The income level on which the proposed 10 per cent expat tax will be levied will be $36,000, according to Premier McKeeva Bush.
At a public meeting in West Bay Wednesday night, Mr. Bush said the tax would be implemented by 1 September and would administered by the Immigration Department. The premier had earlier said the tax would apply to those earning $20,000 and more.
“The employee on a work permit will make a contribution to the fee, which will be calculated at 10 per cent of the employee’s remuneration,” Mr. Bush said.
Government Minister Rolston Anglin said the 10 per cent tax would apply to a “wide definition” of salaries and would include bonuses and other compensation.
The premier told the packed room at the Sir John A. Cumber school hall that mandatory requirements for work permit holders and their employers to contribute to pensions would be eliminated. Currently, all private sector workers, Caymanian and expat, pay 5 per cent of their salaries into their pension, which is matched by a 5 per cent contribution by the employer.
No separate income tax department would be established to collect the tax. The Immigration Department would collect, administer, audit and enforce the new tax, as the department already collects work permit fees and has a database containing details of all work permit holders in Cayman, Mr. Bush said.
The tax, which Mr. Bush calls a Community Enhancement Fee, will not apply to non-Caymanian permanent residents or to non-Caymanian government employees, the premier clarified. Expat spouses of Caymanians will also be exempt from the tax.
Also, Mr. Bush said those being charged the tax would not be given a “discount” on the fee. In other words, there someone making $35,999 a year would pay no tax, but someone making $36,000 a year would pay the full 10 per cent levy on their entire salary.
Annual tax revenue
According to the 2010 Census Report, there are approximately 5,875 expatriate workers with salaries over $36,000 per year. If expatriate civil service workers with salaries above $36,000 are excluded, the number of expats subject to the tax declines to about 5,250, according to the Civil Service Annual HR Report for 2010/11.
When averaging the salary brackets, analysed in the Census Report, the payroll tax would collect about $37.1 million. However, the actual number will be smaller as permanent residents still have to be excluded. The true number of people subject to the tax will thus be closer to 4,000-4,500 and government must also deduct collection costs. Government is therefore likely to collect $30 million or less from the tax.
‘Sun your buns, governor’
The premier said the government’s stymied efforts to divest the Water Authority was one of the reasons introducing the new tax was necessary if Cayman was to meet the United Kingdom’s requirement to have a sustainable budget.
“We got agreement from the United Kingdom to divest these entities, such as the Water Authority and sewerage. Had we been able to do that, because they said pay the money and pay… down the debt, if this country get behind the government and we can make the divestment, you won’t have to do this kind of revenue raising measures.
“What the people should be… blogging is say ‘Governor, stay on the beach, sun your buns and let the government get on with its work. Then we would not have any need to tax anybody, because that’s what the United Kingdom has agreed.”
However, when a member of the audience later questioned whether the proposed income tax would be scrapped if the Water Authority was divested, Minister Anglin responded that he could not say if that would “alone cause government to be able to move completely away” from the tax, but said it would have a “direct benefit” on it.
New 5 per cent fee
Mr. Bush also referred to an additional 5 per cent fee that would be imposed on companies hiring certain categories of employees. “This will serve as a further incentive to train and recruit Caymanians in those roles,” Mr. Bush said.
Government Minister Rolston Anglin told the Caymanian Compass that the 5 per cent fee would apply to the types of entry level positions and unskilled labour jobs in which a work permit holder was unlikely to get key employee status. Whether this fee would be an income tax, a further work permit fee or other charge was still being worked out and had not been finalised, he said.
After more than an hour and a half of speaking and showing slides about the government’s finances, Mr. Bush took questions from the floor. During the Q&A session, several people who opposed the tax were heckled loudly by other members of the audience. In response to one question, Mr. Bush said he was “not going to put any tax that hits the ordinary Caymanian any harder than they are now”.
Asked what other avenues the government had considered before implementing the tax, Mr. Bush said that the government had looked at many alternatives, including “gaming, lotteries, service fees, more garbage fees, car fees, luxury car fees, [and] work permit fees”.
At one point, Mr. Bush referred to one female Caymanian questioner as “little girl” and told her to hand back the microphone after she suggested the tax should be applied to everyone. She asked how Cayman could sustain itself if, as she said, Mr. Bush had said in his speech “Cayman came out from under the UK”. Mr. Bush denied making that comment.
After one exchange between audience members got particularly heated, Mr. Bush cautioned members of the audience to “be careful how you ask your questions… State your piece, because there are people who will retaliate about what you will say. We’re not here for a fight, we’re here to answer questions as best we can. Let’s not turn this into an us and them.” Mr. Bush said he would listen to recommendations for raising revenue and asked people to submit suggestions to the Premier’s Office as soon as possible.
“This Community Enhancement Fee is not a desirable first option but we are being required to come up with additional sustainable revenue sources,” he said.
He added: “If we can get an alternative that meets the revenue that the United Kingdom say we must meet, then we have no problem but to make necessary changes that will create less of an impact on work permit holders.”
Former Cayman 27 reporter and political candidate Kenneth Bryan called for calm and pleaded with people to “keep the passion down and try not to go too far because it can cause the country a lot of pain”.
Lawyer Steve McField hit out at derogatory online comments made about the premier and government members and asked for more respect to be shown to Cayman’s leaders.
One Caymanian member of the audience asked how a Caymanian could sit next to a non-Caymanian doing the same job and “feel fine about that person paying taxes for your benefit”.
Several attendees shouted “Yes!”, to which the speaker responded: “I wouldn’t.”
The speaker later added that the tax should be applied across the board and not just to expatriates to pay for the expenditure of the Cayman Islands.
Minister Anglin, responding to the question, said he had worked as an expat in New York and had paid tax there and “I’ve never been able to vote in the United States”.
He added that he had sat next to colleagues in New York while on a work visa that mandated he be rolled over after three years.
Another questioner said he was concerned about the financial impact that the reduced investment power of pension plans, once pension revenue is withdrawn from those plans, would eventually have on the “poorest of Caymanians”.
He asked if expats would be able to withdraw their pensions and transfer those funds to another pension plan of their choice.
Mr. Anglin said the matter would be “taken under consideration”.
Caymanian Compass reporters Michael Klein and Brent Fuller contributed to this story.