Economists present proposals for tax reform during forum organized by INTEC

At the event, the Minister of Economy listed six aspects why tax reform is necessary. The nine participants of the Forum agreed on the need to remedy the financial unsustainability of the energy sector caused by subsidies

SANTO DOMINGO. – The fiscal incapacity that prevents the State from being able to finance public goods; the state inefficiency that manifests itself with the duplication of institutions with the same functions, and that compromises public spending; the financial unsustainability of the electricity sector, which absorbs an impressive amount of resources; the insufficiency of the social security system to protect people, especially in the health aspect; the insufficiency or expiration of salary regulations, and limited social protection, are six aspects that demonstrate the need for tax reform.

This was stated by the Minister of Economy, Planning and Development, Pável Isa Contreras, when participating in the “Discussion Forum on Tax Reform”, organized by the Instituto Tecnológico de Santo Domingo (INTEC). In which he argued that a tax reform should be seen as a piece that is part of a set of reforms whose objective is to sustain and accelerate economic growth and enhance its impact on the well-being of the population.

The Forum, which consisted of three panels moderated by communicators Roberto Cavada and Miralba Ruiz, had the participation of nine experts who presented their opinions, proposals and analysis on the possible tax reform that the Government could present soon.

In the introductory words of the event, Julio Sánchez Maríñez, rector of INTEC, Julio Sánchez Maríñez, expressed that the Forum seeks to serve as a space for the discussion of ideas and contribute to the national debate by presenting the point of view of the Academy. Likewise, he explained that INTEC will send the main conclusions of the event to government authorities and business associations so that they can be used as input in the discussion of tax reform.

“Context and need for tax reform”

In the first panel, titled “Context and need for tax reform,” Richard Medina, director of the INTEC Economics program, highlighted that the interest cost of the Dominican public debt is one of the highest worldwide when compares with tax revenues. Likewise, the economic consultant and professor of Economics at INTEC, also expressed that, before negotiating a tax reform, a scheme for reducing electricity losses must be considered to reduce the subsidy of electricity distribution companies and rethink the advance payment so as not to penalize micro, small and medium-sized enterprises (MSMEs).

For his part, the economist Isidoro Santana, former Minister of Economy, Planning and Development, considered that the central objective of the fiscal reform should be to enable the State to provide citizens with the provision of more public goods and of better quality, since that facilitates economic development and social justice.

Meanwhile, José Luís De Ramón, INTEC Economics teacher, called for an evaluation of the State management system. The economist and Outstanding Graduate of INTEC assured that Dominican tax rates are high within the regional context and that it is difficult to contemplate a reform based solely on the increase in current marginal rates and ignore important changes in government management.

“Magnitude and objectives of the tax reform, and other possible reforms”

In the panel “Magnitude and objectives of the tax reform, and other possible reforms”, the economist and former rector of INTEC, Rolando Guzmán stated that the consensus is that the tax reform be carried out, which is why he pointed out that it is not worth a discussion of reform if we do not consider the importance of its magnitude. "The tax reform should aspire to a goal of increasing the tax pressure to 6% of GDP, achieved with the work of several Government efforts, to really get us closer to the aspirations that were raised in the National Development Strategy."

However, Guzmán, also a professor of Economics at INTEC, warned that, “increasing income without this being accompanied by restrictions for its efficient use would lead us to have the same fiscal problems that we want to correct today.”

The consulting firm Germania Montás expressed that the size of the reform must be defined, guaranteeing that it maintains the principles of horizontal and vertical equity. “There is a consensus that higher revenues must be raised and the deficit reduced, as well as preserving debt sustainability and guaranteeing adequate levels of public investment, but it is not clear what the Government's objective is regarding fiscal reform,” he said. .

Roberto Despradel, from the firm Despradel & Asociados –DASA, indicated that there are important challenges in the sustainability of public accounts, but emphasized the importance of continuing to promote private investment, where the tax framework plays a role. The government allocates a third of its income to interest payments if we consider sovereign debt payments (25%) and to the Central Bank (8%).

“Political economy of tax reform”

This last panel included the participation of the Minister of Economy, Planning and Development, Pável Isa Contreras, who expressed that the fiscal reform must seek to generate sufficient resources to guarantee macroeconomic stability and seek to reduce inequalities and strengthen the effectiveness of the State; Although the tax reform is not progressive, the rest of the reforms must be powerful enough to reduce inequalities.

For her part, Magdalena Lizardo, INTEC professor and director of Grupo Consultoría Pareto, expressed that since 1990, 50 laws have been approved granting tax exemptions, 40 of them linked to creating special treatment regimes that in many cases seek to promote productive development and job creation. The problem is that a tax system has been created that is practically a jar with many holes that affects the efficiency and equity of the tax structure and makes the administration of the system more complex, which facilitates evasion.

It understands that the tax reform must find a way to reconcile how productive development policy instruments can be used (such as exemptions, tax credits and other forms of privileged treatment) without them becoming a way that facilitates not only evasion but also tax evasion.

Finally, the economist Guarocuya Félix highlighted some essential elements for the success of the reform: good communication and deep reflection on the implementation aspects. Furthermore, the former Director General of Internal Revenue warned that, sometimes, negotiation can be more difficult with absolute majorities than with a congress with more balanced representation. This is because each congressman from the ruling party feels more empowered and seeks to obtain greater advantages or political rewards based on their territorial or sectoral interests.

Members of the boards of directors of the main Dominican business associations participated in the meeting, such as the National Council of Private Enterprise (CONEP), the Association of Industries of the Dominican Republic (AIRD), the Dominican Association of Free Zones (ADOZONA), the Association of Hotels and Tourism of the Dominican Republic, (ASONAHORES), congressmen, political leaders, communicators, among others.

With this first Forum on Tax Reform, INTEC begins a series of meetings that it will hold to analyze the main national issues and make consensual contributions that will be shared with the Government and the different economic and social actors for decision-making.

INTEC Economics and Business Area

It is one of the five academic areas of INTEC, recently its undergraduate and graduate programs were reaccredited internationally by the Board of Commissioners of the International Accreditation Council for Business Education (IACBE) until 2030.