Economic Implications of Measures to Bring the Dominican Republic into Compliance with the World Trade Organization (WTO) Rules Concerning the Operation of Free Zones

Glenn Jenkins ()

No 2005-04, Development Discussion Papers from JDI Executive Programs

Abstract: Over the past two decades the Dominican Republic has used free trade zones (FTZs) to develop a very successful institutional environment for the production of manufacturing exports, primarily for the US market. Through the use of the Free Trade Zones the private sector has developed islands of relatively efficient public administration and modern business practices that are surrounded by a county where the quality of public sector governance has been quite low. The advanced development of the FTZs has created a dual industrial sector in the Dominican Republic. One that is modern, efficient, and outward-looking. The other is operating in the domestic environment of poor governance, inadequate infrastructure (electricity) and limited market horizons. In summary the businesses operating in the FTZs of the Dominican Republic have enjoyed a complete tax exemption from the payment of corporate income taxes, municipal taxes, import duties (both on capital and intermediate inputs), taxes on exports or re-exports, the ITBIS, and all other minor taxes. In addition, the import and export procedures for the businesses operating in the FTZs were greatly simplified and much less costly to comply with than the procedures that domestic firms had to contend with when importing or exporting. We proposed some institutional changes to the normal VAT administration. This may help VAT systems to increase its effectiveness although we should note that they should not be assumed as complete solutions. We should keep in mind that although the auditing requirements are greatly reduced, the auditing function of the tax administration needs to be built and maintained.

Keywords: Free trade zone; tax exemption; VAT; WTO; Dominican Republic (search for similar items in EconPapers)
JEL-codes: F13 H25 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2005-04
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Persistent link: https://EconPapers.repec.org/RePEc:qed:dpaper:266

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