Former governor of the Central Bank Pedro Silverio advocates in an opinion piece in Diario Libre on 9 February 2018 for reduced tax levels, so that tax exemptions need not to be applied, while urging a reduction of government spending for an efficient fiscal system.
In his commentary on the recent World Bank study “Towards an Efficient Tax System,” he observes the tax proposal leaves out the most relevant points to achieve a sustainable tax efficiency and calls the proposal “isolated” and “a proposal presented in a vacuum.”
He observes that, for starters, the study acknowledges that taxes, particularly the income and sales (ITBIS) taxes, are higher those of other countries in the region. But the study does not discuss the effects these high tax rates have on tax evasion and growth of the informal business sector. He also remarks that the study does not focus on the relationship between high taxes and the need the country has had to implement tax incentive regimes to compensate for these high taxes in order to attract investment and create jobs.
Instead the study criticizes that the 14,000 jobs created by the free zone industries in 2015 were done at a high fiscal cost. Silverio doubts these jobs would have been created if the incentives had not been in place. He emphasizes that the elimination of tax incentives needs to coincide with reduction of tax tariff rates.
Silverio highlights that an ideal tax system is one that combines appropriate taxes with administrative controls, effective programs to mediate the risks of tax evasion and the transparent, efficient and ethical use of the generated public resources so that economic agents are encouraged to participate in the formal economy and meet their fiscal obligations.
Silverio criticizes that among the recommendations made in the World Bank study is an emphasis on tax education programs to increase the tax base, leaving out an analysis of the cost-benefit of the informal vs. formal economy.
He says that in the DR government has traditionally just focused on seeking new revenues by expanding the tax base or increasing taxes instead of controlling the fiscal deficit by critically addressing rising government spending. “The fiscal burden of the adjustment load cannot exclusively rest on taxpayers. Under the current system, the objectives of more tax revenue, more and better jobs, and a reduced informal economic sector will not be achieved,” he writes. In fact, if nothing is done, Silverio warns that the contrary could occur.
Read more in Spanish:
Diario Libre
DGII
12 February 2018
