US embassy cable - 04SANTODOMINGO5153

UNCLAS SANTO DOMINGO 005153 
 
SIPDIS 
 
DEPT FOR EB/CIP AMB GROSS, WHA/CAR, WHA/EPSC; 
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, BEXP, EFIN, DR 
SUBJECT: DOMINICAN TAX REFORM AND TELECOMS 
 
REF: SANTO DOMINGO 0596 
 
1.  Embassy Santo Domingo thanks Department for information 
about meeting on September 7 with Verizon concerning the tax 
package currently before the Dominican congress, as well as 
the September 14 message detailing efforts to date by 
telecoms companies in Santo Domingo. 
2.  The Ambassador received Verizon president Jorge Ivan 
Ramirez at short notice on August 24 on this subject. 
Ramirez outlined concerns of all telecoms firms concerning 
the proposal to enact an excise tax of 10 percent on telecoms 
services; he described the industry counterproposal of an 
excise tax of 6 percent and a lowering of the "telecoms 
development tax" from 2 percent to 1 percent.  Ramirez 
stressed the firms' view that the demand for their services 
is elastic, and the 10 percent tax would not be likely to 
collect any more revenue than the lower tax proposed by the 
companies.  A lower tax would have fewer adverse effects on 
demand, system development, and company earnings. He left a 
one-page paper outlining these concerns. 
 
3.  The next day, during his courtesy call on newly appointed 
Finance Minister Vicente Bengoa, the Ambassador outlined 
these concerns to the Minister, particularly noting the 
projected revenue scenarios.  The Minister heard him out but 
made no comment on the administration's approach to the bill. 
 
4.  Submitting a tax proposal to COngress was a July 
requirement of the currently inactive IMF agreement.  The 
proposal was jointly elaborated by PLD and PRD last June and 
delivered to the House of Representatives on July 11.  The 
House was in continuous session until August 15 on the 
subject, conducting public hearings and gathering comments; 
the contents of the package were altered substantially during 
this process, both by the administration drafters and by the 
House. We understand that the telecoms firms argued for the 6 
percent telecoms tax alternative and were expecting that the 
House would accept their approach. 
 
5.  The House reconvened after the August 16 inauguration, 
and after further hearings the House approved its modified 
version on September 2.  The House retained the 10 percent 
tax.  The bill has been in the Senate since that date; it was 
voted out of committee on September 14, without change, and 
approved by the full Senate that day in the first of two 
required votes. The Senate is scheduled to meet next of 
September 16 to decide whether to finish consideration of the 
bill. 
 
6.  The USG is working with both the executive and the 
legislative branches in the Dominican Republic, stressing 
that the version now before the Senate should be modified and 
returned to the House for further consideration. The Charge 
and embassy officers have conveyed this view to the president 
of the Senate, to the head of the PRD party, which controls 
the Senate, and to the president of the Senate Trade 
Committee.  Further contacts are scheduled.  If the Senate 
does modify and return the current bill, the House may accept 
Senate modications, kill the bill, or originate an 
alternative version.  If on the other hand the Senate 
approves the House draft of bill, the legislation is 
submitted to the President for his consideration during a 
period of 8 days.  The President may object to all or part of 
it and return it to congress; he may aprove; or he may make 
no comment, in which case the bill becomes law. 
KUBISKE