The Cayman Islands has scrapped plans to implement the territory’s first-ever income tax on thousands of expatriates working there after a massive public outcry over the proposal.In a dramatic U-turn, Cayman Premier McKeeva Bush issued a terse statement late on Monday night saying that his proposed tax was “off the table and will not be implemented”. He did not however, say what alternative revenues, if any, will replace it.Mr Bush announced late last month that he planned to impose a direct ten percent income tax on expatriates to bail his country out of a financial hole and to meet the British Government’s demands that the territory diversify its sources of revenue beyond the work permit fees, duties and other fees it now relies on.Initially, he said the tax, called a “Community Enhancement Fee”, would affect foreign work permit holders making $20,000 a year or more, but then last week, the premier clarified the tax would affect those making $36,000 or more. Mr Bush said he believed the move would prevent approximately 500 public workers from losing their jobs.It is estimated that foreign workers make up about half of the Cayman Islands workforce. The abrupt proposal outraged many on the islands, who said the tax would be discriminatory and could destroy the islands’ economic anchor.News of the proposed tax kicked off a heated exchange between Cayman’s premier and Bermuda Premier, Paula Cox. It also reignited the debate over Bermuda’s two percent payroll tax increase and whether that’s caused a ‘silent exodus’ in the international business community. Business leaders here said that if a tax similar to the one proposed in Cayman were put into effect in Bermuda, it would have serious long-term implications.Brad Kading, president and executive director of the Association of Bermuda Insurers and Reinsurers (ABIR), which represents 22 major international insurers and reinsurers, told this newspaper: “Thankfully we know of no such proposals being considered by the Government here. The Government would understand such proposals would backfire.”The debate has also captured global attention with coverage from a growing number of media outlets from the US, Europe and Asia. Some people are so impassioned by the issue they’ve contributed to a Facebook petition against the tax called Caymanians & Expats United Against Taxation. It currently has more than 11,000 likes.There’s big business in Cayman. Zero direct taxation, friendly regulations and the global money they lure have transformed the tiny island territory into the world’s sixth largest financial centre, with $1.6 trillion officially booked international assets.Cayman’s business community got on board with the protest, blasting the premier’s plan.Nearly every major business organisation in the Cayman Islands wrote or spoke to Premier McKeeva Bush about their views on the proposed tax and their message was clear: it must go. They also offered other potential solutions to raise money for the governmentThe Coucil of Associations, a group comprised of a number of Cayman Islands industry associations including its Chamber of Commerce, Bankers Association and Insurance Association said in a statement on Friday: “The Associations regard the [proposed] Community Enhancement Fee in its current form to be discriminatory, divisive to society and inequitable. This type of fee has been regarded as unlawful in other jurisdictions such as the Isle of Man and Gibraltar …“We believe more can be done to reduce government spending and to generate cost savings … we believe that increasing the cost of doing business at this time may cause a loss of business to our competitors.”And it’s not just the banking and insurance industries that are worried about the tax, many local businesses in Cayman said they’ve lost money since Premier Bush announced the proposed tax.One company, Davenport Construction, told a local newspaper in Cayman just the threat of the tax has affected their business.“We have lost three sales, which we had deposits for since the announcement of a payroll tax on expats last week. The combined amount for those sales was $1.3 million. One was a home worth $345,000 and two others worth $485,000,” said Davenport Construction owner Paul Pearson told the paper.He said the potential homebuyers backed out because of the proposed tax.He said the customer told him: “Unfortunately, whether a fee or a tax is imposed or not, the haste with which decisions are made and the impact this can have on the economy means that we would not consider buying, as it is all too uncertain.”