Cayman Islands premier William McKeeva Bush has scrapped controversial plans for a tax on the wages of expat workers.
The recently announced ‘community enhancement levy’ aimed to grab 10% of all expat wages over £15,300 a year.
The proposal also included a further 5% levy on the pay of firms employing expats in certain business sectors.
An embarrassed Bush has had to step back from imposing the Cayman’s first direct tax on income following protests from expats working in banking and financial services, who make up most of the country’s overseas workers.
Lid on borrowing
Bush claimed the move was in response to pressure from the island’s paymasters in the UK to plug a budget deficit, after the Foreign & Commonwealth Office have slapped a lid on further borrowing to balance the books.
Bush had explained the levy would let the government safeguard the jobs of up to 700 civil servants who face redundancy.
The government plan was the levy and other austerity measures would have given the Caymans a fiscal surplus of US$84 million in this financial year, leaving US$29 million to pay down debt and extra cash towards a public pension liability – which complies with a legal agreement with the UK government.
Despite scrapping the community enhancement levy, Bush has not indicated how the government plans to balance the territory’s finances or whether civil service jobs are still at risk.
Levy criticised by businesses
When announcing the expat tax, Bush hinted other taxes, like income tax, a sales tax, and a property tax had also been on the table.
Meanwhile, the Cayman Islands Council of Associations – which represents 10 of the Cayman’s main industry bodies – has spoken out against the levy and argued in favour of cuts in government spending instead.
“The Associations regard the Community Enhancement Fee in its current form to be discriminatory, divisive to society and inequitable. This type of fee has been regarded as unlawful in other jurisdictions such as the Isle of Man and Gibraltar,” said a spokesman.
“We believe more can be done to reduce government spending and to generate cost savings. We believe that increasing the cost of doing business at this time may cause a loss of business to our competitors.”
Expat exodus feared
“The introduction of direct taxation will mean giving up our single most important value proposition that we have to offer our investors: no direct taxation in a world where taxation is on the increase.
“The council believes that if we implement the proposed new tax we will have lost the primary advantage that distinguishes Cayman from the rest of the world. We believe that by creating a system of collecting taxes, investors will be unable to trust that the proposed 10% fee will not change to 20% and that taxing payroll will not evolve into taxing income on residents and eventually investors.”
“The real estate industry has already witnessed an outward flee of investors. Apart from the certainty that this will reduce government income in the short term, it could very well lead to an outward exodus of tax sensitive investors to other jurisdictions.”
Although the proposed Income Tax for Work Permit expats in Cayman has been taken off the front burner, it has by no means been abandoned altogether. As a former Manager of the Chamber of Commerce here, who was heavily involved in beating back the 1987 attempt by local politicians to introduce a similar tax, I know very well that this proposal will rise like a phoenix from the ashes. So, beware! (I have commented in some detail on the topic on my blog. Interested readers might like to Google “Barlow’s Cayman”.)