US embassy cable - 05SANTODOMINGO3978

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