By Pedro Ardón
El Inmobiliario
SANTO DOMINGO – The proposed Tax Modernization Bill has brought forth proposals that directly impact Dominican markets across various sectors. The real estate sector, for example, faces changes to the Property Tax (IPI), where the minimum exemption will now be equivalent to a low-cost home (RD$5,025,380.75). Economist Francisco Taveras assesses the potential consequences of this measure.
"The fact that a large part of Dominicans must pay taxes when the exemption for homes in the country is US$175,557.9, a figure that according to regional parameters is high, must be taken into consideration when compared with the levels of labor income, which are low," Taveras says.
As a result, he explains, the possibilities of acquiring a home above that price point will be affected, taking into account the annual tax costs involved. Regarding the production of new buildings, business will tend to slow down due to decreased demand.
Francisco Taveras. (External source).
“Homebuyers will conduct a cost-benefit analysis between renting and owning. Clearly, renting will now be more economically advantageous because rental housing services will remain exempt,” he says.
Although it would undoubtedly affect real estate development in the short and medium term, its long-term sustainability will depend on the economic policies established by the government regarding infrastructure projects, the specialist explains.
“If the purchasing power of the population is improved from the point of view of labor income, this can compensate for short-term losses, which can return the dynamism that the sector would potentially miss out on,” he argues.
Progressive elements
Similarly, he understands that the population should focus on the long-term effects of government initiatives for national development, since the reform has progressive elements that will give equity to different taxpayers, according to their earning power, citing tourism, film, the manufacturing industry, the textile industry and border development.
"Eliminate unfair exemptions such as the importation of vehicles for legislators and fuel for economic sectors that do not generate energy for the national electricity system.".
A hard blow to the working class
Taveras describes the blow that the low and middle-income working class will receive as hard, but comments that the proposed tax modifications are not perfect, nor should they be, because they imply additional costs for social and economic sectors that would have to make an additional effort to pay taxes, wanting to obtain an appropriate balance.
Selective elimination or gradual dismantling, which depends on the progress of development, is the methodology considered prudent when dealing with incentives, taking into account that, in the same way that there are well-developed tourist enclaves, the Dominican Republic still faces challenges in the Northwest and Southwest regions.
“Public investment can be an ally to private investment, and incentives shouldn't be limited to taxation alone. Further incentives can be provided through improved public services, the development of good infrastructure, and raising the level of education in tourist areas.”.
In conclusion, he encouraged the sectors to be patient, because the general well-being of the population through equity, justice, and security is clearly what is being sought with these changes.
