Employees in the Dominican Republic, among those with the least tax burden
Santo Domingo.- Every year, the Executive Branch includes various provisions in the Nation’s general budget bill, temporarily altering legislation to address resource allocation challenges and revenue reduction concerns. One such provision relates to the annual inflation adjustment for employee income tax (ISR) in the Dominican Republic.
Since 2017, the Dominican Government has frozen the ISR exemption at RD$34,685 per month, and it remains unchanged despite inflation. Consequently, employees find themselves paying taxes on their income without any adjustment for rising living costs. If inflation had been factored in since this legal mandate was established, the ISR exemption for employees would now be no less than RD$45,000 per month.
This lack of inflation adjustment negatively impacts workers earning over RD$34,685 per month, reducing their take-home income as they are required to pay taxes on the surplus amount.
While some voices have called for the removal of the inflation adjustment, it is not currently on the government’s official agenda. Despite no plans for tax reform this year or the next, the government intends to maintain revenue estimates based on existing tax structures.
Finance Minister Jochi Vicente acknowledges the importance of annual inflation adjustments for formal worker taxes but asserts that the state cannot currently afford to forgo this income. He also highlights that the Dominican Republic offers one of the highest ISR exemption thresholds for salary levels in Latin America, with approximately 80% of employees being exempt from income tax.
However, the high proportion of exempt workers may suggest that formal employee salaries are generally lower than RD$34,685 per month.
To illustrate this point, the Minister compared the Dominican Republic to countries like Costa Rica, where the annual exemption is US$1,436, Paraguay at US$3,200, Mexico and Brazil at US$4,600, among others. Uruguay is the only regional exception, with an exemption of US$9,500.
This discrepancy arises because when converting the RD$34,685 monthly income to US dollars, it amounts to approximately US$7,350 at the current exchange rate.
In terms of ISR for employees, the withholding table is based on annual income, even though Dominican workers are typically paid every month, often divided into two fortnights. Monthly income levels determine tax obligations for formal employees:
– Those earning less than RD$34,685 per month are exempt from income tax.
– Those earning between RD$34,685 and RD$52,027 monthly pay 15% ISR on the difference.
– Those earning between RD$52,027 and RD$72,269.25 have their employers withhold 20%, in addition to the 15% deducted from the first bracket.
– Those with monthly incomes exceeding RD$72,269.25 pay 25% on the amount exceeding that threshold, along with deductions from the previous tax brackets.