A Tax That Could Backfire

Minister of TEATT Grisha Heyliger-Marten has introduced two ideas worthy of national discussion: establishing an investment promotion agency and examining whether a financial transaction tax could help St. Maarten broaden its revenue base while reducing existing taxes on workers and businesses. Both deserve consideration, but the proposed tax warrants particular caution because a poorly designed system could create consequences far more costly than the revenue it generates.

The investment agency concept has merit. St. Maarten needs a more organized approach to attracting investment, assisting local entrepreneurs and helping businesses navigate government procedures. A properly structured agency could strengthen investor confidence, encourage economic diversification and help generate employment. Its effectiveness, however, would depend on transparency, professional management and the government's willingness to remove bureaucratic obstacles.

The financial transaction tax is considerably more complicated.

At first glance, the concept sounds attractive. Instead of relying heavily on wage, income, turnover and profit taxes, government could collect a small percentage from qualifying electronic transactions. Collection could become simpler, the revenue base could expand, and reductions in existing taxes might leave more money available for households and businesses. But what happens when people decide that using the banking system has become too expensive?

If paying electronically attracts a tax while paying cash does not, consumers and businesses may simply change their behavior. A shopkeeper might encourage cash purchases. Contractors could request cash payments. Businesses might settle transactions with suppliers outside the banking system. What begins as an effort to modernize taxation could unintentionally encourage St. Maarten to move backward.

The consequences deserve serious consideration. Electronic transactions provide financial records that support accountability, tax compliance and business transparency. A significant return to cash could make economic activity harder to monitor, create additional opportunities for undeclared income and complicate efforts to combat financial crime.

Cash also introduces practical risks involving theft, security and recordkeeping. Businesses increasingly dependent on physical money could face additional operational burdens.

A transaction tax could be charged repeatedly as money moves through the economy. An importer pays a supplier, a retailer pays the importer, and a customer pays the retailer. If each transaction attracts a charge, the cumulative cost could eventually reach consumers through higher prices. Lower-income households and small businesses could suffer disproportionately, while larger companies may have more options to restructure payments and minimize exposure.

In 2021, the International Monetary Fund recommended against introducing a financial transaction tax in St. Maarten, warning about economic disruption, tax avoidance and the difficulty of replacing existing revenues. In 2025, the IMF again urged caution, identifying potentially harmful economic effects and disproportionate burdens on some taxpayers.

Importantly, Heyliger-Marten has not proposed a specific tax rate. Her illustrative five percent calculation was not a revenue forecast or an announced government measure. She also acknowledged the possibility of people shifting toward cash. That recognition is important because the proposal should be judged by what people and businesses would actually do, not simply by the volume of money currently moving through banks.

Before advancing the idea, government must establish which transactions would be taxed, what exemptions would apply, which existing taxes could realistically be reduced, and how the system would affect prices, investment, banking activity and consumer behavior.

St. Maarten should welcome proposals that challenge established thinking. The investment agency could become a useful instrument for economic development, and examining alternatives to the current tax system is reasonable. But innovation must not come at the expense of financial transparency or economic stability.

The objective should be a fairer tax system that encourages economic activity, not one that gives people a financial incentive to avoid the banking system. Study first, establish the consequences, consult the public and business community, and only then determine whether the benefits justify the risks.

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