Archive for July 27th, 2010
Regressive taxation & small business: a tale of woe
Successive governments in the Cayman Islands have sold to the populace that much of the success of islands is based on its indirect and highly regressive tax system. Given the Anglo-Saxon predisposition to measure “success” in terms of aggregates (GDP and conspicuous consumption patterns chief amongst the favoured measurements), they may well be correct.
Empirical data from diverse societies across all continents lend strong support to the view that a regime of regressive taxes (fee based levies, Value Added Taxes, etc.) substantially favour the rich and big businesses and unduly punish the middle and lower income groups and small businesses.
The Cayman situation is made ever more inequitable by the fact that the penalized groups account for the vast majority of the local populace, whilst the favoured groupings are in the main comprised of transients and convenience domicile seekers.
I would like to offer an insight into the small business operation I have been responsible for over the pastten years to fully demonstrate how the favoured taxation structure inhibits the growth of small businesses, particularly in the much vaunted financial service sector.
The company in question, Financial Integrated Services, is a locally owned and operated financial services company, geared towards the provision of a range of financial services to lower income clients and small businesses.
The most recently introduced regressive tax is directed at the relatively small remittance business (the levels of remittances effected through the licensed money services is less than 2% of the remittance activities of the banking sector).
In the case of FIS, the AVERAGE MONTHLY GROSS REVENUE generated on the remittance activity is in the region of US$100,000.00. Over 75% of the GROSS REVENUE is transferable to the principal, Moneygram, which provides the service’s global reach.
The GROSS REVENUE generated at the local operational level is in the region ofUS$25,000.00 per month. The Monthly Tax levied by Government on the local operation and its clients is 160%, yes a draconian 160% of the Gross Revenue generated to the local business. Medieval princes would indeed be envious of such an arrangement.
On the aggregate Gross revenues generated by the business, this equates to a tax rate of over 40%. The other 98% of the legal remittance business conducted through the commercial banking sector is in the meantime totally exempt from any fee levy/ transaction taxes. Not unsurprisingly the business is slowly migrating to the tax exempt banks.
The punitive nature of the tax regime extends to the other areas of the subject operation. The operation’s accounting function is geared to providing accounting support services to small business.
There can be no denial that in the modern environment small businesses if they are to be afforded the opportunity to grow and advance have to have reasonable access to affordable accounting services.
Work permit fees, which is the primary tax in this segment of the business, is $10,000.00 per accountant. The average charge-out rate for a big four accountant allows for a cost recovery rate of the attendant annual work permit fee that is at least three times as fast as the charge out rate that is tolerable at the small business level.
The picture is the same in the insurance segment of the business. I dare say that this picture is very much the reality for small businesses across the spectrum.
The particular irony of the specific case of this company is that all concerned have sought to structure the operation with a view to seeking to deliver the greatest possible economic benefit to the domestic economy, hence the staffing complement of 20 is comprised of 15 full time employees, of whom only two are work permit holders, and three of the four part time employees are active retirees, the other two being tertiary level students. The demise of the company would have a much greater lasting negative impact than in a case where a larger proportion of the work force were transient.
The tendency over the years has been for ordinary folks to presume that the regressive indirect tax structure that has been the mainstay of the fiscal policy of every government for the past 30 years is vital to the ongoing economic success of the country. Arguably the current tax regime serves mainly to preserve the “natural order” of our established trickle-down society.
We must challenge our leaders to show how the perpetuation of policies and incentive structures that favour transient activities and penalize domestic ally generated initiative can in fact be to the long term benefit of the citizens.
Case in point: How do they equate pronouncements by vested interests of the so-called successes such as of the listing of 7.7 billion of CAT Bonds on the on the Cayman Islands Stock Exchange, (ostensibly ascendancy to a global leadership position) in the period since the start of the global financial crisis, with the fact that its owner – the government – is having to cover the deficit on the backs of its heavily laden core of middle and lower income residents and citizens in its futile attempts to cover a comparatively modest deficit of under $100 million?
“Operation Heron” set for tonight
(CNS): A mock aircraft accident, which was postponed last week due to the risk of lightning strikes, will take place tonight (Tuesday, 27 July), the Cayman Islands Airport Authority (CIAA) has confirmed. Following a visit to the proposed accident site at 11:00 am, the CIAA’s Airport Emergency Exercise Committee has said that the “Accident” will be staged at an undisclosed site within close proximity to the airport, though the CIAA noted that the exercise will not take place during rush hour traffic.
However, as part of the exercise emergency vehicles will be entering and leaving the airport area, and although the exact location of the emergency exercise is not being revealed, drivers in the area can expect periodic roadblocks, the CIAA has warned.
RCIPS Superintendent Adrian Seales said, “It will be necessary for the RCIPS to stop traffic at various street lights and junctions along Smith Road, Crewe Road, Owen Roberts Drive and surrounding roads in the Industrial Park area. While these disruptions are necessary to accommodate the passage of emergency vehicles, we will endeavour to minimize the inconvenience to the motoring public.”
Explaining the need for these Exercises to be held, the CIAA’s Senior Manager Airport Operations and Chairman of the Airport Emergency Committee, Kerith McCoy, said it is crucial for airport personnel and supporting emergency responders to test their readiness on a regular basis to ensure they are fully prepared in the event of a real aircraft accident.
