Central Government is considering compensation to citizens in the BES for loss of purchasing power

Sate Secretary Marnix van Rij

The central government is considering offering compensation to citizens in the Caribbean Netherlands for the significant loss of purchasing power they experience due to the cancellations of subsidies on water and electricity and general price increases.

“Due to a confluence of circumstances, purchasing power in the Caribbean Netherlands is now under pressure. This is the reason for the government to see whether compensation can be offered for this, in anticipation of structural measures,” state secretary Marnix van Rij (Taxation and Tax And Customs Administration) wrote to the House of Representatives today.

In his letter, the minister responds to the tax increase implemented on 1 January, which came as a surprise to citizens and the island governments. Van Rij promises to provide timely information about this from now on.

He writes:

On January 26th. the standing committee for Finances has asked me to respond within two weeks to the report, that citizens of the BES will pay more tax and to discuss the way in which the tax will be shaped and why this comes as a result for citizens of the BES islands. Of course, I am happy to comply with this request.

I would like to emphasize that the government strives for the inhabitants of The Caribbean Netherlands to reduce costs and improve income. In that context, an increase in the statutory minimum wage (WML) and benefits has been implemented as of 1 January 2022. This concerns an increase of 10% (including inflation correction). In addition, 30 million euros have been structurally made available in the coalition agreement to strengthen the labor market in the Caribbean Netherlands, combat poverty and increase livelihood security, among other things. I will come back to this at the end of this letter.

The report that citizens of the BES islands will pay more tax in 2022 than was the case in 2021 is correct. This is related to the annual automatic inflation correction of (among other things) the tax-free sum. As a result, taxpayers will pay a maximum of approximately USD 9.50 per month extra in wage and income tax.

The reason for this is that, partly due to the introduction of temporary COVID-19 related subsidies of a total of approximately USD 50 to 60 per household per month on electricity, water and internet, the overall price level in the Caribbean Netherlands has fallen. That price decrease has, with some delay, had an effect on the tax-free sum. I will explain this in more detail below. Since the year of the introduction of the BES Income Tax Act in 2011, a number of amounts included in that act, including the tax-free allowance, have been adjusted annually to inflation. To calculate this annual adjustment, price indices established by Statistics Netherlands (CBS) are used.

The way in which this calculation takes place is laid down in the law. Due to rising prices on balance, this annual adjustment has led to an increase in the tax-free allowance almost every year until 2021. In 2022, however, there was a reduction of 3.0% in the tax-free allowance because the price indices established by Statistics Netherlands showed that the overall price level in the Caribbean Netherlands had fallen by 3.0%. The subsidy granted on electricity, water and internet is an important cause of this.

In this calculation, the average price level in the period 1 July 2020 to 30 June 2021 was compared with the average price level in the period 1 July 2019 to 30 June 2020. Because the level of inflation in the Caribbean Netherlands has recently risen sharply, the annual inflation correction as of 1 January 2023 will, likely, lead to a substantial increase in the tax-free allowance.

The reduction of the tax-free allowance in 2022 is, as noted above, the result of a calculation method laid down by law. No separate measure has therefore been taken or a legislative amendment has been made to reduce the tax-free allowance.

Partly in connection with this, the annual change to the tax-free allowance has not been explicitly brought to the attention of the public of the Caribbean Netherlands. Even in previous years, with an increasing tax-free allowance, this has not happened. However, the new amounts are always published at the beginning of January on the website of the Tax and Customs Administration /Caribbean Netherlands (B / CN), as well as this year. In addition, the software suppliers have been informed so that they can consider the changed tax-free sum.

Against this background, the surprise experienced by the citizens of the BES islands is probably not so much related to the annual change of the tax-free allowance, but mainly to the fact that the tax-free allowance has decreased in 2022. In connection with this, I strive to publish an overview of the most important (tax) changes on the B/CN website at the end of each year, just like in the European Netherlands.

For the Government, the central theme is that the Caribbean Netherlands is an equal part of the Netherlands. The benchmark social minimum is the compass. As of 1 January 2022, the minimum wage has therefore been increased by 10%. In the coalition agreement, 30 million euros have been structurally made available for further steps to, among other things, combat poverty and increase livelihood security. The government will discuss this with island administrators and other stakeholders.

Due to a confluence of circumstances, purchasing power in the Caribbean Netherlands is now under pressure. This is the reason for the government to see whether compensation can be offered for this, in anticipation of structural measures.

State Secretary Marnix van Rij

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