In a first post pandemic scenario, next Monday is shaping up to be the beginning of the presentation of the various proposals for the 12 reforms proposed by President Luis Abinader, and among these, the tax reform which, in the opinion of the President and specialists in the fiscal area, becomes the main challenge in the short term for the Dominican society.
The debate, in fiscal terms, has always consumed enormous hours of the Government, businessmen, tax specialists and the social sector, which includes unions, economists and other actors. However, while some point out that it is not the right time to implement a tax reform due to the effects left by the pandemic on companies and households, others recommend starting the debate so that it can be implemented immediately in 2022.
The truth is that depending on the fiscal policy adopted by the country, there will be income to guarantee the sustainability of the debt and to increase capital expenditure with public infrastructure which, in itself, does not exceed 3% in the Latin American region, a situation to which the Dominican Republic does not escape.
In the macroeconomic study of March of this year, entitled “Opportunity for greater sustainable growth after the pandemic”, specialists of the Inter-American Development Bank (IDB) suggest to the countries of the region, including the Dominican Republic, to improve the efficiency of spending, since with a greater fiscal effort it will be possible to capture 7% of the gross domestic product (GDP) in additional public income.
One of the approaches lies in eliminating inefficiencies that can be corrected by equalizing salaries.
The Dominican Republic, Guatemala, Panama, Paraguay, Mexico and Peru are among the low-income countries (between 16% and 12% of GDP). They believe that “applying a unified VAT (Value Added Tax) rate without exemptions and collecting more revenue, but then using those resources for a well-targeted system of transfers to the poor, “would be a more efficient policy mix.”
The Regional Center for Sustainable Economic Strategies (CREES) also proposes in its proposal a simple tax system that reduces the taxable rate of income and ITBIS gradually.
It recommends eliminating at least 4% of GDP in spending, but not with reductions or limitations on infrastructure investments, but by removing the “leaks” that occur in social transfers and tax expenditures, since “no less than 84% of tax expenditures end up benefiting the non-poor”.
It reveals that unskilled workers in the public sector receive salaries 23% higher than similar workers in the private sector.