Netherlands Antilles: Bank Chief Calls For A Simplified Tax System

Mandy Robinson, Tax-news.com, London

05 April 2001

According to a report in local publication the Daily Herald, the president of the Netherlands Antilles Central Bank, Emsley Tromp, has called for a new tax system in the jurisdiction, saying that the current system is 'complex, overly dependent on technical assistance and more appropriate for advanced industrial economies than for our small, middle-income economy ... [it] discourages investors from investing, workers from working and government from governing.'

Delivering a speech entitled 'The Need for Broad-Based Tax Reform' at a recent Curacao luncheon meeting, Mr Tromp argued the case for a new tax structure which would - among other issues - distribute the tax burden with more fairness, provide for less interference in the island's economy, and stabilise economic growth.

Mr Tromp noted that such an overhaul of the tax system would result in a major simplification, which should initially be 'budget-neutral', saying 'once we reach balanced budgets the second phase of reform should be aimed at lowering the tax burden.'

He said the most obvious way of simplifying the system would be to eliminate the taxes that raise the smallest and most insignificant amounts of revenue. Ninety per cent of the country's revenue is currently generated by taxes on income and profits, excises, turnover tax and import duties. 'The remaining 10 per cent consists of a large number of small taxes that, in my view, can be reduced substantially to a few taxes administered effectively and efficiently,' said Tromp.

He cited examples such as motor vehicle tax which generates only 2 per cent of the government's total tax income, and hotel room tax, car rental tax and stamp duty, each of which contribute only 1 per cent. In Mr Tromp's opinion if these taxes are abolished what the government loses in revenue it could re-gain via the two turnover taxes which could be changed into a general consumption tax charged on the final user of goods or services and imports by individuals.

Mr Tromp also called for a reform of the wage and income tax system which is too complex with overly high tax rates. Currently Parliament is introducing a new package of six tax bands ranging from 15.6 to 57.2 per cent but the Daily Herald says the top marginal rate, which is not much lower than 60 per cent, is too high when compared to other countries. He argued: 'In addition to promoting evasion, a top marginal rate that exceeds the corporate income tax by a significant margin creates a distortion that provides strong incentives for taxpayers to choose the corporate form of doing business purely for tax reasons.'

Instead, explained Mr Tromp, a system of two brackets and social insurance premiums inclusive would be a more efficient structure. He said: 'Initially the width of the brackets and the corresponding rates should be designed to compensate the gain in revenues from the reduction or elimination of deductible expenses to prevent a higher tax burden. When progress has been made with the restructuring of the public finances, the rate should be no higher than 25 per cent.'

Mr Tromp concluded that the effectiveness of the existing tax incentives to promote investments was sometimes 'questionable'. He said there were many factors to take into consideration and called for a 'critical review' of the current tax system to fully determine its weaknesses.

Recommended