Local businesses will be crunching numbers over the weekend in a bid to determine what, if any, benefits they will receive from a complex revision to the Island's payroll tax system announced in the Budget.

And most employees will see their payroll taxes increase by one quarter of one percentage point.

Finance Minister Eugene Cox announced that Government had found it necessary to change various taxes and fees, based on principles set out in its platform and the review of the tax system.

He said: "These changes reflect a fairer distribution of the tax burden, improve the overall efficiency of tax collection and will raise an additional $11.7 million to help minimise the growth of the national debt.'' The restructuring of the taxes is a bid to help the hotel and retail sectors of the economy which "have been under considerable stress during the past decade'', added Mr. Cox.

Payroll tax was one of the areas revised in a move set to generate additional revenue to Government totalling $2.2 million but its effects and benefits to employers are not yet clear.

Chamber of Commerce president Cris Dapena said: "In regards to the changes in payroll tax, it will be some days off before our employer members have done their analyses to see how they are affected.

Calling the new system "complex'', Ms Dapena noted: "For large employers who employ a smaller number of higher paid employees, they have an increase in payroll tax which I would call moderate.

"For large employers who have a large number of employees paid at a lower rate, it is not clear yet how they will be affected. They probably do not know if they have a small increase in their payroll tax or a decrease yet.'' Under the revisions, taxpayers with payrolls in excess of $200,000 per annum, and who do not enjoy the benefit of any special tax rates (except for hotels or restaurants) will receive a payroll credit of $2,400 per annum per full-time employee.

This amount may be deducted from the employer's payroll prior to tax calculations but the payroll tax rate will rise by three-quarters of one percent.

The employer can recover one-quarter of one percent from his employees' remuneration in order to assist with meeting this liability.

The ability to recover this amount will apply to all other categories of employer, but only those entitled to the payroll credit will experience the tax rate increase of three-quarters of one percent.

Other employers will experience a tax rate increase of one quarter of one percent, equal to their ability to recover the amount from their employees.

This means the new employee withholding rate rises from 4.5 percent to 4.75 percent for all employers.

But tax rates charged on different categories of employer will continue to vary.

Mr. Cox also announced that Government has moved to smooth out the "tax cliff'' facing small businesses moving from the $100,000 payroll band to the $200,000 payroll band.

In the future, their tax will increase from the new 7.25 percent rate to the new 9.25 percent rate only on the actual amount of payroll that exceeds $100,000.

When employers exceed the $200,000 payroll threshold, they will become liable to the new tax rate of 12.75 percent on their full payroll, but will also receive the new payroll credit of $2,400 per employee.

Mr. Cox said: "The combined effect of all these changes will be to improve the tax position of small businesses that at present face a sharp increase in liability as their payrolls increase and cross critical tax thresholds.

"This has been a disincentive to the growth of small businesses and is being corrected.

"The proposal will give employers $360,000 of immediate tax relief on the basis of current payroll sizes.'' Meanwhile hotels and restaurants will continue to enjoy a preferential tax rate of 9.75 percent year round, and hotels will be charged 7.75 percent for the three "slow months'' of December, January and February.

Employers that remain unaffected by the payroll credit are non-profit institutions, taxi drivers, farmers, fishermen and horticulturists, aided and private schools and Government.

They face an increase in the tax rate of one-quarter of one percent but will be able to make a corresponding increase in the recovery from their employees.

Self-employed persons will face an increase of three-quarters of one percent unless they are in one of the categories enjoying a preferential rate.

Employers with larger numbers of lower paid employees will receive relief through the combination of the tax rate changes together with their ability to withhold more from payroll and the payroll credit on each employee.

This relief is given to the retail sector ($415,000), to hotels ($420,000) and restaurants, bars and nightclubs ($65,000), based on recent payroll returns.

Timw will tell : Chamber of Commerce president Cris Dapena