Critical letter to parliament about higher taxes on alcohol and tobacco – SHTA foresees disastrous effect

POSTED: 04/5/13 12:35 PM
SHTA-President Emil Lee.

SHTA-President Emil Lee.

St. Maarten – The proposed increase of turnover tax on alcohol and tobacco will have disastrous consequences for the local economy. Emil Lee, president of the hospitality and trade association SHTA writes in a letter to the President of Parliament Rodolphe Samuel that “more businesses will cease to exist” if the draft 2013 budget that contains the measures will be approved.

In the letter, the SHTA-president mentions ten consequences of the intended tax-hike. First of all, and obviously, alcohol and tobacco will become more expensive. “Consumers will look for cheaper sources – on the French side, off-island, in duty free zones or on cruise ships,” Lee states.

The SHTA foresees a considerable drop in wholesale and retail businesses in the alcohol and tobacco sector, job losses, a lower gross domestic product and less government revenue while unemployment will rise. “Demands on social services and welfare will increase and problems particular to high unemployment, like crime and the costs of justice, will increase,” according to the SHTA.

In its three-page letter the association refers to the effects the 45 percent increase on import duties for gasoline products had sixteen years ago, in 1997. This inspired French-side importers to bypass the harbor in Philipsburg and to establish unbranded gas-pumps on their territory.

“When the import duty was reduced later the damage was already done,” the SHTA warns, recalling that the measure led to the establishment of direct imports on the French side and the permanent presence of unbranded gas-pumps.

The long-term effect of the 1997 measure were, after an initial increase in tax revenue, lower tax revenue and more pressure on social benefits programs because 100 jobs were lost in the process.

Against this background, the SHTA sees the increase in turnover tax from 3 to 5 percent also lead to a further erosion of the tax base. “This will lead not only to more unemployment but also to an ever decreasing local private sector.”

The 45-percent tariff increase on gasoline products in 1997 pales already compared to the 66 percent increase in turnover tax in 2011. Now, the SHTA notes duly, the government proposes to increase turnover taxes on alcohol and tobacco products by 240 and 800 percent respectively.

President Emil Lee calls this in his letter :draconian” and “the first step in crippling St. Maarten’s competitiveness as the duty free shopping Mecca of the Caribbean.”

The SHTA says that 16 percent of on-shore spending goes to alcohol and tobacco products, but that this market “solely exists due to its competitive nature.”

Higher taxes will erase the competitive edge and drive consumers to competitors elsewhere. “This will ultimately reduce tourist sending across the board and discourage tourists from shopping in St. Maarten,” the letter states.

The SHTA feels that alcohol and tobacco are “singled out” and that this opens the door to target other product groups on an ad hoc basis – from jewelry and electronics, to hotels, accountants and contractors.

The association furthermore criticizes the more than 20 percent cut in the budget for tourism. This, the SHTA points out, “is the most important sector of our economy, the one that in effect pays for the public budget. This way, the sector received a double blow.”

For the full text of the SHTA-letter see our opinion page on page 7 of the print edition.

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Comments (2)

 

  1. L.B. Hill says:

    This organization is accustomed to preaching doom and gloom. And yet, they continue to enjoy the good living on St. Maarten

    So what’s new!

  2. Steven Eisenman says:

    This tax punishes time share owners and private boat suppliers. And the Cruisers will just go elsewhere for the cheapest price on liquor, besides, they put the least into the local economy.

    A time share owner is there for at least a week, and usually longer, and stock up on spirits, wine and beer for the stay. Boats get re-provisioned for long periods.