IMF suggests revamping taxes, introducing VAT

~ Hiro working on increased compliance ~

PHILIPSBURG--The revamping of the tax system, lowering the rates for income and profit tax and introducing possibly a Value Added Tax (VAT) were some recommendations by the International Monetary Fund (IMF) mission that visited St. Maarten recently.

The mission also touched on the country's relatively high wages and suggested that these wages needed to be lowered.

Upon hearing these recommendations during meetings held just over a week ago, Finance Minister Hiro Shigemoto said that while he agreed that the need for revamping was very clear, work on increasing compliance had started.

"I cannot accept that we have had an estimated Gross Domestic Product (GDP) of NAf. 1.6 billion and we cannot even get NAf. 500 million, or less than a third, out of this in taxes. That means there is some leakage taking place and we need to work on getting that money into the public treasury," Shigemoto was quoted as saying in a press release.

One of the key issues the IMF addressed during its Article IV Consultation, which has not been refuted by anyone whom the mission spoke with, is that there is no projected economic growth for 2012, the minister said.

Another point is that diversification of the economy is important, but for short-term results the country should invest in marketing activities to increase visitor arrivals and provide added foreign exchange.

The high crime and high unemployment rates, especially among the youth, were also highlighted by the IMF mission.

The IMF also pointed out that Cura�ao and St. Maarten have to synchronize policies related to their joint currency.

Shigemoto said in a press statement that while government "definitely takes heed" of these recommendations, they needed to be placed in the political reality of the day. "We need to decide what we are doing with dollarization versus a common currency. The IMF did advise that we first take care of the majority of the issues they presented before going over to dollarization. So in essence they think we can dollarize, but not just yet."

Another major concern of the IMF is the increasing current account deficit which seemingly is being caused by Cura�ao and has led to the IMF advocating joint policies for the two governments.

Both countries are basically importing more than they are producing and exporting. Revitalization of the economy is therefore essential to avoid the devaluation of the guilder, which the IMF is not an advocate of for the short-term. It prefers that the two countries work on resolving current issues first.

"What the IMF found encouraging and comforting is that the issues as presented were not a surprise to anyone they spoke with and each Minister and Ministry could elucidate on plans to address most of the issues. This demonstrates that the government is on the right track," Shigemoto said.

The Council of Ministers, via Prime Minister Sarah Wescot-Williams, informed the IMF about its governing programme. Copies of the programme, entitled "A Foundation of Hope for Our Country," will be presented to the IMF mission during Wescot-Williams' and Shigemoto's working visit to Cura�ao. They left St. Maarten on Sunday. The presentation of the mission's final report to officials of St. Maarten and Cura�ao will take place today, Monday.

An IMF Article IV Consultation is part of its regular surveillance activity with all member countries and is usually conducted annually.

Source: http://www.thedailyherald.com/islands/1-islands-news/20795-imf-suggests-revamping-taxes-introducing-vat-.html

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