EYE: Tax reform to be discussed next month

Although knowledge of the presidential decree for the convocation of the private, state and social sectors is still pending, in order to start discussions on the guidelines of a comprehensive tax reform that balances the sources of income and facilitates its collection, the preliminary date is estimated to be next September.

The Dominican Republic is one of the countries with the lowest tax pressure in the Latin American region and whose evasion levels remain at more than 40% in the case of the Tax on the Transfer of Industrialized Goods and Services (ITBIS); and 60% in the Income Tax (ISR), in spite of nine tax reforms applied since the 90’s and from 1911, when the Tax Code was applied, to date.

The Economic and Social Council (CES) has not yet received the decree from the Executive Power for the convocation of the dialogue on the tax project which will be one of the greatest challenges for the current administration in view of the fact that it will be necessary to include sectors which today enjoy exemptions and incentives, but also services which are exempted for the general population.

According to the proposals and studies of different organizations and tax experts, the idea is to expand the tax base, which means that more products and services will be taxed, many of them at lower rates and with the difference that this time the guidelines that originated the Tax Code will be retaken to make the system simpler.

CREES Proposal
According to the proposal of the Regional Center for Sustainable Economic Strategies (CREES), the simplification of the system should contemplate lowering the indemnity interest rate from 1.10% to 1% per annum on a fixed basis, regardless of the arrears to be paid by taxpayers.

They propose to unify the monthly payments in a single affidavit by means of a form for all monthly withholdings, to be sent no later than the 20th of each month, according to the explanations of the expert Francisco Canahuate Disla, during his presentation.

Likewise, to modify Title II of the Income Tax (ISR), in order to lower the tax rate and broaden the base. In this way, individuals who are taxed on the basis of three scales of 15%, 20% and 25% would be taxed, in the case of the first scale, gradually from 15% to 13%, 12% and up to 10% in 2024.

The 20% scale would drop to 18%, 16% and 14% in the following years until 2024. The scale of 25% income will go to 23%, 20% and 16% also in 2024 for this last bracket. Legal entities (companies) that are taxed on the basis of 27% income would gradually start to be taxed at a rate of 23%, 20% and 16% on an annual basis in 2024.

Study
According to a recent study by Marvin Cardoza, tax risk manager of the DGII, State revenues depend mostly on consumption taxes (ITBIS, ISC, ISR and wealth tax), while in Latin America they come from mining resources.

The country’s dependence on tax revenues is 96% and on non-tax revenues is 4%. Of 14 countries in the LAC region, the DR is the least dependent on non-tax sources, as explained in its study “Sistema tributario en RD, análisis de sus características y complejidades” (Tax system in the DR, analysis of its characteristics and complexities).

Suggestions
To resume the adjustment for inflation as of 2025, is part of the CREES proposal. In addition, maintain the Simplified Tax Regime (RST) and begin a reduction in the payment of ISR advances.

Removal of exemptions
It is proposed to simplify the system on the revenue side and, on the expenditure side, to rationalize and eliminate duplicated exemptions and reduce rates.

Low pressure
In Marvin Cardoza’s study, he explains how the counter-reform laws (creation of incentives) have contributed to the low tax pressure, a situation that has made the system costly for the administration and for taxpayers.

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