Minister Gibson at tax summit: “Tax reform is absolutely necessary”

POSTED: 06/21/16 12:45 PM

 

stmaartentax summit

Prime Minister William Marlin (left) and Finance Minister Richard Gibson during the tax summit. To the right is Minister Emil Lee. Photo contributed

St. Maarten News – “No drastic fiscal steps are necessary to improve revenue,” Finance Minister Richard Gibson said in his opening address at the tax summit that took place last Friday at the Westin. “Increase of tax rates is not on the table. We have to modernize and simplify our tax laws, the way taxes are filed and we have to improve the infrastructure to collect taxes efficiently.”

The minister also addressed tax fraud and tax evasion, the question of moving from direct to indirect taxes, and switching to value added tax or keep the turnover tax in place. “In this process we should give some thought to income redistribution and lessening of the tax burden on the poorest in our country.”

Minister Gibson said that tax compliance in St. Maarten currently stands at 22.5 percent. “Each percentage point that we can improve on the current tax compliance represents approximately 20 million guilders in additional income for the government. Some Caribbean countries have a 30 percent compliance rate and member states of the Organization for Economic Cooperation and Development score 34 percent.”

“If we are able to boost our compliance rate from 22.5 to 26 percent without raising any taxes, it will represent a structural additional income of 70 million guilders,” the minister said. “Then we can stop living from hand to mouth.”

The ministry of finance, the tax department, the fiscal department, and SZV developed the program for the tax summit with the help and insight of two-time former Prime Minister of the Netherlands Antilles Etienne Ys.

“He who thinks about the future lives it,” Minister Gibson quoted Atlas Shrugged and Fountainhead author Ayn Rand.

“Critique should be constructive and connected to future solutions,” the minister said. “Living on St. Maarten, going about our daily activities, relying on what has worked for many years in the past and expecting that it will be the same in the future is not thinking about the future. It is projecting the past into the future.”

Gibson pointed out that throughout history gross domestic product growth more or less stayed in step with the real economy, but that changed with the financial crisis in 2008.

According to a 2015 report from Credit Suisse the richest 1 percent of the population in Western Europe owns 31 percent of all wealth, while the poorest 40 percent just owns 1 percent. Around 60 global citizens own about 50 percent of the world’s wealth, Gibson said. “Most of this wealth is no longer used for productive investments in the economies, as was the case in the past. This has contributed to weakening of demand and a global reduction in GDP-growth. Where this will end nobody knows.”

Fiscal intervention could influence this situation, the minister said, adding that this would not work for St. Maarten because nobody from the richest 1 percent lives on the island. “We don’t have billionaires like Warren Buffett, Bill Gates, Carlos Slim, George Soros or Larry Ellis.”

Nevertheless, Gibson continued, tax reform and fiscal intervention are “absolutely necessary.”

Tax revenues have remained flat for many years and currently there are signs of decline, he said.

The minister warned about the effects of natural disasters, like rising sea levels. “The sea level rises 1.78 millimeter every year and steps have to be taken to protect against erosion. Sun, sea and sand is the backbone of our tourist economy; that’s why tourists come in droves to St. Maarten.”

Head of the Tax Administration Sherry Hazel emphasized the importance of the strategic plan for the Tax Administration (2016-2018) and highlighted the need to update its ICT infrastructure as a high priority target, which is one of the essential factors to increase compliance and to meet international standards as well as improving local data sharing. Furthermore housing, re-education of existing staff and employing additional staff are all on the priority agenda of the Tax Administration. Combined these improvements would not only fulfill the requirement to increase revenues but also improve customer service and communication. The biggest concern of the Tax Administration at this time is the lack of investment capacity to put its strategic plan into action.

Financial consultant and Tax advisor, Etienne Ys presented the results of an assessment of the Tax Administration which encompasses its strategic plan, the required stakeholder collaboration, investment and prospect on return on investment. It is a 3-year phased transformation plan for the Tax Administration services of Sint Maarten. According to Ys, the plan would increase tax revenue to at least 26 percent of GDP within 3 years and produce annual revenue of 500 million guilders. This increase will significantly bring Sint Maarten in reach of the 30 percent of GDP comparable to the neighboring countries. This would enable the government to mitigate the unbalanced income distribution in the country, properly invest in education, public health, youth, sport, justice, tourism, infrastructure and the environment, induce fair competition in the marketplace and more. “Sint Maarten should strive for a smart state of the art Tax Administration. An administration with a 21st century IT system, with which the tax payer can fulfill all its duties over the internet. An administration with a one window approach,” Ys said.

Secretary General Arno Peels and the Head of the Department of Fiscal Affairs Janio Chayadi gave a brief run down on the tax framework that has been approved by the Council of Ministers. Most notable message in this field is broadening the tax payer base by simplifying the regime, abolish undesirable regulations and a shift from direct to indirect taxes. This message follows the leading international perceptions as presented in the Mirrlees Review in 2011.

“We put aside our kingdoms and our ego’s for country Sint Maarten,” SZV chairman Glen Carty noted.

An example of further elaboration of “success through collaboration” was given by Elton Felisie of SZV. In the first 5 months of 2016 SZV was able to significantly increase collections for AOV/AWW and ZV/OV combined by 13.9 percent in comparison to 2015. This was achieved through collaboration with the entity SBAB. Felisie pointed out the collaboration opportunities that exist in his view.

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