Minister of Finance Perry Geerlings
POND ISLAND–The short-term investment of NAf. 37 million in the capital account for transforming the tax administration is divided into NAf. 32 million for the upgrading of the Tax Department and another five million for the necessary improvements in public financial management as noted in the 2015 Kingdom Instruction, Minister of Finance Perry Geerlings said on Monday.
He said studies have indicated that investment being made would yield extra income for Government within two to three years, as would expansion and broadening of the tax base and improvement of compliance by bringing the shadow/informal economy in St. Maarten into the tax process. If one manages to reduce the shadow economy by 10 per cent, the country’s tax income is likely to increase by NAf. 60 million, or three per cent of the gross domestic product (GDP), on a yearly basis as of 2021.
According to a 2017 International Monetary Fund (IMF) study about tax administration reforms in the Caribbean, titled “Challenges, Achievements and Next Steps,” the average size of the shadow economy in the countries in the region is estimated at 38.5 per cent of GDP.
The St. Maarten Government has been obligated to make investments in the tax infrastructure stemming from an instruction by the Kingdom Council of Ministers of 2015.
The investment to enhance and improve the country’s tax infrastructure is projected to take approximately three years to realise; hence, the main part of the investment in the project is in the 2019 national budget, Geerlings explained.
St. Maarten became a country in 10-10-10 and has been realising national deficits almost every year since, due to the fact that the national receipts of income were lower than the expenses, and this is not allowed by law and detrimental for the country’s economy and investment climate, Geerlings said.
St. Maarten received a formal instruction from the Kingdom Council of Ministers in 2015 to cover the budget deficits and larger arrears by making payments to the Social Health Insurance Fund SZV and the St. Maarten General Pension Fund APS within a certain timeframe, which has still not been fully complied with.
“We made our investment choices within the limitation and constraints set by the Kingdom Government and international public-finance standards placed on us in support of our financial recovery plan and government’s solvability needs.
“The transformation of the country’s tax administration is the short-term investment solution to create yearly budgetary surpluses, to become financially healthy as a country, and giving future generations the possibility to grow up and make their own contribution in a less worrisome debt-ridden and burdensome environment,” Geerlings explained.
“We need all people and businesses within our society to contribute their fair share to bring our country back to where it belongs and realise a situation in which we are less or no longer dependent on financial donors like the Netherlands. St. Maarten has a bright future ahead, our Government strongly believes in that, but only if we play a fair game in all respects.”
Realising more income without raising tax rates is the main objective of this project and is meant to make the country’s financial future healthy and sustainable. Executing the Tax Transformation project is the only way to become financially healthy in a sustainable way. “A situation that has never been the case in St. Maarten since we became an autonomous country in October 2010,” Geerlings said.
He said this strategy and solution are also “strongly” endorsed by various institutions and stakeholders, such as the IMF, World Bank, the Social Economic Council (SER), the Committee for Financial Supervision CFT and the Dutch Government.
“The CFT declared in their advice to the Kingdom Council of Ministers that the presented 2019 budget is a realistic budget. It is also noticeable that approval is given in the 2019 budget for a much higher amount in the capital expenditures – NAf. 40 million – that we can borrow, much more than in all previous years since 2010,” Geerlings stated.
“There are close to 20 reports that have been written over the years about our Tax Department, our tax system and our public finance management, recommending the need for urgent reform. The ball has been in our court for years to bring forth the changes by making the investments needed and, after some 20 reports, the time is now to execute the recommendations.”
He said the objectives of the tax-transformation project are in the country’s and citizens’ best interests, and can be summarised as increasing income revenue; creating the ability to finance the National Recovery and Resilience Plan (NRRP) as far as not financed through the Trust Fund; and, as soon as possible, having a national budget with a surplus to be able to pay back loans and to finance and improve all public services across the board that improve the quality of living for every citizen.
“All of this will also cause us to become more economically competitive in the region by having created a more reliable and favourable investment climate. However, one of the most important factors, if not the most important one, is that St. Maarten must have political stability,” Geerlings added.
The starting points of the tax transformation project are a simplified and fair tax system without increasing the tax burden and/or disruptions in the economy and business, and strongly improved and efficient public service. The project is aimed at realising competitive tax rates that encourage entrepreneurship, promote economic development and stimulate foreign investment.
“Also important to know and realise, a favourable investment climate will only become reality when the income of Government is higher than its expenses, which is the overall aim of the tax and public finance reforms,” Geerlings said.
Furthermore, the Ministry of Tourism, Economic Affairs, Transport and Telecommunications (TEATT) is in the process of developing a National Economic Development Plan that is expected to be funded through the World Bank Recovery Trust Fund, he stated.
“In closing I just wish to point out some of the significant investments we intend to make in our economic recovery once the 2019 budget is approved, next to other economy-stimulating and -developing initiatives, which are expected to be brought in for Council of Ministers decision-making as well,” he said.
The expense budget also includes approximately NAf. 3,800,000 for tourism promotions and NAf. 400,000 for sub-projects on economic development and revitalisation of Philipsburg.
“The Government of St. Maarten is working on all facets at the same time, which is a holistic approach in tackling the challenges that our country has been struggling with since its inception. Now is the time to put things right for a long-term sustainable, financially secure and socio-economic confidence in the future development of the country,” Geerlings concluded.