Published On: Mon, Sep 20th, 2021

Online sales-tax: a fata morgana

By Hilbert Haar

The idea to introduce a 7.5 percent tax on online purchases has triggered many questions. According to Minister Ardwell Irion (Finance) such a tax would “level the playing field” and encourage consumers to buy locally, rather than through the internet.

Currently this tax is merely a suggestion, it is not a proposal written in stone. The minister’s argument is that local retailers pay a 5 percent turnover tax on sales, while this tax is obviously not imposed on online retailers.

So if a local retailer sells a product for $100, the company will have to fork over $5 to the government. If consumers bought the same product online for the same price, they would have to pay $107.50, whereby the government receives the $7.50 in online sales tax.

But how is the government going to get its hands on this money? Minister Irion suggested that consumers pay this tax when they pick up their package from the shipping agent. This puts an additional administrative burden on the shipping agent and that burden comes at a price.

There is yet another aspect to consider. The International Monetary Fund has suggested to introduce a Value Added Tax and to have this system harmonized with the French side of the island. The idea here is (or was) that unilaterally charging VAT would chase consumers over the border to the French side. No level playing field there.

Minister Irion said last week in parliament that the VAT-proposal is off the table. The online sales-tax seems to create a similar uneven playing field, whereby consumers have an easy escape-hatch. All they have to do is order online from the French side and have their orders delivered there to escape the online sales-tax.

The question is furthermore whether this tax would encourage consumers to buy locally, as Minister Irion has suggested. That remains to be seen and right now nobody knows the answer. It is however certain that consumers do not only look at price when they spend money on products or services. They also consider after-sales service and guaranty. It is not uncommon for local retailers to give consumers the runaround when a product turns out to be deficient.

MP Claudius Buncamper said in a video posted on his Facebook-page that the discussion about the online sales-tax is far from over, though he emphasized that currently it is just a proposal. Buncamper reviewed the sentiments about the issue from a variety of sources.

One source wondered why the government would want to introduce a new tax on consumers instead of increasing tax compliance. Another source noted that there is much more on offer online than there is in the shops on the island. “So you are going to pay tax on something you cannot even buy here.”

Buncamper did not take a clear position for or against the idea of an online sales-tax. Instead he wondered whether Minister Irion had done any research that resulted in the proposed 7.5 percent tax-level.

The sales-tax legislation in the United States is rather complex. Companies are liable for sales tax if they have nexus (basically: a presence) in a state. So they always have nexus in their home state but they could also have nexus in other states for a variety of reasons. Companies that meet those nexus-criteria are liable for sales taxes in other states as well and they are required to charge their clients the correct amount of tax.

Online retailers from the United States, like Amazon, do not have nexus in St. Maarten and there is no local legislation in place that forces such companies to charge their clients a sales-tax. Hence the idea that consumers based in St. Maarten would have to tick off this tax when they pick up their order from a shipping agent.

I am not sure that this concept will work in the advantage of the government. After all, Minister Irion said that this would be one way of recovering lost revenue. Currently, we do not even know how much the government expects to collect from it, because Minister Irion has not said anything about the volume of online purchases by local consumers.

Is it $10 million a year? Twenty? More? less? We simply do not know.

That makes it difficult, if not impossible, to judge whether introducing such a tax is worth the effort. And because it is easy for consumers to get around this tax by sneaking their orders in through the French side of the island, it is doubtful whether the minister will ever get his full pound of flesh. I think that the level playing field the minister has in mind will remain a fata morgana.