Dominic Republic ITBIS Gap Analysis Report Summary
Background
The report presents an estimate of the ITBIS gap in the Dominican Republic using the RA-GAP approach, analyzing the period from 2018 to 2023.
The RA-GAP methodology employs a top-down approach to estimate potential VAT base using SNA data and identifies two main components of the tax gap: compliance gap and policy gap.
The ITBIS operates at a standard rate of 18% with two reduced rates, and has various exemptions and zero-rating provisions.
The net ITBIS revenue as a percentage of GDP increased from 4.6% in 2018 to 5.0% in 2023, with fluctuations in domestic and customs ITBIS revenue.
The c-efficiency ratio, although improving, is lower than the regional average and close comparable countries.
ITBIS Gap Estimates
The compliance gap ranged from 36.5% to 41.6% of potential ITBIS during 2018-2023, peaking in 2020 (3.2% of GDP) and lowest in 2023 (2.9% of GDP).
The overall ITBIS gap fluctuated around 9.4% of GDP, peaking at 10.2% in 2020 and reaching 9.1% in 2023.
The largest compliance gaps were found in the construction-trade, hotel and restaurant, and professional services sectors.
Previous DGII estimates using a similar SUT-based methodology show figures relatively similar to those obtained through RA-GAP.
Further Analysis of the Compliance Gap
Potential and actual ITBIS and VAT show greater variability compared to final consumption.
The largest components of potential and actual ITBIS are in the construction-trades sector, followed by professional services, hotel and restaurant, and food manufacturing.
The largest compliance gaps are in the construction-trade, hotel and restaurant, and professional services sectors, with trends of upward, downward, and stable respectively.
Previous DGII estimates using a similar SUT-based methodology show figures relatively similar to those obtained through RA-GAP.
Integrating Estimates with Operations
Analysis of the revenue impact of tax administration actions suggests that performance improvements contributed to the gain in adjusted ITBIS revenue.
Adjustments from audits indicate a contribution to closing the compliance gap, but the gap remains larger than the compliance gap.
Timely filing of ITBIS declarations has declined, indicating potential issues with the taxpayer registry.
Assured revenue reflects the impact of preventive actions, but inconsistencies remain high, particularly in sectors with large compliance gaps.
Recommendations
Continue annual estimation of ITBIS noncompliance and estimate the gap for 2024 using RA-GAP.
Extend the old DGII series for comparison and retropolate the current RA-GAP series if new SNA data becomes available.
Link each ITBIS payment and refund entry with its corresponding declaration entry.
Compare current sectoral ITBIS gap results with DGII oversight and audit experience, focusing on sectors with the largest potential for revenue mobilization.
Form a working group to improve estimates of the tax administration's contribution to ITBIS revenue.
Integrate the ITBIS compliance gap estimation process with the DGII's overall risk rating.
