A governmental proposal to increase turnover tax to 11% still has a long way to go; nevertheless opponents leaked details to the press. Minister Jardim of Finance explained that the new turnover tax would be more like the American sales tax. Sales tax will be collected on retail sales at the time of the sale to the final consumer, and only the final sale in the supply chain is subject to tax. The present turnover tax is cumulative over each transaction, business-to –business as well as sales to the end user. So several charges are piled onto the end consumer price often resulting in a tax portion of 15-20%, depending on the number of transactions.
The Minister stated that the objective is not to increase income to the State but to eliminate the business-business transaction taxes.
The present system of 9% straight turnover tax on all transactions already turned out to be detrimental to business-to-business transactions, since no credit was given for paid taxes, like with Value Added Tax. Introduction of the turnover tax had a destructive effect on the middleman. Retailers, worried about their price sensitive markets as well as their own margins, decided to cut out the middleman and set up their own direct import and shipping. This resulted in the bankruptcy of long established importers, like Consales. Most retailers will be missing economy of scale to match the bulk deal benefits of wholesalers, and even more, economy of scope since they will be dependent on independent shipping and handling companies. Still, the proposal may sound relieve for some wholesalers.
Retailers are even more worried that the 11% sales tax will discourage hundreds of thousands of cruise ship passengers who can either buy the very same products tax-free on board their ship or airport shops, or simply wait till the next harbor at Aruba, where sales tax is only 1.5%.
The move of the government away from direct, towards indirect taxes is a logical consequence of the rapid growth of the shadow economy and the formal economy’s shrinkage, year-after-year. With tens of thousand of illegal immigrants and a large portion of the economy operating informally, direct taxes have become an ever growing, disproportionate burden on the shoulders of a shrinking number of registered employees and business only. The government has not taken any action to reduce the size of the informal economy and appears to be happy with it, no matter the unfair competition in the markets.
Thousands of unregistered guest apartments, rooms-for-rent and AirB&Bs created extensive unfair competition in the hospitality business, the largest industry on Curacao. Many hotels saw their RevPar, (Revenue per Available Room rate) rapidly decline, consequently also opting for standby staff only, or even random informal workers.
Years of repeated alarm calls from the business community, via the Chamber of Commerce and other branch organizations, fell on deaf ears. Some Ministers complained that even they could not get things done with the vast apparatus of work shy and incompetent civil servants. De facto and most regrettably, the government of Curacao remains hostile towards the business community and the economy. Yes, the 11 % may cause another ripple one way or another, but will not silence the tempest.
By Jacob Gelt Dekker
Opinion Columnist for Curaçao Chronicle