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Making a Difference – One Small-Scale Community at a Time

Here at BearingPoint Caribbean, we are strongly led by our beliefs. Each day we are dedicated to help transform small-scale communities and help them move forward. But what is it exactly that we do here are BearingPoint? What is our purpose, why small-scale countries, and how do we help them reach their full potential? In this blog we like to shed more light on our story and why we do what we do.

Our Client Base: A Diverse Group with Strong Similarities

When we first started out developing software for the Curaçao government, we never could have foreseen that 35 years later we’d have solutions running in all corners of the world. From the Caribbean to Greenland, to West Africa, to the Pacific, today our client base is a diverse and heterogeneous group of countries spread out over the globe. Our software solutions are used by small-scale communities, mainly Small Island Developing States and other developing countries. Small Island Developing States, or SIDS, were first recognized as a distinct group of developing countries at the United Nations Conference on Environment and Development in June 1992. Although several lists of SIDS exist, people often refer to the one provided by the UN[1] when discussing the SIDS. This list contains 58 countries spread over three geographical regions: the Caribbean; the Pacific; and the Atlantic, Indian Ocean, Mediterranean, and South China Sea (AIMS).

Despite their differences, our clients share some strong commonalities. As the name implies, SIDS are rather small countries. Combined they have a population of about 65 million, which is slightly less than one percent of the world’s population. Within the group, there are large variations in terms of population size and densities. Cuba has the highest population with 11.3 million inhabitants; whilst the Pacific island of Niue is the least populated with around 1,600 inhabitants. Nevertheless, almost 83% of the SIDS has a population smaller than 1 million[2].

With the highest GDP of $222.7 billion for Singapore and the lowest GDP of only $31.4 million for Tuvalu, the GDP varies significantly among the SIDS. The average GDP is approximately $13.7 billion. However, only 7 countries have a GDP higher than this amount. It is estimated that 81 percent of the SIDS have a GDP lower than $13.7 billion, and 54 percent even have it lower than $1 billion[3].

A shared struggle

SIDS face common economic and development challenges stemming from their small size and populations and remoteness from major markets. They have limited resources and a high dependency on international trade, whilst dealing with low and irregular transport volumes. With small domestic markets and a narrow resource base, they have little to no opportunity to benefit from economies of scale. There are limited opportunities for the private sector and a proportionately large reliance of their economies on the public sector. In addition, SIDS often deal with relatively high costs for energy, infrastructure, transportation, and communication due to their small size. Lastly, many SIDS are highly vulnerable to shocks in the global economy, as they rely heavily on it for financial services, tourism, remittances, and concessional finance.

On top of all of that, SIDS are confronted with fragile natural environments and are exposed to external shocks, such as severe climate-related events and natural disasters. It comes as no surprise that these small-scale communities suffer from significant challenges when it comes to mobilizing domestic resources and accessing capital markets. “They tend to have small and erratic domestic revenues, which combined with high costs for providing public services and the fiscal impacts of natural disasters, often result in limited fiscal space for development investments,” states the OECD[4].

Despite their challenges and vulnerabilities, many SIDS have still been a success story as most of them are classified as a middle-income country. Ironically, this makes many ineligible for concessional finance (and a lower priority for donors).

The importance of taxation

Taxes are levied in almost every country of the world, primarily to raise domestic revenue for government expenditures. Moreover, taxation plays a fundamental role in effectively raising resources for governments to deliver essential public services and achieve the Sustainable Development Goals. However, the reality of many small-scale countries is that there is a considerable tax gap due to low collection, tax avoidance, and widespread evasion. Ensuring strong compliance with the tax system remains a major challenge for many SIDS and developing countries. According to the IDB, countries in Latin America and the Caribbean could yield up to 7% of GDP in additional revenue annually by increasing their tax effort[5]. Governments now often face budget deficits, which decrease the ability to invest in the main pillars of society, such as education and healthcare.

Closing the tax gap

The key to raising domestic revenues lies in taxation. However, as the Platform for Collaboration on Tax points out: “Mobilizing domestic resources is not simply a matter of taxing more; it’s also about taxing better.”[6] To increase tax revenues, governments are often most effective by expanding the domestic tax base, improving tax compliance, and reducing tax evasion. Measures such as raising taxes and implementing budget cuts should be a last resort as they prevent societies from thriving and progressing. Instead, it is much more productive – and easier – to focus on enhancing compliance.

Strengthening compliance should become a greater priority for all governments, but especially for small-scale countries in need of improving domestic resource mobilization. As our earlier blog about compliance pointed out, voluntary compliance is the foundation of a successful tax administration system. The aim is not to eliminate gaps; reducing them can already raise significant amounts, especially for SIDS and developing countries that currently deal with high tax evasion rates.

The fundamental first step towards improvement is for governments to modernize their tax administration system. This digital transformation has proven to be an essential ingredient for creating fiscal sustainability. Next to significant efficiency gains from digitalization, the use of modern technologies offers governments basic instruments to better deter evasion and facilitate compliance.

A niche player by choice

In the 35 years of working with governments of small-scale countries we have seen that they often face similar issues: outdated software, understaffing, and smaller IT departments unequipped to bring the system to the next level. At the same time, new systems from big software providers are often out of reach because of their disproportionate high costs.

BearingPoint Caribbean is a niche player by choice. We develop software solutions to improve public services and enhance compliance for small-scale countries. Our Public Services Suite consists of four software solutions catered to the core government areas of Tax, Social Security, and Permits and Licensing. We have designed our software solutions to be modifiable off-the-shelf systems. The software is built via independently operating components that are fully integrated when working together. Each component consists of various functional modules that provide a solution to a specific challenge of governments, whether it is taxpayer registration, issuing licenses, levying of social security contributions, collection, or providing an online service platform for citizens.

The modular design of our solutions allows us to reuse software components, and more importantly, is built on best practices learned during the lifecycle of our software. The cost of investment is decreased significantly, as governments benefit from a proven off-the-shelf solution that is modified for their country. In addition, the advantage of our modular design is that the software can be implemented in phases, in accordance with budget, planning, and priorities. This phased approach enables a fast deployment of software components, which means that governments can quickly reap the benefits of a new system and use initial quick wins to help finance the rest of the build.

With limited budgets, governments of small-scale countries are not always able to invest the high upfront capital expenditure needed for the transition to new software. To help cater to SIDS and developing countries, we offer flexible fee structures that allow the majority of investments to be funded by future return on investment (ROI). One such example is our subscription fee, which turns high up-front investments into manageable monthly operational expenditures, spreading the costs out over the long run.

We are on a mission

Coming from a Small Island Developing State ourselves, we can relate like no other to the challenges these communities face in reaching fiscal sustainability. We believe all small-scale communities and developing countries should be able to reach their full potential and meet the priorities of society.

Our 35 years of expertise and knowledge has taught us that technology acts as a catalyst and will always have an immense impact on the future of any country. We are driven by our belief that pursuing compliance is the most effective way to increase government revenues and generate sufficient funding. And we will never stop in our quest to transform small-scale communities and developing countries and help them move forward.

 


Footnotes:
[1] United Nations – List of SIDS
[2] SIDS Population Numbers
[3] Small Island Developing States (SIDS) Statistics
[4] Making Development Co-operation Work for Small Island Developing States
[5] IDB – 2021 Latin American and Caribbean Macroeconomic Report
[6] PCT – Taxation and the Sustainable Development Goals Conference Report

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