Government passed the Payroll Tax Amendment Act 2001 in the House of Assembly last week, which lowers the taxation cap on salaries from $250,000 to $225,000.

Government insisted the cap was fair and reflected the needs of everyone on the Island after the Opposition accused Government of "ring fencing''.

Under the new act, international businesses will go back to paying pre-2000 Budget amounts and Bermudian businesses will also be included.

Finance Minister Eugene Cox announced in the 2000 Budget that international companies would be brought in line with local companies.

He said instead of having the option of reporting an assumed figure of more than $70,000 for each employee, companies would report actual salaries with a cap of $250,000.

These changes saw the tax paid by international companies go up by between ten and 100 percent.

Recent statistics released by Government showed that the amount of payroll tax collected between July and September 2000 had risen by $6.4 million, or almost 17 percent for the period, to $44.7 million.

In the latest budget, Mr. Cox said: "Last year, the Government introduced a number of modifications in order to provide relief to small businesses and to remove the option for exempted companies to the payroll tax on the basis of assumed salary.

"The objective of these changes was to improve the equity of the overall tax system.'' Mr. Cox said the modifications would remain in place, except for a reduction in the cap of $250,000 on an individual's remuneration declaration to $225,000.

He said last year it was estimated that setting the cap at $250,000 would limit the impact of removing the assumed salary option on total tax paid by exempted companies.

Mr. Cox said: "Lowering the cap to $225,000 will help to establish a lower -- but more equitable -- equilibrium point for exempted companies in respect of the Payroll Tax.'' Government also proposed extending the cap to local companies in order to remove any distinction between local and exempted companies.

Mr. Cox said: "This further adjustment reinforces Bermuda's position as a jurisdiction that taxes local and international companies on generally the same basis.

"Both local and international companies compete for local resources under similar market conditions, and therefore it is appropriate that they should be taxed on the same basis so as not to introduce tax advantages for either group.''