Dear Editor,
St. Maarten needs change. This week Parliament has been debating the budget and going back and forth on the same issues previous Parliaments and governments did not solve. The financial situation is dire and requires a conservative budget. However, without a plan for economic growth, falling national income will soon reach a tipping point. This means further deterioration of basic public services, the loss of our earnings potential and eventually our fiscal autonomy. While we still have a fighting chance to improve our economy, Parliament should take control immediately.
“How much do we make in profit tax?” was one of the questions raised in Parliament. The answer is so little that we should be asking “How much do we lose because of our profit tax?” To collect a meagre NAf. 24 million we get top marks in rankings of undesirable investment destinations. Our rate of 34.5% is one of the highest in the world and makes us the biggest fool in our Kingdom. The rate in the Netherlands and Aruba is 25%, in Curacao 22% and for the BES-islands a cool 0%. In Gibraltar, which is comparable in size and constitutional make up, a 10% profit tax rate has propelled economic growth (12%) per year!
In other words, our profit tax is damaging our existing businesses and preventing foreign companies and investors from setting up shop here. Our profit tax is so high that most local business owners admit they do not want to make profit in St. Maarten. Next to that our firm has seen numerous potential investors backing away from St. Maarten because of the tax rate. Noting that Tortola is open for business and levying no profit tax at all. This means that no new jobs were created, no new opportunities were given and no new tax revenues were generated. To be blunt ... it means that we are the least savvy of the lot.
The global consensus is that a low profit tax is good for business, for growth and tax revenues. Our rate is 245% higher than Gibraltar’s.
Lowering the profit tax to 10% will increase the revenue to NAf. 45 million due an incentive to run a profit and even more if new investments are made. This would change St. Maarten’s international appeal overnight. However, if our politicians can’t stomach a big bet, the rate should be lowered to the level of Curacao (22%). We expect this to be budget neutral while still beneficial to our investment climate.
In June, after a presentation to Parliament we (BERMAN Consultancy Legal & Trust) noticed broad support for a lower profit tax; in Parliament and the community. However, the government didn’t address the issue in the budget. Parliament has the legislative power to amend the budget to include a lower profit tax rate. No further legislation is needed; it could be fixed before the end of the year. It’s time for Parliament to take control and budget for growth.
Lucas G.J. Berman
BERMAN Consultancy Legal & Trust
