Sint Maarten needs tax reform, they all say, but do we really?

Sint Maarten needs tax reform, they all say, but do we really?

18. 08. 17

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 for a country.

 

 

What is a tax system and tax structure?

A tax structure is a set of rules that is part of the economic, social and political system of a country, in which the Government can 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;

  • Keeping cost of living being affordable.

A tax system is not the software that is used. This 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.

b

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.

Many politicians, policy makers and influential citizens state this, as if it is a fact, and they have studied the social economical fiber of our island and they came up with the answer.

If that were the case, then how are we supposed to organize the transition?

I do not claim to have all the answers, but I can assure you that introducing a new tax system, if that would be the solution, is an immense task.

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 as low as it is claimed, and if so, why is that? (see part II)

  • Do we have any statistical information to answer most of these questions?

Side note: The UK company called Taxand, that a former Minister of Finance hired in 2012 was looking for answers to some of these questions. They were on the right track. In another blog I will explain how the big name consultants exploit our local decision makers.

If we are not able to properly manage the tax structure we have had for decades, what makes us think we can manage a new structure better?

 

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