World Bank suggests to the Dominican Republic to prioritize tax reform and eliminate exemptions

Santo Domingo.- The World Bank’s recent report on the sustainability of the Dominican economy emphasizes the need for tax reform and efficiency in public spending to generate significant fiscal savings for the State. The report points out low business productivity as a constraint to the country’s economic potential and highlights obstacles such as a lack of adequate human capital, climate change-related disasters, and distortions in key markets, including inefficient allocation of tax breaks.

The report suggests that eliminating tax exemptions and expanding the tax base should be a priority for the government to ensure sustainable economic growth in the long term. Tax breaks have been contributing to low productivity growth, particularly in sectors associated with low-sophistication manufactured products. Companies benefiting from special tax regimes in special economic zones have been found to have approximately 30% lower productivity than similar companies outside of those zones.

The lack of innovation and creativity in the creation of specialized products is also addressed in the report, with 96% of innovation in the country focused on imitation, limiting its effects on productivity.

To maintain long-term growth, the World Bank recommends a new round of economic reforms, including improving the quality of human capital, fostering competitive markets, modernizing the innovation strategy, reducing inefficiencies in public spending, and strengthening resilience to extreme events like climate change.

Despite these challenges, the Dominican economy has experienced robust growth, averaging 5.8% per year between 2005 and 2019, well above the regional average of 2.6% for Latin America and the Caribbean. However, the growth model has relied more on factor accumulation than on productivity, with capital formation being the main contributor to GDP growth during this period.