McKeeva Bush forced to scrap payroll tax proposals

Cayman Premier McKeeva Bush shocked the financial community recently when he announced an unexpected proposal to introduce what was effectively a payroll tax for expat staff.  Following an outcry about the damage this could cause to the Islands’ economy, he has now been forced to back-track and has scrapped the proposal.  Instead he now proposes a plan to make up the budget shortfall with a combination of increased work permit fees and a number of other revenue raising measures including stamp duty on certain insurance policies, an increase in the annual registration fee payable for exempted limited partnerships and changes to master hedge fund registration fees.

Under the new proposals, work permit fees will rise between 5% and 35% (with the largest rises coming for permit fees from $15,000 to $24,000).  They still therefore represent a considerable extra cost for businesses employing expats, but without the severely negative connotations of the previously proposed payroll tax, which would have represented a huge departure for Cayman from its dedication to the principle of no income related taxes.

Mr. Bush said “In aggregate, the proposed alternative revenue measures proposed by the private sector group are expected to generate $44.3 million in 10 months and $53 million in the full year.”

The Cayman Islands government has been battling a difficult financial situation under pressure from the United Kingdom Foreign and Commonwealth Office to get its financial affairs in order and operate a surplus.  The Island was forced to implement a two-month temporary spending plan in July to keep the public sector operating in the short term, but Bush is confident that the new budgetary proposals will do what is necessary to generate a surplus of some $70 million. 

The financial community, which employs a significant proportion of the Islands’ expat workers, will no doubt be relieved at the change of heart, but there are fears that the simple fact that McKeeva Bush had proposed it will have spooked some businesses.  It is perhaps surprising that a politician of his experience would make what seems to have been a serious error of judgment.