It is estimated that the total number of potential taxpayers to enter the monotax regime is 167,700, for an estimated annual collection of RD$ 3,513 million.
SANTO DOMINGO.- A new tax tool aimed at simplifying the tax obligations of individuals is currently under review in the Dominican Republic, and is projected to be sent to the National Congress in the coming months by the Executive Branch.
The simplified tax system, as the new tax regime would be called, which already operates successfully in some Latin American countries, would reduce and simplify the tax obligations of individuals initially, up to a certain annual billing limit.
In an interview ABANCE magazine , of the Association of Multiple Banks of the Dominican Republic (ABA), with Yorlin Vásquez, legal sub-director of the General Directorate of Internal Taxes (DGII) , details of this tax figure are offered.
The publication, authored by journalist Nicanor Leyba, highlights that the new system "will contribute to the transparency and control of the tax system, as well as mitigate informality and tax inequity.".
Vásquez, with extensive experience in tax matters and various studies in Economic Law and Tax Law, elaborated on how the interaction between the tax authorities and the monotributista will be.
We reproduce for the readers of El Inmobiliario the interview conducted by ABANCE:
What does the monotributo system technically consist of?
It consists of an integrated system , primarily for individuals, that is simplified and replaces income tax (ISR) and the tax on the transfer of industrialized goods and services (ITBIS). It includes the provision of basic prepaid health insurance and primary access to banking services. Currently, the feasibility of extending its scope to micro-enterprises is under study.
This proposal is contained in a bill that aims to be submitted to the National Congress at the beginning of the second ordinary legislative session of 2025.
Which organization should be paid and through what mechanism?
simplified tax regime will be administered by the General Directorate of Internal Taxes (DGII) , which will be responsible for directing the regime's policies and regulations, as well as its relationship and agreements with relevant institutions. All payments related to the simplified tax regime will be deposited exclusively into the Internal Revenue Service's collection system.
Who would qualify for the simplified tax regime?
Individuals engaged in the provision of services, production and trade of goods, including street vending and independent trades, whose gross ordinary plus extraordinary annual income does not exceed the amount of RD$1,900,000.00 would qualify for the application of this law .
It is important to note that the simplified tax system, being a mechanism that seeks to mitigate informality, would only apply to new taxpayers , whether they voluntarily join the system or are automatically incorporated by the DGII (General Directorate of Internal Revenue).
What has the preparatory process for this initiative been like, and what bases and studies does it rely on?
It is a process that involves months of analysis, comparative legislation studies, fiscal impact analysis, working groups, as well as outreach to the state and private entities that would be involved, in order to ensure that it is a measure duly agreed upon with all stakeholders.
Therefore, it is based on the countries in the region that have implemented it, such as Argentina, Colombia and Uruguay, to name a few, as well as on various studies of economic impact, configuration of monthly fees and possible reach with the provisions of the monotributo.
What role has the financial sector played and will it play in the application?
The financial sector would play a leading role , because the self-employed taxpayer will be able to access banking through simple instruments provided by financial intermediation entities, which would be subsidized by the system itself.
Looking ahead, the goal is for this initial access to banking to foster the growth of the simplified tax regime taxpayer's economic activities and, consequently, access to more financial products as they build their credit history. In other words, the simplified tax regime will ultimately contribute to financial inclusion.
Another benefit for the financial sector is that, despite the fact that the simplified tax regime includes a sector with little or no capacity to obtain a credit product other than savings, the bill establishes the Simplified Tax Regime Guarantee Fund, where the State, in case of default, will guarantee the banks 50% of the loans, in order to broaden the reach of this regime.
How would the payment of the monotributo proceed?
Taxpayers under the simplified tax regime will be presented with an annual declaration automatically through their Virtual Office (OFV) , no later than the last working day of February of each year, without prejudice to physical presentation through the DGII service offices.
This declaration will consider the gross accumulated income, the electricity consumed and the rents accrued in the immediately preceding 12 months, as well as the area affected by the activity at that time and any other criteria that may be established, establishing compliance with the concurrence of the number of criteria that lead to determining the category.
