The Cayman Islands is famous for being a tax shelter for many of the world's biggest hedge funds and a land where direct taxation is verboten.
But all that may be changing if Cayman Islands Premier McKeeva Bush's proposal to impose a 10 percent payroll tax--called a "community enhancement fee"--on foreign workers making more than $24,000 is approved.
Such a move, says Independent member for North Side Ezzard Miller, would “kill the goose that has been laying the golden eggs for Cayman."
As the Cayman News Service reports, given the unprecedented nature of such a tax, collections may be problematic and costly:
Critics of the tax proposal say cuts in spending, not tax increases, are what's needed to help the tiny British territory cure its deficit problem. Furthermore, many fear that the imposition of a tax on foreign workers would encourage financial firms to pick up and leave.
“Government will need to be very careful depending on significant revenue from this form of income tax,” Alden McLaughlin said. “Employees may become very creative about how they pay people and are likely to start paying them in other countries where possible. We don't have a culture of income tax so most employers won't have any systems in place to deal with this. Government will need to create a whole new system and hire more civil servants to collect this tax.”
According to Reuters, a government-appointed commission found that many firms could easily relocate and were being courted by places like Bermuda, Ireland, and Canada to do so.