BBO AT THE BORDER: VARIOUS OPINIONS
In the past few days, the Aruba Chamber of Commerce (CUA) and the Aruba Trade & Industry Association (CUA), together with the Tax and Customs department, organized informative sessions for their respective members to prepare them for the implementation of the BBO law at the border, which is set to come into effect on July 1, 2023. The intention was to educate their members on properly implementing the law in practice. The proactive approach of these two organizations is commendable, and we congratulate the leadership of both organizations for this excellent initiative. We would also like to mention the participation of Luenne Pieters and her team from DIMP DIMP and Ricky Croes from Customs, who attended both meetings – even after working hours
During the past week, various commercial/trade associations have shared their opinions on the BBO law at the border in the parliament. Organizations like the Chamber of Commerce, CUA, ATIA, and AHATA have voiced their perspectives. Thanks to sources like www.trempan.com and www.24ora.com, we have been able to read and listen to the different viewpoints from these commercial associations regarding the BBO law at the border. The opinions vary depending on the angle taken and the specific interests of each association. Each association advocates for the interests of its members, just as a labor union advocates for the interests and benefits of workers and calls its members “the working class.” In this case, we are dealing with the “business class.”
In this week’s legal column, I will explain a little about the law and present the different opinions from various perspectives to help us better understand and learn from them.
Why BBO at the border?
Let’s start with why this law was introduced. It’s simple. The government needs more money. The budget will face even more deficit if this extra income is not generated. Another aspect is that this law or the extra revenue was agreed upon with the Netherlands. There is no turning back. Many of us don’t like when taxes are raised because we believe the government should start first by cutting staff and decreasing the number of civil servants and lucrative consulting contracts for the “advisors and coordinators” for each minister. Twenty-five staff members on a contract is just way too much overhead, even if prior administrations had more than 25. Implementing Artificial Intellegence (“A.I.”) should be the instrument choice to help reduce overhead while preserving and increasing productiviy.
When the government introduces a tax, it is meant to collect money from those who must pay taxes (in Dutch, “belastingplichtige”). Our tax director translates this word with a unique charm and calls it a “contributor,” as if the taxpayer is donating money to the church during Sunday Mass.
Those who argue that the BBO at the border is not good or increases expenses are partially correct. Every tax that is implemented increases cost for the taxpayer in one way or another. So, there is nothing new here. But if we say that we shouldn’t increase costs for the people, then as a country, we must eliminate all taxes because they are all bad. This option is not realistic because, with revenue, the government can function. And if we introduce a VAT or increase an existing tax tomorrow, it will also bring extra expenses or a price hike.
BBO at the border
Based on what I have read and heard from DIMP and Customs, the BBO will work as follows: anyone who imports something to Aruba, whether it’s a wholesaler, a hotel, or an individual who ordered something online, will pay a 7% BBO at the border. This BBO will be paid through customs. This applies to everyone and every business, with a few specific exceptions. If what is being imported are commercial goods (handelsgoederen), i.e., products intended for resale without any further processing, such as a wholesaler importing meat, chicken, or powdered milk, then the wholesaler (or the one reselling the product) can deduct the BBO at the border from the BBO they charge on their sale. This puts the price of the imported goods at the same level as before, without an increase due to the BBO at the border.
If an individual or business imports a product for personal use or use within their business, they will pay a 7% BBO at the border and they cannot deduct it later. A supermarket importing a computer or desk for internal use will increase overall operational expenses. This can affect the company’s pricing model and lead to a price increase.
Preventing Illegal trade & non-compliance
With the introduction of the BBO at the border, many individuals or businesses that previously avoided paying taxes will now have to pay the 7% at the border. This will generate additional revenue for the government, prevent illegal activities and clandestine trade, and promote a level playing field. The more people who pay taxes, the more income the government receives, and the burden is not solely left to a small group of compliant taxpayers.
Cash is King
On the other hand, some individuals or businesses prefer to deal in cash rather than using banking systems, depositing money, or using card payment machines. This is happening in Belgium. They do this to save on banking expenses that eat into their profits and to offer customers a lower price if they pay in cash. With cash transactions, these transactions can also remain undeclared, and they can avoid paying their BBO. It is not uncommon for a service provider to ask you if you want an invoice or not and then offer a lower price for the service if it is paid in cash & without an invoice. This practice is common in Aruba and other parts of the world, such as d Colombia.
