Dominican Republic Could Unlock 3% of GDP as IMF Flags Persistent ITBIS Compliance Gap

The IMF estimates that the Dominican Republic’s ITBIS compliance gap remained at 36.5–41.6% of potential revenue during 2018–2023, representing nearly 3% of GDP in potential revenue mobilization through stronger compliance. It recommends annual gap assessments, better tax-data integration, targeted oversight of high-gap sectors and stronger risk management, while highlighting the need to carefully review exemptions and tax design.

The International Monetary Fund's Fiscal Affairs Department (FAD), through its Revenue Administration Gap Analysis Program (RA-GAP), has identified a major revenue challenge for the Dominican Republic, finding that weaknesses in compliance with the Tax on Transfers of Industrialized Commodities and Services (ITBIS) could represent resources equivalent to around 3 percent of GDP. Prepared by IMF experts Patricio Barra and Miguel Pecho following technical assistance conducted between December 2024 and March 2025, the assessment examines ITBIS performance from 2018 to 2023. Its findings carry important lessons for governments, development partners and businesses seeking stronger public finances without relying only on higher tax rates.

A Revenue Gap Worth Nearly 3 Percent of GDP

Using the IMF's VAT Gap Estimation Model, the study found that the ITBIS compliance gap remained between 36.5 percent and 41.6 percent of potential revenues during 2018–2023. The gap reached its highest point in 2020 at 41.6 percent, equivalent to 3.2 percent of GDP, as COVID-19 disrupted economic activity and tax compliance.

By 2023, the compliance gap had declined to 36.5 percent, equivalent to 2.9 percent of GDP. While this was the lowest level during the period studied, it still points to substantial potential for additional domestic revenue mobilization through better compliance.

The international comparison provides another warning. The Dominican Republic performed better than the lower range observed among low-income developing countries, but its compliance gap was above the highest interquartile levels reported for emerging market economies.

Construction, trade, hotels and restaurants, and professional services recorded the largest compliance gaps. These sectors could therefore become important targets for stronger risk assessment, monitoring and tax administration.

For policymakers, the figures suggest that improving tax collection could create additional fiscal space for public priorities without depending entirely on new taxes or higher rates. Better compliance could strengthen the government's ability to finance development, although the report does not specify how any additional revenue should be spent.

Tax Exemptions Add to the Fiscal Challenge

Noncompliance is only part of the problem. The IMF found that the ITBIS policy gap, revenue forgone because of exemptions and the structure of the tax, fluctuated between 6 percent and 7 percent of GDP.

The policy gap reached 7 percent in 2020 before falling to 6 percent in 2021 and 2022. The 2020 increase was partly associated with the growing relative importance of exempt government and healthcare activities and temporary pandemic-related exemptions covering products such as masks and medical supplies.

More fundamentally, the IMF describes the ITBIS policy gap as relatively high compared with results from previous RA-GAP exercises involving advanced economies, emerging markets and low-income developing countries. A major reason is the design of ITBIS itself, as most value added from commodities classified as non-industrialized products is exempt.

When policy and compliance gaps are combined, the overall ITBIS gap averaged around 9.4 percent of GDP between 2018 and 2023. It reached 10.2 percent in 2020 before declining to 9.1 percent in 2023.

However, policymakers should not interpret the entire 9.1 percent as immediately recoverable revenue. A large share results from tax-policy choices and exemptions rather than noncompliance. Addressing this component would require decisions about the tax base and exemptions, while the roughly 3 percent of GDP associated with compliance represents a more direct opportunity for improved tax administration.

Businesses Face Greater Scrutiny but a Fairer Market

For private-sector stakeholders, the findings point to a shift toward more targeted, data-driven tax administration. Companies operating in construction, trade, hospitality, restaurants and professional services could face greater scrutiny because these sectors recorded some of the largest estimated compliance gaps.

Businesses with transparent accounting, accurate declarations and strong tax-governance systems may benefit if improved enforcement creates a more level playing field by reducing the competitive advantage of noncompliant operators. Companies with weak documentation or inconsistencies between declarations, payments and refunds, however, could face greater compliance risks.

The IMF specifically recommends linking every ITBIS payment and refund entry to its corresponding taxpayer declaration. It also calls on the Dominican Republic's Internal Revenue Directorate (DGII) to compare sector-level gap estimates with evidence from audits and oversight activities.

For development partners, these recommendations identify practical areas for technical assistance, including better tax data, revenue-gap analysis, risk-based administration and stronger institutional coordination. Such support could help transform gap analysis from an occasional study into a regular tool for managing tax compliance.

From Measuring Tax Gaps to Managing Revenue Risks

The IMF recommends estimating the ITBIS gap every year and using the capacity already developed under RA-GAP to calculate the 2024 gap. If the Dominican Central Bank produces comparable national-accounts data for years before 2018 using 2018 as the base year, authorities should also extend the existing series backwards.

Institutional cooperation will be equally important. The report proposes a joint working group involving the DGII and the Ministry of Finance's Vice-Ministry of Tax Policy to improve estimates of how tax-administration actions contribute to ITBIS revenue.

The IMF also recommends integrating compliance-gap estimates into the DGII's overall risk-rating system. This could help authorities move from simply measuring lost revenue to identifying where compliance risks are concentrated and directing administrative resources accordingly.

The central message for governments and development partners is clear: tax-gap analysis can become a practical tool for domestic resource mobilization when combined with better data, targeted enforcement and institutional coordination. For the Dominican Republic, the fall in the compliance gap from 41.6 percent in 2020 to 36.5 percent in 2023 shows progress, but the remaining gap demonstrates the scale of unfinished work. The challenge now is to turn better measurement into stronger administration while balancing revenue objectives with investment, competitiveness and longer-term economic development.