DOMINICAN TAX REFORM DRAWS NEAR

UNCLAS SANTO DOMINGO 003978

SIPDIS

PRIORITY

DEPT FOR WHA/CAR (SEARBY),WHA/EPSC, EB/IFD/OMA,
EB/TPP/BTA/EWH (MATTHEWMAN); DPET PASS TO USTR RVARGO,
AMALITO; TREASURY FOR WAFER

E.O. 12958: N/A
TAGS: DR EFIN ETRD PGOV
SUBJECT: DOMINICAN TAX REFORM DRAWS NEAR


1. (U) The Dominican Technical Secretary,s office announced
yesterday that government and industry has reached
preliminary agreement on a fiscal reform package, tied to
ratification of DR-CAFTA. If accurate, this clears the way
for Congress to consider and approve both pieces of
legislation as early as the week of August 16. Active CAFTA
Intermediary Monsignor Agripino Nunez Collado telephoned
Charge yesterday afternoon to inform the Embassy in advance
of the Technical Secretary,s public announcement, carried on
today,s front pages of most major dailies.


2. (U) After months of discussion and intense negotiations
in recent weeks, the government and private sector paved the
way to fiscal reform by agreeing to various taxes that will
help compensate for the RD$ 31.1 billion in government
revenues expected to disappear when CAFTA is implemented.


3. (U) Included in the plan is a broadening of the product
base currently subject to value added tax (ITEBIS),by some
200 products. Generally not included in the amplified list
are items from the basic goods basket such as medicine,
education and a variety of food items. However, the reform
does call for including some basic food items such as sugar,
coffee and cooking oil, a decision that is already eliciting
a negative response from the public


4. (U) The reform as planned would recoup some RD$27.2
billion, leaving the government RD$4 billion or US$140
million short. Of the 27 billion in new revenues, major
sources include 11.5 billion calculated to come from the
broadened ITEBIS base, 6 billion from new taxes on petroleum,
3.6 billion from a new 15 percent car licensing tax, 2.4
billion from alcohol and cigarettes, and 2 billion from
increased income tax revenues for those individuals or
corporations earning more than RD$900,000 (US$31,000)
annually. The highest income tax rate is now 25 percent,
which would be raised to 28 percent under the new plan.


5. (U) Even RD$ 4 billion short as it is, to take effect
Congress must still approve the planned tax reform. While
the press is referring to this as an agreement on fiscal
reform, what was announced yesterday was only a plan for tax
reform. There is still no announced plan from the government
on reductions in spending. Presumably, it will be these
reductions that will make up the RD$4 billion difference.
MEIGS