As the United States tries to avoid the dreaded fiscal cliff, and some increasingly call for tax reform, the Dominican Republic finds itself in the middle of a tax controversy.
According to the Wall Street Journal’s Mary Anastasia O’Grady, steep tax increases have been approved by the House and the Senate in Santo Domingo—tax increases that will affect “savers, consumers and producers.”
President Danilo Medina, who is a 61-year-old economist, took office in August, and it has been said that one of the main challenges he faces during his term is boosting the economy of a country where about a million citizens live in extreme poverty. Although previous president Leonel Fernandez stabilized the Caribbean country’s economy, Medina found himself with a budget deficit larger than the amount previously anticipated.
“[Medina’s] Dominican Liberation Party has held the presidency for 12 of the past 16 years, with former PLD President and party boss Leonel Fernández at the helm,” O’Grady wrote in a Wall Street Journal column published on Sunday. “Mr. Fernández is a career politician who, judging from his record, believes that the more people the party bosses have working for the state, and depending on it, the more successful his party will be.”
Dominican Republic’s tax increases to take effect 2013
The new tax package was approved earlier this month. The Dominican Republic’s tax increases include a two-percent increase on value-added tax—from 16 percent to 18 percent—as well as higher duty on alcohol and cigarettes. In addition, taxes on gasoline and diesel fuel have gone up, and a new tax on CO2 emissions will be implemented to new car purchases.
The majority of new taxes will go into effect next year.
This is all expected to add $1.5 billion in revenue to the Dominican Republic economy, but O’Grady wrote that those expectations seem optimistic.
The president’s plans have angered the public, and protests have been taking place for weeks now. Critics say government spending should be cut, while Temistocles Montas, who is the Dominican Republic’s economy minister, said in a statement shortly after the tax package was passed by congress that the way to improve the quality of life without adding to the debt was to implement new taxes.
Former president Fernandez himself felt the need to address the country in order to defend his administration’s management of the economy. He has been criticized for the increase in government waste in the country, although the country’s GDP went from $22 billion in 2004 to $55.6 billion in 2011, while Fernandez was president.