Tourism tax loss eclipsed by financial fees
(CNS): The public purse lost around CI$17 million in accommodation and cruise ship taxes during the first quarter of 2021 as a result of the closure of the borders and the shutdown of Cayman’s tourism sector. However, earnings from the offshore financial sector more than made up for that loss of revenue for government.
Private Fund Fees, a new unbudgeted revenue stream collected for the first time at the beginning of this year, brought in a whopping $44.8 million, according to the latest unaudited financial report published by the Cayman Islands Government last month, reflecting just how critical the sector has been to public coffers and the domestic economy during the pandemic.
Even without considering the revenue from work permit fees paid by finance employers, the industry generated more than $250 million for the public purse in the first three months of the year.
CIG’s revenue in the first quarter of 2021 was almost 16% higher than in the first quarter of 2020, a period before the lockdown and following a record-breaking quarter for overnight arrivals when government was at the peak of its earnings. Nevertheless, after a year of the pandemic the revenue streams for the start of 2021 appear to be outperforming what had been on track to be a record year for government earnings.
Most financial sector fees are collected during this first quarter, but the report shows that government is also collecting more taxes through other means that should outweigh the loss of tourism revenue during the second quarter.
Stamp duty on property transactions was over $21 million, $9 million more than expected in the first quarter of 2021. And despite the global pandemic, it appears that property sales here continue to break records, with April and May on track to outstrip the previous months. With the number of transactions and the value both increasing, this revenue stream is likely to cover a significant chunk of what government would have earned in the second quarter from accommodation taxes.
According to the report, domestic levies on goods and services was over 22.3% higher than expected.
While import duty fell slightly and work permit fees also under-performed during the first quarter of 2021 by $3.7 million and $2.7 million, these losses remain far smaller than the gains made in other areas, which is keeping the government well in the black.
The CIG, however, remains cautious as a result of the need to keep supporting displaced tourism workers and propping up small businesses, given that the tourism sector is not expected to make any noticeable recovery until the end of the year.
When the statutory authorities and government companies are also taken into account, the overall fiscal performance reported for the period shows a surplus of $202.6 million, or 27% more than the budget had called for.
Compared to the first quarter of 2020, central government earnings are up over 14.4% but expenses are now running higher than anticipated. Since most of the money government collects comes in during the first quarter, the $393.4 million earned in the first three months of this year is not expected to be repeated, though the spending is set to remain the same and may even increase.
“The first quarter’s performance has positioned the government to be optimistic about its performance for 2021,” official from the finance ministry wrote in the report, but concerns remain. “This will greatly be impacted by the economic effects of COVID-19 expenditures and falloff of tourism related revenue and local economic activity due the extended closure of the borders.”
While the government’s revenue appears to be remaining solid as a result of alternative revenue streams to tourism, its dependence on the financial sector is evermore apparent. Unlike the 2008 economic crash, the pandemic has done little to dent the success of this industry.
However, there are a multitude of issues that Cayman continues to face which threaten that success. These include Cayman’s own failings when it comes to meeting the yardsticks set by the Financial Action Task Force and other international regulatory standards, and the development of policies in onshore countries, such as a global corporate tax that Cayman has little control over, making it clear the new PACT Government must be equally committed to reducing the risks faced by the financial sector as to reopening the borders.
See the full economic report in the CNS Library.