Offshore tax-havens - what they do

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In January last year - the same month that I wrote "Offshore tax-havens - what they do" (mentioned above) I wrote two other posts on the general topic of offshore havens. One was "Lunching with the stars", the other "Death of a tax-haven". Both were about Nassau, Bahamas, and the latter post contained a warning to Cayman's politicians that Cayman was heading in the same direction. In the 20 months since then, the situation hasn't improved: Cayman is still slipping down the slope. Here are two paragraphs from that post.

In view of our Caymanian politicians increasingly vocal loss of confidence in our British connection, more and more of us expats here fear that our tax-haven may be sacrificed on the same altar of populist foolishness that killed Nassaus. The omens are very much the same. We dont have the black-white racism, but the perpetual fostering of native Caymanians resentment and mistrust of expats exactly mirrors the Bahamian experience of forty-odd years ago.

If Britain were to pull the plug on Cayman (read Trouble in Paradise, December), where would the clients go? To the new and revitalised Nassau? Or to the BVI  that long-patient bridesmaid-in-waiting? Offshore types have been sniffing around BVI for years now, and dont like what they see. Its not developed enough! It doesnt have the infrastructure! But most of the sniffers are too young to know how woefully undeveloped Cayman was, at the time of the Nassau exodus in the 1970s.

Anybody who wants to read the rest of that post, and the other one about lunching with the stars, can find them in the same January 2013 archive of my blog, which is http://barlowscayman.blogspot.com

Thank you for your excellent writing on this subject, Gordon.

Thanks, Nomad. You are always cheerful and encouraging. I hope we meet up one day!

That would be a pleasure, Gordon.

I'm thinking of relocating to BVI at the moment. Too bad they have that 8% income tax.

8% seems great to me.   
Here in Australia where I am working at present, I pay up to 42% 

Stumpy. 27 years ago I got into awful political trouble here in Cayman when, as Manager of the local Chamber of Commerce, I was instrumental in mobilising public opinion against a proposal to introduce a compulsory government pension-contribution of 4% of wages from employees and 4% from employers. How we did it was to label the proposed levy "Income Tax". In a place where no Income Tax had ever been levied, that was enough. The politicians were howled down so severely that the proposal has never (yet...!) been revived.

So in the context of that, Nomad's horror at the prospect of paying an 8% income-tax is understandable!

42% is pretty brutal, Stumpy. Complaining about an 8% rate looks pretty funny in print, especially compared to your rates. Nonetheless, and as Gordon points out, the fact that BVI made the leap and imposed an income tax of 8% is just the beginning. In a few years the pols will need more of other people's money to spend on their cronies or to cover the gap their financial mismanagement has created so they'll propose a 2% increase. Who can object to such a small increase once the principal of having an income tax has already been established? Especially when the money is needed "for the children"? Then in a few more years, they want 5% more on top of that, etc., etc. And I'm not an expert in BVI finances, but something tells me that the government did not lower the rates of customs duties when the 8% income tax was imposed. Add all this to the cost of living and the place starts to look undesirable. It's still mostly desirable now if your income is high enough, but what about 5 or 10 years from now?

Yes, Nomad. One of our arguments in the 1987 fight against the proposal that I mentioned, was that Barbados some years before had introduced an initial 4.5% "social security" [pensions] deduction from wages (plus an equal amount payable by employers - 9% total), that had soon been bumped up by a public-hospital charge and a school-subsidy charge and a couple of other things. Within eight years the total had increased to 19%!

And I remember reading somewhere that the very first tax on incomes in the UK was levied to fund the war with France in Napoleon's day, with a rate of 2.5 pence in the pound - 1%!

It is the thin edge of the wedge as the saying goes. Once a tax is introduced and the powers that be see it as a lucrative source of funds then the rate can only go up not down.

I personally have no objection to paying taxes, but having to pay 42% on my holiday pay is brutal to say the least. The average tax payer here in Australia sees no benefit from the high taxes, only the politician pigs with their snouts in the tax trough benefiting themselves and no one else with their 25% superannuation paid out of taxes, housing allowances, travel, big salaries etc etc etc. Tax payers only get 9.5% super paid by their employer.