Dominican Republic Congress Backs Tax Hikes to Cut Deficit

The Dominican Republic’s Congress approved a series of tax changes today in an attempt to trim a fiscal deficit forecast to reach 8 percent of gross domestic product by year end.

The tax overhaul, which has been opposed by several economic sectors and was protested by thousands of demonstrators nationwide this morning, was approved by 106 of the 184 legislators present in a first-round vote, according to Santo Domingo-based newspaper Diario Libre. A second vote on the bill is expected to be held in congress Nov. 8.

If approved, the tax overhaul will increase the national sales tax to 18 percent from 16 percent and raise levies on several national products, including tobacco and alcoholic beverages. Paired with government spending cuts that accompany the package, President Danilo Medina said he hopes the tax changes will reduce the fiscal deficit by as much as 4 percent of GDP in 2013.

Medina, who assumed the presidency on Aug. 16, referred to the tax measures as a “bitter pill to swallow,” but a necessary sacrifice to “redirect the economic growth and sustainable development of the country.”

“If we don’t change the tax structure, the country’s fiscal situation will become unsustainable and generate a crisis and loss of confidence in the national economy,” Economy Minister Temistocles Montas said in a statement published on the ministry website.

Thousands of protesters marched nationwide this morning to protest the tax increases. At least two people were injured during the demonstrations, though the marches were mostly peaceful and controlled, according to according to Santo Domingo-based CDN Noticias.

To contact the reporter on this story: Adam Williams in San Jose, Costa Rica at awilliams111@bloomberg.net

To contact the editor responsible for this story: Bill Faries at wfaries@bloomberg.net

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