The Industrial Association of the Dominican Republic (AIRD) has offered ideas on the tax reform that will be needed when import tariffs are eliminated when the DR-CAFTA free trade agreement may go into effect. According to their numbers, the FTA with the United States will mean RD$5.15 billion less in import taxes for the Dominican Treasury. The association proposes a gradual reduction of the exchange commission tax on hard currency used to purchase raw materials and capital goods, the deduction of the tax on luxury housing and lots from the income tax, the elimination of the consular invoice and the faster deduction of the VAT taxes that is paid on exempt items.
The AIRD proposal does not have the formula for the government to retain its high level of revenues to cover its present level of spending. At present, the government is working on a new tax package that will include a wider-based VAT. While the debate on the new fiscal measures is going on, others sectors indicate that the government may reap a significant RD$8.0 billion surplus because of the stable peso that is significantly stronger against the dollar. This surplus could cover the first year of the tax and tariff reductions, but it will only be that first year. In the medium and long term, a more sustainable tax reform package would be needed to maintain government spending. Finance Minister Vicente Bengoa is meeting with the Young Businessmen’s Association today and will meet with the AIRD later this week. Last week, Bengoa met with the executives of CONEP as the debate on where the money will come from continues.