The Government has been accused of “discriminatory” payroll tax reforms that will increase costs for small to medium businesses and “kill jobs”.

The attack came from the Opposition One Bermuda Alliance as the House of Assembly debated an amendment to payroll tax law on Friday.

A major part of the Act was designed to tackle notional salaries — a loophole that enables self-employed persons and “deemed employees” who earn their income in whole or in part through a share of profits to declare less than they actually earn for tax purposes.

But dividends related to shares in an exempt undertaking and any dividends relating to shares from a company listed on the Bermuda Stock Exchange are not covered by the amendment.

Patricia Gordon-Pamplin, shadow home affairs minister, said: “I can’t underscore enough how inequitable this appears to be on the face of what it is that some people will have to pay and others won’t.

“The small painting contractor, the small plumber would end up having to be penalised whereas others in a far more lucrative environment are literally being left scot free.”

She was speaking before the Payroll Tax Amendment Act (No 2) 2018 was passed in the House.

One of the changes made was the introduction of a $10,000 deductible on dividends paid to each shareholder earning low dividends.

Junior Minister of Finance Wayne Furbert explained: “The thought behind this is that this should provide significant relief to those earning low dividends.”

But Ms Gordon-Pamplin said: “It would seem to me that a small business would start to think very seriously about their financial planning to say ‘if I am not going to be able to get any money out of my company without being subjected to tax and I have only got a $10k exemption, why don’t I just take all my excess money, invest it in the stock exchange then I can get dividends on that money? I’m free’.”

Michael Dunkley, a former premier and shadow national security minister, said the change in the law was “inequity and discrimination”.

Scott Pearman, an OBA backbencher and lawyer at Conyers Dill & Pearman, said the changes would increase the cost of doing business in Bermuda.

He added: “That is the same as killing jobs. This is an anti- competitive piece of legislation and unfair. The Bermudians that this taxes are those who are least able to pay.”

Mr Pearman said that the people the legislation did not tax “were exempted companies doing international business”.

He warned that the legislation could result in Bermuda being blacklisted by the Organisation for Economic Co-operation and Development.

He said: “We will be ring-fencing foreign exempted companies and the OECD will come down hard on us for doing so because they will say it is unfair economic tax competition.”

But David Burt, the Premier and Minister of Finance, insisted the legislation was designed to “make sure that we address the economic inequities in this country and there were people in this country who were skirting the law by paying themselves a little bit and declaring dividends in another way”.

He said: “The little man that the opposite members decide to speak for don’t have that opportunity but if you are Dunkley’s Dairy you might be doing that — at BAS or Conyers, Dill and Pearman you are certainly doing that.

“Their tax racket is coming to an end. That is the reason we are doing this.”

Other amendments in the legislation, which passed the House, included new concessions for those earning less than $96,000, for employers who hire people with disabilities, new business entrepreneurs and taxi operators.

The amendment also provides payroll tax relief for the tax periods for employers who increase their total number of full-time employees. The relief is for the employer portion of payroll tax.