Short-term Investment Solution in Transforming Tax Administration to take Three-Years

The short-term investment of Naf.37 million in the Capital Account for Transforming the Tax Administration is divided into Naf.32 million for the upgrading of the Tax Department and another Naf.5 million for the necessary improvements in Public Financial Management as noted in the 2015 Kingdom Instruction, Minister of Finance Hon. Perry Geerlings said on Monday.

Minister Geerlings adds that studies have indicated that the Government would yield extra income within two to three-years from the investment being made.

Expansion and broadening of the tax base and improvement of compliance by bringing into the fold the shadow/informal economy in Sint Maarten into the tax process, if one manages to reduce the shadow economy by 10%, the country’s tax income is likely to increase with Naf. 60 million on a yearly basis as of 2021, or 3% of Gross Domestic Product (GDP). According to a 2017 International Monetary Fund (IMF) study about Tax Administration Reforms in the Caribbean titled, “Challenges, Achievements and Next Steps,” the average size of the shadow economy in the countries in the region is estimated at 38.5% of GDP.

The Government of Sint Maarten has been obligated to make investments into the tax infrastructure stemming from a 2015 Kingdom Council of Ministers instruction. The investment to enhance and improve the country’s tax infrastructure is projected to take approximately three-years to realize hence why the main part of the investment in the project is in the 2019 national budget.

Sint Maarten became a country in 10-10-10 and has since been realizing national deficits for almost every year since, due to the fact that the national receipts of income was lower than the expenses, and this is not allowed by law and detrimental for the country’s economy and investment climate.

Sint Maarten received in 2015 a formal instruction from the Kingdom Council of Ministers to cover the budget deficits and larger arrears by making payments to the Social Health Insurance Fund (SZV) and the Sint Maarten General Pension Fund (APS) within a certain timeframe which has still not been fully complied with.

“We made our investment choices within the limitation and constraints set by the Kingdom Government and international public finance standards placed on us, in support of our financial recovery plan and government’s solvability needs.

“The transformation of the country’s Tax Administration is the short-term investment solution to create yearly budgetary surpluses, to become financially healthy as a country, and giving future generations the possibility to grow up and make their own contribution in a less worrisome debt-ridden and burdensome environment.

“We need all people and businesses within our society to contribute their fair share to bring our country back to where it belongs and realize a situation in which we are less or no longer dependent on financial donors like the Netherlands. Sint Maarten has a bright future ahead, our Government strongly believes in that, but only if we play a fair game in all respects.

“Realizing more income, without raising tax rates, is the main objective of this project and is meant to make our country’s financial future healthy and sustainable. Executing the Tax Transformation project is the only way to become financially healthy in a sustainable way. A situation that has never been the case in Sint Maarten since we became an autonomous country in October 2010.

“This strategy and solution are also strongly endorsed by various institutions and stakeholders such as the International Monetary Fund (IMF) (see Article IV Mission report from the IMF of January 2019), World Bank, the Social Economic Council (SER), the Committee of Financial Supervision (Cft) and The Netherlands.

“The Cft declared in their advice to the Kingdom Council of Ministers that the presented 2019 budget is a realistic budget. This is also noticeable that approval is given in the 2019 budget for a much higher amount in the capital expenditures – Naf.40 million – that we can borrow, much more than in all previous years since 2010.

“There are close to twenty reports that have been written over the years about our Tax Department and Tax System, and our Public Finance Management, and recommending the need to urgently reform both. The ball has been in our court for years to bring forth the changes by making the investments needed and after some 20 reports, the time is now to execute the recommendations,” Minister of Finance Hon. Perry Geerlings said on Monday.

The objectives of the Tax Transformation project are in the country’s’ and citizens’ best interests, and can be summarized as follows: Increase income revenue; Create the ability to finance the National Recovery and Resilience Plan (NRRP) as far as not financed through the Trust Fund; and as soon as possible, have a national budget with a surplus to be able to pay back loans and to finance and improve all public services across the board that improves the quality of living for every citizen.

“All of this will also cause us to become more economically more competitive in the region by having created a more reliable and favorable investment climate, however, one of the most important factors, if not the most important one, is that Sint Maarten must have political stability,” Minister Geerlings added.

The starting points of the Tax Transformation project are: A simplified and fair tax system without increasing the tax burden and/or disruptions in the economy and business, and strong improved and efficient public service.

The Transformation Tax project is aimed at realizing competitive tax rates that encourage entrepreneurship, promote economic development and stimulate foreign investment!

“Also, important to know and realize, a favorable investment climate will only become reality when the income of Government is higher than its expenses, which is the overall aim of the Tax and Public Finance reforms,” Minister Perry Geerlings said.

Furthermore, the Ministry of Tourism, Economic Affairs, Transport and Telecommunications (TEATT), is in the process of developing a National Economic Development Plan that is expected to be funded through the World Bank Recovery Trust Fund.

“In closing I just wish to point out some of the significant investments we intend to make in our economic recovery one the 2019 Budget is approved, next to other economy stimulating and developing initiatives, which are expected to be brought in for Council of Ministers decision making as well,” Minister Geerlings added.

Besides the above investments, the expense budget also includes approximately Naf. 3.800.000, – for Tourism promotions and Naf. 400.000, – for sub projects on economic development and revitalization of Philipsburg.

“The Government of Sint Maarten is working on all facets at the same time which is a holistic approach in tackling the challenges that our country has been struggling with since its inception. Now is the time to put things right for a long-term sustainable, financially secure and socio-economic confidence in the future development of the country,” Minister of Finance Hon. Perry Geerlings concludes.