Tax revenue foreign condo owners possibly 4 million guilders lower

POSTED: 03/20/12 3:18 PM

St. Maarten – Finance Minister Hiro Shigemoto’s clarification about plans to collect taxes from foreign condo owners has caused some confusion. While Today’s assumption that the ministry aims to collect 48 million guilders this year was clearly of the mark (it is 48 million over the past five years), the 21 million guilders Shigemoto mentioned in a press release issued this weekend is also not entirely accurate.
This appears from a January 13, 2012 letter from the Board for financial supervision Cft that is attached to the draft 2012 budget. In the letter, the Cft expresses clear concerns about the budget.
In an earlier assessment, put forth in a letter to the Finance Minister on December 14 of last year, the Cft expressed its doubts about the feasibility to collect 21 million guilders in taxes from foreign condo-owners this year. So the Cft demanded a plan of approach to show that it is indeed possible to collect these taxes.
St. Maarten complied: in its plan of approach the Finance Ministry wrote that “at least 35 percent of the (foreign) tax payers would pay.” According to the Cft this means that the revenue from taxes on foreign condo-owners will be 17 million guilders this year and not 21 million, as Finance Minister Shigemoto stated in the press release he issued this weekend.
The minister referred to the 21 million in tax revenue as “a conservative estimate.”
Part of the plan of approach that must bring in the 21 million guilders is a monthly estimate of collections that must result in the projected revenue at the end of the budget year.
The Cft wrote in its carefully worded reaction: “According to the time schedule there is the threat of arrears, even before there is an approved budget. The Cft sees in this a confirmation of its concerns. If the arrears are already happening now, they pose an additional risk for the realization of the projected tax revenue.”
The financial supervisor urges St. Maarten to catch up, because any delay will put the projected revenue in jeopardy. The supervisor notes that, if this happens, the Kingdom law on financial supervision allows the Cft to urge St. Maarten to amend the budget.
The plan of approach notes that St. Maarten also fears that it will not be able to hire enough qualified staff to execute the measure. “St. Maarten acknowledges this in the plan of approach but up to now there is no solution,” the Cft wrote.
Remarkably, the financial supervisor also notes that “St. Maarten has not capitalized on an earlier offer for support by the Dutch tax inspectorate.”
If there are arrears at the end of the first quarter, Cft-secretary Cees van Nieuwamerongen wrote, and if there is no certainty about the availability of enough qualified staff, “St. Maarten will have to adjust the revenue projection accordingly or take additional measures to increase revenue. If this does not happen, the budget no longer complies with article 15 of the Kingdom Council of Ministers to issue an instruction.”
St. Maarten has committed to send a first progress report to the Cft by May 12. That report has to contain “realistic and ambitious plans of approach” for four issues: further strengthening of the tax inspectorate, a five-year plan for the improvement of financial management (including resources to realize these improvements, an assessment of the long term financial development for elderly care, social funds and pensions, and an analysis of the 2009 and 20010 annual accounts and their effects on the 2012 budget.
The Cft also made a point of the fact that ‘St Maarten does not have a tradition to present budget amendments to the parliament. “The parliament decides beforehand how public finances are spent.”
The government promised the Cft in a reaction that it will inform the parliament on May 15, August 15 and November 15 about the execution of the budget and that it will on those dates also submit proposals to amend the budget if necessary.
Apart from all this the draft budget still contains plenty of pitfalls. Indexing the salaries of civil servants for instance, is only possible with a budget amendment, because the measure has to be budget-neutral.
A minor point of criticism is that increased revenue is in part based on economic growth of 0.2 percent, while the most recent projection by the Central Bank assumes zero economic growth.
The Cft also noted already in December that the real projected extra revenue in 2012 is not 11 million guilders but 28 million. That is because the 17.5 million guilders the country received in 2011 for the financing of several projects from the Netherlands will not be forthcoming in 2012.

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