## 1sxmea2021001

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---

### Mission background and scope
- Capacity development mission from the Fiscal Affairs Department (FAD) of the IMF held virtual meetings with Sint Maarten’s authorities during the period from February 1 – March 15, 2021.
- Mission team: Mr. Geerten Michielse (FAD, Head) and Mr. David Wentworth (STX).
- Objective: assess proposed tax reforms in Sint Maarten, focusing on increasing the revenue capacity of the tax system and stimulating economic growth, within administrative capacities on the island.
- Reviewed proposals included:
  - introduction of a general consumption tax,
  - broadening current tax base while reducing tax rates,
  - introducing a financial transaction tax replacing (part of) the current tax system.
- Mission recommendation: enforce the existing recurrent property tax and introduce taxation of casinos and gambling winnings as best options.

### Recent economic and fiscal developments
- Economy shocks:
  - Two major hurricanes in 2017 and the COVID-19 pandemic in early 2020.
- Revenue changes:
  - Fiscal revenue declined by 15 percent since 2016.
  - Payroll tax revenue declined by only 4.5 percent.
  - Turnover tax revenue declined by 23 percent.
- Support and conditionality:
  - Since April 2020, The Netherlands provided immediate financial support; in December 2020 Sint Maarten concluded an agreement with The Netherlands for more substantial financial support in exchange for structural tax reforms.
- IMF macro-fiscal estimate:
  - Sint Maarten’s GDP growth has been reduced by 27 percentage points relative to the pre-COVID-19 projections (Macro-Fiscal Framework, February 2021).
- Tax revenue table (Sint Maarten Tax Administration, in million ANG):
  - Wage and Personal Income Tax: 2016 = 141.72; 2017 = 136.34; 2018 = 132.80; 2019 = 142.43; 2020 = 135.26
  - Profit Tax: 2016 = 42.33; 2017 = 33.92; 2018 = 20.83; 2019 = 25.51; 2020 = 38.63
  - Turnover Tax: 2016 = 132.58; 2017 = 117.59; 2018 = 117.49; 2019 = 141.02; 2020 = 102.20
  - Bank License Fee: 2016 = 24.12; 2017 = 21.58; 2018 = 25.79; 2019 = 17.06; 2020 = 17.08
  - Real Property Transfer Tax: 2016 = 12.74; 2017 = 11.23; 2018 = 10.22; 2019 = 15.45; 2020 = 7.47
  - Motor Vehicle Tax: 2016 = 9.60; 2017 = 9.98; 2018 = 9.42; 2019 = 10.37; 2020 = 7.65
  - Stamp Duties: 2016 = 1.33; 2017 = 0.89; 2018 = 1.47; 2019 = 0.82; 2020 = 0.96
  - Other: 2016 = 0.20; 2017 = 0.09; 2018 = 0.13; 2019 = 0.09; 2020 = 0.11
  - Total: 2016 = 364.62; 2017 = 331.62; 2018 = 318.15; 2019 = 352.75; 2020 = 309.36

### Core assessment of tax instruments
- Least distortionary and preferred instruments:
  - recurrent property taxes,
  - broad-based general consumption taxes (such as a value added tax).
- Feasibility constraints:
  - Introduction of a VAT in Sint Maarten is not recommended due to enforcement challenges from the open land border with Saint Martin and Sint Maarten’s status as a de facto free trade zone (no import or export taxes).
  - Introduction of an ABB (an import tax on goods combined with a domestic service tax) is also not recommended due to additional problems.
- Business Turnover Tax (BBO):
  - BBO is a cascading turnover tax imposed on gross business turnover with no deductions or credits for business inputs.
  - BBO is imposed at five percent and is not imposed on casinos.
  - Despite being highly distortionary, the existing BBO should be maintained in the medium term because it accounts for roughly one-third of revenue and would be difficult to replace without major disruption.
  - To address untaxed online sales, recommend introduction of an additional direct-to-consumer sales tax on purchases from foreign suppliers, collected by freight handlers or at consumer pickup points; suggested rate: 7.5 percent (slightly higher than the BBO rate).

### Short- to medium-term revenue opportunities (priority measures)
- Two main instruments to increase revenue in the short to medium term:
  - Enforce existing recurrent property tax.
  - Introduce taxation on gambling (casinos and winnings).

- Recurrent property tax:
  - Current nominal recurrent property tax rate: 0.3 percent but not enforced (effective rate is zero).
  - Recommendation: enforce the existing recurrent property tax law immediately; review and increase recurrent property tax rates from 0.3 percent to a rate in the range of one percent (after careful review of Saint Martin property regime).
  - Reduce the property transfer tax from current 4 percent to a rate of one percent or below.

- Casino and gambling taxation:
  - Current facts:
    - Thirteen casinos located in Sint Maarten.
    - Casino-related fees account for less than three percent of total government revenues.
    - Casinos are not subject to the BBO and gambling winnings are not currently subject to income tax.
  - Recommendations:
    - Include casinos in the BBO, defining casino turnover to include total amounts wagered.
    - Include gambling winnings in taxable income of taxpayers subject to Sint Maarten income tax; disallow deductions against gambling winnings except for “professional” gamblers meeting threshold (at least 75 percent of non-investment income from gambling); deductible losses limited to the amount of gambling winnings.
    - Impose a 12.5 percent withholding tax on all gambling winnings; collected and remitted by casinos.
      - For non-residents the withholding tax is final.
      - For residents the withholding is non-final with final adjustments at tax filing.
    - Undertake a study of gambling taxation in the Caribbean to consider a casino-specific tax or license fee to capture economic rents.

### Direct taxes and base-broadening measures
- Wage and Personal Income Tax (PIT):
  - PIT complexity noted; current reported rates start at 12.5 percent and increase to 47.5 percent (technically post-surtax presentation; underlying technical rates start at 10 percent and rise to 38 percent with a 25 percent surtax).
  - “Pensionado” regime: flat 10 percent tax on foreign income (option) with eligibility criteria including at least 50 years of age and acquisition of a house of at least ANG 450,000 (USD 251,398).
  - Recommendations:
    - Clarify treatment of Original Issue Discount bonds: treat returns as accrued (taxable) interest, not capital gains. Timing: S. Revenue impact: 0/+.
    - Reduce spread between top PIT rate (47.5 percent) and pensionado rate (10 percent); possible starting point: reduce top PIT rate to roughly 35 to 40 percent and increase pensionado rate to 15 percent (further taxpayer data study required). Timing: S. Revenue impact: -/+.
    - Undertake study to implement comprehensive capital gains tax as part of PIT. Timing: M. Revenue impact: +.
    - Short-term PIT simplification and strengthening likely to have minimal or negative revenue impact.

