legal loophole which allows MPs to escape paying the payroll tax.

It emerged from research carried out by the former Accountant General Heather Matthews that MPs are exempt from the payroll tax because they are not considered to be Government employees.

MPs receiving their pay cheques this month discovered for the first time that the tax had not been deducted from their MPs' salary.

Finance Minister Eugene Cox said the anomaly had been discovered by accident and it was not a policy change, but he added that Government had no immediate plans to reimpose the payroll tax on MPs.

Shadow Finance Minister Grant Gibbons called on Government to close the loophole immediately because MPs should be setting standards for the rest of the community.

The United Bermuda Party MP said the change looked "self-serving'' and claimed it was a back-door route to hike up MPs' salaries.

Mr. Gibbons said: "The Government is saying there is no intention to keep MPs from paying the payroll tax, but that seems a bit of a weak excuse.

"It seems like a back-door route to get MPs' salaries up, because Government has been talking about it for some time.

"Clearly, we make just about everyone in the community, even low paid individuals, pay the payroll tax, so there's no reason MPs should be exempt.'' Govt. should be setting an example, says UBP "We should be setting an example, and Government should make it its first item of business to ensure MPs are included.

"It looks very self-serving at best. At worst, it calls into question the integrity of the PLP Government.'' Mr. Cox said the exemption was discovered when Mrs. Matthews was doing research into deductions from MPs' salaries.

When the 1995 Payroll Tax Act was passed incorporating the hospital levy into the payroll tax, no mention was made that MPs were liable.

He said MPs paid the hospital levy and their liability was subject to a clause in the Hospital Levy Act.

He said since MPs are not Government employees, a specific clause should have been introduced if it was intended that they pay the payroll tax.

Mrs. Matthews reportedly believed MPs were being illegally charged the payroll tax. She sought an opinion from Attorney General Dame Lois Browne Evans, who agreed.

As a result, when MPs received their pay cheques in October, for the first time they were not charged payroll tax.

Mr. Cox said: "We do not intend to refund the funds that were wrongly deducted in the past because that would involve a costly and time-consuming procedure.

"I want to emphasise that this has not come about through some policy or intention of the Government. It was discovered purely by accident, and we have tried to deal with it as fairly and as sensibly as we could in the circumstances.'' A spokesman for Mr. Cox said later that Government had no intention at the moment of reimposing the tax on MPs.

Mr. Gibbons said when the legislation was passed in 1995, there had never been any intention of exempting MPs from payroll tax.

He said: "I was in the House in 1995 and there was no decision at that time about any possibility of exemption for MPs.

"Had there been, there would have been some form of discussion about that -- it certainly wouldn't have gone unnoticed.'' TAXES TAX