File No. 639.003/48

The Military Governor of Santo Domingo ( Knapp) to the Secretary of the Navy ( Daniels) for the Secretary of State

No. 1580–18 K–F1
1.
About the time of my leaving the Dominican Republic for Washington in the early part of July, considerable discussion had taken place concerning the advisability of gathering together in one law, which should be called the law of internal revenue, the different laws bearing on that subject. The matter was not ready for my action when I left, but Executive Order No. 197, establishing such a law, was issued in my absence by the Acting Military Governor on the 19th of August 1918.
2.
During the examination of this matter I found, to my great surprise, that in the two laws called the ley sobre estampillos and the ley sobre la renta de alcoholes there were taxes laid on importations other than the taxes laid in the customs law of November 23, 1909, ley sobre aranceles ole importación y exportatión, which last was issued with the consent of the United States as is required by Article [Page 390] 3 of the convention between the United States and the Dominican Republic concluded February 8, 1907.
3.
The laying of import taxes in any laws other than the customs law seemed to me so much open to suspicion, that I at once looked up the matter and found that it had been the subject of correspondence between the two governments; the ultimate issue having been that the United States consented to the taxes laid in these laws but adhered to the principle that no such tax could be laid in the future without reference to and approval by the United States Government, under the terms of the convention.
4.
The correspondence referred to above also discussed the subject of municipal surtaxes that had been laid on imports, and with the same result; that, while the United States consented to such taxes as were then in existence, it still reserved the right to have submitted to it for approval any such proposed scheme of taxation. Many requests have come from municipalities to raise the revenue by surtaxes on imports and I have consistently declined to approve such proposals.
5.
In preparing Executive Order No. 197, the terms of the law of stamps and the law of alcohol, in so far as they related to imports, were left out of the new law. I consider it contrary to every correct principle of taxation that an import tax should appear in an internal revenue law; and I now contemplate, if the Government of the United States approves, removing entirely from the internal revenues all taxes laid upon imports. In some instances I deem it wise to abolish the taxes altogether. In other instances, where the tax is not abolished, I purpose putting it as an amendment to the customs law, where, in my opinion, it properly belongs.
6.
The change proposed will increase the customs revenues, which are those that come within the purview of the American-Dominican convention. On the other hand the change will decrease the revenues available for current use unless special provision is made to the contrary. The Dominican Government is in need of all its current revenue for the necessary expenses of administration, including the remedial measures that have been inaugurated by the Military Government, and that revenue should not be curtailed. The estimate of available revenue for 1919 is less than that which will have been available for 1918, and it is therefore very important that no source of revenue available for current use by the Dominican Government shall be decreased. For this reason I very earnestly request approval of the condition placed in the proposed Executive order (paragraph 4) amending the customs law to the effect that the total amount raised by the transfer from the law of stamps and the law of alcohol to the customs law shall remain available to the Dominican Government for its ordinary expenditures. On the basis of $4,000,000 customs revenue per annum, there will be available for current revenue, after all deductions now required are made, $1,600,000 per annum, so that the increase to the customs that the proposed change will bring about is not necessary to meet any stated obligations; it is, however, very necessary for current expenditures. Four millions is regarded as the minimum revenue ever to be anticipated in future with the present customs laws; with greater customs revenue there will be even less need for the proposed surtax as insurance to provide for stated obligations.
7.
In the proposed amendment to the customs law, the items of importation placed therein, on which revenue is now collected under the internal revenue law, are of two general classes: first, articles which are manufactured in the Dominican Republic and which may reasonably be considered to be worthy to a certain measure of protection; second, articles that may generally be included in the class of luxuries, including alcohol and alcoholic drinks. The rates in the amendment to the customs law proposed are, generally speaking, lower than those now existing, but they are consolidated and made into one rate of a kind that can be readily collected, thus doing away with the intricacies and defects in administration that inhere in the present law. Appended, marked “C”, is an analysis of the change in the law upon the total tax as now collected.
8.
I append suggested drafts of executive orders marked “A” and “B” to cover the changes proposed in this letter, with the earnest recommendation that they receive the approval of the Government of the United States. I do this, not only because I believe that I have no authority to issue the one of these orders marked “B” without such approval under the terms of the convention, but also because I desire to establish a very solid precedent that no modification in any direction, whether by way of increasing or decreasing rates of taxation upon imports into the Dominican Republic, is permissible without the previous consent of the United States Government, so long as the American-Dominican convention of 1907 shall remain in existence.
9.
I request as prompt action upon this letter as may be possible, in order that the change may be made effective on January 1 next. Commander Hagner, Pay Corps, United States Navy, of my staff, who is now in Washington, is familiar with this matter, and will be instructed to make in person any explanations that may be desired in addition to those herein contained, if this correspondence finds him still there.
H. S. Knapp
[Enclosure 1]