- Profit Tax (PT):
  - Current PT rate: 34.5 percent.
  - Taxable base: business accounting profits under IAS/IFRS; resident businesses taxed on worldwide income.
  - Analysis:
    - Rate is high by international standards; worldwide weighted average CIT declined from 37.1 percent in 2000 to 25.8 percent in 2020; only 25 countries have rates over 30 percent.
    - Lack of protection from BEPS; PT generates less than 10 percent (on average) of total Sint Maarten tax revenue.
  - Recommendations:
    - Reduce PT rate to be more consistent with international standards (in the range of 20 to 25 percent). Timing: M. Revenue impact: -.
    - Coordinate rate reduction with base-broadening and anti-avoidance measures: limits on thin capitalization, EBITDA-based deduction restrictions, transfer pricing rules. Timing: M. Revenue impact: +.
    - Seek capacity building assistance to combat BEPS.

- Tax holidays:
  - Current process: company requests holiday; Minister of Finance decides after Department of Fiscal Affairs review and Council of Ministers.
  - Analysis: tax holidays generally ineffective and risky (cronyism, revenue loss).
  - Recommendations:
    - Cease issuing any future tax holidays. Timing: S. Revenue impact: +.
    - If incentives needed, use investment tax credits or accelerated depreciation within PT. Timing: M. Revenue impact: -/0.

### Tax administration and capacity preconditions
- Preconditions for successful reform:
  - Base reforms on taxpayer data analysis, revenue forecasts, and a clear political mandate.
  - Secure high-level political commitment and broad stakeholder buy-in.
  - Simpler tax system with broader base, fewer exemptions, limited rates fosters compliance.
- Current deficiencies:
  - Tax administration is weak and very limited taxpayer data available.
  - Unclear political mandate for comprehensive reform.
  - Important stakeholders not yet engaged.
- Recommendations (general):
  - Request urgent capacity development assistance to strengthen tax administration functions (through CARTAC or the Dutch Government). Timing: S. Revenue impact: +.
  - Collect taxpayer data going forward to enable revenue estimates on future reform initiatives. Timing: M. Revenue impact: 0.
  - Request a clear political mandate for tax reform. Timing: M. Revenue impact: 0.
  - Develop coherent tax system along best practices. Timing: M. Revenue impact: 0.
  - Solicit input from major stakeholders on the tax reform package. Timing: M. Revenue impact: 0.
  - Note: CARTAC may assist with tax administration improvements.

### Other indirect taxes and measures
- Retail sales tax on foreign direct-to-consumer purchases:
  - Impose a 7.5 percent retail sales tax on purchases from foreign suppliers direct to Sint Maarten consumers (both residents and non-residents). The tax would not apply to sales by a Sint Maarten business that is subject to the BBO. Timing: S+. Revenue impact: +.
- Personal property tax:
  - Introduce a personal property tax on value of motor vehicles and boats owned by Sint Maarten residents (resident defined as staying on Sint Maarten for over 90 days or taking possession of same vehicle/boat on multiple visits). Applies regardless of purchase, registration, or location. Timing: M. Revenue impact: +.
- Excise taxes:
  - Undertake a study of excise taxes on alcohol and tobacco in neighboring jurisdictions to gauge possibilities for expanded revenue from excise taxation. Timing: M. Revenue impact: 0/+.

### Rental income, capital gains, and pensionado specifics
- Rental income:
  - Only 65 percent of net rental income is subject to tax.
  - Allowed deductions: mortgage interest and insurance costs.
  - Disallowed deductions: depreciation and other maintenance costs.
  - Recommendation: assess equity and consider moving to depreciation accounting; undertake review before reform.
- Capital gains:
  - Capital gains generally not subject to PIT except as business income; absence of capital gains taxation on non-business gains creates inequity benefiting wealthy individuals.
  - Recommendation: undertake an examination of costs, benefits, and practical considerations of comprehensive capital gains taxation as part of PIT. Timing: M. Revenue impact: +.
- Pensionado system:
  - Generous 10 percent flat tax on foreign income for eligible foreigners; difficult to measure behavioral response.
  - Recommendations: reduce spread between top PIT and pensionado rate (possible increase of pensionado rate to 15 percent and top PIT reduction to roughly 35–40 percent), subject to further taxpayer data study.

### Financial Transaction Tax (Bank Transaction Taxes)
- Current Bank License Fee:
  - Imposed at one percent on money outflow from Sint Maarten from transfers from residents to non-residents and foreign currency cash transactions.
- TEATT proposal:
  - Broader banking transaction tax based on Automated Payment Transaction (APT) concept applying to all banking credit transactions.
- Analysis and numeric findings:
  - FTTs are distortionary; aggregate transaction values not consistently related to income, wealth, or consumption.
  - Staff calculations using TEATT data indicate:
    - FTT rate would have to be 1.46 percent to replace individual and business income taxes, based on average credit transfers and revenues for 2016 to 2019.
    - FTT rate would have to be 2.95 percent to replace all tax revenues.
  - Numeric summary (credit transfers, in million ANG):
    - Credit Transfers: 2016 = 11,134.2; 2017 = 11,040.8; 2018 = 11,463.7; 2019 = 12,683.1; Average = 11,580.4
    - FTT at 1.46%: 2016 = 162.5; 2017 = 161.1; 2018 = 167.3; 2019 = 185.1; Average = 169.0
    - Income Taxes: 2016 = 184.1; 2017 = 170.3; 2018 = 153.6; 2019 = 167.9; Average = 169.0
    - FTT at 2.95%: 2016 = 328.6; 2017 = 325.9; 2018 = 338.3; 2019 = 374.3; Average = 341.8
    - Total Taxes: 2016 = 364.6; 2017 = 331.6; 2018 = 318.2; 2019 = 352.8; Average = 341.8
  - Conclusion: such rates required are not “very low” and would cause huge market distortions or disintermediation; non-bank payment systems increase avoidance risk.
- Recommendation:
  - Do not introduce any Financial Transaction Tax in Sint Maarten. Timing: S. Revenue impact: 0.

### Summary of recommendations, timing, and revenue expectations (selected)
- Legend: S = short-term; M = medium-term; - = negative revenue impact; 0 = no revenue impact; + = positive revenue impact
- General:
  - Request urgent capacity development assistance to strengthen tax administration functions (through CARTAC or the Dutch Government). Timing: S. Revenue impact: +.
  - Collect taxpayer data going forward to enable revenue estimates on future reform initiatives. Timing: M. Revenue impact: 0.
  - Request a clear political mandate for a long overdue tax reform package. Timing: M. Revenue impact: 0.
- BBO / direct-to-consumer:
  - Impose a 7.5 percent retail sales tax on purchases from foreign suppliers direct to Sint Maarten consumers (both residents and non-residents). Timing: S+. Revenue impact: +.
- Property and gambling:
  - Enforce the existing recurrent property tax law. Timing: S. Revenue impact: +.
  - Increase recurrent property tax rate from 0.3 percent to around one percent (after review). Timing: M. Revenue impact: +.
  - Reduce property transfer tax to one percent or below. Timing: M. Revenue impact: -.
  - Include casinos in the BBO and impose a 12.5 percent withholding tax on gambling winnings collected by casinos. Timing: S. Revenue impact: +.
- PIT and PT:
  - Clarify OID bond treatment as taxable interest. Timing: S. Revenue impact: 0/+.
  - Reduce top PIT and adjust pensionado rate (further study required). Timing: S. Revenue impact: -/+.
  - Undertake study for comprehensive capital gains tax. Timing: M. Revenue impact: +.
  - Reduce PT to 20–25 percent while strengthening anti-BEPS measures. Timing: M. Revenue impact: -/+. 
- Bank transaction tax:
  - Do not introduce an FTT. Timing: S. Revenue impact: 0.

