The government?s long awaited ?maxi-package? (paquetazo) of new taxes and tax reforms was unveiled in its entirety last night, as President Hipolito Mejia took to the airwaves for the second consecutive night. The president told TV viewers and radio listeners that he will ask Congress to approve a 50% increase of the ?Transferencia de Bienes Industrializadas Y Servicios? tax (ITBI) – a point-of-sale, or VAT tax – from its current 8% to 12%. In addition, Mejia will recommend the extension of the ITBI tax to a whole range of services to which it has not previously applied. These include legal, engineering, medical and other professional fees, insurance policies, graphic arts and print publicity, monthly retainers (or ?igualas?), commercial rentals, laundry, security guards, postal services, entertainment, and games of chance. Mejia said that businesses would be permitted to deduct the ITBI taxes they have paid from their taxable revenues. The President also called for sharply increased taxes on luxuries. Cigarettes would be taxed at 50%, rum and wine at 35%, beer at 30%, whiskey and other imported spirits at 40%. Though vehicles valued at under US$7,000 would become exempt from any taxes, vehicles from US$7,000 to US$20,000 would pay 25%, and those valued over US$20,000 would pay 50%. Home sales valued at over DR$2 million would be taxed at 1%. Mejia left income tax rates unchanged except for raising the level of salaries exempt from taxation from DR$8,150 to DR$10,000 a month. This idea falls into what Mejia described as his ?compensatory measures? intended to aid the lowest level wage earners to withstand the effect of the new taxes. In this category, too, can be grouped a new governmental initiative to build new low income housing and repair existing housing, an enlargement of the program of ?ventas populares? (or, State-subsidized sales of basic necessities), freezing of domestic electricity rates, continuation of the subsidy on propane liquid gas (for cooking), and a new grant of DR$200 million to the Agricultural Bank to provide new loans for small farmers. Items included in the ?family basket? of food staples, fruits and vegetables will not be subject to ITBI taxation. In addition, government employees earning the minimum wage, along with government pensioners, will receive a 10% increase. The complicated, and sometimes impressionistic, seven-bracket system of import duties will be reduced to a four-level system that will make use of contracted third party assessment agents. Mejia?s proposals also include the concept of collecting the tax on corporate profits on a pa-as-you-go basis. That is, the current 25% per year tax on corporate net income would be calculated monthly at a rate of 2% per, with a year-end adjustment against the 25% requirement.
