DR: IMF and economic restructuring

Today’s El Caribe carries the dire headline that our Value Added Tax (VAT), also known as the ITBIS, could be raised to 16% and extended to cover more items. The tax reform proposal resulting from the IMF Stand By agreement is comprised of four phases designed to bring RD$15.87 billion to Dominican coffers. The document entitled “Tax Adjustment for Sustained Growth” proposes the elimination of the 4.75% exchange commission on all imports and a simplification of the import duty structure for non-luxury items with just four tax rates (5%, 10%, 15% and 20%). In the second phase, the maximum tariff would be lowered from 20% to just 15%. In the third phase, all tariffs for non-luxury goods would be eliminated. In the fourth and final phase, the 5.25% exchange commission surcharge would be dismantled. The government argues it will lose RD$15.89 billion in income from the customs duties over these four phases. In order to support their proposal, the technicians from the IMF maintain that current procedures contained in the tax code are no longer valid as a legal base for modern fiscal management, reportedly saying there are “several weaknesses in the fiscal administration that keep the government from implementing very necessary tax reforms.” As an example, they pointed out that money collected from the ITBIS fell by RD$1.69 billion or 0.43% of the GDP in 2002 because of a weaker economy. Also among the suggestions is the overall application of the 1.5% anticipated payment on earnings. Currently, live animals, basic foodstuffs, propane and diesel fuels, essential medicines, electricity, bank deposits and other financial and non-commercial social services are exempt from the VAT.