Draft of Proposed Executive Order

A

By virtue of the powers vested in the Military Government by Santo Domingo, such parts of the ley sobre la renta de alcoholes, promulgated June 16, 1909, and of the ley sobre estampillas, promulgated July 2, 1910, and of amendments made to either of the aforesaid laws, as shall be in effect on December 31, 1918, are repealed to take effect January 1, 1919, when both laws and amendments thereto shall stand repealed in their entirety: Provided, that the alcohol tax, or the stamp tax, or both, to which any article is liable under the parts of the aforesaid laws or their amendments in effect on December 31, 1918, shall, if any such article be brought into the Dominican Republic by a vessel making legal entry at any customhouse, or if such article be duly declared at any customhouse, before 5 o’clock, p.m., on December 31, 1918, be levied, assessed, and collected in accordance with the parts of the aforesaid laws or amendments effective at the time of entry or declaration.

[Enclosure 2]

Draft of Proposed Executive Order

B

By virtue of the powers vested in the Military Government of Santo Domingo, and with the consent of the Government of the United States of America as required by Article 3 of the American-Dominican convention of February 8, [Page 392] 1907, the ley solve aranceles de importatión y exportatión, promulgated November 23, 1909, is hereby amended, in part, as follows:

1. Paragraph 4 of Section 8 shall read: Lottery tickets or parts thereof, or any substitutes therefor, and printed matter relating to lottery drawings other than that contained as advertising matter in newspapers or periodicals not especially published in connection with lotteries; roulette wheels, gambling layouts, dealing boxes and all other machines, apparatus, or mechanical devices used in gambling or used in the distribution of money, cigars, or articles, when such distribution is dependent upon lot or chance.

2. In lieu of and superseding the internal revenue taxes heretofore separately assessed and collected under the ley solve estampillas and the ley sobre la renta de alcoholes upon certain articles imported into the Dominican Republic, there shall be assessed and collected an additional import duty in the form of a percentage surtax as herein provided upon the rates specified for all articles dutiable under the following enumerated paragraphs of the aforesaid ley de aranceles de importación y exportatión, which paragraphs are accordingly amended:

Paragraph 51 Surtax 30%
364 40%
365 30%
368 50%
369 30%
371 to 376 inclusive 30%
378 to 381 inclusive 30%
402 40%
406 30%
683 50%
1027 100%
1028 to 1043 inclusive 40%
1112 100%
Note: The surtax shall not apply on paragraph 1112a.

3. The surtaxes at the rates above specified shall be calculated taking as a basis the total customs import duty assessed in each case inclusive of all other surtaxes, compound duties, or provisional ad valorem rates of duty to which the articles are subject under the ley sobre aranceles de importación y exportación.

4. The additional duties accruing from the application of the above-mentioned surtaxes shall be assessed and collected at the respective customhouses at the time and in the same manner as the regular import duties, but they shall be accounted for separately and the total amount thereof shall be delivered by the General Receiver of Dominican Customs to the Contacluría General de Hacienda for the Dominican Government accompanied by detailed statements of the accounts.

5. This order shall take effect on January 1, 1919, and all laws, resolutions, or decrees, or any parts of such laws, resolutions, or decrees, contrary to the terms of this order are hereby revoked effective on the same date, January 1, 1919: Provided, however, that the duty and taxes on any article brought into the Dominican Republic by a vessel which arrives and makes legal entry at any customhouse of the Dominican Republic, or which article has been duly declared at any customhouse, before 5 o’clock, p.m., December 31, 1918, shall be assessed and collected at the rates provided by the laws in effect on the aforesaid date, December 31, 1918.