Support, but also questions, have received the first announcements from the president-elect Guillermo Lasso, on tax matters. Analysts, experts and the productive sector find valuable topics, but all agree that the announcements are only one part of a comprehensive reform, which must also consider how to compensate for the reduction in revenue due to the proposed rebates.
This week, Lasso made an outline of what his tax reform would be, which he said he would present the night of his first day in office. In an interview with CNN, he outlined four specific points: the elimination of the 2% income tax on micro-businesses; the reduction of the value added tax (VAT) during four holidays in the year, to support the tourism sector. It also proposes the gradual reduction of the foreign currency outflow tax (ISD), and greater control to combat evasion.
Lasso clarified that his goal is not to create or increase the current tax rate. However, he said that he knows the private sector and in this sense he said “there is no worse wedge than the same suit.”
He explained that it is neither acceptable nor logical for businessmen to report losses for several years and thus not pay taxes.
For Carrera, the elimination of the 2% IR for micro-businesses is correct, since it is a tax that is levied on sales, when it is appropriate to tax the profit. Phasing out ISD is positive, he says, and would represent about $ 250 million less a year.
However, he says that to compensate them, tax exemptions and exemptions should be eliminated. He recalled that there is an important space to work on evasion, since it represents $ 4,000 million in VAT and income. “Without raising taxes, the tax base can also be expanded,” he said. Thus, these announcements leave the possibility of an increase in VAT somewhat remote.
For his part, the president of the Ecuadorian Business Committee (CEE), Felipe Ribadeneira, agreed with the points raised by the president-elect, but assured that the productive sector is working on a tax reform proposal, simplification, so that be considered by the new government team. The proposal would be delivered in a week and a half, approximately. In any case, he said he agreed with the elimination or reform of the 2% income tax for micro-businesses. He explained that this should have been voluntary and not mandatory.
Regarding the lowering of VAT, in four holidays, he considered that it would be important to look at the reform text, but he assured that everything that is to reactivate tourism and restaurants, hotels, hit by the pandemic is positive. However, he believes that it will not be enough.
Regarding the elimination of the ISD, he considered that the gradual reduction does not require going through the Assembly, since the Economic Transformation Law already contains the possibility of reforming it via executive decree. It considers that the ISD has been a perverse tax that directly affects productivity, since imported raw materials and capital goods are taxed.
Ribadeneira said he fully shared a position against tax evasion. “A good businessman, with all the letters of the word, must make a correct payment of taxes,” he said.
The tax lawyer Santamaría Napoleon considered that the ads have been rushed and that the president – elect would be going against the world trend that seeks rather to create wealth taxes . Regarding the ISD, it considers that importers already have this payment incorporated into their costs, so that such cancellation would not benefit the consumer. However, he suggested that a differentiated reduction of the ISD be made, depending on the products. He also argued that the elimination of the tax, by itself, does not attract investment. He even said that currently dividends from foreign investors are not taxed on ISD.
For Santamaría in the Ecuadorian tax system there are 43 tax exemptions, but the investment does not arrive. “It is not true that a strong tax burden scares the investor away, and that a weak one attracts it.” What generates more investment is political stability and good profitability. He also opined that VAT refunds to Decentralized Autonomous Governments or carriers should be reviewed, which in his opinion do not obey a correct tax policy.
Regarding VAT, he considers that the proposal to lower it on four holidays can help, but said that in a more macro way, there should be a differentiated VAT, in which it is lowered to products that can support productivity and a higher one for products of luxury. As for evasion, he proposes that it can be better controlled, and one option would be to create a single tax authority and not have it divided between SRI and Customs.
IMF program raises tax reform
Ecuador signed a financial agreement with the International Monetary Fund that proposed the delivery of $ 6,500 million in 27 months. The first $ 4 billion was already received in 2020. By 2021, an additional $ 1.5 billion would be expected. However, it depends on whether the Government wants to continue with the current agreement, which among other issues, proposed that a tax reform be carried out in 2021. The idea was that by 2022 it could come into effect and some $ 2 billion could be raised. additional, in order to lower the fiscal deficit. One of the suggestions was to increase the VAT from 12% to 15% and withdraw certain exemptions and tax refunds.
Tax collection fell in 2020
Ecuador’s tax collection in 2020 was $ 12,382 million, a low figure compared to 2019, which was $ 14,268 million. The problem was basically generated by the economic crisis derived from the utility.
An amount of $ 5,506 million dollars reached the VAT collection in 2020. A low result, compared to 2019, which was $ 6,685 million. Meanwhile, the ISD was placed at $ 964 million in 2020. The 2% IR for microenterprises reached $ 8.04 million in the first quarter of 2021.