The Senate has approved the final, second reading of the tax reform bill, thereby placing the burden of raising additional funds, needed to pay for the previous government’s inefficiency and a hefty government bureaucracy that has not been reduced, squarely on the shoulders of the Dominican citizenry. The tax bill, which among other things raises the ITBIS (VAT) tax rate from 12% to 16% on most consumer items, must now be signed by the President and published for it to take effect. The government expects to receive RD$19 billion in additional revenues this year with the implementation of the reform.
President Fernandez had requested that the Senate exclude from the legislation a 25% tariff on US corn syrup imports that had been introduced by the Chamber of Deputies to reduce their appeal in favour of locally-produced sugar cane sweeteners. The US Trade Representative Office had lobbied intensely for the tariff to be abandoned, to the point of threatening to suspend the recently signed FTA with the DR. The Dominican free zone sector had argued that a suspension of the FTA would entail thousands of jobs lost in the DR.
Despite the corn syrup surcharge having been upheld in the Senate, President Fernandez said on Saturday that he would sign the bill into law. The IMF had conditioned the resumption of the standby agreement that was suspended when the previous administration defaulted on certain conditions to the current government’s ability to secure additional resources. While he will ratify the fiscal reform as is, Fernandez has said he would subsequently submit a bill to Congress to eliminate the surcharge. As per the terms of the legislation, duty-free corn syrup imports would only become a reality several years from now, thereby allowing time for the present legislators, or those who succeed them in the 2006 Congressional elections, to revise these issues. Fernandez said he would thereafter support the sugar industry in its quest to receive a favorable ruling from the World Trade Organization in order to implement a mechanism that would protect the sugar industry from the more competitively priced corn syrup imports.
Franco Uccelli of Bear Stearns reports on the country’s need to confront its fiscal deficit and secure preferential treatment from the US, the country’s most important commercial partner. Uccelli says this supersedes the interests of any single group. “With US congressional ratification of the FTA expected in early 2005, President Fernandez will now face the challenge of striking a balance between the elimination of the [corn syrup] tariff, supporting efforts from Dominican sugar producers to take their case to the World Trade Organization for arbitration, and not upsetting the US,” writes Ucelli in an update on the country.
The recently-appointed Foreign Relations Minister of the Dominican Republic, Carlos Morales Troncoso, is a major shareholder in the country’s largest sugar producer, Central Romana. It was also this company that led the lobby movement to introduce the tax, arguing that the FTA as signed by the Mejia a opened the Dominican market to lower costing sweeteners affecting the local sugar industry.