SANTO DOMINGO – The Dominican Republic's Association of Multiple Banks (ABA) warned that increasing taxes on savings, as stipulated in the Fiscal Modernization project, encourages informality and the use of cash, affects the flow of capital, and penalizes investment that generates wealth, quality jobs, and social equity in the country.
The banking sector summarized its considerations on the Fiscal Modernization project during the public hearings held this Thursday by the Chamber of Deputies, where it was represented by Julio Lozano, director of Economic Studies of the entity.
During his appearance before Congress, Lozano stated that savings should not be taxed, but rather encouraged. Therefore, the ideal scenario would be to eliminate Article 306 Bis of the Tax Code, and if this is not possible, the prudent course of action is to discard Article 11 of the new tax reform bill, "which severely penalizes the savings base that the Dominican Republic currently has.".
“We advocate for the growth of savings, the growth of credit, and greater digitalization of financial services, and we understand that this project does not go in that direction,” he said.
Julio Lozano. (External source).
In a press release, the ABA expanded on its considerations and indicated that the financial system is the catalyst that transforms savings into consumption and investment by households and productive sectors.
“Contrary to eliminating the savings tax, the intention is to modify the current 10% withholding scheme as a final payment and propose that it be a payment on account, integrated into the Income Tax, at the maximum marginal rate of 27% for individuals,” the union questioned.
He explained that if the project is approved in this form, it would promote informal savings outside of regulated financial institutions, or that some of those resources would be transferred out of the country, which would have consequences for the stability of the Dominican peso, macroeconomic stability, and the country's economic development.
“If we want greater banking penetration and financial inclusion, the discourse should focus on encouraging a culture of saving and facilitating taxation with digital payments,” the banking association stated.
During his address to Congress, Lozano cited the example that deposits as a percentage of GDP in Latin America are around 50%, while in Mexico they are only about 27% of GDP. This is almost half the amount found in other countries in the region. “With this tax, savings become smaller, and with fewer funds available, interest rates will continue to rise,” he explained.
The ABA stated that financial systems worldwide play a fundamental role in achieving the economic development of nations. It indicated that there is a direct relationship between Dominicans' access to financial services, as it has been proven that greater access to financial services is linked to lower poverty levels in all countries of the world.
For these reasons, the ABA reiterated its position in defense of savers, the promotion of banking and the digitization of services as engines for inclusion and national development.
Finally, the banking association reported that it will send Congress a matrix containing observations on the articles that directly or indirectly impact financial users and key figures that are being affected, such as trusts and investment fund managers in the stock market.
