Bermuda shakes up payroll tax rates to spread burden more equitably

Although welcomed as a “good start”, there have been warnings of unforeseen negative consequences.

Bermuda’s plans to cut payroll taxes for low-paid workers and increase the amount of money paid by higher earners has been welcomed as a “good start” by family charities, despite potential unforeseen consequences.

During the 2017/18 Budget statement, finance minister Bob Richards announced that workers earning $48,000 or less will see their payroll tax rate fall from 6% to 4.25%. The rate for mid-to high-earners, on the other hand, will jump from 6% to 11%, while the payroll tax cap will rise from $750,000 to $900,000.

The aim of the move is to spread the tax burden more fairly and has been praised for its “progressivity” among business leaders. But social justice campaigner Martha Dismont, executive director of the Family Centre, which provides counselling services, warned that it could have unforeseen negative consequences.

Although she described the change as a “victory” for people who need financial support, she also pointed out that some struggling families could be indirectly hit by the higher tax rate.

Dismont told “The Royal Gazette” newspaper: “If there is increased tax on their salaries, this will impact the lower income bracket still as middle income family members will have less disposable income to support lower income family members.”

Finance minister Richards also announced that financial sector firms such as bank, insurance companies and money service providers would aso be hit with a new financial services tax from April. Tax breaks for hotels, retailers and restaurants will likewise be withdrawn completely over the coming financial year.