Sint Maarten needs tax reform, they all say, but do we really?
(Part I)
Introduction.
In the last 20 years we are being told by Government, SHTA, Tax foundation, Chamber of Commerce and others, that we need Tax reform. That notion has been intensified after we got our new constitutional status.
To me this a just an empty cry from people, who have no idea what tax reform really means.
What is a tax system and tax structure?
A tax structure is a structure that is part of the economic, social and political system of a country, in which the Government is able to get money from citizens and companies, to be able to perform public services. The challenge is to find a delicate balance between:
- The amount of public service that Government provides, at what quality level and at what costs.
- Letting the economy thrive and remain attractive for investors and businesses.
- Cost of living being affordable.
A tax system, is not the software that is used, that is often misunderstood. It is the set of rules, based on the tax laws, but most importantly, the way those rules/procedures are executed.
The procedures that is.
Our tax system is effectively what we experience how it is executed.
Let’s change the system and have tax reform.
I have been hearing this for years, and the speakers are referring to move away from direct to indirect taxation, or introduce sales tax rather than Turnover Tax, or abolish Property Tax, etc
In my humble opinion, before we change the tax structure, shouldn’t we ask what is wrong with the existing one?
- What are other countries doing and how are they doing that?
- What did Curacao do?….they lowered their profit tax rate and had higher revenues.
- How effective is our tax organization operating?
- Is our tax compliance really low, and if so, why is that?
- Do we have any statistic information to answer most of these questions?
Side note : the UK company, Taxand, that a former Minister of Finance hired was looking for answers to some of these questions.
If we are not able to properly manage the tax structure we’ve had for decades, what makes us think we can manage a new structure better?
TO BE CONTINUED………………….
Sint Maarten needs tax reform, they all say, but do we really? (Part II)
Effects of changing a tax structure.
However imbalanced the present structure might seem, changing it means that the existing delicate balance between Government, private sector, investment climate, cost of living, labor market and most importantly the relationship with the French side, will be upset. It is not wise to change so many aspects at the same time, that is per definition unmanageable.
As said before, we don’t have enough empiric statistic information as is on the present situation, so it would be suicidal to engage in something new without really knowing what we have.
Any solutions?
Instead of embarking in a big change, let’s fix what we have and gather real information on how our economy really works and how taxation affects it. Please stop shouting let’s change the system, while nobody really knows what that change means.
I know we can fix what we have. So, why don’t want to do that?
Because we don’t dare to ask ourselves the difficult questions, such as:
- How much money does this country need to provide adequate public service?
- What is adequate service?
- What percentage of the Gross Domestic product should Government collect?
- How can Sint Maarten become or retain an interesting Investment climate?
- How can we make more tax payers compliant?
- How can we better enforce existing tax laws?
- How can we better execute antiquated tax procedures, without changing the basic underlying laws?
It seems easier to focus on something totally new, but that won’t work, if we don’t really know how it works now.
There are many low hanging fruits, which we conveniently refuse to pick.
To name a few :
- Modernize the tax processes and have flexible modern systems to support these processes
- Create a single citizen view (a “social security number” for citizens and businesses)
- Coordinate the systems and procedures between C.o.C, Economic Affairs, Labor, Immigration,Tax departments and Census.
This called VGO, Verbeteren Gegevens Overheid, which means Improve Information of Government.
These low hanging fruits already exist, but it is being denied for personal and political reasons by some. There is more money for everyone in a big bang.
I worked on this project from 2011 to 2014, and Public Service center, Business License System (BLIS) and Online Taxes are some of result thereof. That process has constantly been undermined, because each ministry/department wants operate independently and that leads to the existing chaos.
The effect is that the quality of service is poor and it is easy to fly below the radar and not be compliant.
Conclusion.
Sint Maarten with its fifty thousand inhabitants of which approx. twenty five thousand are registered Income tax payers (most minimum wagers, just to keep their work permit) and about eight thousand registered businesses at the tax department. All of this can be managed in a huge excel sheet or a little database, but we insist on having separate systems and processes for each department e.g. SZV has the same tax systems as the tax department.
Chamber of Commerce and Economic affairs have similar systems and could have been integrated or connected.
Not to burden you with too much details, we can do so much at a much lower cost and with much more effectivity, if we work together.
We don’t need a big bang, because all it means is that some consultants and whoever employ them will get the big bucks, all at the tax payers expense.