*Source: IMF Staff mission report extracted from PREFACE and EXECUTIVE SUMMARY, 1sxmea2021001.*

### PREFACE _________________________________________________________________________________________ 5

### PREFACE

### Mission background and scope
- A capacity development mission from the Fiscal Affairs Department (FAD) of the IMF held virtual meetings with Sint Maarten’s authorities during the period from February 1 – March 15, 2021.
- Mission team: Mr. Geerten Michielse (FAD, Head) and Mr. David Wentworth (STX).
- Objective: assess proposed tax reforms in Sint Maarten, focusing on increasing the revenue capacity of the tax system and stimulating economic growth, within administrative capacities on the island.
- The mission reviewed proposals including:
  - introduction of a general consumption tax,
  - broadening current tax base while reducing tax rates,
  - introducing a financial transaction tax replacing (part of) the current tax system.
- The mission recommends enforcing the existing recurrent property tax and introducing taxation of casinos and gambling winnings as best options.

### Stakeholder consultations
- Meetings held with officials at:
  - Ministry of Finance (Mr. Arno Peels, Acting General Secretary; Ms. Maria Buncamper; Ms. Julisa Labega-Frans; Mr. Janio Chayadi; Ms. Mercedez James),
  - Ministry of Tourism, Economic Affairs, Transport and Telecommunications (Ms. Ludmila de Weever, Minister; Mr. Miguel de Weever, General Secretary; Mr. Jason Lista, Head of Minister’s Cabinet),
  - Tax Administration (Ms. Sherry Hazel).
- Met representatives from the Government of the Kingdom of The Netherlands and Dutch tax authorities (named individuals listed in source).

---

### EXECUTIVE SUMMARY

### Recent economic and fiscal developments
- Sint Maarten’s economy was hit by two major hurricanes in 2017 and the COVID-19 pandemic in early 2020.
- Fiscal revenue declined by 15 percent since 2016.
- Payroll tax revenue declined by only 4.5 percent.
- Turnover tax revenue declined by 23 percent.
- Since April 2020, The Netherlands provided immediate financial support; in December 2020 Sint Maarten concluded an agreement with The Netherlands for more substantial financial support in exchange for structural tax reforms.

### Core assessment of tax instruments
- Least distortionary and preferred instruments:
  - recurrent property taxes,
  - broad-based general consumption taxes (such as a value added tax).
- Introduction of a VAT in Sint Maarten is not recommended due to enforcement challenges from the open land border with Saint Martin and Sint Maarten’s status as a de facto free trade zone (no import or export taxes).
- Introduction of an ABB (an import tax on goods combined with a domestic service tax) is also not recommended due to additional problems.
- Despite being highly distortionary, the existing Business Turnover Tax (BBO) should be maintained in the medium term because it accounts for roughly one-third of revenue and would be difficult to replace without major disruption.
- To address untaxed online sales, recommend introduction of an additional direct-to-consumer sales tax on purchases from foreign suppliers, collected by freight handlers or at consumer pickup points; suggested rate: slightly higher than the BBO rate (to compensate for domestic cascading and encourage domestic purchases).

### Direct taxes and base-broadening measures
- Simplification and strengthening of PIT and PT is needed, but short-term revenue impact will be minimal or negative.
- Suggested measures include:
  - closing loopholes (e.g., comprehensive capital gains tax),
  - reducing incentives (e.g., pensionado regime and tax holidays),
  - limiting deductible expenses that form part of base erosion arrangements.
- PT rate of 34.5 percent is described as quite high by international standards; recommended to reduce as part of a base-broadening package.
- Lack of taxpayer data prevents concrete recommendations on revenue and rate levels.

### Short- to medium-term revenue opportunities
- Two main instruments to increase revenue in the short to medium term:
  - enforce existing recurrent property tax,
  - introduce taxation on gambling (casinos and winnings).
- Recurrent property tax: stable revenue source; recommendation to reduce property transfer tax and increase and enforce recurrent property tax.
- Casinos currently contribute only 3 percent of total government revenue via small fees; recommendations:
  - subject casinos to the BBO, defining casino turnover to include total amounts wagered,
  - introduce a 12.5 percent withholding tax on gambling winnings (reflecting the lowest PIT bracket). Withholding tax rules:
    - creditable against PIT for Sint Maarten residents,
    - final for non-residents,
    - collected and remitted by casinos.

### Tax administration and capacity
- Mission examined tax policy, not administration, but noted weak tax administration in Sint Maarten.
- Successful reforms will require improvements in tax administration; CARTAC may assist.

### Financial Transaction Tax (FTT)
- Strong recommendation against introducing an FTT.
- To replace a significant portion of current revenue, FTT rates would need to be in the range of 1.5 to 3 percent on every financial transaction.
- An FTT would cause tax cascading, be growth-unfriendly and distortionary, stimulate avoidance, and ultimately risk diminishing revenue requiring higher rates.

---

### SUMMARY OF RECOMMENDATIONS, TIMING, AND REVENUE EXPECTATIONS

Legend: S = short-term; M = medium-term; - = negative revenue impact; 0 = no revenue impact; + = positive revenue impact

General
- Request urgent capacity development assistance to strengthen tax administration functions (through CARTAC or the Dutch Government). Timing: S. Revenue impact: +.
- Collect taxpayer data going forward to enable revenue estimates on future reform initiatives. Timing: M. Revenue impact: 0.
- Request a clear political mandate for a long overdue tax reform package. Timing: M. Revenue impact: 0.
- Develop a coherent tax system designed along best practices. Timing: M. Revenue impact: 0.
- Solicit input from major stakeholders (private sector, unions, etc.) on tax reform package. Timing: M. Revenue impact: 0.

Business Turnover Tax (BBO)
- Impose a 7.5 percent retail sales tax on purchases from foreign suppliers direct to Sint Maarten consumers (both residents and non-residents). The tax would not apply to any sales by a Sint Maarten business that is subject to the BBO. Timing: S+. Revenue impact: +.

Other Indirect Taxes
- Introduce a personal property tax on the value of motor vehicles and boats owned by Sint Maarten residents. Residency defined as staying on Sint Maarten for over 90 days or taking possession of the same vehicle or boat on multiple visits. The tax would apply regardless of where vehicles or boats are purchased, registered, or located. Timing: M. Revenue impact: +.
- Undertake a study of excise taxes on alcohol and tobacco in neighboring jurisdictions to gauge possibilities for expanded revenue. Timing: M. Revenue impact: 0/+.

