Dominican Republic Tax System Review
Despite decades of impressive economic growth, tax revenues in the Dominican Republic (DR) remain well below the regional average. The DR’s tax base is extremely narrow, with extensive exemptions, deductions, zero-ratings, and allowances across all...
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| Format: | Policy Note |
| Language: | English |
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World Bank, Washington, DC
2021
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| Online Access: | http://documents.worldbank.org/curated/en/579421623998524780/Dominican-Republic-Tax-System-Review http://hdl.handle.net/10986/35858 |
| Summary: | Despite decades of impressive economic
growth, tax revenues in the Dominican Republic (DR) remain
well below the regional average. The DR’s tax base is
extremely narrow, with extensive exemptions, deductions,
zero-ratings, and allowances across all major tax
categories. Tax expenditures amounted to an estimated 4.8
percent of gross domestic product (GDP) in 2020, of which
value-added tax (VAT) exemptions alone accounted for 2.5
percentage points. High levels of tax noncompliance and low
tax morale further diminish revenue collection. An
excessively complex and overly generous array of tax
incentives weakens the performance of corporate income tax
(CIT) while doing little to advance the government’s
economic development objectives. A high eligibility
threshold and various exemptions narrow the personal income
tax (PIT) tax base. Tax reforms should be phased in over
time with broad public support. In the current macroeconomic
climate, the sudden withdrawal of the debt-financed fiscal
stimulus will have deeply negative repercussions. Tax reform
is subject to a variety of political, economic, and
administrative challenges that must be addressed as part of
a broader fiscal strategy that provides predictability to
the private sector and enjoys substantial public support. In
parallel, the government must ensure that it has adequate
administrative capacity to offset the impact of measures
that may adversely affect poor and vulnerable households.
The government’s fiscal strategy should reflect the lessons
of the international experience, and it should be informed
by a thorough and detailed analysis of the economic and
distributional implications of tax reform. |
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