Exchange commission tax is fiscal best

The recently increased exchange commission tax, a 13% tax on dollars used to import goods and services, will produce nearly 40% of the cash flow generated by the Custom Department, an estimated total of RD$21 billion. The catch is the tax has never been sanctioned by legislation passed by the Congress. According to the El Caribe, Budget Director Ruben Pena said that the income produced by the exchange commission would contribute 39.3% of the total money collected by the Customs Department, if the macroeconomic projections prove to be accurate. The suppositions used for the 2005 Budget Law include an exchange rate of RD$37 to US$1 exchange rate and a GDP growth rate of 2.5% as elements of the least favorable scenario. Should the exchange rate be lower and if GDP growth is larger, the Customs Department will collect even more money. The Monetary Board approved a 3% increase in the tax on dollars used for importing goods last December. In part, the new increase will compensate the government treasury for the removal of the 2% tax on imported goods, plus another 1% for good measure. According to Finance Minister Vicente Bengoa, these measures were agreed to by the IMF as part of the plan to get the economy back on its feet. The business community has criticized the new increase on several levels.

The president of the National Association of Young Entrepreneurs, Manuel Diez Cabral, expressed his disagreement with the government’s decision to increase the exchange commission from 10 to 13%. Diez Cabral says that the new surcharge is illegal and affects the competitiveness of productive sectors. He said that the decision to pass on the collection of the surcharge to Customs, converts it into a tariff in disguise imposed by the Monetary Board. He said that according to Art. 85 of the Monetary and Financial Law No. 183-02 the exchange commission should have been eliminated no later than 3 December 2003. Recently, the World Trade Organization ruled that the exchange commission is contrary to agreements signed by the DR with that organization.

Lawyer Marisol Vicens says that the imposition of the new tax is a step backwards to the days of illegal taxation, since the Congress did not approve the move.

Yandra Portela, of the Association of Industries of the Dominican Republic, said that the tax takes Dominican products out of the market.

A further irony is the fact that in 1991, when the tax was first introduced as a temporary measure according to businesspeople that were close to the Monetary Board when the measure was instituted. Politicians have continually promised to remove the tax, but, instead, it has been consistently increased from the original 2.5%.