The Cayman Islands is scrapping a plan to impose a direct income tax on thousands of expatriates working in the British Caribbean territory, famed as a no-tax financial centre.
Premier McKeeva Bush issued a terse statement saying his proposed tax was "off the table and will not be implemented". He did not say what alternative revenues might replace it.
The islands' leader said only that his administration was "satisfied that many of the commitments from the private sector" will meet his demands for a new source of revenue for the government that will not hit the poorest citizens. He has been meeting business leaders in recent days.
Zero direct taxation, friendly regulations and the global money they lured have transformed the tiny British territory into the world's sixth largest financial centre, with 1.6 trillion US dollars (£1 trillion) in officially accounted international assets.
Mr Bush announced in late July that he planned to impose a direct tax on expatriate workers' income from September 1 to bail the territorial government out of a financial hole and to meet Britain's demand that Cayman diversify its sources of revenue beyond the work permit fees, duties and other fees it relies on.
He later said the annual income threshold would be 36,000 dollars (£23,000), which would have affected about 5,870 expatriates. He described it as a "community enhancement fee" rather than a tax.
The proposal outraged many people, who said the tax would be discriminatory and could destroy the islands' main economic anchor. Many expatriates were still left guessing about what the new revenue measures would include.
"The only reaction is confusion as the uncertainty continues," said real estate broker Kim Lund, who added that several deals fell through after Mr Bush announced the tax plan. At least he has removed this one tax that would have been our death sentence."
Some wealthy expatriates had said they planned to leave Grand Cayman, where accountants, lawyers and other skilled professionals work in coastal offices looking out on clear blue seas.
Eden Hurlston, a local man who was a vocal member of a roughly 11,000-member Facebook group called Caymanians & Expats Against Taxation, said he believes the controversy over the scrapped tax has helped people on the islands realise they can demand more accountability from their leaders. "The people spoke and the powers-that-be had to listen," said Mr Hurlston, who works in the islands' entertainment business.