The Airport Emergency Committee comprises representatives from the Cayman Islands Airports Authority, Airlines, 911 Emergency Communications, Government Information Services/Joint CommunicationsServices, Hazard Management Cayman Islands, the Royal Cayman Islands Police Service, the Cayman Islands Fire Service, the Cayman Islands Health Services Authority, the National Roads Authority, the Department of Environmental Health, the Red Cross and the Port Authority.
Ofcom calls for clarity in broadband speed ads
(BBC): Britons are not getting the broadband services they are being sold, research by the regulator Ofcom suggests. Its analysis of broadband speeds in the UK shows that, for some services, 97% of consumers do not get the advertised speed. It also shows a growing gap between the claims ISPs make for broadband and the speed being delivered. To fix the problem, Ofcom is revamping the code of conduct for ISPs and asking for changes to how broadband is sold. The regulator’s survey shows that the average residential broadband speed in the UK has risen in the last 12 months from 4.1Megabits per second (Mbps) to 5.2Mbps. The report also reveals the changing nature of UK broadband.
Motherly love ‘does breed confidence’
(BBC): Being lavished with affection by your mum as a young child makes you better able to cope with the stresses and strains of adult life, say researchers. Hugs, kisses and expressive declarations of love appear to rub off and foster emotional resilience. The results are from nearly 500 people, from the US state of Rhode Island, who were studied as children and adults. A secure mother-child bond may be key, the Journal of Epidemiology and Community Health reports. But experts say it is important to know when to stop.
Over-mothering can be intrusive and embarrassing, especially as children grow older.
Two golds for Mikayla
(CNS): The Cayman Islands finished in 6th place out of 14 countries at the recently concluded Caribbean Union of Teachers Track & Field Championships (CUT) held in St. Kitts this past weekend. Team Cayman won 2 golds, 1 silver and 1 bronze. Head Coach Tyrone Yen reported that the winners were: Mikayla McLaughlin (left), who won the sprint double in the 100m and 200m in the Uner-13 girls, Jonathan Frederick, who took the silver medal in the Under-15 boys shot put, and Tiffany Cole, who won bronze in the open girls 800m. The team also had numerous 4th places and finalist, as well as many personal best performances. The Cayman athletes were accompanied by Coach Tyrone Yen, Assistant Coach Flynn Bush, Managers Sana Tugman and Paula Erskine.
Alden: Govt schizophrenic
(CNS): The opposition member for George Town has accused the current government of suffering from schizophrenia when it comes to its economic policy. Alden McLaughlin said that while on the one hand the premier talks about wooing investors and creating a business friendly environment, on the other he is increasing fees and taxes so much he is driving business away. The PPM member said it had reached the point where the community has become fearful when the Legislative Assembly sits because at every meeting since coming to office the UDP government has introduced a new fee. “Government economic policy is a disaster,” McLaughlin said last week, as he pointed out that the country’s financial woes went way beyond blaming the previous administration.
Fines won’t help, says hotel
(CNS): Owners of the former Hyatt hotel, who had already raised serious concerns with government representatives prior to the introduction of the new environmental impact fee, say the fine won’t help. Government’s new $25,000 per day charge on properties hit by hurricanes, or left derelict for any other reason, will give insurers even more incentive to pursue a “delay payment” strategy, Embassy Investments has said. Only one of the hotel’s 15 insurers has not paid up, and though Embassy says that bringing some of the issues into the public realm has helped others settle and move the process forward, the fine may now undermine the wider goal of redeveloping the site.
Two teens admit pizza robbery
(CNS): Two of the four teenagers charged with the robbery of the Dominoes Pizza in Savannah last month have pleaded guilty to the offence. 17-year-old Addie Haylock and 18-year-old Julissa Avila admitted in Grand Court on Friday that they had committed the crime and they are expected to be sentenced in September, News 27 reports. However, two other teens, Anastasia Watson and Ariel McLaughlin, who are also accused of being involved in the robbery and who remain on remand, have not yet entered their pleas. According to police reports of the incident, three teenage girls entered the pizza parlour at around 2pm in the afternoon of Thursday, 3 June.
The girls who wore gloves and masks were also carrying machetes as they threatened staff and demanded cash. The teenagers escaped with a few hundred dollars and two bottles of soda into a nearby whit Rav 4 car which was allegedly driven by Ariel McLaughlin.
Police arrested the four teens on the 20 and 21 June and all of them have since been remanded in custody afterbeing denied bail by the chief magistrate. The three girls are currently being held at Fairbanks woman’s prison and the boy at Eagle House.
Nuns on run to escape retirement
(Washington Post): Two French nuns in their eighties are on the run after refusing to accept an order by a superior to put them into a retirement home for sisters. The octogenarians had been teaching in a school in south-eastern France for about 30 years when they were told at the start of July they would be uprooted almost 400 kilometers away and placed in an old people’s home. A third nun, who had also planned to disobey an order for the first time in her life, is recovering in hospital after breaking her hip. "At that age you don’t move people about. It kills them," said the nephew of 89-year-old sister Maurice-Marie, who is in hospital and who was decorated with France’s highest honor in 2009 for her dedication to education and acts of charity.
Diabetes could be in your bones say scientists
(Medical News Today): New US research on mice suggests that bone plays a key role in insulin regulation and helps cells of the body take up glucose; as both these processes are impaired in people with type 2 diabetes the researchers suggest this discovery could lead to new diabetes drugs. Dr Gerard Karsenty from Columbia University Medical Center, New York, and colleagues found that the process of bone resorption, when old bone breaks down to make way for new growth, releases a hormone called osteocalcin that turns on insulin production and also helps cells take up glucose.