PHILIPSBURG–The outline of what the country’s tax reform will look like delivered to Parliament by Finance Minister Perry Geerlings on Tuesday afternoon was called a bit of déjà vu by some parliamentarians, as it harkened back to a presentation made by another finance minister in 2015.
The proposed reforms still have to be worked out completely in a law by the Fiscal Affairs Department and will be coupled with a stack of amendments to existing legislations. A number of setbacks, including staff shortage, IT issues, changes of government and the ravages of the 2017 hurricanes, are seen as reasons for the hold-up of the very-needed reforms.
Geerlings said in the Central Committee meeting that the tax system has to change, as it is outdated, susceptible to abuse and not conducive to the current economy. Not fixing the system would result in “unfair competition” from surrounding tax jurisdictions, but caution must be taken to ensure the country stimulates investment and entrepreneurship and does not become a tax haven, according to Geerlings.
The Fiscal Affairs Department is busy with “urgent legislation” to introduce tax incentives for businesses following the hurricane, with on other legislation needed to bring the country up to required international standards.
Government is working on the bigger issue of tax reform by finalising draft legislation with the assistance of a third party as well as calculating the effects, internal approval procedures and submitting the proposal for advice to the Social Economic Council SER and Council of Advice. This will be completed with final approval by Parliament.
Internationally, there is a shift from direct taxation to indirect taxation. This is also the road government wants to take St. Maarten down, coupled with lower rates of direct taxation for the profit tax and the income tax as a means to increase tax compliance.
Other goals are to introduce new taxes that generate a steady stream of tax revenue, abolish disruptive or insufficiently-generating taxes such as the succession tax and the land tax, increase practical enforcement and controllability, attract foreign investors without disrupting local entrepreneurs, and not be a tax haven (conform to international rules).
On turnover tax (ToT), the idea is to broaden the tax base, make it practical and easy to control by eliminating exemptions, and keep the rate at five per cent. There will be a move to abolish the transfer tax and include transfer of real estate in TOT. This will make the buyer the taxpayer, but the notary remains liable in the process. This will create additional revenue because that was once a four per cent tax will become tagged to the five per cent TOT levy.
Some income sources will possibly be transferred from income tax to TOT as part of the shift from direct to indirect taxes.
Keeping the TOT system is seen as better by government than adopting the more complex value added tax (VAT) levy.
On wage and income taxes, government will seek to broaden the tax base, simplify execution and control by eliminating deductions such as gifts, reduce the ceiling of interest deduction for personal home and professional expenses (in relation to employment), abolition of arbitrary/accelerated depreciation and reduction of investment allowance, replacement reserve, premiums for voluntary pension, life insurance, annuities, and widows/widowers pension FZOG premiums.
The reforms in development will seek to abolish basic allowance for taxpayers not residing in St. Maarten; introduce “customary salary” for director-shareholder; introduce legislation to facilitate share splits, mergers and conversion of legal persons into other legal forms; and simplify execution and control by eliminating deductions such as arbitrary/accelerated depreciation, investment allowance, replacement of reserve, mixed/limited deductible expenses.
Road tax levy will take into account differentiation based on weight, cost price and fuel consumption.
Several taxes are up for abolition: Land tax (not levied but still formal law), inheritance tax (low income), dividend tax (never entered into force), surtax on profit tax and income tax, room tax (in future to be levied via TOT) and the e-zone regime (de facto not entered into force). The loss of revenue from scrapping these is deemed “minimal” by government.
New taxes to be introduced will be a gaming tax on casino and lottery winnings, and excise duty and/or tax on polluting (diesel) or unhealthy (tobacco and/or alcohol) products.
United St. Maarten Party (US Party) MP Frans Richardson said “time is running out” for incentives. He also questioned why the tax reform was taking so long when much of the legislation can be “copied/pasted” from kingdom partners.
MP Rolando Brison (US Party) again touted his idea for an environmental levy and to raise “hotel tax” from five to seven per cent. He believes hoteliers will willingly pay it if they know the money will go to marketing and infrastructure upgrades.
MP Silveria Jacobs (National Alliance (NA)) was not happy with getting what they saw as a rehash of past presentations and questioned the minister when exactly the reform will be ready to make a difference in the community.
Making tax payments easier with the office opening on Saturdays and moving more to filing taxes online were suggestions of MP Egbert Doran (NA).
MP Christophe Emmanuel (NA) wants the minister to point out which business groups in the community were the tax dodgers. He questioned whether the tax delinquents are the Indians, Chinese or the Arabs, among others.
The impact of insufficient personnel in the tax administration was queried by MP Chanel Brownbill (United Democrats). Fellow party MP Tamara Leonard also questioned staffing and called for the minister to fully outline the challenges and setbacks that have prolonged the implementation of the tax reform.
Schemes for affordable housing for first-time buyers and exempting these from any real estate transfer levy was proposed by MP Ardwell Irion. This was an option supported by MP Franklin Meyers (United Democrats), but with a caveat. Meyers believes the exemption should be limited to a certain property price.
The cost to revamp the entire tax system was requested by Meyers from the minister.
MP Theo Heyliger (United Democrats) urged the minister to pay attention to any leakage that could come from the implementation of new taxes and those that already exist.
The Central Committee sitting was suspended indefinitely to give the minister time to research information on all questions from MPs.
Source: The Daily Herald https://www.thedailyherald.sx/islands/82154-geerlings-draft-changes-to-better-country-s-tax-system-still-in-works
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