Wage and Personal Income Tax (PIT)
- Clarify that returns to Original Issue Discount bond will be treated as accrued (taxable) interest, not capital gains. Timing: S. Revenue impact: 0/+.
- Reduce the spread between the top PIT rate (47.5 percent) and the pensionado rate (10 percent). Possible starting point: reduce top PIT rate to roughly 35 to 40 percent and increase pensionado rate to 15 percent (further taxpayer data study required). Timing: S. Revenue impact: -/+.
- Undertake a study to determine how best to implement a comprehensive capital gains tax as part of the PIT. Timing: M. Revenue impact: +.

Profit Tax (PT)
- Reduce the Profit Tax rate to be more consistent with international standards (in the range of 20 to 25 percent). Timing: M. Revenue impact: -.
- Seek capacity building assistance from IMF or other international organizations on combating base erosion and profit shifting within the Sint Maarten Profit Tax. Timing: M. Revenue impact: +.

Tax Holidays
- Cease issuing any future tax holidays. Timing: S. Revenue impact: +.
- If necessary, implement tax incentives based on carefully constructed accelerated depreciation deductions or investment tax credits within the profit tax. Timing: M. Revenue impact: -/0.

Property Taxes
- Enforce the existing recurrent property tax law. Timing: S. Revenue impact: +.
- After careful review of the Saint Martin property tax regime, increase recurrent property tax rates from the current 0.3 percent to a rate in the range of one percent. Timing: M. Revenue impact: +.
- Reduce the property transfer tax to a rate of one percent or below. Timing: M. Revenue impact: -.

Casino Taxation
- Include casinos in the BBO, with casino turnover defined to include total amounts wagered. Timing: S. Revenue impact: +.
- Include gambling winnings in the taxable income of taxpayers subject to Sint Maarten income tax. Deductions against gambling winnings would be disallowed except for “professional” gamblers meeting a threshold (at least 75 percent of their non-investment income from gambling), and deductible losses limited to the amount of gambling winnings. Timing: S. Revenue impact: +.
- Impose a 12.5 percent withholding tax on all gambling winnings (collected and remitted by casinos). For non-residents the withholding is final; for residents it is non-final with final adjustments at tax filing. Timing: S. Revenue impact: +.
- Undertake a study of gambling taxation in the Caribbean to determine whether a casino-specific tax (or license fee) could capture casinos’ economic rents. Timing: M. Revenue impact: +.

Bank Transaction Taxes
- Do not introduce any Financial Transaction Tax in Sint Maarten. Timing: S. Revenue impact: 0.

---

### I. INTRODUCTION — KEY FACTS AND CONTEXT

- Sint Maarten’s tax system has not changed since the 2010 constitutional reforms.
- A 2015 reform plan (shift toward more indirect taxation, broaden base, reduce rates) stalled after the September 2017 hurricanes and subsequent COVID-19 shock.
- Sint Maarten lost about 15 percent of its tax revenues over the last five years.
- According to the IMF’s Macro-Fiscal Framework (February 2021), Sint Maarten’s GDP growth has been reduced by 27 percentage points relative to the pre-COVID-19 projections.
- Table 1 — Sint Maarten Tax Revenues 2016–2020 (in million ANG) — reported values from Sint Maarten Tax Administration:

  - Wage and Personal Income Tax: 2016 = 141.72; 2017 = 136.34; 2018 = 132.80; 2019 = 142.43; 2020 = 135.26
  - Profit Tax: 2016 = 42.33; 2017 = 33.92; 2018 = 20.83; 2019 = 25.51; 2020 = 38.63
  - Turnover Tax: 2016 = 132.58; 2017 = 117.59; 2018 = 117.49; 2019 = 141.02; 2020 = 102.20
  - Bank License Fee: 2016 = 24.12; 2017 = 21.58; 2018 = 25.79; 2019 = 17.06; 2020 = 17.08
  - Real Property Transfer Tax: 2016 = 12.74; 2017 = 11.23; 2018 = 10.22; 2019 = 15.45; 2020 = 7.47
  - Motor Vehicle Tax: 2016 = 9.60; 2017 = 9.98; 2018 = 9.42; 2019 = 10.37; 2020 = 7.65
  - Stamp Duties: 2016 = 1.33; 2017 = 0.89; 2018 = 1.47; 2019 = 0.82; 2020 = 0.96
  - Other: 2016 = 0.20; 2017 = 0.09; 2018 = 0.13; 2019 = 0.09; 2020 = 0.11
  - Total: 2016 = 364.62; 2017 = 331.62; 2018 = 318.15; 2019 = 352.75; 2020 = 309.36

- Sint Maarten negotiated a “landspakket” at end-2020 with the Netherlands which suggested use of VAT, ABB, or other broad-based consumption tax, but the open land border with Saint Martin undermines feasibility of broad-based consumption taxes for Sint Maarten.

*Source: PREFACE and EXECUTIVE SUMMARY, 1sxmea2021001 — PREFACE.*

### 4.      A successful tax reform requires that certain parameters be met. Any tax policy

### 1sxmea2021001 - 4. A successful tax reform requires that certain parameters be met. Any tax policy

### Preconditions for successful reform; current deficiencies
- Any tax policy change should preferably be based on analysis of taxpayer data, forecasts of revenue impact caused by proposed policy changes, and on a clear political mandate.
- High-level political commitment and broad buy-in from all stakeholders should be secured; effective communication emphasizing intended benefits can help overcome resistance of vested interests.
- A simpler tax system with a broader base, fewer exemptions, and a limited number of rates will foster compliance and make tax administration less challenging in a small island economy.
- Current situation in Sint Maarten:
  - Tax administration is weak and only very limited taxpayer data are available.
  - It is unclear whether the current Government—a coalition cabinet—has sufficient political mandate for and internal agreement on a comprehensive reform package.
  - Important stakeholders (e.g., private sector) have not yet been engaged in consultations.

Recommendations (general):
- Request urgent capacity development assistance to strengthen the tax administration functions (through CARTAC or the Dutch Government).
- Collect taxpayer data going forward to enable revenue estimates on future reform initiatives.
- Secure a clear political mandate for a long overdue tax reform package.
- Develop a coherent tax system designed along best practices.
- Solicit input from major stakeholders (private sector, unions, etc.) on that tax reform package.

### General principles for tax instrument choice
- Best tax instruments to raise revenue with minimal economic distortion: recurrent property tax and value added tax (VAT, or other broad-based general consumption tax).
- Income taxes (wage tax, personal income tax, and profit tax) are more distortionary and are often easier to avoid, but can achieve more equitable distribution of tax burdens.
- Excise duties: typically used to incorporate externalities (e.g., health costs) into market prices.
- Import tariffs: used to protect domestic industries or reduce over-reliance on imports.
- Transaction taxes (real property or financial transactions): most distortionary, discourage activities, and are prone to abuse.
- Small Caribbean islands face constraints: high dependence on foreign tourism, competition among islands; significant tax differences can shift tourist, residential, and business preferences across islands.
- Sint Maarten’s additional constraints:
  - Island shared by two jurisdictions (Dutch Sint Maarten and French Saint Martin) with no land or sea border control—de facto free-trade zone—constraining tax options.
  - Reliance on indirect taxes such as tariffs and VAT is not currently viable; a VAT might be viable only if fully harmonized with Saint Martin, but free trade zone impacts would remain difficult.
- Given constraints, focus primarily on direct taxation: personal income tax and recurrent property tax.
- Other smaller-scale taxes that may be useful: taxes designed to primarily tax tourists, standard excise taxes (fuel, alcohol, tobacco), taxes on gambling — but competitive and smuggling implications must be carefully considered.
- Tax policy effectiveness depends on tax administration; improvements to policy cannot compensate for poor administration, and vice versa.

