Dominican Republic Faces High ITBIS Gaps as IMF Calls for Stronger Tax Enforcement

The IMF’s technical assistance report shows that the Dominican Republic loses a large share of potential ITBIS revenue, with compliance and policy gaps totaling around 9–10% of GDP from 2018–2023. It highlights major sectoral weaknesses, especially in construction, trade, hotels, and professional services and urges stronger enforcement and integration of gap analysis into tax administration.

A technical assistance report jointly produced by the IMF Fiscal Affairs Department, the Dominican Republic’s Directorate General of Internal Taxes (DGII), the Central Bank (BCRD), and the Directorate General of Customs (DGA) delivers one of the most detailed assessments yet of how much ITBIS, the Dominican Republic’s VAT on goods and services, slips through the system. Supported by the Global Public Finance Partnership, the mission applied the IMF’s RA-GAP methodology to the 2018–2023 period, combining national accounts, tax declaration data, and sectoral analysis. DGII teams participated fully, preparing data, running the VAT Gap Estimation Model, and evaluating the findings. The result is a high-resolution picture of revenue losses, enforcement weaknesses, and policy shortcomings affecting the country’s main indirect tax.

A Persistent Compliance Challenge

The report finds that despite a modest rise in net ITBIS revenue, from 4.6 to 5 percent of GDP, noncompliance remains high. The compliance gap, representing the tax legally owed but not collected, stayed between 36.5 and 41.6 percent of potential ITBIS. The pandemic year 2020 stands out, with disruptions in economic activity, reduced field enforcement, and temporary exemptions pushing the gap to its peak. By 2023, compliance improved slightly, yet the Dominican Republic’s gap remains high compared with emerging markets. Because the estimate relies on national accounts, the IMF stresses that the trend is more relevant than the precise level, and the trend points to deeply rooted structural issues.

Policy Decisions Add to the Revenue Losses

When combined with the tax system’s design features, revenue leakage becomes even more substantial. The overall ITBIS gap averaged 9.4 percent of GDP, driven strongly by the policy gap, the tax foregone due to exemptions, reduced rates, and the structure of non-taxable consumption. Exemptions for goods in their natural state, educational and health services, financial services, government activities, and some construction services produce a policy gap of 6–7 percent of GDP. More than half of this comes from non-taxable final consumption that most VAT systems exclude, but a meaningful portion results from discretionary choices. The IMF notes that this expenditure gap represents potential space for future tax reforms, especially where exemptions are inconsistent or economically distortive.

Sector Hotspots: Where the Gaps Are Largest

The RA-GAP model reveals clear sectoral risk zones. Construction and trade together account for more than 1 percent of GDP in lost ITBIS every year, showing persistent weaknesses in enforcement and reporting. Hotels and restaurants, a key pillar of the Dominican economy, exhibit the most worrying pattern: an uninterrupted rise in their compliance gap, which has more than doubled over the past six years. Professional services also present substantial shortfalls, though their trend is slightly downward. Meanwhile, certain manufacturing sectors show negative gaps, which the IMF attributes not to excess taxation but to classification mismatches between national accounts and tax declarations. These discrepancies underscore the importance of using sectoral gap results as indicators, rather than precise measurements, and aligning them with DGII’s operational intelligence.

Operational Weaknesses Limit Revenue Gains

The report highlights that administrative actions have not kept pace with the scale of the compliance problem. Audit adjustments average just 0.021 percent of GDP per year, far below the estimated 3-percent-of-GDP compliance gap. Audit yield fell sharply in 2022–2023, potentially reflecting tax amnesties or weaknesses in case selection. Voluntary compliance indicators also reveal strain. Although the ITBIS taxpayer registry more than doubled between 2018 and 2023, the number of declarations grew slowly, meaning fewer returns filed per taxpayer. A review of 2019 returns found inconsistencies in nearly 70 percent of ITBIS paid, indicating widespread underreporting. These operational findings align closely with the RA-GAP sectoral results, reinforcing the need for stronger monitoring and cross-checking.

In its concluding recommendations, the IMF urges the DGII to institutionalize annual RA-GAP estimations, integrate compliance gap indicators into its risk-rating system, improve the linkage between payments and declarations, and conduct deeper cross-sector comparisons to refine enforcement strategies. Strengthening collaboration with the Ministry of Finance is also recommended to distinguish structural revenue changes from gains driven by administrative actions. The report makes clear that the Dominican Republic now has the analytical tools to diagnose revenue leakages; the next step is translating these insights into targeted, sustained improvements in ITBIS compliance.