The workers wages They lose value every time inflation is registered in the country, which, according to the Central Bank of the Dominican Republic, is a sustained increase in the general level of prices that leads to a decrease in the value of money and, consequently, in its value. purchasing power.
In order for the value of the salary to remain sustainable over time, the authorities must index or adjust the income of workers each year as established by the Dominican Tax Code. Against this background and to guide readers, Free Daily has prepared the following questionnaire.
What is salary indexation?
It is the adjustment that is made to the salary rates to compensate the losses of the value of money that has been had in a period determined by the inflationary issue.
The Dominican Tax Code establishes in its Article 327: “The Executive power will order for each calendar year an inflation adjustment based on the methodology established in the Regulations, based on the Consumer Price Index of the Central Bank”.
Official data indicates that from 2017 to date, the country registers a accumulated inflation of 29.48%, which means, in the labor field, that workers lose purchasing power because their salaries have lost value.
Last year, the date of the central bank of the Dominican Republic indicates that inflation was 8.81%.
How many employees are discounted the income tax (ISR)?
This is the tax gravel all income, incomeutility or benefit, obtained by individuals, companies and undivided successions, in a given fiscal period.
The latest report published by the Social Security Treasury (TSS) explains that, as of March 2022, 2,339,490 jobs were registered in the Dominican Social Security System, with a salary mass of 63,432,037,496.1 pesos and an average salary of 28,987.1 pesos per month.
Of the total of 2,339,490 jobs, 257,975 were in a salary range between 30,000 and 50,000 pesos (remembering that from 34,685 pesos is that the ISR is charged) and 267,098 jobs in the salary range of more than 50,000 pesos.
How much is an employee deducted from ISR in the month?
Next, we present an exercise carried out by the General Directorate of Internal Taxes (DG II) as part of the “Educational Program for university students and teachers”:
Let’s carry out the following exercise, taking into account the annual scale and the established rates.
Exercise: Mr. Ramón is public employee and receives a monthly net salary of 58,250.50 pesos.
- How much must your employer deduct or withhold from your monthly salary for the concept of income tax (SRI)?
Calculation
After having calculated and discounted the 5.91% corresponding to the Administrator of Pension funds (AFP) and Family Health Insurance (SFS), we converted the net monthly salary to net annual salary and identified the corresponding scale and rate.
He net salary It is the result of subtracting the gross or total salary minus the amount deducted by social security.
• We multiply the net salary monthly for the months of the year: 55,000 x 12 = 660,000 pesos (annual net salary).
• We compare the net salary annual income of 660,000 pesos with the annual income scale in the table, to establish the corresponding scale.
• He annual salary of 660,000 pesos falls on the annual income scale from 624,329.01 pesos to 867,123 pesos
• We apply progressive rates according to the annual scale of 15% and 20%, we determine the amount to be withheld monthly by performing the following calculation:
- we take the net salary and after subtracting the percentage corresponding to Social Security, we subtract the first amount corresponding to the annual income scale.
The employer of the sir ramon must withhold the sum of 3,195.88 pesos monthly, corresponding to the monthly salary of 55,000 pesos for the income tax.
Why isn’t the salary indexed since at least 2017?
According to the former CEO of Internal TaxesMagín Díaz, the government has continued with this policy that has been going on for years as a way of not losing tax revenue.
“My opinion is that it should continue to be done until a great deal is discussed. tax reformwhich will be in one or two years,” Diaz said.
According to a monthly analysis of the DGII, the ISR of the Physical persons presents a growth of 23.0%: 1,875.5 million pesos more than in January 2022.
This is explained by the ISR of the salaries, which presents a growth of 23.0% compared to January 2022, equivalent to 1,545.7 million pesos more. The foregoing is the product of an increase in the number of taxed wage earners of 1.9% and in the ISR withholding of 8.4%.
How would the government benefit from such non-indexation?
He Regional Center for Sustainable Economic Strategies (Crees) published an analysis where he points out that the State has benefited from this measure because more people enter the base and, to the extent that wages are increasing, people are being taxed more. In other words, the government increases its income.
If it is indexed, from what salary should the ISR be deducted?
In his analysis, Crees adds that people with monthly income greater than 34,685 pesos should not be taxed (with the 15% rate, in this case), but should be those that receive income greater than 44,916.36 pesos.
What do economists think about this?
The Economist Jose Luis De Ramon pointed out that the amount exempt from wages should always be adjusted for inflation and that not adjusting is a way of increasing the effective rate of income tax to formal employees, given that the country’s tax system is focused on indirect taxes.
“Formal wage earners have a tax burden very high,” he said.
Magín Díaz considers wages should continue without being indexed until the tax reform is carried out
On his side, the economist michael collado said to Free Daily that it has not been applied due to the “fiscal interest of the authorities”. In addition to the fact that it is a way of being able to increase the tax bases of the income taxwithout having to make a tax modification by way of reform.
