Offshore financial centres in the British Caribbean should consider introducing more taxes to shore up their increasingly shaky finances, according to a UK government-commissioned report published late last week.
Many of the British Caribbean islands have seen the world economic downturn cut into their revenues and put pressure on public spending, according to a review of UK-affiliated tax havens led by Michael Foot, a former director of the Bank of England.
Foot investigated the economies of Britain’s Caribbean territories - Anguilla, Bermuda, the British Virgin Islands, the Cayman Islands and the Turks and Caicos Islands - as well as Gibraltar, the Channel Islands of Guernsey and Jersey and the Isle of Man.
’None of the nine jurisdictions I have reviewed can afford to be complacent,’ Foot said, although he noted that Guernsey and Jersey were weathering the downturn better than the Caymans, Anguilla or the Turks and Caicos.
His report argued that the Caribbean territories needed a diversified tax base, explaining that there was ’a compelling case’ for value-added taxes, a consumption tax assessed on the value added to goods and services, and corporation taxes, which are levied on companies’ profits.
Such new levies would be a major departure for the Caribbean tax havens, which have traditionally used their rock-bottom rates to attract thousands of multinational corporations, hedge funds, and other tax-dodgers.
The nine British territories comprise nearly two-thirds of the offshore market, according to report, which noted that the Caymans and Bermuda also handle large chunks of the US overnight banking and American reinsurance business.
But Foot said that many of the territories were running out of money as tourism and finance withered away amid the worldwide economic meltdown. The Turks and Caicos have already exhausted their government reserves, while in Anguilla reserves are forecast to run dry by the end of the year, the report said.
While some of the offshore centers have resisted pressure to implement new taxes, Foot said that keeping rates too low might hurt in the long term as cash-strapped governments in Europe and the United States move to crack down on tax havens.
Britain’s government, which has varying degrees of control over the territories’ domestic and foreign policy, expressed its support for the report.
’This report sends a strong signal to overseas financial centres that they must ensure that they have the correct regulation and supervision in place, while also ensuring their tax bases are more diverse and sustainable to withstand economic shocks - this is essential to their long term stability,’ said Stephen Timms, the financial secretary to Britain’s Treasury.
AP /LONDON
