Taxand reform project sparks animated debate in St. Maarten
TUESDAY 5 JUNE 2012,
~ Tuitt discusses concerns, irregularities ~
PHILIPSBURG--Several Members of Parliament (MPs) say they will call for a parliamentary inquiry if they are not satisfied with answers about United Kingdom Taxand's role in the drafting of a new tax structure for St. Maarten.
The firm was involved in executing work for the government under former finance minister Hiro Shigemoto and when the issue was discussed in a meeting of the Central Committee of Parliament Monday, it generated animated contributions from several MPs.
MPs supporting the National Alliance (NA)-led coalition had requested the meeting to address a letter from the Committee for Financial Supervision CFT about the perceived deficit in the budget. The Taxand issue was part of the discussion, as it was not specifically catered for in the budget. The meeting on this subject resumes on Monday at 10:00am.
In addressing the MPs concerns about the project, Finance Minister Roland Tuitt said his research since taking office on May 21 had found that the proper rules and regulations had not been followed. He also disclosed that legal advice on not paying Taxand the second instalment for work carried out was being sought.
Finance Minister Roland Tuitt (centre) talks with President of Parliament Gracita Arrindell.
Also in photo is Tuitt’s advisor former finance commissioner Xavier Blackman.
Some NAf. 4.7 million already has been paid to Taxand, with another NAf. 5.5 million pending.
The contract to employ Taxand was never completed. It had only the signatures of the Taxand representatives. The draft agreement sought to give Taxand some 15 per cent of the funds collected from increased tax compliance, according to Tuitt.
The Government Accountants Bureau SOAB has been asked to give government an offer to carry out a review or an audit of the whole Taxand proceedings. Once the price is acceptable, SOAB will come up with terms of reference by which to gauge what Taxand has done.
The Taxand project, which is currently on hold, was estimated to cost US $11 to $14 million, excluding "out of pocket" expenses for Taxand personnel such as car, hotel, food and airline tickets totalling some US $290,000 every two weeks.
Tuitt pointed out that the rules that required government to go to an open tender for projects costing more than NAf. 50,000 or an investment project of more than NAf. 150,000 had not been followed. Also, no national decree signed by the governor to allow deviation from the norm was found.
As for the budget deficit, Tuitt said the good news was that revenue projections showed that "if things continue the way they are right now" the total income for 2012 would be NAf. 441 million, instead of budgeted NAf. 431 million. The increase, mostly due to Turnover Tax (ToT), will be sufficient to cover the NAf. 17 million payment of the cost-of-living adjustment (COLA), the periodic salary increase for civil servants and the NAf. 21 million hole left from the non-collection of back rent tax from non-resident condo owners.
Tuitt called Shigemoto's announcement shortly before leaving office that the COLA would be paid in June "premature," because the needed budget amendment had not yet been passed.
Democratic Party (DP) MP Leroy de Weever called for an explanation of the shortfall in the budget. He had been vocal during the budget debate about the collection of back taxes from condo owners not being feasible. He also was very incensed about a typographical error in this newspaper on May 25 about his questioning a NAf. 73 million hole in the budget, when it was actually NAf. 37 million, contending that it had not been a typographical error, but had been done deliberately.
Independent MP Frans Richardson questioned what would happen if the COLA was not paid and what factors had led to the realisation that the NAf. 21 million was not collectable. He also asked about family connections of government personnel to Taxand.
MP Roy Marlin (DP) wanted to know whether the windfall in ToT was sustainable and whether there had been consultations with civil servants on the Taxand project. He said there was a serious problem when work for more than $10 million was to be executed without an open bidding process.
Independent MP Patrick Illidge said he found it amazing that money had been found for the tax reform project with Taxand, but Shigemoto could have found none for the Middle Region Community Council. He asked for an explanation of the procedures for taking money from the reserves.
MP Louie Laveist (NA) said the Taxand project "smells to high heaven" and the balanced budget presented by Shigemoto was a myth. He said NA had warned against a "balanced budget that could be achieved only by "abracadabra." He added that Parliament had no clue about what was coming in projects or how the former government intended to pay for projects.
MP Dr. Lloyd Richardson (NA) said the Taxand issue came down to whether procedures had been followed.
MP George Pantophlet (NA) queried about the functioning of the Finance Ministry's internal control department.
United People's (UP) party MP Johan Leonard questioned whether Tuitt had received a complete transition document from Shigemoto. He asked for a detailed outline of what ministries had under-spent in the past months and whether Shigemoto had addressed the CFT's concerns.
Independent MP Romain Laville called for an overall financial audit for all ministries from April 1 to May 31, the final two months of the UP/DP/Illidge coalition. He said when discussions had been held in the former coalition about the budget, Taxand never had been mentioned. He said if the results of the audit showed discrepancies, "if heads have to roll, so be it."
MP Hyacinth Richardson (NA) said he remembered the Taxand project being mentioned in the budget debate, but no amount had been tagged to it.
MP Jules James (UP) said he knew Shigemoto to be a person who followed the rules and was not a "runaway or renegade" as he was being made out to be. He asked for the Taxand Agreement to be read out, what plans were in place to take care of the COLA payment and whether CFT was content with the last explanations given by Shigemoto. He also enquired about plans for the slow season and about the May financial outlook.
