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Cayman Rethinks 2012/13 Budget Measures

by Phillip Morton, Investors

14 August 2012

The Cayman Islands government plans to spread the burden of new tax hikes across both the financial services and tourism sectors under new measures announced to replace controversial proposals that included a direct tax on expatriate workers.

An announcement of new, replacement measures, from the islands' Premier McKeeva Bush, comes following a commitment from the government that it would axe proposals to introduce the island's first direct tax, the 'Community Enhancement Levy', which would have involved a 10% levy on expatriate workers' income above a prescribed threshold.

Under the latest package of measures, due to be tabled before island's legislative assembly on August 20, 2012, work permit fees above USD1,000 will increase by as much as 35%, on a progressive basis. A 5% increase will impact work permits costing between USD1,000 and USD2,999, ramping up to a 35% increase for work permits presently costing more than USD15,000.

Meanwhile, the tourism accommodation tax will rise by 3% to 13%, and an increase to the island's departure tax will increase the cost of a fare by USD10.

As previously announced, registration fees for some categories of investment vehicles, and also exempted limited partnerships will also be hiked.

Lastly, pleasure craft and non-commercial vessels of over 30 feet in length will attract a new levy for berthing in the Caymans.

The proposals have been drawn up to achieve budgetary targets agreed with the United Kingdom's Foreign and Commonwealth Office (FCO) following earlier confirmation that the UK would no longer give approval for the Cayman Islands to increase borrowing to service the islands' recurring budgetary deficit.

Under the agreement with the FCO, the Cayman Islands must achieve a fiscal surplus of USD84m in the fiscal year 2012/13, to make available USD29m to service the territory's debt, and enable the government to make payments towards outstanding pension contribution liabilities. However, the measures, which would involve additional government retrenchment, would reportedly only generate USD53m in new revenues annually, with new hikes in regulatory fees expected to be announced during the course of the year, raising an additional USD6m.

TAGS: tax | business | marine | law | aviation | financial services | international financial centres (IFC) | budget | Cayman Islands | United Kingdom | fees | travel and tourism | offshore | services

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