President Hipólito Mejía upon returning from Panama where he attended the Iberoamerican Summit took the stand to defend the increase of taxes his government has proposed. The package of new tax bills is in Congress. President Mejía urged sacrifices from the business sector and the wealthy to help the poor. He says that the revenues generated by the new taxes will be used for social programs to help the lower income segments of the population. Economic analysts, in turn, say that the middle class will be the biggest loser if the new bills are passed by Congress. The bills will result in an increase in the cost of fuel, and almost all goods and services with the exception of basic food products. Furthermore, just the announcement of the new taxes has spurred an increase in prices. The high price of agriculture products is attributed to a decline in farm production and to the present government’s bias against imports in order to favor local producers. A similar fiscal package had been proposed in 1997 by the previous government. In 1997, petroleum prices were low, the economy was booming. It was rejected by the same PRD-majority Congress that now is supporting the Mejía fiscal package in order to generate more revenues for the PRD government. Nevertheless, times are different. The country is at present affected by the high cost of petroleum on world markets that has resulted in high interest rates. As a result sales are down, companies are cringing from high financial costs, and many are cutting costs, firing personnel. The proposed sales tax increase could be untimely. The proposed package includes a 2% advance sales tax and an increase in value-added tax from 8 to 12%.