### Business Turnover Tax (BBO) — current status and analysis
- Current status:
  - The BBO is a cascading turnover tax imposed on gross business turnover with no deductions or credits for business inputs.
  - BBO is imposed at five percent.
  - BBO is not imposed on casinos.
  - Imports are not directly subject to BBO, but indirectly taxed when incorporated into domestic business turnover. Imports of services to final consumers are subject to BBO because foreign businesses selling directly to consumers are deemed to have a Sint Maarten presence.
  - Exports of goods are not exempt from BBO, but businesses with over 50 percent export turnover may obtain an exemption. Exports of services are not subject to the BBO.

- Analysis:
  - Turnover taxes, even at low rates, are distortionary and inefficient and should be avoided; they incentivize vertical integration to reduce cascading.
  - Lack of tax on imports and lack of consumer-level sales tax means direct sales from foreign entities to Sint Maarten consumers face zero tax.
  - Consequence: shift from import-wholesale-retail delivery chains to direct sales (e.g., Amazon), with significant loss of local business activity and reduced government revenue as former BBO on store-based sales is replaced by zero tax on foreign online sales.
  - Major overhaul of the BBO is probably not viable in the short run because it is an important source of current revenue; long run options include conversion to a low-rate VAT or elimination, but only after other reforms are implemented.
  - Minimum reform needed: introduce a retail sales tax on direct-to-consumer sales by foreign entities to achieve rough parity with the BBO.

- Recommendation:
  - Impose a 7.5 percent retail sales tax on purchases from foreign suppliers direct to Sint Maarten consumers (both residents and non-residents). The tax would not apply to any sales by a Sint Maarten business that is subject to the BBO.

### Other indirect taxes — current status, analysis, recommendations
- Current status:
  - Excise taxes on motor vehicles and gasoline are the only other major indirect taxes.
  - Together, these two taxes generate approximately four percent of Sint Maarten’s government revenues.

- Analysis:
  - Open borders limit indirect tax options; consumers can avoid higher Sint Maarten taxes by purchasing on the French side.
  - Increasing excises on motor vehicles, gasoline, alcohol, or tobacco could lose sales to Saint Martin or encourage smuggling.
  - Personal property taxes could address border problems for motor vehicles: a vehicle-based recurrent property tax applies regardless of purchase, registration, or location.

- Recommendations:
  - Introduce a personal property tax on the value of motor vehicles and boats owned or leased by Sint Maarten residents. For purposes of this tax, define a resident as anyone staying on Sint Maarten for over 90 days or taking possession of the same vehicle or boat on multiple visits. The tax would apply to all motor vehicles and boats owned or leased by residents regardless of where purchased, registered, or located.
  - Undertake a study of excise taxes on alcohol and tobacco in neighboring jurisdictions to gauge possibilities for expanded revenue from excise taxation of these goods.

### Wage and Personal Income Tax (PIT) — current status, analysis
- Current status:
  - PIT is imposed on both residents and non-residents. Residents taxed on worldwide income; non-residents taxed on Sint Maarten income.
  - Tax on labor income is collected through a payroll tax; taxpayers with non-labor income or wishing to claim specific tax benefits must file a PIT form.
  - The standard PIT tax form runs to over 20 pages.
  - Types of income subject to tax include:
    - Employment income
    - Self-employment and business income
    - Income from immovable property (rental income)
    - Income from movable assets (dividend and interest income)
    - Income from periodic allowances

- Specifics:
  - Employment income: taxable employment income includes directors’ fees; withholding applies but exemption from withholding may be requested if employment lasts less than three months; nonresidents employed by Sint Maarten entities are subject to employment tax even if employment occurs outside Sint Maarten.
  - Self-employment and business income: business income is profit as defined in “goed koopmansgebruik”; nonresident earnings and business profits in Sint Maarten via a permanent establishment are taxed as if earned by residents.
  - Rental income: 65 percent of real estate rental income is taxable; income from a person’s residence is not taxed as income from immovable property; mortgage interest for acquisition or restoration is deductible; no deduction for depreciation.
  - Dividend and interest income: domestic and foreign dividends and interest generally subject to income tax; interest from local bank accounts is taxed at a rate of 6.5 percent. (Technically 5 percent with a 30 percent surtax; surtax in effect since 1965.)
  - Deemed yield rule: for investments in foreign portfolio investment companies and investments in Sint Maarten exempt companies, a deemed yield of 4 percent is reported annually based on fair market value at the beginning of the calendar year.
  - Capital gains: generally not subject to PIT except as part of business income; gains taxable in specific circumstances, including disposal of business assets, liquidation excess, sale of a substantial business interest (gains taxed at 15 percent), and gains in Sint Maarten resident corporations received by nonresidents from specified disposals.
    - “Substantial business interest” defined as (1) an interest of at least 5 percent of the issued share capital of a company, (2) a right to acquire such interest, or (3) a corresponding profit-sharing right.

- Deductions and allowances:
  - Personal and business deductions are available with restrictions: personal exemptions, mortgage interest, pension contribution, medical insurance and expenses.
  - Individuals may take a standard deduction of ANG 500 or may itemize deductions if they exceed ANG 1,000.
  - Business expenses are generally fully deductible; limits apply to certain deductions.
  - For self-employed persons:
    - Accelerated depreciation of fixed assets at a maximum rate of 33 1/3 percent.
    - An investment allowance of 8 percent (12 percent for buildings) for acquisitions of or improvements to fixed assets in years one and two; allowance only applies to investments over ANG 5,000 (USD 2,793).

- Rates and special regimes:
  - Sint Maarten uses progressive PIT rates with alternative rates in certain situations. Current rates start at 12.5 percent and increase to 47.5 percent. (Technically the rates start at 10 percent and rise to 38 percent, with a 25 percent surtax. However, since the surtax has been in effect since 1965, tax forms and documentation generally present the post-surtax rates without reference to the surtax.)
  - “Pensionado” system: eligible taxpayer can choose flat 10 percent tax on foreign income (from a pension or foreign investment company) or apply standard progressive rates on deemed foreign income of ANG 500,000 (USD 279,332).
    - Pensionado eligibility criteria:
      - Must not have been a resident of Sint Maarten for the past 5 years;
      - Must be at least 50 years of age;
      - Must apply for pensionado status within 2 months of registration in Sint Maarten;
      - Must acquire a house for personal use with a value of at least ANG 450,000 (USD 251,398).

