Dominican Republic's Fiscal Reform Proposal Faces Backlash from iGaming Industry
The Dominican Republic’s Ministry of Finance recently introduced a fiscal reform proposal that includes a significant tax increase on the gambling industry, aiming to bolster government revenues by over DOP 122 billion (USD 2.022 billion). This proposal involves raising the maximum withholding tax on gambling winnings from 25% to 27% and applying a 16% Selective Consumption Tax (ISC) on lottery and sports betting operators. Additionally, the plan would eliminate tax exemptions on the import of gambling machines and equipment.
While the government views this measure as a way to increase tax revenues, representatives from lottery banks, sports betting operators, and industry experts have expressed strong opposition, warning of severe negative consequences for the sector.
Industry Leaders Warn of Devastation to Gambling Sector
In a meeting with the House of Deputies' Finance Commission, Antonio de Jesús, President of the National Federation of Lottery Banks, and José Castillo, the federation’s advisor, criticized the proposed ISC as "inapplicable." They argued that this tax increase could lead to the collapse of thousands of lottery banks across the country. They also highlighted the sector's already significant informal operations, estimating that 50% of gambling activities are currently untaxed. This, they claim, results in annual revenue losses of DOP 4-5 billion (USD 66.3-82.9 million) for the Dominican government.
De Jesús and Castillo referenced a previous measure introduced nine years ago that indexed the operating permits of lottery banks, which they claim resulted in reduced revenue collection instead of an increase. They attributed this decline to disorganized and corrupt past administrations, which undermined the sector's regulatory framework.
Potential Rise in Informality
Jeffrey Espinal, Vice President of the Dominican Association of Sports Betting Banks, echoed these concerns, stating that the proposed tax burden is unsustainable for many operators. He warned that transferring the ISC cost to customers would be unviable and could result in an even greater increase in informality within the sector. Espinal estimated that the current level of informal gambling activity, already at 50%, could rise to 75% if the ISC is implemented, further reducing the government’s ability to collect taxes.
Espinal suggested that instead of imposing the ISC, the government should focus on enforcing existing regulations, particularly those outlined in Law 139-11, which mandates that all sports betting banks and slot machines be interconnected through a centralized system. Proper enforcement of this law, he argued, could significantly increase tax revenues without the need for additional tax hikes.
Expert Insights: Risk of Illegal Gambling and Reduced Profitability
Laritza Ferreiras Fernández, a legal expert specializing in compliance and anti-money laundering, voiced further concerns about the fiscal reform's potential to drive illegal activity. While higher taxes might offer an immediate fiscal boost, Ferreiras argued that the long-term impact could be damaging, particularly by reducing the profitability of legal gambling operators and encouraging the growth of unregulated, illegal gambling activities.
Ferreiras explained that larger operators might be able to absorb the increased costs, but smaller businesses would struggle, potentially leading to widespread closures. She also warned that illegal operators would gain a competitive edge, as they would evade taxes and regulations, further undermining the formal sector.
According to preliminary data from the Ministry of Finance’s Directorate of Casinos and Gambling, there were more than 71,000 gambling establishments operating in the Dominican Republic as of June 2022. During the first five months of 2024, gambling taxes collected by the state increased by 12.5% compared to the same period in the previous year, signaling positive growth in the sector. However, Ferreiras stressed that without adequate regulatory enforcement, increasing taxes could drive even more operators underground, diminishing overall tax collection and increasing risks related to money laundering and terrorism financing.
Call for Stronger Regulation and Fair Competition
Ferreiras urged the government to prioritize stricter fiscal controls and transparency rather than merely raising taxes. She cautioned that failing to enforce regulations uniformly across the sector would disincentivize compliance from legal operators and erode the sector's competitiveness.
“If legal operators perceive that informal or illegal businesses are being tolerated or not sufficiently targeted by enforcement, it could demotivate them from adhering to tax laws,” Ferreiras noted. She concluded by emphasizing the need for a comprehensive strategy that promotes fair competition and combats illegal gambling, ensuring that increased tax revenue does not come at the cost of the sector’s long-term health and stability.
The ongoing debate highlights the delicate balance between raising government revenue and maintaining a healthy, regulated gambling industry. Industry leaders are calling for reforms that prioritize better enforcement and regulation to avoid unintended consequences, such as the collapse of legal operations and a rise in illegal gambling activities.