Shigemoto broke all the rules in the book with Taxand deal St. Maarten
Finance Minister Roland Tuitt and MP Patrick Illidge speak ahead of the start of Monday’s Central Committee meeting. (Leo Brown photo)
Minister Tuitt: no tender, no signed contractSt. Maarten – Former Finance Minister Hiro Shigemoto broke all the rules in the book when he entered into a deal with tax consultancy Taxand for a contract worth between $11 and $14 million that included a clause that would entitle Taxand to 15 percent of the additional revenue its handiwork would generate for the Government of St. Maarten. This sums up the findings the new Finance Minister Roland Tuitt presented in a brief overview in the Central Committee yesterday evening.
“You cannot circumvent the rules, even if you have the okay from the Council of Ministers,” Tuitt said.
In his first appearance in a central committee meeting, the minister surprised MPs with a concise overview of his findings about the Taxand case during his first week in office.
“The normal procedures were not followed,” Tuitt concluded.
“When you are going into a large project like this you need to have terms of reference; they establish the requirements the contract party will have to meet.”
But the Finance Ministry did not formulate these terms of reference for the project to modernize St. Maarten’s tax system. The audit ordinance stipulates that projects worth more than 50, 000 guilders require a public tender, but this was not done either. Tuitt said that there was also no tender by invitation.
“For such a procedure you invite parties to submit a bid, but that must be done based on the terms of reference and they did not exist.”
Also, the Finance Minister added, the expenditures for the project were not budgeted. Above the $11 to $14 million contract price, Taxand expected to be compensated for out of pocket expenses like air fare, car rental and hotel costs. The Finance Ministry paid $290, 000 to the company every two weeks.
“Was a contract signed for this project? No,” Tuitt said.
“Taxand signed the contract but the former Finance Minister did not sign it. He gave Taxand the opportunity to work on an incentive basis. They would get 15 percent of the extra income their measures would generate. That is already a problem because how are you going to measure that?”
Lastly, Minister Tuitt said, the Finance Ministry needed a national decree signed by the governor to justify the payments that were made to Taxand.
“Was there such a decree? No,” Tuitt said.
All in all the finance ministry paid 4.7 million guilders to Taxand before the project was halted. A second payment of 5.4 million guilders was stopped by the new government.
Tuitt said that he has asked the government accountant bureau (Soab) for a bid to investigate the Taxand case. One of the questions such an investigation must answer is whether the payments the Finance Ministry made to Taxand were justified based on the product the company delivered. The ministry also asked legal advice about the consequences for stopping the proceedings with Taxand.
MPs question Taxand contract and perceived budget deficit
St. Maarten – Members of Parliament confronted Finance Minister Roland Tuitt during his inaugural appearance in a Central Committee meeting yesterday evening pertinent and pregnant questions about the 2012 budget deficit and about the contract the Finance Ministry signed with Taxand for the restructuring of the tax system and with Judith Brewster’s B&B consultancy.
Democratic Party MP Leroy de Weever launched a vigorous attack on the Daily Herald for what seems to be a simple typo in a story about the budget deficit, but what the MP perceived as a deliberate attempt to misquote him. While De Weever had noticed, based on letters from the financial supervisor Cft that the deficit could be an estimated 37 million guilders; the contested story mentioned 73 million.
Independent MP Frans Richardson asked pointed questions about the 21 million guilders on condominium tax the government will not collect this year and about the 17 million guilders for cost of living adjustment payments to civil servants. “Has the minister been able to ascertain which steps are taken to collect the 21 million in taxes? And what measures have been taken to cover the payment of the 17 million?”
Richardson also wanted to know whether the cost of living adjustment payment promise is based on a ministerial decision and whether the government is able to cover this payment.
Furthermore Richardson demanded an overview of payments to Taxand and he asked whether there are family relationships between Taxand and employees at the finance ministry. “Did former Finance Minister Shigemoto follow proper procedures? When and why was the Taxand contract put on hold and what have the concrete results of Taxand been so far?”
DP-MP Roy Marlin said that the Cft “may give St. Maarten an instruction if we continue this way.” He asked whether the announced higher turnover tax revenue is structural or incidental. He also questioned the decision to finance the cost of living adjustment payments from the reserves. “You cannot do that if the annual accounts are not approved. When will these accounts be completed and presented to parliament?”
Marlin also expressed his concerns about the process that led to the Taxand contract. “The minister should have motivated the deviation from the public bidding process. Who took that decision? The Council of Ministers or the Minister of Finance?”
Marlin also wanted to know whether Taxand has legal recourse in case the contract is halted definitely.
Other MPs had similar questions. Independent Patrick Illidge went as far as doubting the integrity of the previous administration by asking for a complete overview of payments during the past five weeks.
NA-MP Louie Laveist said that, if the minister’s answers to the questions were not satisfactory he would push for a parliamentary inquiry. Laveist also wanted more information about Taxand. “Who are these people?” he asked. “The rules of accountability and best practices have been violated.”
Laveist added that he does not hold Tuitt responsible for “the muck the previous government left behind, but that he expects clear answers.
Independent MP Laville asked for an “overall financial audit” of all ministries for the period of April 1 until May 31. He remarked that the increase in the turnover tax was for a set period of time until the new tax structure is in place. He also noted that under the outgoing government documents have been signed at record speed in four to five days.
Laville said that if there has been any wrongdoing, those responsible ought to be held accountable.
UP-MP Jules James defended the former finance Minister Shigemoto, saying that he is someone who would do things according to the rules. “He is not some kind of runaway renegade,” he said.
“If someone is guilty, then all ministers are guilty, also those who are now members of the current government.”
James said that the Taxand contract came about after several deliberations in the council of Ministers. “It was not the personal piggy bank of the former minister of finance.”