Optimizing Tax Revenue October 2014.

The report of the performance audit “Optimizing Tax Revenue” was submitted to Parliament today, Friday October 10, 2014,  by the General Audit Chamber. This audit was carried out to determine the effectiveness and efficiency, i.e. the performance, of the reform of fiscal system and tax revenue compliance.

In carrying out this review, the General Audit Chamber sought to determine the extent to which the minister of finance was able to effectively and efficiently optimize tax revenue. The result of the audit contribute to the social significance of a fair and balanced tax system and the importance of having a professional, customer-focused and impartial tax authority. The budget 2011, and also subsequent budgets in 2012 and 2013, contains policy objectives for optimizing the tax system by means of improving the process of assessment and collection, harmonizing the tax system with French St. Martin, and by eliminating free-riders.

The General Audit Chamber noted a large discrepancy between the content of approved budgets and the practical reality at the Tax Department and Fiscal Affairs. Activities related to optimizing tax revenue included improving the assessment and collection of taxes through simplification of the tax system. Progress was found to be limited, despite substantial use of external experts and the establishment and equipping of a number of working groups.

Efforts to reduce the costs associated with assessment and collection were also not very successful.   In 2011, the operational costs related to assessment and collection were 2.7% and in 2013, the percentage was 3.5%.

Scientifically derived data related to compliance was not available from government, though estimates provided in approved budget documents range from 30-40% in 2011, to 40-60% in 2013. Adequate research is needed to determine the extent of compliance on Sint Maarten.

Planned upgrading of the Tax Department, including integrating the services of the various departments (Inspectorate and Receiver, for example) have not taken place.  Based on approved policy, the minister also wanted to optimize tax revenue by harmonizing the tax system with French St. Martin. The various meetings and negotiations in preparation for the harmonization have not yet taken place. It is still not clear whether the required cooperation with the French is achievable.

The General Audit Chamber made several recommendations to the minister in its report including reiterating the need to use policy-based budgets that are executed based on specific, measurable, agreed upon, realistic, time related and consistent norms. Moreover, the minister of finance, should, periodically, give account to Parliament with regard to the realization of approved and intended policy.

In addition, the General Audit Chamber endorses the point of departure contained in the yet-to-be approved Plan of Action for the integration and Strengthening of the Tax Department of Sint Maarten. That plan requires that the organizational reform of the Tax Department, specifically the integration of and renewal of ICT-systems and housing of the department in a single location, is given precedence. After these fundamental requirements are achieved, reform or simplification of the tax system can be addressed successfully.

Finally, the General Audit Chamber reiterates the need for drafting additional rules regarding the execution and tendering procedures. These additional rules, as required by article 47 of the National Financial Accounting Ordinance, will guarantee that procurement of goods and services is carried out in a more transparent, objective and non-discriminatory fashion.

The report “Optimizing Tax Revenue” is published in both English and Dutch and is available on the website of the General Audit Chamber (www.arsxm.org).