Plans to introduce a 12.5% Value Added Tax (VAT) in Aruba have been placed on hold following the outcome of the December 2024 elections. The ruling parties, AVP and FUTURO, failed to reach a consensus on replacing the island’s current turnover tax system with a new VAT regime. As a result, the proposed tax reform is now indefinitely postponed.
The delay also reflects broader economic concerns, including persistent global inflation and the economic ripple effects of ongoing geopolitical instability, including the conflict involving Russia and its regional impact.
Current Tax System Remains in Place
Aruba currently operates under a combined 6% Turnover Tax (BBO) and Health Tax (BAZV), which was increased to 7% in January 2023. The VAT was intended to streamline and modernize Aruba’s indirect tax system, with technical support from the Organisation for Economic Co-operation and Development (OECD).
Had it gone ahead, Aruba would have become the 171st country worldwide to implement VAT. The average VAT rate across Caribbean nations currently stands at approximately 16%.
Ties to Dutch Support and COVID-19 Recovery Funding
The proposed VAT introduction was also linked to financial aid Aruba received from the Netherlands during the COVID-19 pandemic. As a Dutch territory, Aruba has been coordinating economic and fiscal reforms in consultation with the Dutch government, which had advocated for the VAT transition as a condition for long-term fiscal sustainability.
Aruba’s economy is heavily reliant on tourism, making its tax base vulnerable to global economic fluctuations. The decision to delay VAT implementation underscores the government’s cautious approach amid uncertain economic times.
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