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Tax exemptions: even for games of chance and for buying cars

SANTO DOMINGO. In 2015 the tax exemptions which the state grants to diverse sectors of the economy consumed 6.7% of the Gross Domestic Product (GDP).

This sacrifice of tax income which the state decides not to collect for the purpose of protecting or promoting those sectors has been growing with the passage of time. In 2013, it represented 5.9% of GDP, while its equivalent during 2014 was 6.6% of all the resources that the Dominican economy is estimated to produce in a year.

These tax exemptions are known as “tax expenses,” which is the amount of income that the Directorates of Internal Taxes and Customs do not receive, by granting preferential treatment which sets aside the conditions which for the rest of society and the economic agents are established in the tax legislation.

It is supposed that their objective is to benefit determined areas or taxpayers, with the purpose of promoting the development of sectors, or the protection of low income social strata.

Nevertheless, this is just a supposition, since the Dominican state does not comply with what is recommended for this type of tax exemptions. This should require “a permanent evaluation of the performance of these incentives which (show) that they are giving results. This is what is lacking in our country,” recognizes Circe Almanzar, the executive vice president of the Industrial Association of the Dominican Republic (AIRD).

A flood of exemptions

In 2015, the total amount of these tax exemptions came to around RD$201.8 billion, equal to 38.1% of the total expenditures of the central government. In the breakdown of the tax expense by sectors benefited, it can be seen that even games of chance, which were freed from paying taxes for RD$71.8 million, and vehicle importers, who were benefited with tax exemptions for a value of RD $4.4 billion.

The tax expenditure in the Dominican Republic has reached such a high volume, in spite of “the fact that the economic growth which the country has experienced in the last years of around 9.0% in nominal terms, has not been accompanied by a similar increase in the government’s income,” as explained in the Public Budget of 2015.

This means that tax income always goes at a rate that is inferior to that of the economy (or what is the same that the elasticity of Income/GDP is below 1).

Accompanying this with the yearly increase observed in the tax expense, the tax burden has almost remained stalled. This indicator which reflects the proportion of the resources which by collection of taxes go into the government coffeers, is estimated at 14% of GDP for the years 2013 and 2014. It is expected that it will go up to 14.1% in 2015.

If this tendency continues “we can glimpse a pressure on the fiscal accounts for the government above all because of the increase of expenses tied to specific laws bound to the economic cycle and activity,” reveals the document.

Until now, the government has balanced its accounts with extraordinary fiscal income. But “the increase reflected in the exemptions granted to different economic sectors begins to reflect a negative impact on the collection capacity of the state that should be analyzed,” says the document. As of now it is not known if this analysis has been carried out, and in the meantime the tax exemptions continue to be granted, without measuring their impact and the scope of their objectives.

And in this scenario, the fiscal sustainability of the country will depend on how extraordinary the extraordinary income is in the not-too-distant future.

IADB: Means of evaluation

With relation to the tax exemptions, “what is important is that there should be a means of permanent evaluation in order to see if they are obtaining the objectives that they want to reach,” says José Miguel Benevente, the chief of the Competitiveness and Innovation Division of the Inter-American Development Bank (IADB). In the book “How to rethink productive development”, the IADB economists advise changes of policies when these longer function, but for this they first have to measure their results.

Source: DiarioLibre

May 9, 2015

Category: DR News |

  1. Samson

    OK but who gets these benefits?

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