Imagine this: after a week of hard work for your own business in Curaçao, you expect to enjoy a cup of coffee with the newspaper. To your surprise, you not only grab the Saturday edition of the newspaper from your mailbox but also a handful of tax assessments; in addition to the wage tax assessment, separate assessments for AOV, BVZ, and AVBZ premiums have been imposed. Numerous questions immediately arise: Why are these assessments separate? Is there a difference between premiums and taxes? Do you need to object to all four assessments individually if they are incorrect? Could this not be simpler?
In this article, I provide answers to these questions. First, I briefly discuss the premium system and the tax system in Curaçao and then propose a solution based on experiences in the Netherlands and the BES islands with fiscalizing and integrating premiums.
Current situation in Curaçao
The premium system in Curaçao, consisting of social insurance and employee insurance premiums, falls under the responsibility of the Social Insurance Bank (SVB). The social insurances in Curaçao, i.e., AOV (15%), AWW (1%), AVBZ (2%), and BVZ (13.6%), are intended to provide a basic level of social security to all residents. Additionally, employee insurances, i.e., OV (0.5%-5%), ZV (1.9%), and Cessantia (NAf. 40 per employee per year), protect employees against specific risks associated with their work. Each premium has its own calculation
method depending on factors such as the premium limit and the base.
In addition, there is a separate tax system for wage tax (progressive rate) under the responsibility of the Tax Office, with its own rules and a calculation method for the basis differing from the premiums.
Differences between premiums and taxes
A major reason for the coexistence of both systems is the difference in funding structure. Revenues from the tax system collectively form the general resources. In contrast, for the premium system, the premium revenues are specifically used for the benefits of the respective insurance, e.g., benefits paid from AWW are covered only by paid AWW premiums. This difference in funding structure stems from the 'insurance concept' underlying the premium system, namely that there is a direct link between the insurance premium and the potential insurance benefit. This concept is invariably true for employee insurance; paying the premium is a condition for entitlement to the benefit. After all, only if an employee pays OV premium is he insured against the risk of a workplace accident and receives OV benefits if this risk occurs. In contrast, for social insurances, the benefit is detached from the premium; everyone is entitled to AOV benefits upon reaching the retirement age regardless of whether they have paid AOV premiums. Due to this detachment, the social insurance, in my view, does not fit well within this 'insurance concept' but has a more fiscal character, meaning that in terms of the funding structure, it fits better within the tax system.
Problems
The separate systems ensure that, as in the situation described in the introduction, in addition to a wage tax assessment, separate assessments for each premium are imposed. This becomes even more cumbersome if the taxpayer disagrees with the amount of the various premiums and the amount of the tax. In such cases, one must object to each assessment and possibly appeal. It is not surprising that the recent report 'Tax Office Management Report Second Quarter 2024' states that 46,000 objections are still pending, more than half of which pertain to wage tax and premiums. In short, an enormous administrative burden for the competent authorities.
Moreover, the calculation method for wage tax and for the various premiums differs, making the determination of the premiums a very complex matter in addition to the already significant administrative pressure on the competent authorities.
Could this not be simpler by integrating the social insurances into the wage tax or, even more, by fiscalizing the social insurance premiums?
Integration and/or fiscalization
Fiscalizing the premium levy means, in short, replacing the funding of social and employee insurances from premiums wholly or partially with funding from tax revenues. In the Netherlands, since the end of the last century, there has been a partial fiscalization of AOW (social insurance) to prevent the AOW premium from becoming unaffordable due to increasing aging. Concretely, this means that in the Netherlands, AOW benefits are increasingly funded by tax revenues and relatively less by premium revenues. Additionally, in the Netherlands, assessments for premiums and wage tax are combined into one assessment to reduce the administrative pressure on competent authorities.
In the BES, they have gone less far in terms of fiscalization, but in 2011 the premium levy for social insurances was integrated into the wage tax, and the bases were standardized. This means that in the BES, there is a combined levy of wage tax, AOV premiums, AWW premiums, and health insurance with a flat rate of 30.4%. The levy system ensures that at least 30.4% is paid to the treasury. It functions as an interplay between wage tax and social insurance premiums, i.e., if one is liable for the mentioned premiums, the total payment is 30.4%, and if not, the same 30.4% is paid solely as wage tax. The premium levy for social insurance in the BES – just like in the Netherlands – is levied by means of a single assessment, resulting in a significant simplification of the levy and a reduction of administrative pressure on the competent authorities.
Implementation in Curaçao
Considering this successful simplification in the BES and the fiscal character of the social insurance premiums in Curaçao, it seems a logical step to integrate the social insurance premiums (AOV, AWW, AVBZ, and BVZ) into the wage tax in Curaçao, while also standardizing the bases. The integration and accompanying standardization of the bases can essentially be done cost-neutrally by, for example, partially fiscalizing. For the citizen, aside from certain specific international situations, it doesn’t matter whether more or less tax or premium is paid as long as the combined levy does not increase. One could think of a flat rate similar to the BES, i.e., in this way, the purchasing power of the citizen remains the same, and there is no negative effect on the incentive to work. Only for retirees should a compensation be considered to ensure fiscal neutrality, as they are currently exempt from AOV premium. For the government, tax and premium revenues are communicating vessels, meaning a partial fiscalization of the premiums should not affect the total budget.
Additionally, through this integration, the wage tax and social insurance premium assessments can be combined into one assessment, thus streamlining the assessment, objection, and appeal procedures. This would contribute to a faster handling process and reduce the pressure on competent authorities.
In conclusion, integrating the social insurance premium levy into the wage tax, with standardized bases, following the example in the BES, in Curaçao would lead to a simplification of the system and a reduction of administrative burdens for both the competent authorities and the taxpayers and premium payers. Full fiscalization seems distant for now but should certainly be a goal for further simplification of the tax and premium system. After all, for both the Tax Office and the SVB in Curaçao: they can't make it more fun, but they can make it easier.
mr. drs. Tobias van het Nederend is a tax advisor at Deloitte Dutch Caribbean in Curaçao.
Tobias is a Junior Manager in Deloitte’s BPS Tax Services & Advisory.