WILLEMSTAD – Improvements in Curaçao’s Tax Administration appear to have played a significant role in the rapid recovery of government revenues following the COVID-19 crisis, according to doctoral research that suggests institutional reforms can have a measurable effect on public finances.
Research by Wim Nijdam found that economic growth and inflation explain only an estimated 45 to 50 percent of the increase in tax revenue after the pandemic.
The remainder cannot be attributed solely to the economic rebound. Instead, Nijdam points to improvements in tax administration, the elimination of administrative backlogs, changes in tax legislation and stronger compliance among taxpayers.
The findings offer a different perspective on Curaçao’s recent fiscal performance.
Between 2021 and 2022, tax revenue increased by more than XCG 240 million, or 18.2 percent. By 2022, tax receipts had exceeded their pre-pandemic level even though Curaçao’s real economy had not yet returned to its pre-pandemic size.
Nijdam’s research indicates that the way taxes are administered can therefore be almost as important as the underlying performance of the economy.
Among the areas identified as important are accurate registration of taxpayers, modernization and digitalization of administrative processes, better compliance-risk management and more targeted efforts to address tax evasion and failure to meet tax obligations.
Improved communication and services for taxpayers are also important, according to the research, particularly because trust can influence willingness to comply voluntarily.
Legislative changes contributed as well. The introduction of turnover tax on imports in October 2019 generated more than 9 percent in additional turnover-tax revenue, according to the study.
Nijdam does not attribute Curaçao’s revenue growth to a single reform. Instead, his findings indicate that several developments occurred simultaneously and reinforced each other.
The study has implications for future government budgets. If part of the increase resulted from structural improvements in tax administration rather than temporary post-pandemic economic conditions, some of the additional revenue could prove more durable.
At the same time, the research indicates that maintaining those revenues will depend on continuing to improve the Tax Administration and sustaining taxpayer compliance. Economic expansion by itself is not enough.
Nijdam drew on tax records, macroeconomic data, interviews and responses from more than 1,100 entrepreneurs for his doctoral research. He said some of the findings were already incorporated into improvements in Curaçao’s tax procedures while the research was underway.
After years of involvement in reforms at the Curaçao Tax Administration, Nijdam is now working for the Tax Administration of Sint Maarten, where he plans to apply lessons from the research to further improve tax collection and taxpayer services.