VAT is Better! (Or is it?)
Due to limitations in the deduction of commercial goods, we (eventually will) need a complete VAT system. The current system is called a “hybrid” because it combines elements of both approaches. It is likely not perfect by design. Some argue that we should adopt a complete VAT system immediately.
- DIMP is not ready for a VAT system, not in July 2023 or possibly by January 2024.
- Many small businesses still need to get computerized cash registers or a system for collecting VAT. We are lagging in this area.
- The VAT rate should be higher than 7% to ensure the government continues to generate revenue and avoid deficits.
With the 7% BBO, some consider it high and claim that (some) prices will increase. If we switch to a VAT system, the rate would be around 16% to 20%. In that case, wouldn’t prices increase?
AHATA’s View
AHATA, the hotel and trade industry association, believes it should pay less tax than other businesses. Enjoy tax holidays or the fancy IPC regime, which can drop the profit tax percentage to 2%! They typically argue that tax increases lead to more expenses and less profit. AHATA’s main concern seems to be that the BBO at the border does not apply to goods that are not imported for resale “as is”. They do not consider this fair. They want to be able to deduct the BBO at the border on all their imports, including the food & beverage items that they currently self-import due to the BBO that they would have to pay if they sourced it locally. I believe, and it could be wrong, certain group(s) attempted to propose a change in the law to allow hotels to deduct the BBO by changing the definition so as to allow the to offset food and beverage items imported once they prepared (cooked) and served it to their guests. That proposal was discarded in the latest draft.
Now, hotels and other businesses will pay the BBO at the border when importing goods like meat, fish, or alcohol. They will get the deduction as an operational expense, which reduces the base amount of the profit tax they pay at a preferential rate. AHATA aims to deduct the BBO at the border from other taxes. However, they need to remember and consider that when a school teacher or one of their employees imports something online, they will have to pay the BBO at the border without the option to deduct it. Why is it only the hotels that are worried about this? What about the school teachers?
AHATA claims that prices will increase. Full stop. AHATA’s members are not grocery stores, bakeries, or supermarkets, so why are hotels concerned about them? The point is that their operating costs may increase because they now have to pay 7% at the border. But traditionally, the hotels have paid a much lower profit tax rate the rest of the businesses in Aruba, including those AHATA members that are not hotels. When hotels raise their rates, tourists pay, and it does not affect the police officer, the bank clerk, the insurance agent, or the delivery guy, because these workers do not spend much of their times as guests in the hotels.
In parliament, AHATA argued to remove the term “commercial goods” from the law. Of course, to save 7% on imports and not haver to contribute like others. Furthermore, if this change were made, it would have reduced the government’s revenue, and the tax rates for the police, customs, journalists, and other sectors may need to be increased to compensate. That’s not so fair.
KvK’s Perspective
The Chamber of Commerce suggests a better system or an alternative to the current approach. In a perfect world, but looking at the government’s situation, I doubt they have the luxury or space to think about something new. Moreover, many other government issues need to be fixed ideally. I am sure the Chamber would like to see government spending on things such as chauffeurs and expensive lease cars for the ministers be cut as well as the staffing of the ministers before other taxes are implemented. Most of do.
CUA’s Concerns
The CUA department is concerned that the fiscal reform and VAT may be delayed or altered if the additional revenue starts flowing in. I can share this concern, considering that next year is an election year, and politicians in power may not want to propose a 16% to 20% VAT.
In Conclusion
It is positive that commercial associations have been heard in parliament. This should happen more frequently, not only when a law reaches parliament. It would be beneficial for these associations or those with concerns to be involved earlier, contributing suggestions or know-how to create a better law. For now, the BBO at the border helps eliminate the fiscal incentive for direct imports instead of local purchases, which contributes to the overall well-being. If this additional revenue does not come from the BBO at the border, it will create a hole (even larger) in our country’s budget. It will have to come from another source. The people’s pockets, as the government, cannot turn anywhere else. Let’s hope that this extra revenue is used responsibly and benefits our community.
With special thanks to my trusted and rather good-looking critic for proofreading and the always on point suggestions.
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