Identifier
Created
Classification
Origin
04SANTODOMINGO5604
2004-10-12 11:17:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Santo Domingo
Cable title:  

DOMINICAN INTERNAL REVENUE DIRECTOR GENERAL TO

Tags:  ECPS EFIN DR 
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This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS SECTION 01 OF 02 SANTO DOMINGO 005604 

SIPDIS

SENSITIVE

STATE FOR EB, CIP/HST(WATTS),WHA/CAR, WHA/EPSC, EB/OMA;
NSC FOR SHANNON AND MADISON;LABOR FOR ILAB; USCINCSO ALSO
FOR POLAD;TREASURY FOR OASIA-LUTHER CARTER
USDOC FOR 4322/ITA/MAC/WH/CARIBBEAN BASIN DIVISION
USDOC FOR 3134/ITA/USFCS/RD/WH; DHS FOR CIS-CARLOS ITURREGUI

E.O. 12958: N/A
TAGS: ECPS EFIN DR
SUBJECT: DOMINICAN INTERNAL REVENUE DIRECTOR GENERAL TO
REVIEW NEW TELECOM TAX

REF: SANTO DOMINGO 5153

UNCLAS SECTION 01 OF 02 SANTO DOMINGO 005604

SIPDIS

SENSITIVE

STATE FOR EB, CIP/HST(WATTS),WHA/CAR, WHA/EPSC, EB/OMA;
NSC FOR SHANNON AND MADISON;LABOR FOR ILAB; USCINCSO ALSO
FOR POLAD;TREASURY FOR OASIA-LUTHER CARTER
USDOC FOR 4322/ITA/MAC/WH/CARIBBEAN BASIN DIVISION
USDOC FOR 3134/ITA/USFCS/RD/WH; DHS FOR CIS-CARLOS ITURREGUI

E.O. 12958: N/A
TAGS: ECPS EFIN DR
SUBJECT: DOMINICAN INTERNAL REVENUE DIRECTOR GENERAL TO
REVIEW NEW TELECOM TAX

REF: SANTO DOMINGO 5153


1. (U) Summary: During a visit by Ambassador Hertell to
Director General of Internal Revenue Juan Hernandez,
Hernandez indicated that the Dominican Republic continues to
experience difficulties with tax collections and stated his
intention to clamp down on tax cheats. He responded to the
Ambassador's inquiry about the new excise tax on
telecommunications with a promise to review the first 3
months to evaluate the effects on telecom turnover. If the
demand for telecommunication services turns out to be highly
elastic, as argued by the telecoms, Hernandez said that his
office will consider proposing modification of the tax. End
summary.

--------------
Collection Problems
--------------


2. (SBU) On September 30 the Ambassador, DCM and embassy
staff discussed challenges facing the new Director General of
Internal Revenue. Hernandez, who had served in the same
position under President Fernandez,s first administration,
said that despite the economic crisis he relished the
opportunity to address today's problems. He noted that
during his earlier tenure, his office had doubled tax
collections largely using technology upgrades to catch those
intent on cheating the system. He acknowledged the need to
renew collection efforts and shared his philosophy that by
catching those who abuse the system his agency will build
confidence and goodwill among honest taxpayers.


3. (SBU) The Ambassador asked about the greatest needs of
the Dominican Internal Revenue Office. Hernandez said that
collections and audit procedures are his greatest challenges.
He also indicated that the Dominican Republic is interested
in participating in a tax information exchange agreement with
the United States. The Director General's office is
preparing a letter for Treasury Under Secretary Taylor
providing specific details about the assistance requested and
confirming the government's interest in an information
exchange agreement.


4. (SBU) Regarding widespread tax evasion, Hernandez
indicated that one of the sectors experiencing the most
significant problems is the rapidly growing tourism sector.
Many operators sell tour packages abroad for one price and
then declare a lower price to the Dominican authorities for
tax purposes. Hernandez hopes that assistance in the form of
training and an information exchange agreement will help
ensure that tax collection on tourism revenues is based on
actual revenue realized. He said that he also plans to give
special attention to non-taxable interest earned on deposits
with the Central Bank. This year, tax-free yields on money
invested with the Central Bank ranged upwards of 50 percent.

-------------- --------------
Willing to Review New Telecom Taxes in the New Year
-------------- --------------


5. (U) The Ambassador raised the subject of the new 10
percent excise tax on telecommunications, asking whether the
government had given serious consideration to the argument by
the telecommunication companies that the rate chosen would
have a negative effect on collections due to high elasticity
of demand for telecom services. Hernandez agreed that the
sector was being particularly hard hit by new taxes, not only
by the new excise tax but also by the increase in value added
tax from 12 percent to 16 percent. This is effectively a 100
percent tax increase for telecommunication companies
operating in the country (reftel). He noted that the
industry was chosen for the new tax precisely because of its
strong growth and revenues, at a time when the Dominican
Republic desperately needs cash to help resolve its economic
crisis. He indicated that his office plans to review the
collections from the telecom sector at year end, after three
months under the new tax regime. If the demand for
telecommunication services turns out to be highly elastic, as
argued by the telecoms, Hernandez said, his office will
consider proposing modification of the tax.


6. (U) Speaking specifically about Verizon, the largest
investor in the Dominican telecommunications sector, Director
General Hernandez told the Ambassador that he was surprised
to learn that for tax purposes in the Dominican Republic the
company declares itself as 90 Canadian and 10 percent U.S.
Because the Dominican Republic has a tax equalization treaty
with Canada but not with the United States, the revenue
Verizon collects as a Canadian firm is taxed at 18 percent
versus the 25 percent tax collected on the portion it
realizes as a U.S. company. Hernandez said that his office
was reviewing what implications, if any, this would have.
HERTELL