Income Tax is coming to Cayman

Somewhere down below in this Forum is a posting by me entitled "No Income Tax in Cayman". Technically, it's still accurate, but not for long. This present posting supersedes it.

Sadly, we have just learned that some kind of Income Tax is in our future. Like their counterparts in Greece and points west, our ruling politicians have borrowed too much money and can't pay it back. Rather than cut government waste and Civil Service empires, they propose to tax Work Permit expats' wages and benefits, while leaving Caymanian nationals untaxed.

It is no exaggeration to say that the proposal may destroy our Offshore tax-haven sector, and therefore the prosperity of these Islands. Forty years ago, Bahamian politicians succumbed to the lure of extreme nationalism. Nassau's tax-haven operators reduced their local presence drastically, and moved much of their business to Cayman. It took those Islands twenty years to recover - and then, only partially. What goes around, comes around, it seems.

Even if the proposal is withdrawn – as it may well be, in the face of widespread public outrage – the seal has been broken on Pandora's Box. Every time there is a government budget deficit, now, taxing foreigners will be the first thing done to eliminate it. If not foreign residents, then our Offshore sector's clients; if not a wages tax, then a tax on local rents, dividends, capital gains, and maybe properties.

Doubts have sprung up in our expat communities like spring flowers. Do we have even a medium-term future here? Should we sell our homes and local investments? Will some of our Offshore firms and banks pull up sticks and move to other international tax-havens? Can we ever trust our Caymanian politicians again?

The proposal is popular with our Islands' xenophobes – a minority among native Caymanians, though a vocal and politically powerful one. They are shouting their resentment of foreign residents at every opportunity, now – adding fuel to the always-smouldering fire of our society's ethnic divisions. Taxing expats' incomes is bad enough; for some of us, the jeering will be the last straw.

For further updates and commentaries, check my blog from time to time.