- Analysis:
  - PIT appears overly complex; complexity noted by officials and may contribute to compliance issues.
  - Income taxes are inherently complex, especially for business and capital income; taxation of labor income should be straightforward.
  - It is unclear whether PIT form length and complexity are driven by structure of PIT or poor administrative design or both.
  - PIT simplification could be a significant undertaking and may yield limited short-term revenue gains; long-term simplification may decrease evasion and increase voluntary compliance.
  - Any major simplification program should be a joint policy and administrative undertaking (outside the scope of this mission).

*Source: 1sxmea2021001 (extracted content as provided).*

### 29.      Taxation of rental income follows the system that used to exist in the Netherlands.

### 29.      Taxation of rental income follows the system that used to exist in the Netherlands.

### Rental income taxation
- Only 65 percent of net rental income is subject to tax.
- Deductions allowed:
  - Mortgage interest.
  - Insurance costs.
- Deductions not allowed:
  - Depreciation.
  - Other maintenance costs.
- Analysis findings:
  - Avoids complexity of depreciation calculations but creates inequity across rental units.
  - Old units, or units with high market prices relative to owner’s costs, benefit substantially from the 35 percent income exclusion because their depreciation costs are likely to be smaller (although maintenance costs could be higher).
  - New units, or less profitable units, likely pay a higher tax under this system than under standard depreciation accounting.
  - Depreciation accounting itself is not particularly complex, though administrative complexity exists in distinguishing maintenance costs (expensed) from improvement costs (depreciated).

### Capital gains taxation on individuals
- Current status:
  - Absence of capital gains taxation on non-business gains.
- Analysis findings:
  - Simplifies the tax system for individuals, but results in considerable cost and inequity.
  - Most capital gains are earned by wealthy individuals.
  - Investors can convert interest and dividends into capital gains (depending on tax regulations) to avoid tax; example: zero-coupon bonds or other “original issue discount” bonds convert interest income into capital gains.
  - Implementing a new capital gains tax on individuals would be a significant undertaking; in the short run, difficulty may outweigh expected revenue or efficiency gains.
  - Failure to tax personal capital gains generates significant inequity; absence of capital gains taxation is a large tax benefit accruing primarily to wealthy taxpayers.
  - Sint Maarten PIT is generally progressive, but the exemption for capital gains undermines progressivity.
- Recommendation:
  - Undertake an examination of the costs, benefits, and practical considerations of moving to comprehensive capital gains taxation as part of the PIT.

### Pensionado system
- Current status:
  - Sint Maarten offers a pensionado system providing a tax benefit to eligible foreigners.
- Analysis findings:
  - System appears extremely generous; likely possible to achieve goal (encouraging wealthy foreigners to retire to Sint Maarten) at lower fiscal cost.
  - Difficult to determine behavioral response: attraction versus revenue lost on people who would have resided in Sint Maarten regardless.
  - Under current rules, any eligible foreigner using the pensionado system receives a tax break regardless of foreign pension and investment income size.
  - Tax savings increase with foreign income and are very large for very wealthy individuals.
  - For taxpayers with foreign income up to approximately ANG 2.1 million per year, the 10 percent tax on reported foreign income is preferable.
  - For taxpayers with incomes over that amount, the standard rates on a deemed income of ANG 500,000 are preferable and are fixed, regardless of how much foreign income increases.
- Comparative examples (selected features from Table 2):
  - Portugal: 10 percent flat rate on foreign-sourced pension income for “non-habitual residents”.
  - Curaçao: Eligible taxpayers may opt for taxation on foreign income at 10 percent flat rate, or taxed at progressive rates on deemed income of ANG 500,000.
  - Malta: “Malta Retirement Plan” offers an income-tax rate of 15% for EU nationals who take up residency (and free health care).
  - Costa Rica, Panama, Belize, Nicaragua: examples of territorial or exemption treatment for foreign pension income.
- Illustrative numerical comparison (excerpt from Table 3: "Comparison of Standard Taxes and Pensionado Taxes"):
  - Foreign Income 100,000 — Tax Using Standard Rates 23,332 — Pensionado Tax 10,000 — Tax Savings 13,332
  - Foreign Income 300,000 — Tax Using Standard Rates 115,204 — Pensionado Tax 30,000 — Tax Savings 85,204
  - Foreign Income 500,000 — Tax Using Standard Rates 210,204 — Pensionado Tax 50,000 — Tax Savings 160,204
  - Foreign Income 750,000 — Tax Using Standard Rates 328,954 — Pensionado Tax 75,000 — Tax Savings 253,954
  - Foreign Income 1,000,000 — Tax Using Standard Rates 447,704 — Pensionado Tax 100,000 — Tax Savings 347,704
  - Foreign Income 2,000,000 — Tax Using Standard Rates 922,704 — Pensionado Tax 200,000 — Tax Savings 722,704
  - Foreign Income 3,000,000 — Tax Using Standard Rates 1,397,704 — Pensionado Tax 210,204 — Tax Savings 1,187,500
  - Foreign Income 4,000,000 — Tax Using Standard Rates 1,872,704 — Pensionado Tax 210,204 — Tax Savings 1,662,500
  - Foreign Income 5,000,000 — Tax Using Standard Rates 2,347,704 — Pensionado Tax 210,204 — Tax Savings 2,137,500
- Recommendations:
  - Clarify (through administrative action or legislation as necessary) that the returns to Original Issue Discount bond will be treated as accrued (taxable) interest, not capital gains.
  - Reduce the spread between the top PIT rate (47.5 percent) and the pensionado rate (10 percent). Further study of taxpayer data will be necessary before choosing new rates but reducing the top PIT rate to roughly 35 to 40 percent and increasing the pensionado rate to 15 percent would be a possible starting point for consideration.
  - Undertake a study to determine how best to implement a comprehensive capital gains tax as part of the PIT.

### E. Profit Tax (Winstbelasting; PT) — Current status
- Taxable income basis:
  - Business accounting profits as defined under IAS/IFRS.
- Residence rules:
  - Resident businesses taxed on worldwide income.
  - Non-resident businesses taxed on Sint Maarten income only.
- Taxable entities:
  - Public companies, private limited liability companies, general partnerships, limited partnerships, subsidiaries or branches of foreign corporations.
- Intra-group treatment:
  - Intra-group dividends and capital gains are exempt if eligible for a participation exemption.
  - Participation exemption requires at least a five or 10 percent holding in the affiliated company, depending on corporate criteria.
- PT rate:
  - The PT rate is 34.5 percent.

### E. Profit Tax — Analysis
- Primary concerns:
  - The tax rate is high by current international standards.
  - Lack of protection from base erosion and profit shifting (BEPS).
- Trends and context:
  - Worldwide weighted average CIT rate declined from 37.1 percent in 2000 to 25.8 percent in 2020.
  - Currently there are only 25 countries with rates over 30 percent; many high-rate countries are small, including Sint Maarten.
- Consequences:
  - High PT rate generates significant incentive for local businesses to avoid the tax.
  - Lack of specific provisions to protect the PT base and increasing sophistication of tax avoidance mean avoidance is likely to be fairly easy.
  - Profit Tax generates less than 10 percent (on average) of total Sint Maarten tax revenue.
- BEPS mechanisms of concern:
  - Excessive interest payments (thin capitalization).
  - Transfer pricing.
  - Arrangements involving special purpose vehicles (SPV).
  - Round-trip arrangements moving profits through foreign shell corporations and back to domestic parent.
- Policy guidance:
  - A reduction in the PT rate should be accompanied by a broadening of the profit tax base.
  - Base broadening should include anti-avoidance mechanisms: limits on thin capitalization, restrictions on tax deduction based on corporate EBITDA, and transfer pricing rules.

