Five per cent Turnover Tax coming

December 06, 2010 5:22 AM

PHILIPSBURG--St. Maarten residents will be faced with an additional two per cent in Turnover Tax (ToT) as of January, as part of government's measures to balance the 2011 budget.

Some NAf. 46 million is expected to be generated by the increase in the tax, which will move from three to five per cent.
This income-generating measure is "not across the board," Finance Minister Hiro Shigemoto said in press release on Friday.
Basic commodities such as bread, milk, rice, eggs, sugar, flour, chicken, baby products, grain, beans, flour, fruits, and greens will be exempted from ToT. If the exempted items were subject to ToT, government would generate an additional NAf. 10 million for the year.
The minister told The Daily Herald it was important to keep items already exempt from ToT the same way, because these constituted basic necessities for families to have a proper meal.
There is no firm decision on the permanency of the two per cent increase in the ToT. Shigemoto said the increase would be "reviewed" during the year, along with other determining factors, before any solid decision was made.
The ToT increase was approved by the Council of Ministers on Thursday, along with the total package of the draft balanced budget that totals NAf. 444,942,925. This total was arrived at after cost-cutting measures totalling NAf. 35.9 million, and the NAf. 46 million in income via the ToT increase.
The actual deficit prior to the expenditure cuts, cost corrections and ToT increase had stood at NAf. 81,900,000. This deficit now has been erased and the budget and tax increase are now before the Advisory Council, headed by Governor Eugene Holiday, for review.
With the increase will come "more control" on pricing and a "broadening of the tax base," the minister told the newspaper. "We have to make sure that everyone who must pay taxes is paying their due amount.
"We have studied the financial situation of the nation very diligently, taking into consideration global economic growth, our own economy at this point in time, and the benefits of taking action, and most importantly, measures that won't seriously impact our own fragile economic recovery.
"We do not want to burden the nation with a whole set of new income-generating measures, but we only have a small window of opportunity to pass our Deficit-Reduction and Recovery Programme by the December 15 CFT [Committee for Financial Supervision] deadline, and the Council of Ministers is very confident that we will be able to meet the aforementioned date," Shigemoto said.
"It is clearly a time to bond together and show solidarity to our new country St Maarten. For many decades, St. Maarten has been home to many from all over the world, and St. Maarten has provided countless economic opportunities for all of its inhabitants. Now St. Maarten as an emerging country in challenging times needs its inhabitants to be resolute, resilient, steadfast, and contribute back to its development into a brand new nation," he added.
"... It is also challenged in its new development into a country. St. Maarten must build a nation at a time when the economy is down, with sparks of improvement. It must build from scratch its capital, human and other resources.
"It must have a balanced budget while not being able to borrow to do so. The light at the end of the tunnel is signified by the resilience of our people. Clear and credible measures are needed to deal with the fiscal deficit. Failing to tackle the deficit quickly will lead to serious problems and the possible intervention of the Kingdom government with higher supervision, which no one desires and certainly not the government," he said.

Cost cutting
Shigemoto said, "First and foremost, it has been the effort of government to reduce expenditures prior to the consideration of any income-generating measures. Cost-cutting measures will impact all ministries of government at this early stage of country status, to the tune of close to NAf. 36 million."
Certain investments and the recruiting of additional personnel will be put on hold for at least a year. "None of the civil servants will lose their jobs or see a reduction in salaries. Government will also focus on creating a safety net and improving services for the public."
The measures total NAf. 35.9 million, which represents cuts to education allocations, a partial indexation of personnel salaries instead of full indexation, and additional measures.
"This was by no means an easy task, yet it was absolutely necessary to be able to balance the budget. These cuts were the absolute amount that could be made in order to trim what little fat there was in the draft budget 2011. It is important to also mention that there aren't any new policies included in this draft budget," Shigemoto said.
The Governing Programme 2010-2014 is not included in the draft budget, designed as an "emergency budget which is full of sacrifices we have to make as an emerging country which started with a deficit in all forms of capital, including human, and other deficits in services."

