There are basically two major methods of collecting tax. One is collecting a percentage of personal incomes and corporate incomes. This is called direct taxation. The other is to collect tax from transactions and this is called indirect taxation.
You will have heard our politicians argue the case for indirect taxation in St. Maarten and indeed over the years a larger percentage of tax collection has occurred in this manner, Indirect taxation is likely to be a significant part of tax collection in the future and our main instrument is called Turnover Tax.
Most islands in the Caribbean have chosen to collect indirect taxation at the border for important practical reasons, In St. Maarten in contrast there is no collection at the border and indeed transactions originating abroad are not taxed at all. The lack of border taxation stems from a long history of an open border with the French side and a history of rapid development that was associated with the ability to purchase goods abroad and land them tax free.
This anomaly in taxation where imports are free of “turnover tax” whilst the sale of inventoried goods on island creates an unlevel playing field for all parties. This anomaly has to date not heavily impacted the island’s economy. But slowly and surely the purchase of goods offshore, assisted by online facilities is going to negatively influence trade in the country. Especially with high ticket goods the opportunities for local traders will reduce and the country will be unintentionally providing benefits to unregistered traders in other countries.
Making any change to this situation requires there to be some arrangement with the French side so that importation to either side would attract the same level of taxation and the taxation revenue would accrue to each of the tax authorities in a balanced fashion. Without that no effective control over importation is possible. The IMF have recognized this challenge and pointed to the need to have good management over indirect importation. There seems to be little optimism that the French side might ever collaborate to help eliminate this problem.
Due to there being no border control that has the responsibility to report, it is not possible to know the extent to which importation by unregistered businesses are using the territory to trade without any tax burden whatsoever.
There is a gain to be had for country St. Maarten that will have long term benefits if this tax conundrum is to be solved. To date there is little evidence there is much motivation to solve the problem.