Potentially counterproductive

Potentially counterproductive

The Committee for Financial Supervision CFT has advised levying a property tax in St. Maarten. There is great concern over the country’s growing debt with a continued need for COVID-19 crisis-related liquidity loans, so in addition to cutting cost, revenues for the national treasury must be raised.

From a purely fiscal perspective this make sense, but there is also the economy to keep in mind. The dominant hospitality industry was down for more than a year and has only now just started recovering.

Real estate is nevertheless moving as people especially from abroad seem eager to buy and/or spend time on the island. Vacation homes, in addition to timeshare, are a key part of St. Maarten’s tourism product.

Independent Member of Parliament (MP) Christophe Emmanuel has already termed the proposal “dead on arrival.” He called it an “attack on our way of life,” adding that “the Dutch do not understand succession land, lease land and how we build in St. Maarten.”

United St. Maarten Party (US party) leader Claudius Buncamper is against a land tax “because that’s the one asset St. Maarteners have that’s still theirs.” However, he supports “taxing luxury homes owned by non-residents that are used as Airbnb, seeing we have no Airbnb agreement.”

Regarding the latter, readers may remember that something similar was tried unsuccessfully with the so-called condo tax. However, instead of working with homeowners’ associations, developers and real estate agents on a fair system for government to get something from the renting out of such accommodations, retroactive assessments based on fictitious rental income assumptions were sent out, leading to little more than a host of objections and appeals.

Revenue-sharing agreements with short-tern vacation rental providers such as Airbnb also seems the preferred route in practical terms.

CFT pointed out that a property tax policy with appraisals for St. Maarten was devised several years ago but never executed. The International Monetary Fund (IMF) has suggested taking this step too.

Finance Minister Ardwell Irion kept his cards close to the chest, saying it already exists but is set at zero and he is thinking more of a “tax that will look at condos.” Either way, the negative impact on the investment climate could be significant, with all possible socioeconomic consequences.

These are unprecedented circumstances, so perhaps a – gradual – increase of the transfer tax when purchasing property, although a one-time incidental levy, would be a less invasive, harmful and potentially counterproductive alternative.