The hike in payroll tax is just the latest in a long line of rises in expenses faced by local companies which could make Bermuda a less attractive place to do business, according to the Island?s bosses.

And the increased costs could lead to higher inflation, cause local business to suffer and make Bermuda less attractive as a destination for international business.

Employers and local business joined in one voice to say that tax increases in this year?s Budget will make the Island less competitive and will lead to the cost being passed along to consumers.

But Government defended the increase in payroll tax which went up from 12.75 percent to 13.5 percent in the Budget last week, saying it had shielded both the employee and businesses most at risk.

Government also raised the salary cap and both hikes are expected to increase revenues to $12 million ? a cost that will mainly be borne by the island?s local and international businesses.

Employers said that this is the latest in a long line of cost increases for businesses which included a rise in social insurance, pensions and healthcare costs ? all of which will impact their company?s bottom line.

Andrea Mowbray, head of the Employers? Council, said: ?We are concerned that in 2004 payroll tax is raising substantially (9.35 percent increase over what employers paid last year ? all to be absorbed by the employer), social insurance is going up, (private) pension has increased again this year and healthcare costs are expected to rise again around eight percent.

?We are concerned that due to relentlessly rising costs of doing business employers will have no other option but to pass these costs onto customers by way of increased costs which will further raise inflation.?

Inflation has been rising steadily and averaged out at 3.2 percent for 2003, after hitting a peak of 3.7 percent during the year, well above the averages in the UK, Canada and the US.

Ms Mowbray said: ?Local business will suffer while the country becomes less attractive to international business through increased cost of doing business and over reliance on international business.?

And Charles Gosling, chairman of the Chamber of Commerce, said that the end result of the tax hikes would be not only an increase in the cost of doing business but also a general increase in the cost of living in Bermuda.

?Unless stated in the Acts of Incorporation, the object of all businesses is to be profitable,? he said. ?Therefore the price at which goods and services are sold has to be greater than their associated costs.

?If one cost increases, the question has to be asked can it be met with a price increase or can other costs or expenses be lowered? Rarely does anyone ?eat? the cost.?

And he said that Government certainly did not do this when they increased revenue by increasing taxes, licences and fees ?in other words increased costs for businesses and consumers? after having had their payroll costs increased by a series of arbitration decisions

?Unfortunately this 9.5 percent increase in the employers contribution (6 percent overall) will further increase the cost of business and therefore living for all in Bermuda.?

David Ezekiel, chairman of the Association of Bermuda International Companies said that it would be the service providers that would be hardest hit by the payroll tax increases.

?It is additive and it is certainly putting pressure on Bermuda?s service providers to stay competitive in the market,? said Mr. Ezekiel. ?Any increase in taxes makes the cost of doing business in Bermuda certainly more difficult to contain.?

And he went on to say that he did not think the cost would be passed on to employees, but the increased cost of doing business would probably go on to client?s bills.

Mr. Ezekiel said that many service providers would be heavily impacted because so much of their major expenses were in payroll.

?You will find that the payroll tax is a large percentage of their net income,? he said. ?And it is probably similar to corporation taxes in other countries.?

Minister of Finance Paula Cox, however, defended the increases, and said they had been kept to a minimum for the most vulnerable sectors and the others could afford to bear the additional costs.

?I think the clear position from Government was that we were seeking to insulate those businesses which were most vulnerable by providing for a number of exemptions, particularly looking at small businesses, fishermen, farmers and those in the hotel and hospitality industry,? she said. ?And then there is the express statement that the employee portion was to stay the same.

?I think clearly what we are seeking to is to try and ensure and improve the economic outlook in terms of businesses, in terms of tourism and see more people coming in. That will help businesses in terms of being able to pay for that (the increases in taxes).

?We certainly have tried to keep the bite minimised by just going up by .75 percent in the hope that, just as we have had the co-operation and the collaboration between the Ministry and the business community when we took the decision in terms of providing payroll tax relief is also issue with Buy Bermuda and we have also shown good will and good faith.?

And Financial Secretary Donald Scott said that all the responses from business had not been negative to the increase in taxes. ?At least one leading business person has indicated that he didn?t take exception to the .75 percentage point increase in the standard rate of payroll tax,? said Mr. Scott. ?It was indicated there were not changes for hotels, guest houses, restaurants.

?The areas of the economy where the rate will go up are those areas where they have experienced growth over the past year. I think in light of that there ought not to be a huge burden that is put on businesses in those sectors.?