Tax Promises: Political Fairytales Without Happy Endings | SOUALIGA NEWSDAY

SINT MAARTEN (COMMENTARY - By Angelique Remy-Chittick, Financial Strategist and Consultant) - As our second election season is in full swing, a wave of tax reduction promises from aspiring politicians are flooding the airwaves.

While these tax related campaign promises aim to provide financial relief and boost the economy, they lack crucial details about how the Government of Sint Maarten will replace the lost revenue from these lofty tax plans. Here’s a quick rundown on these promises and the potential implications for the future of Sint Maarten.

Tax Reduction Proposals

Natasha Manuela-Gumbs (UPP) has proposed lowering sole proprietor taxes, waiving first-year taxes for new small businesses, reducing the profit tax to 15%, and removing taxes on seniors' pensions. Teddy Charlie (UPP) advocates for a back to school tax break, which includes deductions for school supplies, uniforms, and other educational expenses.

Rolando Brison (UPP) suggests a "Start Fresh Tax Cleanup" program that involves forgiving tax debts older than five years and extending tax payment periods. Omar Ottley (UPP) aims to increase old age pensions and reduce profit taxes to 15%.

Lastly, Carlita Guy (NA) proposes removing taxes on old age pensions, reducing wage taxes, introducing a small business scheme by lowering high social premiums, and removing the turnover tax (TOT) for micro and small businesses.

The Dream vs. Reality

Now, these campaign promises sound like a dream come true, right? Lower taxes, more money in your pocket, and relief for our elderly. But before we get too carried away, let’s consider some real-world issues currently plaguing Sint Maarten.

  1. Strapped National Budget Chopped by 32 million Guilders. The current government administration has reported that the budget for 2024 had to be reduced by 32 million guilders due to unrealistic projections. To make matters worse, our national budget hasn't been balanced since "Noah Built His Ark." So, proposing these tax cuts seems far-fetched given the fact that the government's cash flow is already stretched thin.
  2. Financial Stability Reducing or eliminating these taxes without a detailed replacement strategy could lead to significant government revenue losses. How will the government manage to keep providing essential services such as healthcare, education, and infrastructure if these tax cuts are implemented? Spoiler alert: there is no magic money tree.
  3. Our Overburdened Tax Administration Our tax administration system is already under significant strain due to staff shortages, high demand, and the ongoing “Transformation of the Tax Administration” project funded by the World Bank. This project’s aim is to update our outdated tax administration system, improve tax compliance and administrative efficiency. However, introducing new tax cuts without addressing these administrative challenges only adds to the burden. It is like building a house on quicksand.
  4. Tax Compliance Issues Sint Maarten has long struggled with serious tax compliance issues. Many businesses and individuals fail to meet their tax obligations, leading to big losses in potential income. This means less income to support our already struggling national budget. These compliance problems have been known for decades and continue to undermine the effectiveness of our tax administration system.
  5. Exploitation of Tax-Free Holidays Businesses have been taking advantage of tax-free holidays by changing their names every few years to keep getting these benefits. This tax loophole allows them to avoid paying their fair share of taxes, which hurts government funds and creates unfair competition.

This misuse defeats the purpose of tax holidays. Former Minister of Finance Perry Geerlings said in August 2019 that the government had given a tax holiday to four resorts to help them recover after the 2017 hurricanes.

Later, in November 2019, former Minister of ECYS, Ardwell Irion proposed a change to the tax holiday law. He wanted businesses to commit NAf 500,000 to education, culture, and sports if they got a tax holiday. The big question is: Has this amendment been finalized? And was this amendment considered by these aspiring politicians when promising tax cuts for businesses?

Aligning with the Country Package Sint Maarten

The Country Package Sint Maarten (1 April – 31 August 2024) includes a plan to create a fair and effective tax system that benefits everyone and supports our economy.

It focuses on:

  1. Broader Tax Base: • Moving from direct taxes (like income tax) to indirect taxes (like sales tax). • Introducing a 12.5% VAT (Value Added Tax), known locally as BWT. This tax is added to goods and services at each production or distribution stage.
  2. Less Government Interference: • Reducing the government's involvement in tax deductions and holidays, making the tax system simpler and more predictable.
  3. Modernizing the Tax System: • Updating our tax system through new digital projects to make it easier to comply with tax laws and improve efficiency.

Do these political promises to reduce taxes fit within these ongoing reforms? New tax policies should help, not hurt, these efforts to make our tax system fair and sustainable.

This means making sure any tax cuts don’t reduce the government's ability to collect enough money to provide essential services.

Responsible Financial Planning is Crucial

While these tax reduction promises sound appealing, they must be balanced with realistic and sustainable planning. How will the government continue providing essential services if these tax cuts are implemented without addressing these underlying issues? How will their tax reduction promises align with the current implementation of our new tax administration system?

Tax expert Richard Bird, in his 2004 paper "Administrative Dimensions of Tax Reform," argues that effective tax administration requires politicians to support good tax practices, even if it means making unpopular decisions. This means focusing on long term benefits over short term gains and not just taking the easiest solutions. Making sure that the tax administration system is capable and well-organized is crucial for sustainable tax reform. 

This election season, it's important for voters to make informed choices. Demand detailed plans, demand responsible financial planning, and ensure that our future leaders are qualified and prepared to guide Sint Maarten towards a prosperous and stable future. Let’s not be swayed by promises that sound too good to be true without understanding how they will realistically be achieved.