Premier McKeeva Bush claimed at a public meeting in West Bay on Wednesday the proposed tax on the compensation of expatriate workers in the private sector is not government’s “first choice” and government would remain open to alternative revenue ideas.
Given the drawbacks of the proposed expat payroll tax in terms of fairness, collectability, economic impact, competitiveness and reputation for Cayman as a financial centre, several alternatives have been submitted to government.
One such revenue plan, presented by Don Seymour, managing director of DMS, in an email to government combines infrastructure and director fees with civil service cuts. The alternative revenue proposal would contribute $40 million from an infrastructure fee and $25 million through several directorship fees to the budget, Mr. Seymour said. Other revenues could be collected from a liquidator fee, a boat licensing fee and garbage fees, he said.
The proposal links the cost of Cayman’s roads, which are in constant need of repair, and the need for new roads to support infrastructure growth to a mileage fee for motorists.
The mileage fee would be levied on each of the 55,000 vehicles that are registered in the Cayman Islands. The fee would be determined according to the miles driven during the course of a year and linked to the odometre of the vehicle. Proponents of the idea are saying that is difficult to manipulate and virtually impossible to defeat the modern odometre without disabling the vehicle.
Because vehicles have to be licensed and inspected each year at the Department of Vehicle Licensing, collection costs would be minimal, Mr. Seymour said. Compared to a payroll tax it avoids the implementation of a completely new tax administration and bureaucratic collection system, which does not currently exist. The collection would be simple and require a simple software change at the Department of Vehicle Licensing, according to Mr. Seymour.
“Compliance would be high as driving an unlicensed vehicle is already strongly enforced by the police with regular checkpoints,” he said.
Based on 50,000 vehicles driving on average 8,000 miles, residents would drive a total of 400 million miles per year. A 10 cent road user fee per mile would thus raise $40 million annually for a road fund.
For the average user this would equate to $67 per month or $800 per annum. “This is less than a cell phone bill,” said Mr. Seymour.
The road user fee could be varied in several ways; for example commercial vehicles such as dump trucks and vans could pay more than private cars. Expensive vehicles could also attract a higher fee, making the fee more progressive, similar to the progressive structure of the customs law, Mr. Seymour said.
This would also be the main advantage over simply increasing the regressive fuel tax, where each vehicle pays the same tax, he added.
Some concerns have been raised that people in the outer districts of East End and North Side will accumulate a higher mileage than residents living in George Town, West Bay or Bodden Town. A solution to this problem could be an annual credit of 2,000 miles for residents in these districts, he suggested.
“The main advantage of this type of levy is its flexibility, which allows structures that respond to the varied needs of the community,” Mr. Seymour said.
When confronted with the proposal at the public meeting on Wednesday UDP MLA Cline Glidden said “the challenge we are having is that the general people in Cayman, the Caymanians that are working or who are not working are struggling to pay a licence fee at the end of the year.
“While it seems like an attractive alternative to have a system in place that allows you to drive and come December you show up at the Licensing Department and they say you have to pay me a fee over a thousand dollars, very few Caymanians are able to afford a thousand dollars to pay licence fees to continue to drive on the road,” he said.
He did not elaborate as to what objections there would be to a quarterly or monthly fee, but added: “We have heard about these alternatives. What we are saying is we need alternatives that raise revenues in a similar fashion that do not cause a burden on hardworking Caymanians that are currently struggling to survive.”
As another revenue source, Mr. Seymour has proposed directorship fees. These would include a registration fee of $500 for each of the 10,000 directors registered in Cayman.
An annual certification fee would be levied on each of the 10,000 registered funds in Cayman. At three directors per fund, a certification fee of $500 would bring in $15 million for government coffers.
These fees would be complemented by a licensing fee for professional directors who have more than 10 directorships under Mr. Seymour’s proposal. At $25,000 the measure would yield approximately $5 million from an estimated 200 professional directorships.
Mr. Seymour further raised the idea of a liquidator fee. Given that insolvency is a major business in Cayman especially around regulated vehicles, government could charge a fee of $5 – $10 per insolvency hour billed, he outlined. As commercial rates average about $500 per hour, the levy would be insignificant when added to the fee.
Mr. Seymour said the fee could raise many millions of dollars. “Every structure that is established eventually dissolves, so it is justifiable that CIG earns a fee at the beginning, during and at the end of the life of the structure since a proper functioning infrastructure is needed throughout to support the industry.”
Boat licensing fee
This fee would require all pleasure boats to be licensed. A similar form of luxury tax is already common in places like Florida and typically charged depending on the length of a boat.
While a garbage fee is directly linked to a service that needs to be financed, collection and enforcement has traditionally been a major issue. Mr. Seymour proposes to collect and enforce the payment through the Water Authority by invoicing the water and garbage bill at the same time. Compliance would be achieved by disconnecting the water supply, when bills remain unpaid.
US dollar transactions
Other proposals have been made recently by MLA for North Side Ezzard Miller who suggested government should take 2 cents from the 4 cent spread banks introduced on US dollar transactions in 1968 when the Cayman adopted its own currency.
Mr. Miller said banks “have made millions of dollars from these transactions” and recommends that “the government reduce these 4 cents to 2 cents and collect it from the banks into government’s revenue”. According to Mr. Miller it would have no negative effects on the local economy or personal income streams, and could even have a small positive effect by reducing the cost of living by 2 per cent. “The government will collect much more revenue from this than from your community enhancement fee with no additional cost or further increase in the civil service numbers,” he said.
Mr. Miller also advocated to legalise the number and lottery games that operate in an underground economy. Legalisation and licensing of the lottery will generate much more income than the payroll tax and will not require additional civil servants to administer, he said.