The tax reform project, which arrived on Friday, October 18, 2019 at the National Assembly, aims to promote the country’s economic growth.
If approved, the Executive plans to raise more than $ 700 million next year with the implementation of some taxes and special contributions.
Richard Martínez, Minister of Economy and Finance, clarified that while fiscal sustainability is vital for economic growth, so is the support for entrepreneurship and private investment that is being offered with this reform.
Thus, the document proposes a series of incentives. One of them is the elimination of the income tax advance (AIR) for entrepreneurs.
The reform proposes that the payment of income tax (IR) may be voluntarily anticipated and will be the equivalent of 50% of the IR caused less withholding tax at the source made in the previous fiscal year.
This anticipated value will constitute tax credit for the IR payment. Juan Carlos Díaz-Granados Martínez, executive director of the Chamber of Commerce of Guayaquil, said that in 2018 the AIR represented $ 353 million for business, which could have served as working capital.
Support this proposal of the Executive, as it would give a relief to the liquidity of the companies, especially the smaller ones. “Every year, AIR drained working capital that would have served to hire more personnel, buy capital goods, raw materials and inventory.
That is, it prevented the implementation of productive growth strategies, ”explains Díaz.
The reform project also proposes the elimination of the mandatory withholding tax at source for about 100,000 companies that, according to Martínez, are essentially micro, small and medium to reduce the operational and administrative burden.
Josué Remache, tax advisor, explains how the withholding process works at the source. Every person obliged to keep accounts is a state withholding agent.
When making a purchase, it cancels by check or cash and issues the withholding. The percentage of retention depends on the concept, for example: for goods it is 1%. If this person makes a purchase of $ 400, he will retain $ 4, which he then delivers to the State on his tax return.
“The elimination of the obligation to small entrepreneurs who keep accounting will avoid the process of declaration and procedures, which allows them to concentrate, work and produce,” says Remache.
Díaz also believes that this measure will be beneficial because small and medium-sized entrepreneurs will no longer have to spend time making retentions.
In addition, the liquidity of small taxpayers who are currently being withheld will increase.
Federico Morán, executive president of the Fundación Emprendedores del Ecuador, believes that the less burden the entrepreneur has, the more beneficial it is for its development.
For Morán, the elimination of these obligations ends the cumbersome procedures and in turn generates savings for the entrepreneur, since he will no longer need the services of an accountant for these procedures.
“Saving is not just money but time and resources,” says Morán. He adds that supporting entrepreneurs is essential, since for each venture there is one to three jobs and that boosts the country’s economy.