President Leonel Fernández sent to Congress yesterday his tariff and tax reform bill. The President contends that significant tax increases are needed in order to counterbalance expected revenue losses due to tariff cuts and reforms agreed to by the RD in free trade agreements with Central America and the Caribbean Common Market (CARICOM). Currently the DR has nine tariff rates: 0, 3, 5, 10, 20, 25, 30 and 35 percent, with a median rate of 13.8 percent but an effective protection rate close to 40 percent. The bill sent to Congress by the President would restructure tariffs into five rate categories in 1999: 0, 3, 8, 14 and 20 percent. In the year 2000 these will be changed to four: 0, 5, 10 and 15 percent. By the year 2000 pharmaceuticals and their production inputs will have their tariffs phased out altogether. The revenue losses due to tariff cuts and reforms are projected by the government to run as much as RD$5,592 million in 1999 and RD$8,884 million in the year 2000. The government is asking to raise the value-added tax, or ITBIS, from its present level of 8% to 12% in 1999 and to 14% in the year 2000. The ITBIS is imposed on a wide range of goods and services, from ordinary shop purchaes to restaurant and phone bills. The government is also proposing to raise the Selective Consumption Tax imposed on alcoholic beverages and tobacco products from its present 20% up to 35% in 1999 and to 40% in the year 2000. Spokesmen for the Congressional blocks of the Partido Reformista Social Cristiano (PRSC) and Partido Revolucionario Dominicano (PRD) opposition parties immediately rejected the tax hike proposals, labelling the proposals a crime against the impoverished sectors of the Dominican economy. Reformistas Darío Gómez Martínez and José Hazim Frappier, and PRD spokesmen in the Chamber of Deputies Fafa Taveras, told El Siglo that their blocs in Congress could not vote for tax increases of any sort. For his part, the president of the Chamber of Deputies, Hector Rafael Peguero Méndez (PRD), while accepting the need to raise the ITBIS to compensate for revenue loss from tariff cuts, yesterday rejected the level of increase suggested by the Administration. He feels that an increase to 10% should suffice. Business groups have not yet offerred an official reaction to the proposal, but their leaders informally disagreed over whether the increased proposed by the Administration was correct or too high.
