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'Pause’ payroll tax changes, say businesses

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David Burt, the Premier and Minister of Finance (Photograph by Blaire Simmons)

Business leaders have warned that proposed radical changes to the payroll tax regime could be bad for Bermuda’s economic recovery and may deter foreign investment.

John Huff, chief executive of the Association of Bermuda Insurers and Reinsurers, said such moves could also lead to firms cutting staff numbers on the island.

The intervention come in the wake of David Burt’s announcement in December’s Pre-Budget Report that payroll tax rates could go up for the higher-paid to fund cuts for those at the lower end of the pay scale.

Ahead of the looming February 17 Budget Statement, it is understood business interests on the island are urging the Premier, who is a also finance minister, to “pause” bringing in such measures for as long as uncertainly remains regarding the possible introduction of a global minimum tax, which would force every country to charge a certain corporate levy.

Under the Pre-Budget Report proposals, people earning more than $235,000 a year would face a payroll levy rise from 9.5 per cent to 13 per cent.

There would be an increase in the taxable cap on individual incomes from $900,000 to $1 million; an increase in the employer’s portion of tax paid by international companies from 10.5 per cent to 10.75 per cent; and a tax on dividends paid by local companies.

The shake-up would see the payroll tax drop from 1.5 per cent to zero on the first $48,000 for all employees.

This would remove 30 per cent of the workforce from being liable for any payroll tax at all.

Mr Huff said businesses wanted to see a “responsible” Budget next month.

He told The Royal Gazette: “As discussed with the Government, Abir is concerned about the public-policy issues and potential international business community responses to the Government’s pre-Budget proposals, particularly considering the magnitude and direction of the changes, as well as the short time horizon of the proposed implementation.

“These revenue proposals are potentially detrimental for Bermuda’s economic recovery and sustainable growth – they could deter international companies from continuing to invest in Bermuda and retaining employees on island.

“Abir has encouraged the Government to present a unified tax proposal, which considers the evolving global tax landscape, and remains committed to working with Government to finalise the 2023-2024 Budget in a responsible fashion.”

A senior business figure told The Royal Gazette: “It doesn’t make a great deal of sense to make these payroll tax changes while there is still a lot of uncertainty over whether a global minimum tax will be brought in.

“Because there is so much uncertainty over that, it would be better to pause these changes until there is a better sense of what is happening internationally.”

Another well-placed business source said: “This is a concern to us, but business is trying to talk to the Government quietly about it.

“The changes would be abrupt if brought in at the beginning of the financial year this April, as companies have already done their planning for the year ahead.”

John Huff, chief executive of the Associaton of Bermuda Insurers and Reinsurers

Geoff Scott, chief executive of the Bermuda Bankers Association, said the organisation was open to dialogue on the issue as he called for the general tax contribution the banking sector makes to brought into consideration.

Mr Scott told The Royal Gazette: “Banks already pay payroll taxes and tax on banks’ assets – the financial services tax.

“Any proposal here needs to address the fact banks are already making a contribution, particularly with the financial services tax.

“This needs to be taken into account when looking at the total tax situation.

“The banks are happy to engage on this.”

The dramatic changes outlined in the Pre-Budget Report would propose for the first time a bifurcation – division into two classes – in the treatment of Bermuda’s corporate tax base for one of the Government’s major income streams.

Geoff Scott is chief executive of the Bermuda Bankers Association (Photograph supplied)

The draft measures propose a separation of Bermuda’s exempted company employers, singled out for a higher contribution rate in the employer portion of payroll tax, while all other employer groups either have proposed tax rates remain the same, or actually reduced.

Other proposals include attempting to negotiate with Washington for foreign tax credits to allow Americans to deduct Bermuda taxes from their US tax liability.

The Government is also proposing the elimination of payroll tax for farmers, fishermen, educational, sport and science institutions, and small businesses with an annual payroll of less than $200,000.

There could be a reduction for payrolls under $1 million and a reduction for small hotels, restaurants and retailers.

But the employer portion of the exempted company payroll tax could rise from 10.25 per cent to 10.75 per cent.

Tax Reform Commission Report recommendations, which the Government labelled “yet to be implemented”, were also floated in the pre-Budget documents.

Proposed provisions for a new revenue stream, estimated to yield more than $55 million, include:

● A flat withholding tax on services outsourced by local companies to foreign service providers. The tax commission’s argument is that such services are a direct substitute for services that could be, and in many cases are, provided locally

● A flat withholding tax on interest and/or dividend income that is attributable to local companies

● An introduction of seven new fee bands into the existing company fee structure with the aim of aligning company fees with a company’s assessed capital, to provide a more progressive fee structure

Also on the table are increased duty for luxury imports and licensing with an appropriate fee for companies that locally manufacture and sell tobacco products.

The Government said when it launched the Pre-Budget Report that it wanted wide input on the proposed reforms during a consultation period that ended on January 17.

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Published January 23, 2023 at 4:25 pm (Updated January 23, 2023 at 4:25 pm)

'Pause’ payroll tax changes, say businesses

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