| GEORGE TOWN, Cayman Islands, July 27
GEORGE TOWN, Cayman Islands, July 27 Known as a
tax haven for the mega rich around the world, the Cayman Islands
is proposing the unthinkable: a direct tax on expatriates to
help fix the budget woes of the British territory.
The proposal - called a "community enhancement fee" and
unprecedented in the island's history - is effectively a 10
percent payroll tax on all foreign workers earning income over
US$24,000 in the Cayman Islands.
Blaming the previous administration and Britain's hard line
on the island's budget for the current financial problems, the
premier said the measure was the least onerous approach with the
Cayman Islands already one month into a new fiscal year.
"This is a tremendous step away from the normal government
budget, but (London) has the upper hand," Cayman Islands Premier
McKeeva Bush said.
Barely two years ago, in the face of pressure from Britain
to increase the territory's revenue, Bush stated "our position
is, and will continue to consistently be, that we do not believe
that direct taxes are good for this country."
While foreign workers make up about 50 percent of the labor
force, there are plenty of loopholes that would exclude the
majority of the top earners in the county as well as civil
servants, leaving the bulk of the payroll tax burden to middle-
class income workers in the private sector.
The 10 percent tax proposal has shaken up the business
community in the Cayman Islands, with some calling for a public
protest against "taxation without representation" on Monday.
The territory, a beach-lined group of islands south of Cuba,
is home to most of the world's hedge funds and has long relied
on the "no direct taxation" model as a cornerstone of its
lucrative financial industry.
Experts say the amount of extra revenue the new payroll tax
would bring in would not be enough to overcome the government's
growing deficit problems and could drive international firms to
move operations out of the territory to other competitive
jurisdictions with lower business costs.
Two years ago, a government-appointed commission studied the
direct tax and noted the international financial sector could
easily move their operations to competing jurisdictions.
Representatives from the Cayman Finance Association said the
government has not done enough to rein in government spending to
justify a measure such as a payroll tax.
The British Virgin Islands, Bermuda, Ireland and Canada were
actively enticing firms to relocate from the Cayman Islands, the
(Editing by David Adams; Editing by Paul Simao)