3 Min Read
* British territory is known as a tax haven for the rich
* Critics said payroll tax would send investors elsewhere
By Shurna Robbins
GEORGE TOWN, Cayman Islands, Aug 7 (Reuters) - The Cayman Islands has dropped plans to impose an income tax on foreign workers nearly two weeks after proposing it in a last-ditch effort to overcome budget woes.
The Cayman Islands, which has had no income tax, is known as a tax haven for the mega-rich. The irony of imposing the tax was not lost on the financial industry workers who came out in droves to protest a measure that they said could hurt the industry that has made the beach-lined British territory one of the richest in the Caribbean.
The unprecedented proposal - called a "community enhancement fee" - would have imposed a 10 percent tax on foreign workers earning more than US$43,200, amended from US$24,000 when it was initially announced.
Critics said the proposal would cost the territory its primary competitive edge and send international investors to other jurisdictions with lower business costs.
Following an urgent discussion with several high-profile business leaders, Cayman Islands Premier McKeeva Bush said on Monday that alternate revenues had been identified.
"The tax would be taken off the table if robust, credible and sustainable revenue that did not hurt the poorest members of our islands was found. We are satisfied that many of the commitments from the private sector will meet these criteria," he said.
Neither he nor the business leaders identified those revenues but they were expected to be revealed at a public meeting on Wednesday night.
Several industry associations released statements opposing the tax. The outcry also was reflected in the Facebook page Caymanians & Expats United Against Taxation, which collected over 11,000 members in less than a week. The Cayman population is about 53,000.
While foreign workers make up about 50 percent of the Cayman labor force, there were plenty of loopholes that would have excluded the majority of the top earners in the territory as well as civil servants, leaving the bulk of the payroll tax burden to middle-income workers in the private sector.
Experts said the amount of extra revenue the new payroll tax would have brought in would not be enough to overcome the government's growing deficit problems.
The financial services sector accounts for about 55 percent of the Cayman Islands economy, according to an Oxford Economics report. It also brings in 40 percent of government revenue.
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. (Editing by Jane Sutton and Cynthia Osterman)