Instituting direct taxation in the Cayman Islands is very unpopular. However, as the territory has come under pressure from the United Kingdom in recent years, some people have suggested that levying an annual property tax may be the most palatable revenue-raising measure.
According to an August 2012 online poll by the Caymanian Compass, 23 per cent of respondents chose ‘property tax’ as the best option if Cayman was forced to impose additional taxation. That was the second-most popular choice, after ‘higher import duty or Value Added Tax’ (31 per cent), and was more popular than a payroll tax either on all residents or just expatriates.
“I am an expat who owns property here,” said one person. “I don’t want to pay taxes – nobody does – but if I had to pick my poison, it would be property tax because I think that’s fair.”
“Property tax hits the people who can afford to pay,” said someone else.
“It doesn’t have to be super high and there can be a homestead exemption of $200,000 or so, which means only rich Caymanians will be affected, along with a lot of ultra rich tourists who own Seven Mile Beach properties.”
‘Community service charge’
For several years, former Cayman Islands Monetary Authority chairman Tim Ridley has suggested that government institute a nominal property tax to raise money for specific needs. He estimated that a ¼ of a per cent ‘community service charge’ could produce annual revenue of between US$25 million and US$45 million.
“This would be much more consistent and reliable than one off stamp duty that is so dependent on a buoyant market. There could be appropriate exemptions for low value properties and those in real need and genuinely unable (rather than unwilling) to pay,” he said.
As an incentive to accept the new annual service charge, policy makers could consider reducing stamp duty on property transfers. “The short term loss of revenue would be more than recovered over time by the new charge,” he said.
Mr. Ridley said property owners around the world are accustomed to paying such a charge and that there are property and payroll taxes in Cayman’s key competitors of the Bahamas, Bermuda and British Virgin Islands.
He said the revenue should be dedicated to clearly identified services that people need and want, such as police, fire, emergency services and waste disposal. “And not just for general revenues,” he said.
In May 2010, UK tax specialist Richard Teather – whom Cayman Finance had commissioned to write a report on Cayman’s budget situation – cautioned that raising taxes would have a disproportionately negative effect in Cayman than say in larger countries such as the US. However, during a talk at the 2010 Cayman Finance Summit, Mr. Teather conceded that a property tax would be the “least damaging” form of taxation, as property can’t go offshore once a tax is imposed, and a property tax doesn’t discourage growth as a business can grow in a building without incurring additional tax.
“Annual property tax is less damaging than stamp duty because stamp duty is a transaction tax and discourages people from moving in and buying,” he added, contrasting it to a lower annual property tax.
“If you are going to do any form of taxation that is probably the least bad one.”
Lawmakers
In July 2012, Opposition Leader Alden McLaughlin said the expat payroll tax, which he called an income tax, floated by then-Premier McKeeva Bush was the worst possible option for Cayman.
“There are other direct taxation methods to consider: property tax, sales and excise tax, a value-added tax,” he 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.”
Premier Juliana O’Connor-Connolly has publicly stated her preference for privatising public assets – specifically the Water Authority – before instituting direct taxation.
In January 2011, Ms O’Connor-Connolly said leasing the Water Authority assets was necessary to help Cayman reduce its debts, as stipulated by the UK Foreign and Commonwealth Office. “At the end of the day, it is the general consensus that this is a bitter pill, but it is still not as bitter as income tax or property tax,” she said in the Legislative Assembly.
Despite last year’s proposal of a payroll tax on expatriate employees, West Bay MLA Bush has been an outspoken opponent of income and property taxes.
In June 2010, during his 2010/11 budget address, Mr. Bush said, “The Government has considered the introduction of direct taxes such as payroll, income and property tax, but aided by the analysis contained within the Miller Commission report, we have concluded that introducing these forms of taxes would be very damaging for the Cayman Islands economy.”
In September 2011, Mr. Bush said in the Legislative Assembly that the UK Foreign and commonwealth Office had suggested that Cayman implement an income tax or property tax, as well as a 20 per cent cut to civil servants’ salaries and numbers, and also consider a payroll tax.
Mr. Bush said, “I don’t believe in income tax. I don’t believe in property tax. I don’t. And I wanted to find a different way. And I believe our country is small enough and vibrant enough to go along the business model that we have had and has proven true and tested all these many years.”
In an interview with the Cayman Islands Journal that was published in May 2012, Mr. Bush said talked about his relationship with UK authorities. “There have been many issues so I have no doubt that I was not liked up there. And then it came to 2009, and I was told put in income tax and property tax and I said, ‘go fly a kite; that’s not our business model and I’m not going to do so’,” he said.
In December 2001, Mr. Bush said in the Legislative Assembly, “On taking over the Government we could have introduced income tax and property tax but the United Democratic Party decided to adopt a different route because we are against those kinds of taxes. We decided that if we adopted those kinds of taxes, it would create an environment that would destroy the economy of these beautiful Islands.”
In May 2004, Mr. Bush told lawmakers his party favoured public-private partnerships over new taxes. “The UDP Government does not support a policy of increased taxation. Perhaps those people who are saying “not in my backyard”, who do not want to see the increase in revenue can put forward their taxation policy, because that is the only place that the revenue will come from; either income or property tax of some kind, which will send us down the road to damnation. The UDP does not support a policy of taxation. Government cannot fund the needs of the country without encouraging good development and establishing the required infrastructure. This is where the revenue will come from,” he said.
In March 1993, then-Financial Secretary George McCarthy read from a report by UK consultant John Codrington, “There is little scope for increased taxation without pricing the Caymans out of the tourist market. But, a property tax has been proposed as a possibility.”
For more on the upcoming election, please click here.
Related Videos
