Tax Breaks in D.R. Fail to Boost Agro Sector
By El Dinero
Several economic sectors in the Dominican Republic benefit from the tax exemptions granted by the government with the intent of encouraging their growth so they contribute to job creation in the country, among other things.
One of these sectors—which has benefited from three types of tax exemptions since 2008—is the agriculture and livestock sector. These exemptions are an advance on income tax, tax on assets and withholding of income tax on payments made by the government.
Exemptions were granted with the intent of contributing to the sector’s recovery after storms Noel and Olga in 2007, whose estimated damages exceed RD $14.5 billion.
The measure was justified by the scarcity of agricultural and livestock consumables and the occurrence of market events that affected the production or marketing of some products.
General Regulation 02-2009 had a new justification to continue with the three agricultural and livestock exemptions: the 2008 international economic crisis, “which affected the sector in the Dominican Republic in a considerable manner.”
However, since 2010, the regulations’ main consideration for preserving the exemptions has been “the interest of maintaining their contribution with the improvement of the conditions in the agricultural and livestock sector, so the fulfillment of their tax obligations does not alter their economic decisions.”
However, the fiscal sacrifice assumed by the government since 2008 to improve the development of the agricultural and livestock sector has failed to produce results. In terms of job generation within the sector, it has remained unstable.
The same can be said of its contribution to the gross domestic product’s (GDP) growth, which went from 6.1% in 2008 to 5.6% last year, according to Central Bank figures.
Tax sacrifices made by the government are classified as tax expenses, defined as the amount of income the government coffers fails to receive when granting a preferential tax treatment that departs from what is stated in the tax legislation with the intent of benefiting certain sectors or taxpayers.
“The tax expense is made effective through exemptions, deductions, credits or deferred payments,” stated a section of the 2017 General State Budget.
Although since 2008 the government’s budgets contained exemption estimates from sectors such as tourism, duty-free zones and electricity generation, the agricultural and livestock sector’s exemption amount is not included.
“When organizing tax expenditures by benefiting a sector, generalized exemptions for natural persons, duty-free zone companies, electricity generation and the healthcare sector account for 67% of the total sector’s tax expenditures,” this year’s budget pointed out.
These sectors are followed by exemptions for education (4.9%), tourism (3%), mining (2.8%), concessions and contracts with the public sector (2.6%), vehicle importers (2.1%), private nonprofit institutions (1.6%), internet purchases (1.5%) and the industrial sector (0.9%).
The remaining 10% of tax expenditures are awarded to the renewable energy, film, textile and footwear manufacturing border development and gambling sectors, as well as religious institutions, among others.