By Rev Nicholas Sykes

Although I am not a financial expert of any sort, it is still possible for me or for anyone with basic research skills to apply those skills to the financial condition of the Cayman Islands. I have done this in a few basic areas that have seemed to me not to be sufficiently (or at all) covered up to now in our media, and in case it might be of some help, I would like to share what I have found.

First, it has been said repeatedly in several quarters that any form of direct taxation would be injurious to the fundamental economic nature of the Cayman Islands, relying heavily as it does on financial services. In order to put that assertion to the test, a search was made of the income tax rates in certain other jurisdictions that are also known for their significant reliance on financial services. The results are shown as follows:

Isle of Man: Income Tax 10-18%. Personal Allowances increased to £ 9,200.

Gibraltar: Income Tax 17-45%. High allowances for some.

BVI : Income Tax 6-20% until 2006; now a “payroll tax” Under the new legislation, the previous income tax system for employees has disappeared. However, in its place, a new payroll tax is levied at a rate of 14%, 8% of which is paid by the employee and the remainder by the employer, although the first $7,500 of income will remain tax free. However, the contribution for small business, defined as those employing less than seven people and with a payroll of less than $150,000 per year, will be only 2% whilst all other businesses will contribute 6%.

Jersey: Income Tax flat rate 20%

Switzerland: Income Tax varies by Canton. Not a flat rate – averaged 33.7 %

Guernsey: Income Tax flat rate 20%

Bermuda: No general Income Tax – but a “Payroll tax” 10.75% - 13.50%, mostly on employers.

Turks and Caicos: No Income Tax or payroll tax though it is said payroll tax will shortly be introduced.

From this exercise, which does not include any listings of the various other forms of direct taxation other than income tax and payroll tax, it is clear that for many decades some form of direct taxation has existed side-by-side with the financial services industry in nearly all the financial services jurisdictions.

It therefore seems to be difficult to argue that the introduction of direct taxation must gravely injure the financial services industry here, if it is done carefully. When the Isle of Man, the Channel Islands, Bermuda and the British Virgin Islands all have either income tax or payroll taxes, we should compare the way that these jurisdictions are weathering the present storms with other jurisdictions such as Angilla, ourselves and Turks and Caicos, which up to now have no income or payroll taxes.

Perhaps it might be argued that some of these successful jurisdictions like the Isle of Man have also had significant “traditional” industries – such as, in the Isle of Man, engineering, as well as the famous Manx Grand Prix – and therefore their economic model differs from ours. But that, surely, is an argument in favour of the diversification of our economy. It cannot be written in stone that we are for ever to be reliant on only two pillars. The development of engineering might well be a way for us to go as well.

The Isle of Man in particular is notable for its government guarantee to every depositor in all the main banks there of the first £50,000 of any deposit, which is paid back in full to the account holder should the bank concerned go into receivership. The Isle of Man government has been able to make such a guarantee only after years of prudent management of the resources passing through it. Should there be a bank failure there, it is obvious that many depositors would be likely to choose to continue to use the jurisdiction rather than placing an account elsewhere that had no such guarantee. It is the sustained imprudent and irresponsible management of a jurisdiction’s assets that can kill off its financial services industry, not, surely, some moderate form of direct taxation.

Secondly, during the course of my search I found that a “payroll tax” is very different from the traditional form of income tax, even though it is an income tax of a sort. That distinction seems to me not to have been spoken of in the general media. My search showed that Bermuda and the British Virgin Islands use a payroll tax, the BVI having changed to this from the traditional income tax in 2006. I have heard that Turks and Caicos, now being run directly from London, is to begin to have a payroll tax shortly. For the sort of way it operates, look at BVI above. A carefully structured payroll tax might seem eminently to be what we should agree to in the Cayman Islands.

In closing, it must be said that, as in a war, we must all be prepared to share the pain of getting ourselves out of and keeping out of a bad situation – and of course, a payroll tax would not be without pain. By God’s grace we did it for Ivan (or Paloma). We can do it now; and we can do it whatever the future puts upon us, if we rely on that same grace.