurisdiction with direct taxation — a choice that began less than one week ago with the Premier’s proposal to introduce direct taxation in Cayman for the first time ever — is likely to lead Cayman to experience the same results as those encountered by Jamaica on its journey of direct taxation.

  3. Thanks for your well thought out Comment, progress. That definitely sheds some additional light on this ridiculous proposal! And as for the CIREBA issue, I can tell you that I, for one, was about to purchase an additional property to generate rental income, but I have put it on hold because I don’t want to be left sitting with a vacant rental property during the certain mass exodus of expats!

  4. The 3% retail sales tax on all non food items is a smart idea for now.
    It would only be for a period of time to raise funds.
    A 4-5 year plan, By that time other projects in the works would be up and running like the hospital.,Port.
    According to the statistics for business Cayman is importing a half billion a year in merchandise, after retail markup and items excluded it would be at least 10 million a year new revenue.
    This Program would be easily set up.

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