'Tax-onomy': Our potholes and pitfalls

On the international scene, the Cayman Islands is often perceived as a jurisdiction that is “low-tax,” or even “tax-free.” Over the decades, that image has proven to be a most useful marketing tool to attract investors and new residents. Unfortunately, it’s not entirely true.

Cayman has been blessed with the absence of taxes on income, corporate earnings and annual property values — some of the most common forms of “direct” taxation in the wider world. But make no mistake, our country is rife with taxes, though we tend to use other words to describe them, such as “duties” or “fees.”

For example, instead of an income tax, Cayman has “work permit fees” that vary according to job category rather than salary. Instead of a property tax, Cayman levies a hefty one-time “stamp duty” at the time of each transaction. Instead of a sales tax, Cayman charges import duty on items at the point of entry, at a basic rate of 22 percent.

When it’s all said and done, Cayman’s government brings in just as much revenue, per resident, as do the governments of Canada or the United States. One consequence — and this is an undesirable one — of Cayman’s system of “indirect” taxation, is that it tends to obscure the link between the amount of money residents are giving to government, and the level of service government is providing to residents in return.

(Let us here note that Caymanians, i.e. voters, are exempt from certain taxes, particularly immigration fees — and also are eligible for greater government services, such as social assistance and free public education. For the electorate, the link between what they give the government and what they receive from government is not simply obscured, it’s skewed.)

Apart from the collection of revenue, there are other kinds of “taxes,” as well. These are called “hidden taxes” — and they are the costs incurred by citizens as a result of corruption, inefficiency or mismanagement on the part of government. It could be something as intangible as time lost waiting in line at government departments, as oblique as increased security measures taken by businesses in response to rising crime, or as blatant as charges to fix an automobile battered by ubiquitous potholes.

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As related in Wednesday’s Compass, Red Bay resident Geoff Cahill discovered one of those hidden taxes when he had to pay $1,000 to a mechanic to repair damage to his truck caused by unsatisfactory road conditions in his neighborhood.

We have brought up before the conundrum of how a country as wealthy as Cayman can somehow not find funds for things such as emergency vehicles, proper waste management or road maintenance. The answer is that government regularly chooses to spend its money on other things, such as civil service salaries and benefits, government-owned companies (such as the Cayman Turtle Farm and Cayman Airways) and expensive capital projects (such as Clifton Hunter High School and the as-yet-unfinished John Gray High School campus).

One reason that successive elected governments have managed to escape accountability for their continuing mismanagement, is that the way government derives its funds insulates taxpayers, and particularly voters, from the feeling of paying taxes and the resulting expectation of receiving a certain level of service in return for their money.

Yet, as expatriate parents realize from their hefty bills for private school tuition, commuters are reminded of by nosefuls of stench from the George Town dump, and Mr. Cahill found out from his mechanic, the costs (no matter how “hidden”) of poor governance will, ultimately, have to be paid.

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  1. Yeah, I always thought that attending that convention was one of the most ridiculous ways to spend money. But may be that is how public officials travel the world theses days.
    By the way, how is the postal service in the Cayman Islands? What did they learn and implement?

  2. The fact is, it costs money to run a country…. no matter how big or small.

    The fact is, the way government pays for the cost of running a country, to any degree, is through taxation. Either direct or indirect. Cayman is not a tax free country, nor is it tax neutral, low tax, or any other perception of minimal taxation on people who live and work her.

    The fact is, even if you are making $20.00 per hour, that $20.00 equates to $16.00 per hour before you pay for mandatory insurance. When government takes almost one quarter of your salary for everything you consume, theres not much left for you for food, rent, gasoline, car insurance, a car, clothes, a movie or two etc., etc.

    The fact is, all governments are wasteful, inefficient, and dishonest. To some degree.

    The fact is, residents, citizens and taxpayers do have a responsibility to expect honesty, efficient and responsibility in government. Those having this responsibility can and should vote with their minds, voices, and as a last resort with their feet.

    The fact is, there are many people in Cayman who voted with their feet to leave their home countries because they calculated Cayman offered a better life, or better deal for their tax dollars. That vote can be exercised again if and when the deal is determined to not be so good.

    The fact is, the Compass is correct in reminding readers that there is no free ride, and anyone and everyone who consumes anything on this island is a taxpayer. Taxpayers deserve high quality goods and services provided by the government in the most effective efficient manner.

  3. It doesn’t really matter who physically pays the fee, the cost ultimately falls to the worker who all else being equal will receive less salary and/or benefits than he might have without the fee. If you want to look at it from the perspective of who pays it, then most all taxes are paid by the employer via withholding taxes in other countries, i.e., the employee doesn’t receive their "pre-tax" salary they receive it after taxes and the employer pays the tax owed.

  4. Possibly the most insidious, and potentially damaging, hidden extras are the hotel tax and the so-called service charges added to hotel bills. They can easily up an already pretty steep room rate by 25 percent. These islands are already known for being some of the most expensive in the region and quite bluntly hitting stayover visitors like this is not smart.

    Tourists are also being hit in other ways like the banks decision to introduce fairly punitive handling charges for Amex Travellers Cheques, which in many other destinations are still treated like cash.

    Of course the other major backdoor tax on visitors is the completely artificial exchange rate. Is one Cayman dollar really worth UDS1.25? I somehow do not think so.

  5. What is good about the non- tax system is there is no capital gains tax. If you are investing in the stock market you can make the skys the limit and none of that goes to the government (unless you are a US person). In the rest of the world you have to add that to your income which could push you into a higher tax bracket.

  6. What about all our "duty free" stores.Most of what they sell including jewellery is in fact subject to import duty.When I ask the question I never get a straight answer as to which items are entirely free of duty.

  7. @Mike Carp

    I think the thousands of people in the UK who were sold so-called tax-free investments in the Cayman Islands a few years ago then got clobbered hard by HMRC might disagree with you.

    If you are unfamiliar with this story HMRC used EU law to force the major banks to disclose the details of everyone they had helped to stash money (things like pension lump sums) away then hit their customers for the same tax those investments would have attracted in the UK.

  8. @Mike Carp
    Are you a certified tax professional specializing in investment management industry? It has nothing to do with wisdom, but professional expertise.
    It is NEVER that simple when it comes to taxation. There is an hourly charge for enlightening.

  9. @ L Bell… You have no idea what your are talking about
    I can tell you that there is no capital gains tax on stocks in the Cayman Islands.. that is fact! I do specialize in finance….. You pay no taxes to the Cayman Government on capital gains but you are responsible for Capital gains to your home country if applicable .. US persons must report all world wide income annual.

  10. @ David Williiams,@ L.BELL
    Please read my post again.
    you find proof that they do, then you can respond back.. please dont respond with another off topic answer.