Evasion is high, but the results will be seen based on specific measures and a lot of effort and will be obtained gradually, not all at once.
After the withdrawal of the tax reform project, the Government’s effort to increase its income will focus on combating tax evasion.
There is much that can be obtained from a good diagnosis of evasion, which we already have. There are several studies done both locally and by international organizations that have put figures on evasion.
For example, a study by ECLAC from a few years ago shows results that have not changed much: the Dominican Republic is the third country, among sixteen countries studied in Latin America, with the greatest income losses (tax gap) due to evasion of the ITBIS or VAT, with losses equivalent to 3.6% of GDP. The largest was Bolivia, with 3.8% of the GDP and the one with the smallest losses was 0.9% of the GDP.
Regarding personal income tax, the Dominican Republic had the largest loss of income due to evasion among ten countries evaluated, with losses equivalent to 1.7% of GDP. The smallest income losses are recorded by Chile and Peru, with 0.6% of GDP.
In relation to the tax gap caused by corporate income tax evasion, among twelve countries evaluated, the Dominican Republic registers the fifth largest gap, of 4.2% of GDP. The largest tax gap in the collection of this tax is in Panama, with 5.3% of GDP and the smallest gap is in Mexico, with 07% of GDP. That is, evasion of just two taxes imposed results in a tax gap equivalent to 9.5% of GDP.
If we look at these figures, there is a lot that can be achieved in tax revenue with the execution of a well-structured strategy to combat evasion. But the results will not fall like manna from heaven; They will be gradual and will depend on the implementation of very specific measures and extreme rigor applied.
The main one is the electronic invoice, whose effectiveness in combating evasion and facilitating voluntary compliance there are plenty of examples in the region. Although the Dominican Republic is one of the last countries to adopt it (the first was Chile in 2003), it can already show some progress in the initial phases of its mandatory implementation.
Another key measure is to simplify the payment of taxes, especially for small taxpayers, both individuals and small businesses.
The country has a Simplified Tax Regime whose results have been poor. In the withdrawn tax reform project, changes were proposed for this instrument, but the feeling of some is that these changes were not enough and that it was preferable to replace it with the monotax, which has been successful in countries in the region.
This instrument has the particularity of granting certain benefits, such as access to retirement pensions or health insurance, which contributes to increasing social protection coverage in an economy with a high level of informality.
Another important measure that must be taken is to tax digital services with the ITBIS. Given its increasing hiring. Most countries have chosen to channel the collection of the tax on digital services through a system of withholdings in the credit card settlements of their own users.
Others, such as Chile or Uruguay, have chosen to require the supplier’s tax registration in the country of consumption (even without physical presence) to make the declaration and payment of the tax effective remotely from the country where they provide their digital services.
These services do not appear on the list of exemptions in the Tax Code, therefore the provisions of the Tax Code and Regulation No. 293-11 for the Application of Title III of the aforementioned Code are applicable to them.
With the sustained application of these measures we could see a change from worried to smiling on the face of the treasury, which, however gradual, should not cease to be significant.
