The usefulness of tax reforms

August 9, 2021

On August 5, 2021, “El Dinero” website published the tax reforms in the Dominican Republic, which are the following:

1. Porpuse of tax reforms

The aim is to increase collections in absolute and relative values, simplify taxes, reduce tax evasion and avoidance, and improve tax equity and the tax base.

2. Dominican public finances

Dominican public finances have deteriorated progressively due to fiscal deficits, increase in public debt, reduction in quality of spending, depletion of fiscal sustainability; resulting in collateral effects on the exchange rate, inflation, increased poverty, and informal employment.

3. The tax burden

Analyzing the tax reforms, we recall that after the tax code was approved in 1992, the tax burden in 1993 was 11.1% of the GDP. The tax contribution reached 12.3% in 2000. Then, in 2001, the tax burden increased from 13.4% of GDP to 15.6% in 2006.

Subsequently, it dropped to 13.1% in 2012. In 2020, for health reasons, the tax burden stood at 12.4% of GDP.

4. Tax reform

The country has carried out 4 tax reforms, one in 1992 enacting law 11-92 of the Tax Code, legal framework 147-00 (to eliminate the fiscal deficit) in 2000, law 288-04 (framework of the agreement with the IMF, and the banking crisis of 2003) in 2004, law 557-05 (of DR-CAFTA) and 34 laws for amendments, incentives, amnesties, reduction of rates, etc. in 2005.

5. Conclusions

The various tax reforms and amendments of so many years have not favored social spending since it has grown by 8pp, stagnating as of 2004. Concluding that all was useless due to the remaining deficits, as well as indebtedness, tax pressure, and social spending.

Source: El Dinero 05/08/21