Shadow Minister Says Bermuda Tax Increases Could Lose The Island Its Competitive Edge

Mairi Mallon, Royal Gazette

09 October 2000

This story is reproduced by kind permission of the Royal Gazette at http://www.accessbda.bm

Bermuda could lose its competitive edge in the world market because of the Government policy of increasing taxes such as the payroll tax, according to Shadow Finance Minister, Grant Gibbons.

And he said that while other nations like the United States, Germany and France were all trying to reduce the burden of taxes on their people, the Bermuda Government was in fact increasing them.

In reference to the increases made earlier this year in the Budget to the payroll tax, Dr. Gibbons said: "The chicken is coming home to roost."

He said the complicated changes to the payroll tax were only beginning to be understood by businesses and the full impact was only just being felt.

Dr. Gibbons said: "Anecdotally I have heard that with the removal of the nominal salary, there has been a substantial increase in the amount of payroll taxes to be paid by international companies."

Mr. Gibbons also hit back at an article in Captive Insurance Company Reports (CICR), featured in The Royal Gazette yesterday which he said inaccurately reported that the removal of a $250,000 cap had hit international companies hard.

He said the CICR had its figures wrong but appeared correct in stating that the new payroll taxes particularly affected international businesses in Bermuda.

He explained that payroll tax was increased by 1/4 of a percent this year, and for the first time international companies were not allowed to base their payroll taxes on a `nominal' salary of just over $70,000. Before this international or exempted companies had the option of either paying taxes on the real salary of everyone in the company, or opting for the nominal amount for all employees.

They, like all other companies in Bermuda, now have to pay payroll tax of 12.75 percent on all salaries up to $250,000. This figure is the cap over which payroll does not apply.

Mr Gibbons said: "A lot of companies have faced a substantial increase in payroll tax. If you add to that an increase in land tax and an increase in company fees, it makes us less competitive than we were.

"While tax is not a major reason for companies to come here, it certainly factors into the overall picture when looking at rival jurisdictions."

He added that Bermuda could not be looked at in isolation and that in the United States and Europe, politicians were looking at ways of reducing taxes as a percentage of their gross domestic product (GDP).

"Bermuda is moving in the opposite direction, by increasing the percentage of the GDP made up by tax, when in Europe they are going the other way. The bottom line is it is not improving our competitive edge."

He added: "Bermuda is facing a lot more competition in the international business sphere and should look very carefully at the pluses and minuses , then if the minuses look like adding up, we have a problem.

"With moves by the OECD and the FATF to improve the quality of other jurisdictions, we have to be even more competitive. We are at the moment at the top end, but other jurisdictions are being forced to come up."

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