Many businesses could be driven to the wall as a result of the two percent increase in payroll tax introduced by Finance Minister Paula Cox in Friday's Budget statement.

That is according to Aaron Smith, president of the Igility Group of Companies, who said his own company may need to lay off one employee to compensate for the additional cost of business.

Mr. Smith described Government's move to levy higher taxes on companies as "irresponsible" during these tough economic times and said it could have been avoided.

Sheila Lines, chief executive officer of KeyTech, the owner of Bermuda Telephone Company, also described the payroll tax hike as "irresponsible" and said the move could sound the "death knell for services-based organisations in Bermuda".

Mr. Smith called for a review of the current taxation system and to look at introducing a value added tax like in numerous other jurisdictions.

"I am disappointed that the tone of the Budget did not include more of what Government was going to do to curtail their own spending," he said.

"I just saw more of how they are going to increase revenues which obviously comes at the expenses of business in Bermuda.

"I am curious as to how they expect to stimulate employment, (when unemployment) is higher than it has been in a long time in Bermuda, while putting taxes and unnecessary pressures on businesses that they expect to help them with that."

In real terms, Mr. Smith said the rise in payroll tax to 16 percent would mean possibly having to reduce his head count by one – probably a Bermudian in a lower level position, he said – just to maintain the same level of net income as in the past.

He said the philosophy that companies were taxed regardless of whether they were profitable or not was unfair on businesses, adding that there was an urgent need to overhaul of the existing system based on old economic models which he said no longer worked effectively and efficiently.

"For the first time, one of my divisions of the company paid more to Government in payroll than its net earnings," he said.

"Last year, one of our companies had a $500,000 payroll tax bill and made $500,000 in net income, which translates into a 50 percent effective tax rate and I don't know any jurisdiction in the world where the corporate effective tax rate comes close to 50 percent. Now, the only sure thing is that Government will get 15 percent more than that this year.

"This Budget is clearly a signal that things have tilted this far and it is unfair and I dare say irresponsible for Government to be burdening the corporations with these numbers."

Mr. Smith said he appreciated that Government was responsible for maintaining the country's social system but added that there were other ways they could have raised the funds rather than at such great expenses to the business community.

He also raised concerns over the added burden of high import duties which his company had to pay on inventory even before it reached the docks, which allied to the payroll tax, hit businesses' bottom lines prior to any profit being made.

"In some cases Government is not going to be collecting the revenues because businesses cannot afford to help them by paying taxes and then in turn they will not be able to help those people in need who have been made unemployment because there is no system in place to do it," he said.

"It is going to put some companies out of business unfortunately and we are going to see some things that were unheard of before and the shame is that it was all avoidable."

Ms Lines said: "We are disappointed that Government current account expenditure is to continue to increase. The increase in payroll tax is an unforeseen additional cash cost for KeyTech and we will review our operating plans in light of this change.

"This increase at this time in the economic cycle is irresponsible and could signal the death knell for services-based organisations in Bermuda."