Corrections
CFT had reported in September that, in its estimation, St. Maarten had a deficit of some NAf. 130 million. This amount was queried by St. Maarten and, after a meeting in late November, CFT tagged the deficit at some NAf. 95 million based on new information received from government.
Explaining "corrections" made by government to CFT's estimates, Shigemoto said, "The NAf. 130 million deficit minus a correction of NAf. 9 million as revenue from moving the monies from the Capital Investment Chapter for Social Economic Initiative (SEI) [means] then one also has to move the income over to the General Fund, thereby creating a correction of NAf. 9 million."
In its advice, CFT had counted the Plan of Approach for Justice twice, creating the need for a second correction of NAf. 15 million.
The third correction to the budget dealt with the loans for study financing, some NAf. 4 million, being removed from the Capital Investment Chapter.
The final correction to the CFT estimate on the expenditure side "dealt with a typo of NAf. 3.6 million. Hereby the CFT meant to type NAf. 400,000, but typed NAf. 4 million. The total amount of corrections on the expenditure side brought down the deficit to NAf. 98,400,000."
There were also corrections on the income side of the budget, which, in St. Maarten's opinion, were "too conservatively estimated" by CFT.
Shigemoto said, "CFT estimated the collectible amount for wage tax at NAf. 11.5 million too low. Our collected revenues for wage tax thus far indicate that the amount of wage tax St. Maarten collected in 2010 is in line with what was collected in 2009. The estimation of St. Maarten for all major taxes, including wage tax in 2011, was based on the revenues collected for 2009." This correction was made by increasing the wage tax back to the 2009 levels (plus NAf. 11.5 million).
CFT had also estimated the revenues for ToT "very conservatively," the minister said. "This again was corrected back to the 2009 level by adjusting the revenues for ToT by NAf. 5 million upwards. These corrections made by St. Maarten bring the deficit down to NAf. 81.9 million."

Generation ability
St. Maarten had generated as an island territory within the Netherlands Antilles "at most NAf. 265,649,559 in income. The additional revenue for the attainment of country status on October 10 stands at NAf. 116,266,666," Shigemoto said. These two amounts total NAf. 381,916,225.
The total cost of the Island Territory of St. Maarten in 2010 stood at NAf. 282 million. The cost associated with the extra tasks that St. Maarten took over as a country was NAf. 105,862,832. In addition to that amount, NAf. 22.5 million in personnel cost was added to the budget as a result of the indexation of the civil servants' salaries in 2011 and the back service for pension premiums that would be owed if the indexation of 5.3 per cent were added to the salaries.

No bailout
St. Maarten has to present a balanced budget by December 15, 2010. As an Island Territory, previous governments had "missed many deadlines, and we do not want to follow that trend as a country," Shigemoto said.
"Since October 12, government started a review of the national budget and this has been an ongoing process. Government must demonstrate that we can handle our own affairs and that we are willing to pay for the services that are required to provide a certain level of quality of life for our people.
"These are difficult times; difficult times are all around. If you have been watching the news of late, you will see that various countries, especially in Europe, have had to implement austerity measures in order to cope with the impact of the global economic-financial crisis.
"Even in our region – Barbados, St. Kitts and the British Virgin Islands – nations have had to increase taxes. Barbados increased its VAT [value added tax] from 15 per cent to 17.5 per cent – even introduced new taxes. We are in the same boat, but our situation is much more difficult. We as country are not able to borrow money to cover our budget deficit (general fund). Therefore we have to cut expenditures and increase revenues to balance our budget."
Shigemoto said, "We do not have anybody to bail us out or give us a loan. Becoming a country has its responsibilities and obligations, and we now have to be able to make it work, and we can do that as a nation with everybody on board in this national effort. There is light at the end of the tunnel and things will get better.
"After inheriting a multimillion-guilder deficit from the previous National Alliance-led government, we have the responsibility to solve the problem rather than throw up our hands in despair. We have a duty to you, the people, to fix the wrongs and restore balance to the country's finances."
Shigemoto said an effort was made with Kingdom government representatives and others, during his and Deputy Prime Minister Theo Heyliger's working visit to the Netherlands in November, for leeway in having a budget deficit for a certain period that would allow the country to implement cost-cutting measures and collect outstanding monies from the former Netherlands Antilles government.
"The Dutch government representatives were adamant that St. Maarten would have to balance its budget. To understand the situation at hand, one needs to know what the budgetary situation is. Also one needs to understand where we were prior to becoming a country and what the projected situation looks like now that we are a country," he said.

(Source: The Daily Herald)

4 December 2010