Taxes? In the Cayman Islands? New budget could tax foreigners

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The Cayman Islands have long been known as a paradise boasting brilliant blue water, pristine sand -- and absolutely no corporate or personal income tax. That last perk has made them famous as a global tax haven, luring financial companies and investments.

But now the economic downturn has hit paradise too. Tightened belts on the Caribbean islands have led Premier McKeeva Bush to go where the Caymans have never gone before, proposing a 10% payroll tax on foreign workers who make more than $20,000 a year.

Dodging the T-word, Bush called his plan a “community enhancement fee” solely for foreigners who hold work permits, saying the islands would lose at least 500 public workers without it.

To keep foreigners keen on doing business in the islands, Bush said, foreign employees wouldn’t need to chip into the pension system, as they do now.

“Fiscal responsibility has always been the hallmark of my government and always will be,” Bush said Wednesday in a lengthy statement announcing the plan.

The idea has spurred a fervent opposition campaign from both Caymanians and expats who contend that such a tax would drive away foreign business and investment. Some complained it was wrong to impose the tax only on foreigners; others argued that the high cost of living and lower salaries in the islands made a new tax unthinkable for anyone and warned of a slippery slope.

“Instead of making a difficult decision in an election year and finding other ways to reduce expenditure, the government will take what they mistakenly feel is the ‘easy’ option and tax those that are not on the electoral list,” one column on the Cayman News Service website said.

Tax opponents are planning a protest Monday before Bush holds an informational meeting. A newly created Facebook group called Caymanians & Expats United Against Taxation had more than 8,800 members as of Friday afternoon. But not all posts on the web page backed its motto.

“McKeeva is doing what he sees as the only recourse to stimulate revenue! Would you Caymanians prefer he tax us all? Wake up!” islander Marilyn Whittaker wrote in defense of the proposal.

Gov. Duncan Taylor cautioned the budget was still in the works, but said the British Foreign and Commonwealth Office had insisted that the islands balance their budget with both savings and new revenue. As a British overseas territory, the Cayman Islands must have their budget approved. The foreign office has yet to weigh in publicly on the plan.

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-- Emily Alpert in Los Angeles