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Dominican Republic Needs Tightened Tax Regime: IMF

by Glen Shapiro,, Washington

21 August 2017

The Dominican Republic needs to agree a medium-term plan to increase the amount of tax revenue it is able to collect, while providing a more certain tax regime for taxpayers, the International Monetary Fund said.

The IMF said that the Caribbean territory collected revenue worth just 13.66 percent of gross domestic product in 2015 – some 11 percentage points below the OECD average and five percent below the Central American average.

The IMF said "the tax system of Dominican Republic needs a comprehensive structural reform, aimed at simplifying the system and widening the tax base. The reform should eliminate the large number of exemptions under the value-added tax (VAT), property, and other taxes, and rationalize tax incentives. For instance, reducing VAT and property tax expenditure in the Dominican Republic to the average level in the region – including by phasing out the large list of goods and services exempted from the VAT, while maintaining the exemption for education, health, and basic food – could result in an increase in revenue by 1.3 percentage points of GDP. In turn, the reduction in the PIT allowance to about two minimum salaries would yield about 0.2 percent of GDP."

"The fiscal adjustment needs to be underpinned by comprehensive reforms that address structural weaknesses in the tax base and expenditure quality. Numerous past reforms have not yielded durable increases in the tax base due to either their ad hoc nature or lack of political will to follow through with the reforms. Over time, these have led to increased complexity and unpredictability of the tax system, without meaningful increases in revenues."

TAGS: tax | value added tax (VAT) | property tax | tax incentives | law | International Monetary Fund (IMF) | tax rates | Dominica | Dominican Republic | tax reform

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