(Tax Corner)

Payroll tax generally refers to two kinds of taxes: Taxes which employers are required to withhold from employees' pay, also known as withholding, Pay-As-You-Earn (PAYE) or Pay-As-You-Go (PAYG) tax; and taxes which are paid from the employer's own funds and which are directly related to employing a worker, which may be either fixed charges or proportionally linked to an employee's pay.

In Bermuda, payroll tax accounts for over a third of the annual national budget, making it the primary source of government revenue. The tax is paid by employers based on the total remuneration (salary and benefits) paid to all employees, at a standard rate of 14% (though, under certain circumstances, can be as low as 4.75%). Employers are allowed to deduct a small percentage of an employee's pay (around 4%). Another tax, social insurance, is withheld by the employer.

In Cayman
In virtually every Western economy, at least 90%-95% of personal income is received by just 5% of the people. The remaining 5%-10% of the income is left for the lower paid staff to share. That means when you have a flat tax across the board such as duty increase, that little 5%-10% shared by the lower paid becomes even less.

The rich pay the same for a slice of bread and milk as the poor but the rich have a lot left after buying that slice of bread and milk. That's how the rich get richer and the poor get poorer.

Western economies have income taxes because the rich know how to use the freedoms, laws and resources of an economy to increase their wealth, so they are expected to give something back to the economy. That's what creates mobility in society because tax monies can go to help the poor educate themselves and remain healthy and move into the middle class. That's what allows the middle class to finance their businesses through low rate loans so that over generations they too can become rich. But some people don't want to see social mobility.  That's why they would rather influence government to fight against it. 

The Minister indicated recently that he has estimated $83 Million in Taxes from direct income. That does not include domestic servants' income and income of other lower paid employees. That implicitly means that the taxable income base is conservatively in the area of 1 Billion Dollars.

How much of the 1 billion dollars is being paid to Caymanians?

How many individuals earn 80% - 90% of that income? Who are those people?

How many individuals earn the last 10% - 20%? Who are those people?

When you make those calculations you will see that a very small number of people have influenced our LOGB into making a decision which is purely in the best interests of a very small minority, while the majority of us are left holding the bag.

If G20 have their way, and we have to make a change in the way we generate income, will the masters of the current system be able to create a new system which pays them the same rewards? I think not. If they could, they would already have the plans on the table and we would be seeing them move in another direction, instead of fighting for an increasing share of a decreasing market.

We need to take the conservative approach and assume that the G20 will have their way. We need to increase our cash reserves via the type of income England proposes, so that we can have a cushion to bring us into a new financial era.

George P. Samuels, CPA