Once the category is determined, the declaration will show the amount to be paid, which will be settled in 12 equal, monthly and consecutive installments, payable no later than the 20th of each month and cannot be subject to payment agreements.
What is the experience of other countries with this type of simplified tax system?
In Argentina , the monotributo is a system for small taxpayers, which combines the payment of VAT and Income Tax with pension contributions and social security.
Argentina is one of the pioneering countries in the region that, since 1998, has implemented the monotributo (simplified tax regime), a measure that has provided relief and savings of resources for the Tax Administration of this country, because, since these taxpayers are not within the general tax regime, no greater operational efforts are required; therefore, the auditing capacity of the Tax Administration has improved.
In Colombia , the simplified tax regime (Monotributo) is a voluntary, alternative tax to income tax, designed for small business owners. Among its benefits, a portion of the Monotributo fee is allocated to retirement savings and access to insurance covering death, funeral expenses, serious illness, dismemberment, and disability. Additionally, in some cases, a portion of the Monotributo fee is allocated to occupational risk insurance.
By how much are revenues estimated to increase?
This type of regime does not necessarily imply an increase in tax revenue for the State, as it has other objectives as we have indicated: it contributes to the transparency and control of the tax system, in addition to mitigating informality and fiscal inequity.
According to a study conducted by the DGII in July 2024, using the National Survey of Micro, Small and Medium Enterprises (Enmipymes) 2022-2023 , prepared by the Central Bank (BCRD) and the Ministry of Industry, Commerce and MSMEs (MICM), it is estimated that the total number of potential taxpayers to enter the monotax regime is 167,700, for an estimated annual collection of RD$ 3,513 million.
It is worth noting that the aforementioned survey showed that 35.7% of the major administrative obstacles faced by SMEs would be resolved with this bill (20.8%: payment of taxes to the DGII, 9.4%: procedures for joining, disjoining and payments to the TSS, and 5.5%: opening a bank account).
Similarly, it was observed that almost nine out of ten entrepreneurs (85.2%) are operating informally, so the creation of the single tax could encourage the formalization of these businesses.
What would be the impact on the economy?
Implementing a simplified tax system would encourage formalization , making individuals taxpayers and increasing the transparency of their business operations, thus allowing them to expand their productive activities. Furthermore, it would promote financial inclusion for this segment of the population, granting them access to banking products they currently cannot obtain.
Advantages to the taxpayer and the State
On the one hand, taxpayers would be exempt from submitting the informational data submission forms established by the DGII (General Directorate of Internal Taxes) for the ordinary tax regime . Furthermore, taxpayers under the simplified will not be subject to withholdings for Income Tax (ISR) and Value Added Tax (ITBIS) , except for withholdings related to the employment tax regime.
The self-employed individual would also not be required to pay income tax , income tax prepayments, or the ITBIS (Value Added Tax). Therefore, they would only pay a monthly fee, depending on their assigned tax category, which comprises four components: a national substitute tax, a contribution to the basic insurance plan, a bank account setup fee, and a contribution to social subsidies.
From the State's perspective, this type of regime facilitates the reduction of informality associated with independent workers; therefore, it helps to combat evasion and lighten the compliance cost that the Tax Administration has to face, associated with the control involved in the inspection, auditing and determination of the informal sector.
In addition, it is a mechanism that allows the State to reduce the violation of the constitutional principles of equity and tax equality, since informal independent workers generate income that shows signs of a certain contributory capacity and are placed in an advantageous position compared to salaried workers, who pay taxes at source on the income received, and formal independent workers, who pay taxes under the ordinary regime or the Simplified Tax Regime (RST).
Likewise, the monotributo system has an essential solidarity character of social inclusion, whose main objective, as we have indicated, is to promote the formalization of an important segment of individuals belonging to the informal sector, without this necessarily implying for the State the increase of tax revenue for this concept, although it does bring transparency and control to the tax system, becoming an extensive mechanism for increasing the perception of risk.
Consequently, through the simplified tax system, the Tax Administration will be able to continue the fight against tax fraud, specifically the phenomenon of "fiscal dwarfism", which occurs when taxpayers of higher economic level fraudulently pass themselves off as small.
Source: ABANCE Magazine.
Photo: External source.
