considering coming to the Island to go elsewhere, a business group has warned.

The Chamber of Commerce's International Companies Division (ICD) said yesterday the increase announced in Monday's Budget Speech will not trigger an exodus from the Island but will cause companies to scrutinise their operating costs.

International companies will pay identical employment taxes to local companies, despite lobbying efforts by the ICD to prevent the Government creating a level playing field.

The one percent increase in payroll tax completes measures first announced in the 1990/91 Budget to ensure international and local businesses would be treated equally with respect to payroll taxes.

It was then decided that international business should be charged an additional levy -- the equivalent of employment tax -- which was phased in over a five-year period.

The final one percentage point adjustment will come into effect as of April 1, 1994.

Mr. Adolph Luttke, ICD chairman and general manager of Corange, said: "The ICD did ask the Minister of Finance not to increase payroll tax by the last one percent. We wanted to keep the tax at four percent.

"The extra one percent will add to the cost of doing business in Bermuda, particularly for the large firms, who will be most affected. Some of them are employment intensive. We are competing in a very competitive environment with other jurisdictions, both onshore and offshore, and these companies' bottom line will be affected.

"Companies intending to come here might choose another location, and existing companies may choose to locate part of their business elsewhere. Captive managers, in particular, are flexible about where they can locate,'' said Mr.

Luttke.

Mr. Anthony Goodfellow, ICD deputy chairman and a director of NM Rothschild Services (Bermuda), said he did not think that international companies should be taxed at all.

Mr. Cummings Zuill, chairman of Bermuda International Business Association, said increased taxes, including those on alcohol, strengthen the view of Bermuda as an expensive jurisdiction in which to do business.

"Even the increased cost of a drink at a bar serves to reinforce the impression that Bermuda is expensive, and that legal, accounting and other business expenses will also be expensive,'' said Mr. Zuill.

A concession that the ICD successfully lobbied for is to allow international companies to elect to pay either the basic hospital levy and the additional levy, said to be the equivalent of employment tax, as they have traditionally done, or to pay employment tax and hospital levy, in the same way that local employers do now.

International businesses currently are required to pay both basic and additional levy on a level of assumed remuneration -- assessed at $51,960 per annum for each employee from April 1, 1994 -- which changes annually at the same rate as the change in the Consumer Price Index.

The Miscellaneous Taxes Act 1976 will be amended to enable international businesses to choose.

Those employers employing a substantial number of persons at wages and salaries lower than the level of assumed remuneration will no longer have to pay levy on the higher, assumed, wage level.

Companies are likely to make the decision based on the ratio of senior management to clerical staff.

Mr. Luttke said for many international companies, the average salary is close to the notional salary of $51,960.