New tax system St. Maarten not yet approved by Council of Ministers

Taxand group financial analysis not yet approved by government

FRIDAY, 18 MAY 2012

PHILIPSBURG--United Kingdom-based Taxand Group has devised a financial analysis (so-called straw-man) with budgetary effects on the proposed fiscal measures, but it has not been approved by the Council of Ministers as yet, outgoing Finance Minister Hiro Shigemoto told the press on Wednesday.

The Department of Fiscal affairs has to draft an advice on the "straw-man" before it can be approved by the Council of Ministers.

An advice on the total Taxand Project was approved by the Council of Ministers on March 22. This advice, together with a national decree, were thereafter sent to the Governor's Office for a signature to allow further execution, Shigemoto said.

He described his disclosure about Taxand's involvement in the country's tax reform process "another rumour busted" because it was called into question by independent Member of Parliament (MP) Frans Richardson. Richardson had claimed that Shigemoto had signed off on a multi-million dollar project with "a Canadian firm."

Shigemoto said a second international company was considered for the tax reform project. Its price tag was some 30 million euros and entailed residents' tax information being routed through The Netherlands, which was not acceptable. Taxand's project should cost some NAf. 11 million.

New Tax Administration St Maarten Project is made up of several components to eliminate backlog, purchase resources such as vehicles, recruitment, ICT infrastructure and equipment, education and training, control and communication.

The tax projects still require priority and follow-up. Shigemoto said he has left behind complete documentation of each phase of the project for continuation.

The "work in progress" new tax system is aimed to reduce all current direct tax rates, increase the country's competitiveness to encourage investment by reducing tax rates and through simplification and refocus the economic incidence of taxation on visitors/migrant workers rather than on the local population in a way which will not damage the tourism industry or the wider economy.

Shigemoto further explained that it is designed to increase tax collection by collecting more at source, while simplifying the system and improving compliance. The reform project was scheduled to be in place by January 2013.

Tax suggestions

Currently, residents are taxed on worldwide income. It is proposed to tax residents on income derived in St. Maarten only, the finance minister explained.

Income tax is currently "progressive and has an effective rate up to 43.75 per cent. It is proposed to have no taxes on the first NAf. 36,000 of earnings, a five per cent tax on earnings of NAf. 36,000 to NAf. 54,000, a 10 per cent tax on earnings of NAf. 54,000 to NAf. 72,000 and a 15 per cent tax thereafter.

Corporate tax is currently taxed at 30 per cent, plus 15 per cent surtax, making an effective rate of 34.5 per cent. The proposal is to keep a flat 15 per cent on all profits coupled with a potential election between tax on profits and a lower tax on turnover for a fixed/minimum number of years.

A one per cent fee is levied on all money transfers out of St. Maarten for all residents and non-residents. It is proposed not to tax St. Maarten residents and businesses with a tax registration or CRIB number. Non residents are to pay a higher fee than one per cent.

Capital gains, taxed at 30 per cent, are to be abolished.

It is suggested to lower bank interest, now taxed at 25 per cent plus 20 per cent island surcharge, to 10 per cent. Tax-free accounts are to be available to St. Maarten residents with a CRIB number, allowing savings up to a certain limit.

Dividends are proposed to become tax free for St. Maarten residents or businesses with a CRIB number, whereas non residents will pay 15 per cent.

It is proposed to maintain the five per cent Turnover Tax (ToT) as a preferred option, given the lower compliance burden for residents and businesses, Shigemoto said.

VAT/Sales taxes were considered but they would have to be levied considerably at higher rates (between 10 per cent and 22 per cent) to deliver the same income stream as the current five per cent TOT.

At present, property rentals are taxed as income, timeshare units are taxed per week and hotels are taxed under room tax. It is proposed to tax property rental income at 10 per cent, timeshare units per night and hotels taxed under TOT with potential additional surcharges.

Casinos are not part of the tax system. The proposal is to implement a simple tax based on the number of machines and tables on site.

Similarly, tobacco and alcohol are not taxed. An enhanced TOT on tobacco and alcohol sold is suggested.

Tax revenues

Tax revenue is estimated at NAf. 378 million, excluding compliance and operational improvements, according to Shigemoto.

Based on complete tax proposals, tax collection is estimated to generate an additional NAf. 149.4 million, if implemented in 2013 for the whole of that year, totalling NAf. 527.4 million annually, excluding said compliance and operational improvements.

The three scenarios show tax increases from NAf. 18 to 45 million on an annual basis, taking into consideration tax compliance and operation improvements, he continued. The total tax revenue, coupled with compliance and operational improvements, can generate as much as NAf. 45 million, to the tune of NAf. 572.4 million annually.

The tax compliance team has identified 492 individuals/corporations as possible previously unidentified taxpayers. Data from various open sources were used for the Yellow Pages, vehicle registry and Chamber of Commerce registry to confirm or falsify findings.