A bill that will see high earners have more tax lopped from their pay cheques from this spring was passed by the House of Assembly.

Payroll tax will be charged in future on all salary received up to $350,000 — up from the previous cap of $235,000. The change will net Government an estimated $10 million from the change.

The payroll tax rate remains unchanged at 13.5 percent. But the Payroll Tax Amendment Act, which will now go to the Senate, will see someone earning at the top end of the scale in the 2007-08 financial year having a maximum $5,462 a year extra deducted from their pay cheque.

On Wednesday, Ms Cox said people who benefited from the salary cap were “well positioned to contribute their fair share of taxes without risk to profitability, shareholder value or partnership distributions”.

And she added that Government did not consider that the change would detract from the Island’s competitiveness as an international business jurisdiction.

Shadow Finance Minister Pat Gordon-Pamplin said when Government increased the cost of doing business, it was encouraging businesses to outsource to other jurisdictions.

The United Bermuda Party MP also asked why Government had not used “belt-tightening measures” to raise the extra revenue, instead of raising taxes.

Ms Cox told the House of Assembly the additional revenue would pay for increased staffing at the Department of Immigration, Police, the Corrections Service and other agencies.

The bill also extends the period during which hotels pay the tax at a reduced 7.75 percent rate, with the existing three-month period from December to February, being lengthened to November to March.

Ms Cox quoted comments from Association of Bermuda International Companies chairman David Ezekiel, taken from a story published in The Royal Gazette the day after her February 16 Budget statement, to back up her case.

“This is clearly going to leave some people out of pocket, but the international sector is doing well and people are prepared to make a contribution — as long as they feel their tax dollars are being spent well and that they are getting the kind of resources they hope to get,” Mr. Ezekiel said.

Ms Cox said those who would pay more payroll tax were well able to cope with the burden.

“The increase in the salary cap is wholly consistent with the growth in the income of professionals and senior executives who are remunerated above the salary cap,” she said. “In many cases, salaries alone exceed $500,000 a year. This excludes benefits such as stock options, housing allowances, expense accounts and bonuses.”

Ms Cox referred to other media stories expressing concern over the tax burden on small businesses.

“The facts are that over the past several years Government has restructured payroll tax to reduce its burden on small and medium-sized businesses, and reduced some rates of customs duty to give incentives to small businesses.” There were further rate reductions in the 2007-08 Budget, she added.

Ms Cox argued that the nearly 33 percent rise in the number of local companies since 1998 — from 2,383 to 3,144 — “speaks to the existence of a healthy business environment”. Ms Gordon-Pamplin pointed out that neither local nor international companies could do much to resist the payroll tax change. “There’s no bargaining chip for these companies,” she said. “They have to accept what the Government tells them to do.”

She added that “when the underlying costs become too high” then companies would start outsourcing overseas. And this would not affect the $350,000 executive earners but middle-earning Bermudians at the $100,000-150,000 level, she said.

“Jobs will start to move offshore and that’s when companies are going to start looking at cost cutting measures for their balance sheet,” Ms Gordon-Pamplin said.

She went on to talk about how hurricanes Rita, Wilma and Katrina devastated insurance companies in 2005 and that something similar could happen any time.

“If we have made life difficult enough for companies the decision (to leave) would be a lot easier,” she said. “It would be easier to push the button and say ‘take this department and send it off to Canada’.”

But Ms Pamplin-Gordon acknowledged that “the sky is not falling” and that companies are not saying they will not accept this bill. But she wanted it to be looked at in the context of planned and actual increases in annual licence fees, payroll taxes, social insurance and health insurance.

“By the time you put these together the costs are becoming prohibitive and we are pricing ourselves out of the market,” Ms Gordon-Pamplin added.

The most payroll tax that can be deducted from an employee’s salary is 4.75 percent, while employers must pay the remaining 8.75 percent.