Risk-Based Approach to Compliance in Dominican Republic Yields Significant Results

A recent reform in the Dominican Republic has led to significant improvements in filing, payment, and information reporting obligations among taxpayers, according to a new study. The reform aimed to integrate invoice management into a broader risk-based compliance strategy.

Reform Highlights Importance of Risk-Based Approach to Compliance

The study found that by rationing authorized invoices based on an extra scrutiny of each taxpayer’s compliance history, the reform resulted in a modest increase in reported tax liabilities. This suggests that deterrence effects over compliance behaviors are strengthened when the tax administration makes explicit and active use of taxpayers’ information.

Key Findings:

• A risk-based approach to compliance involves making informed decisions about how to allocate resources based on the level of risk associated with each taxpayer.
• By targeting high-risk taxpayers, tax administrations can more effectively reduce non-compliance.
• The reform led to significant improvements in filing rates, payment rates, and information reporting rates.

Study Offers Insights for Other Countries

The research highlights the importance of using a risk-based approach to compliance in reducing tax arrears management. The study suggests that this approach could be effective in other countries as well, particularly in reducing tax evasion and improving tax administration.

Methodology:

• The study was conducted by a team of researchers from the International Monetary Fund (IMF).
• The findings are presented in a working paper titled “A Risk-Based Approach to Compliance: Evidence from the Dominican Republic.”
• Data was collected from 2019 to 2020.

Conclusion

The results of this study demonstrate the effectiveness of using a risk-based approach to compliance in reducing tax evasion and improving tax administration. By targeting high-risk taxpayers and making explicit use of taxpayers’ information, tax administrations can more effectively reduce non-compliance and increase revenue collection.