The reminder from the General Directorate of Internal Taxes (DGII) regarding the provisions of Law number 173-07 in its articles seven and eight of a unified tax of 3% for real estate transfers, as well as a unified tax of 2% ad valorem on the registration and conservation of mortgages, respectively, has unleashed a hornet’s nest in the Dominican construction sector.
For Jorge Montalvo, executive president of the Dominican Association of Home Builders and Developers (Acoprovi), if the 5% charge were to materialize, it would be a hard blow to the construction sector.
“If the issue goes from the fact that a person previously had to pay a 3% transfer fee and it becomes 5%, you are practically doubling what are, commonly known as closing costs. So, at this moment that is totally inappropriate”, emphasized Montalvo.
He said that in Acoprovi they are waiting because they have only seen the communication that the DGII sent to the Asociación de Bancos Múltiples (ABA) and that was leaked in the media.
“We, in a survey that we have done among our associates, have not seen that this was being applied,” he emphasized.
He explained that, despite being established in the law, it would be increasing because it has not been being applied in that way.
“Facing the market it is going to be doubled, which is in the law, yes, but it has not been being applied. We are talking about doubling the closing costs because when a client asked how much he was going to pay they were told 3%,” he said.
He warns that at a time like the one generated by the pandemic and where what should be done is to encourage construction.
“Imagine telling a client that he was going to pay RD$100,000 in closing costs and now it is RD$180,000, in other words, you are talking about doubling the closing costs,” he added.
He pointed out that Acoprovi is making legal inquiries to see what the truth of the matter is because in practice it does not work that way.
“This would be a hard blow because this would be like another stone in the road. On the contrary, at this point what you have to do is to facilitate and that you say in the announcement: look, instead of 3 % it is 2 %, but not 5 %”, he argued.
He recalled that the construction sector already has the problem of the increase in materials, and it is understood that it has a component that comes from abroad, but the tax would be a measure that the State would implement on its own initiative.
The Director General of Internal Taxes (DGII), Luis Valdez, clarified that the DGII as well as other State institutions are not in charge of establishing taxes. “Taxes are established by the Legislative Branch and the Executive Branch has the initiative for this,” he said.
“No taxes have been increased,” the official pointed out.
Valdez indicated that the 3%, established in Law 173-07, is to the transfer and 2% is to the registration of the mortgage, the re-registration is not taxed.
“This is a tax that has been established since 2007. So, what we have done is to send a communication to the Association of Banks of the Dominican Republic (ABA), asking them, simply, to inform their associates that this tax is in force,” he argued.
While participating in an interview in El Nuevo Diario, Valdez assured that by sending the communication they wanted to establish a unified criterion with the ABA.