### E. Profit Tax — Recommendations
- Seek capacity building assistance from IMF or other international organizations on how to combat base erosion and profit shifting within the Sint Maarten Profit Tax.
- Reduce the Profit Tax rate to be more consistent with international standards (in the range of 20 to 25 percent).
  - Reduction in rates should be coordinated with efforts to combat base erosion and profit shifting.

### F. Tax Holidays — Current status
- Tax holidays are available upon request for investments that broaden the Sint Maarten economy through investment.
- Process:
  - Company submits request to the Minister of Finance.
  - Ministry’s Department of Fiscal Affairs reviews request against applicable tax holiday law and advises the Minister, including recommended length of holiday.
  - Minister of Finance grants or denies holiday after review by the Council of Ministers.

### F. Tax Holidays — Analysis
- General assessment:
  - Tax holidays are generally regarded as an ineffective mechanism to encourage economic growth.
- Risks:
  - Incentive may apply to activity that would have occurred without the incentive, causing revenue loss with no economic gain.
  - Cost of incentive increases with the profitability of the investment.
  - Case-by-case requests and political approval can open doors to cronyism and corruption.
- Alternative incentives:
  - Investment tax credits (ITCs) and accelerated depreciation reduce investment risk while ensuring profitable investments generate tax revenue.
  - ITCs and accelerated depreciation can be tailored to be economically equivalent by adjusting credit size and depreciation rate, though at high credit rates an ITC is always more valuable than accelerated depreciation.
  - Properly designed ITCs and accelerated depreciation tie government incentive cost to the amount of investment and limit fiscal cost compared to tax holidays.

### F. Tax Holidays — Recommendations
- Cease issuing any future tax holidays.
- If necessary, implement tax incentives based on carefully constructed accelerated depreciation deductions or investment tax credits within the profit tax.

### G. Property Taxes — Current status
- Two forms of real property taxation:
  - Transfer tax on transfers of real (immovable) property: 4 percent.
  - Recurrent property tax on property values: 0.3 percent nominal rate, but not currently enforced; effective recurrent property tax rate is zero.

### G. Property Taxes — Analysis
- Economic assessment:
  - Property transfer taxes are inefficient and harm economic growth.
  - Recurrent property taxes are highly efficient and do not harm economic growth.
- Policy guidance:
  - Property transfer tax rates should be quite low; generally should not exceed one percent (of sale price).
  - Recurrent property taxes should be in the range of one percent per year of current market value.
- Relevance for Sint Maarten:
  - Recurrent property taxes are important because most other taxable activities can shift between Sint Maarten and Saint Martin or other islands, but land cannot be moved.
  - There appears to be room to increase the Sint Maarten recurrent property tax rate above the current (unenforced) 0.3 percent, potentially toward one percent.
  - Care needed to avoid creating too large a difference with Saint Martin property tax rates that would encourage cross-border moves and devalue Sint Maarten land.
  - Political resistance exists to changes in real property taxation, but reform is one of the most important improvements possible.
  - A revised property tax regime can include provisions to reduce tax on low-income small landowners to avoid overburdening low-income residents.
- Comparative context (Table 5 excerpt: Property Transfer/Stamp Duty and Recurrent Property Tax examples):
  - Anguilla: Property Transfer/Stamp Duty 5% (temp reduced by half for residents); Recurrent Property Tax 0.24% on assessed value.
  - Antigua and Barbuda: Property Transfer/Stamp Duty 7.5% seller / 2.5% buyer; Recurrent Property Tax agricultural land 0.10%, commercial buildings 0.5%, non-agricultural land 0.4%.
  - Aruba: Property Transfer/Stamp Duty <AWG 250,000: 3% / >AWG 250,000: 6%; Recurrent Property Tax 0.4% on adjusted rental value (=FMV).
  - Cayman Islands: Property Transfer/Stamp Duty 7.5%; Recurrent Property Tax none.
  - Curaçao: Property Transfer/Stamp Duty 4%; Recurrent Property Tax 0.4-0.6%.
  - Puerto Rico: Property Transfer/Stamp Duty None; Recurrent Property Tax 8%-12% value based on 1957 values.
  - St. Kitts and Nevis: Property Transfer/Stamp Duty 10%; Recurrent Property Tax Kitts commercially used land/buildings 0.3%, Nevis 0.2-0.3%.
- Observations:
  - Other Caribbean jurisdictions often impose transfer tax rates higher than Sint Maarten’s 4 percent, but that does not imply Sint Maarten’s rate is appropriate.
  - Assessed value in recurrent property tax systems should be an estimate of current market value, not value at time of last sale.
  - Saint Martin’s property taxation is complex; depending on cadastral rental value calculations, implied property tax rates can be relatively high.
  - Leaseholds in Saint Martin are taxed at three percent per year, with a five-year exemption from property taxes when new buildings are constructed.

### G. Property Taxes — Recommendations
- Enforce the existing recurrent property tax law.
- After careful review of the Saint Martin property tax regime, increase recurrent property tax rates from the current 0.3 percent to a rate in the range of one percent.
- Reduce the property transfer tax to a rate of one percent.

*Source: IMF Staff (content from the provided PDF chapter).*

### 43.      While there are thirteen casinos located in Sint Maarten, there is no significant tax

### 43.      While there are thirteen casinos located in Sint Maarten, there is no significant tax on casinos (or other gambling) in the country.

### Casino taxation — current status and facts
- Casinos are subject to small license fees, but these are not a significant source of revenue and cannot be considered casino taxes.
- According to data provided by the Tax Administration, revenues from “Staff to third parties (Casinos)”, “Casinos”, “Hazard Games”, and “Lottery Regulation” (all paid to the Ministry of Tourism, Economic Affairs, Transport and Telecommunications or TEATT) account for less than three percent of total government revenues.
- Casinos are not subject to the BBO, unlike virtually all other businesses in Sint Maarten.
- Income tax is not imposed on the winnings earned by gamblers in casinos.

