EDITORIAL – Chasing the ‘missing millions’: Don’t.

“Public Reminded of Stamp Duty on Leases” — That was the subject line of an email we received recently from the Cayman Islands government.

It was the Lands and Survey Department’s casual, almost offhand way of announcing its intention to extract unknown millions of dollars from an unwitting public, through stamp duty payments on residential rental agreements. (Most major commercial renters already are paying stamp duty.)

Never mind that the department has no infrastructure in place to collect stamp duty on residential leases, or that it is unclear how far back in the past those unpaid taxes would accrue, what the consequences are for nonpayment or how they would be enforced. Not to mention the inflationary effects to Cayman’s already-exorbitant cost of living, concentrated on renters who tend to have lower incomes, and residential landlords, many who are Caymanians of modest means themselves. Or that Lands and Survey is the same department that was recently castigated by a judge for its long-running practice of charging buyers “extra” stamp duty whenever the department’s in-house valuations of property are greater than the actual sales price.

Little consideration, it appears, has been made to the impossibility of enacting the measure, the significance (if any) of the impact on the public purse, or potential abuses of certain individuals by way of selective enforcement.

In other words: Here we go again.

Cayman has deliberately abstained from implementing an income tax for several very good reasons. One of those, of course, is that it is a major selling point for our islands to attract investments and investors.

Another, which is perhaps no less important, is that the costs of a mechanism to enforce and collect an income tax, in a country of 60,000 people, would be immense and might even surpass the revenues. For better or worse (we’d say better), Cayman’s government lacks the infrastructure and the expertise required to collect taxes proactively from individual households.

Contemplate, for example, the government’s attempts to assess and collect fees for garbage pickup — a task that thousands of small and large municipalities worldwide perform routinely. But not in Cayman.

Last year, an Internal Audit Unit report showed that hundreds of business and condo complexes were not being billed for trash pick-up, and many may not have been paying those fees as far back as 2010, when government had given up on charging residential homes for trash pick-up.

If our government can’t collect a garbage tax (or, more recently in the news, the $90 million in “doubtful debts” for public hospital services), then it is highly unlikely it will ever recoup its unpaid “rental taxes.”

Nor should it. Our government already is bringing in revenues approaching a billion dollars per year. The last thing it needs is to extract more revenue, particularly in the form of a “new” direct tax on residents.

That being said, the law — even a bad, barely-thought-out one — is still the law.

Accordingly, the next task falls to Cayman’s lawmakers. The way we see it, they have two options:

  1. Declare a blanket amnesty, accompanied by an official mea culpa, that assures Cayman residents they will not be held liable for years of “back taxes.” Then, going forward, come up with a practical and efficient way to enforce the provisions of the Stamp Duty Law dealing with residential lease agreements; or, alternatively —
  2. Declare a blanket amnesty on “back taxes” and then, in the equivalent of a public execution, excise the provision of the Stamp Duty Law dealing with residential lease agreements.

Our government then might want to call a press conference, announce it is killing the onerous revenue measure as yet another demonstration of its ongoing commitment to lower the tax burden on Cayman voters.

In an election year, it might just work.

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