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In its first report since the break up of the Netherlands Antilles, the International Monetary Fund (IMF) has noted that Curacao and Sint Maarten face several hurdles ahead in the short- and medium-term to restore economic growth, establish supportive tax regimes, and boost international competitiveness.
Following the dissolution of the Netherlands Antilles on October 10, 2010, Curacao and Sint Maarten became autonomous territories within the Kingdom of the Netherlands, with a joint currency union. On separation the Netherlands government gave substantial debt relief to both territories, and at around 1% of gross domestic product (GDP) both territories' deficits are modest.
Both territories have experienced stagnant economies in 2010, with only Curacao expected to have grown, by 0.5% of GDP. A similar growth rate is expected this year.
The two territories share some similarities, but there are distinct differences as well, the IMF said. Both are small highly-open island economies, but Curacao’s economy is more than three times larger than that of Sint Maarten, and more diversified.
Tourism exports are much more important for Sint Maarten than for Curacao, accounting for around 82% of GDP and 13% of GDP, respectively. Curacao has other important sectors including the oil refinery, the tax-free zone, and international financial services.
As part of the transition in Curacao, new tax legislation has been passed, and measures to overhaul health sector legislation, raise the retirement age, set up an e-government system to speed up the granting of business licenses and permits, set up a competition authority, strengthen competition rules and liberalize administered prices are at an advanced stage aimed at improving the territory as a international financial centre.
New legislation in Curacao envisages revenue-neutral reforms that broaden the tax base, raise the sales tax rate, and lower personal and corporate income tax rates. The IMF has recommended that the authorities further these reforms by implementing earlier recommendations of a corporate tax rate of 20%; a top personal income tax rate of 35%, and a value-added tax of 10%.
Meanwhile in Saint Maarten efforts have focused somewhat on facilitating tourism. On tax, the IMF has called for Sint Maarten to introduce revenue-enhancing tax reforms, as well as tackling compliance.
Tax policy reform in Sint Maarten also aims to broaden the tax base, shift from direct to indirect taxes and moderately increase overall tax revenue.
On the two countries' financial services industries, Curacao and Saint Maarten are reported to have sound banking sectors. Among its recommendations, the IMF has recommended that the two territories' business licensing and permit regimes should be substantially streamlined to speed the company formation process.
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