### Casino-related analysis: money laundering risks and economic rents
- Casinos raise AML concerns: worldwide evidence shows casinos can convert “dirty” money into “clean” money; Sint Maarten is not exempt from this phenomenon.
- Any money laundered in Sint Maarten is likely derived from criminal activities elsewhere; Sint Maarten’s international airport increases attractiveness for laundering.
- AML regulation should be addressed together with taxation, although AML is outside the scope of this mission.
- Typical gambling jurisdictions impose casino-specific taxes or fees to capture economic rents generated by constrained supply and high demand.
- Sint Maarten’s near-absence of casino-specific taxation leaves virtually all economic rents to casino owners.
- Economic rents likely declined in relative terms over recent decades due to:
  - Explosion in the number of casinos worldwide (historically few locations such as Monte Carlo, Las Vegas, Macau).
  - Easy access to internet gambling.
  - Over 150 casinos in the Caribbean (vast majority small).
  - Competition from other islands and cruise ships offering gambling.
- Measuring economic rents is critical to designing a casino-specific tax; without measurement, designing a tax that captures rents without damaging operations is impossible.
- Estimating rents requires detailed financial data from each casino and is a major undertaking outside the mission’s scope.
- Comparative analysis of neighboring competitor islands’ gambling tax regimes is necessary but outside the mission’s scope; Table 6 provides selected Caribbean island data (excerpted):
  - Aruba: Tax on Winnings N/A; Tax on Casinos 4% of net profits
  - Bahamas: Tax on Winnings N/A; Tax on Casinos Small (<5,000 sqft): BSD 50,000+ 10-15% on taxable revenue; Medium (<10,000 sqft): BSD 100,000 + 25-5%[??]; Large (>10,000 sqft): BSD 200,000 + 25-5%[??]
  - Barbados: Tax on Winnings 20% Withholding; Tax on Casinos 17.5% of net wagers
  - Belize: Tax on Winnings N/A; Tax on Casinos 15% on gross winnings from lotteries, slot machines and table games
  - Curaçao: Tax on Winnings N/A; Tax on Casinos 2% of net profits
  - BES Islands: Tax on Winnings None; Tax on Casinos 10% on difference between wagers placed and net payout (winnings)
  - Grenada: Tax on Winnings N/A; Tax on Casinos 15-30% on gross receipts
  - Jamaica: Tax on Winnings 25%; Tax on Casinos N/A
  - Trinidad and Tobago: Tax on Winnings 10%; Tax on Casinos Exemption from VAT
- Design considerations for casino taxation:
  - Two sides: taxation of the gambler and taxation of the casino.
  - Winnings constitute income and should generally be taxable; losses should not be deductible except for “professional” gamblers.
  - Proposed definition: “professional” gambler = person who receives most of his/her annual income from gambling; threshold suggested at 75 percent or higher.
  - Competition with other Caribbean islands may influence taxing residents vs non-residents; withholding by casinos is essential to collect taxes due on winnings.
  - Casino operations could be subject to BBO, profit tax (PT), value added/sales/turnover taxes, or excise taxes; only casino-specific turnover or excise taxes directly tax casino rents.
  - PT at Sint Maarten’s rate can only capture 34.5 percent of casino rents (along with 34.5 percent of normal profits); effective rate on rents likely much less due to avoidance.
  - VAT/sales/BBO would have limited impact on casino rents; a casino-specific turnover tax (typically on amounts wagered) at a higher rate than five percent could potentially capture a reasonable portion of rents.
  - Specific excise taxes (fixed amount per table or machine) can generate smaller amounts.

### Recommendations on gambling taxation
- Include casinos in the BBO. For purposes of the BBO, casino turnover would include total amounts wagered in each casino.
- Include gambling winnings in the taxable income of taxpayers subject to the Sint Maarten income tax. Deductions against gambling winnings would not be allowed except for “professional” gamblers, who would have to demonstrate that at least 75 percent of their non-investment income comes from gambling. Allowable deductions would be limited to the amount of gambling winnings.
- Impose a 12.5 percent withholding tax on all gambling winnings (to be collected by the casino and remitted by the casino to tax administration).
  - For non-residents, the withholding tax would be a final withholding tax.
  - For resident taxpayers, the withholding tax would be non-final, with final adjustments made as part of income tax filing.
- Undertake a study of gambling taxation in the Caribbean to determine the extent to which a casino-specific tax (or license fee) in Sint Maarten could tax a portion of the casinos’ economic rents.

### I. Bank Transaction Taxes — current status
- There is currently a Bank License Fee in the currency union of Curaçao and Sint Maarten.
- This tax is imposed at one percent on money outflow from Sint Maarten from transfers from residents to non-residents and foreign currency cash transactions.
- TEATT has proposed a broader banking transaction tax based on the Automated Payment Transaction (APT) tax (Feige) and similar to Bank Account Debits (BAD) taxes; the TEATT proposal would apply to all banking credit transactions in Sint Maarten.

### Bank Transaction Taxes — analysis
- Financial Transaction Taxes (FTTs) are generally quite distortionary and should be avoided.
- Broad-based APT/FTT taxes distort transactions because aggregate value of transactions is not consistently related to income, wealth, or consumption.
  - Example distortion: an individual’s APTs may equal roughly twice a paycheck; businesses in supply chains may have aggregate APTs many times the final value of goods.
  - Resulting distortion similar to BBO: extreme vertical integration to avoid multiple levels of tax.
- TEATT proposal’s intended base appears to be all banking credit transactions for individuals and businesses.
- The proposed FTT cannot generate significant revenue at a very low tax rate.
  - Staff calculations using TEATT data indicate:
    - The FTT tax rate would have to be 1.46 percent to replace individual and business income taxes, based on average credit transfers and revenues for the four-year period 2016 to 2019.
    - To replace all tax revenues, the FTT rate would have to be 2.95 percent.
  - Such rates are not “very low” and would cause huge market distortions or disintermediation, reducing the tax base and government revenue.
  - Non-bank payment systems (Bitcoin, cryptocurrencies, online payment platforms) make avoidance increasingly easy.

### Bank Transaction Taxes — numeric summary (in million ANG)
- Credit Transfers
  - 2016: 11,134.2
  - 2017: 11,040.8
  - 2018: 11,463.7
  - 2019: 12,683.1
  - Average: 11,580.4
- FTT at 1.46%
  - 2016: 162.5
  - 2017: 161.1
  - 2018: 167.3
  - 2019: 185.1
  - Average: 169.0
- Income Taxes
  - 2016: 184.1
  - 2017: 170.3
  - 2018: 153.6
  - 2019: 167.9
  - Average: 169.0
- Surplus (Deficit) comparing FTT at 1.46% to Income Taxes
  - 2016: (21.6)
  - 2017: (9.2)
  - 2018: 13.6
  - 2019: 17.1
  - Average: -
- FTT at 2.95%
  - 2016: 328.6
  - 2017: 325.9
  - 2018: 338.3
  - 2019: 374.3
  - Average: 341.8
- Total Taxes
  - 2016: 364.6
  - 2017: 331.6
  - 2018: 318.2
  - 2019: 352.8
  - Average: 341.8
- Surplus (Deficit) comparing FTT at 2.95% to Total Taxes
  - 2016: (36.0)
  - 2017: (5.8)
  - 2018: 20.2
  - 2019: 21.6
  - Average: -

### Bank Transaction Taxes — recommendation
- Do not introduce any Financial Transaction Tax in Sint Maarten.

*IMF staff analysis and recommendations as presented in the mission report.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1sxmea2021001.pdf_