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St. Maarten Government ignored SER-warning about road tax: New system could cost state millions

POSTED: 04/3/13

St. Maarten –The Social Economic Council advised the government on November 26 of last year to postpone the introduction of a new system for the collection of road tax until January 1, 2014, warning that without a proper control system in place it could cost 1.75 million guilders in annual revenue.

The government ignored the advice and also delayed its publication. On March 20, Finance Minister Tuitt announced that out of the 28,000 license plate holders that were registered in 2012, a bit more than 11,000, or 40.1 percent still had not paid their road tax. The annual loss of 1.75 million guilders the SER calculated is based on 25 percent non-compliance. At 40 percent non-compliance, the government will miss out on 2.8 million guilders.

The national ordinance on public administration stipulates that advices like those from the Social Economic Council have to be made public as soon as possible, but no later than six weeks after they have been submitted to the government. The advice about the road tax was published in the National Gazette last week Thursday, March 28 – more than seventeen weeks after the SER submitted it. The deadline for publishing the advice was January 7.

In its advice, the SER wrote that enforcement of compliance with the new system “depends primarily on the tax inspectorate and the tax receiver’s office. This constitutes an additional administrative burden on both entities that are still developing and adapting to their new roles under country status.”

The SER spotted more weaknesses: “Even if the tax inspectorate and receivers were fully equipped to enforce the new motor vehicle tax, the success of collections would depend on the quality of the database of the motor vehicle registration system. This implies the need for correct data regarding the identity of the vehicle’s owner, and correct address and tax information. The different government databases (census, receiver’s tax inspectorate, etc.) are not yet interlinked to a degree that permits instant validity checks on information provided, nor is continuous updating of for instance address information guaranteed.”

With all these handicaps in the way, the SER foresaw what is happening right now: “As long as administrative control is not fully developed, enforcement will to a large extent come down to roadside checks. However, in the absence of visually observable proof of payment, these controls will become far less efficient than they are now.”

The SER noted that the old system (which was current at the time the advice was written) was “generally considered unwieldy and inconvenient” because it forced motorists to join long lines at the Census Office to collect new number plates and to pay their road tax. “Physically changing the plates each year constitutes a waste of money and resources,” the advice states.

The annual number plate dance had one obvious advantage: it made immediately visible who had paid the road tax, and who had not. “The new system lacks any means of visually observing whether vehicle tax has been complied with. Payment is to occur annually upon the initiative of the vehicle owner,” the advice states.

While the government presented the new system as budget neutral, the SER had its reservations about that already in November. “Under the present circumstances the new system carries a great risk of non-compliance, therefore compromising the revenue of the road tax and making the proposed measures less than budget neutral.”

All this does not mean that the SER was entirely negative about the new system. On the contrary: it “warmly welcomed” the “more up-to-date and less burdensome method.” At the same time the council considered short term introduction “too hard to enforce” and carrying “a high risk of non-compliance.”

“This may very well lead to reduced government revenue and an inequitable situation between compliant and non-compliant citizens,” the SER wrote.

The council doubted whether the government will see any of its estimated saving – budgeted at 225,000 guilders per year. Assuming 7 million guilders in road tax revenue and a 25 percent drop in compliance would cost the government 1.75 million guilders – more than 7.5 times the estimated savings.

The SER suggested to government not to burden car dealers with a 20-guilders tax on each traded vehicle. “An annual lump sum on business turnover would absolve the businesses and the tax inspectorate from the administrative burden of registering each vehicle separately for a very limited amount of time, while it has the same fiscal effect.”

In conclusion, the SER advised the government “to focus on efforts to update and interlink government databases in such a way that the tax payers’ data to be entered into the motor vehicle registration system is ensured to be valid, and will be kept up to date continuously.”

The SER furthermore urged the government to build “a system of administrative enforcement that is fail-safe and makes compliance as inevitable as it is under the current system.”

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