Ecuador must increase its tax revenues. That is one of the recommendations of the Organization for Economic Cooperation and Development (OECD), considered as ‘the club of the rich countries’, which Ecuador aspires to join.
The organization explained to EXPRESO which are the most important challenges that the country must face in the medium term. According to the agency, Ecuador must continue efforts to guarantee fiscal stability through the execution of a credible fiscal rule, as well as the generation of greater tax resources.
In 2017, the tax resources did not reach 20% of the Gross Domestic Product (GDP), remaining below the average of the region (22.8% of GDP) and of the OECD nations (34.2% of GDP).
“Greater resources would generate greater fiscal stability and allow financing development,” says the entity.
The OECD declarations come at a time when a tax reform planned for the end of the year is being debated, within the framework of the agreement that Ecuador signed with the International Monetary Fund (IMF).
The Government has advanced that it seeks to increase the collection of taxes through the elimination of benefits and tax exemptions. In addition, it will seek to implement a simplified system that allows paying tax obligations more quickly.
Raise or lower taxes? The Government has not affirmed or denied this possibility, but the situation already generates debate between two positions. Patricio Alarcón, president of the Ecuadorian Business Committee (CEE), assures that the ideal would be to raise the collection by facilitating the opening of businesses, eliminating the Exit Currency Tax (ISD), so that production costs decrease. “If production costs go down, they will sell more (…) and, surprise, the State collects more,” he adds.
For former Finance Minister Fausto Ortiz, an eventual increase in Value Added Tax (VAT) is an alternative that is available to meet the goals with the IMF and to reduce country risk.
Last year, the Ecuadorian government set itself the goal of being part of the OECD and is taking firm steps. The Minister of Economy and Finance, Richard Martinez, presented his request last month to enter the OECD Development Center, a first instance before reaching full membership.
According to the Ministry of Economy and Finance, the agency will decide the entrance on May 21.
As a member of the OECD Development Center, Ecuador would have access to policy advice, both from experts and from peers.
In the region, only three countries are part of the organization: Mexico, Chile and, since last year, Colombia. The Development Center is part of Argentina, Peru, among others.
According to the Ministry of Finance, the goal is to enter the OECD in 2023. It took Colombia five years to enter the international organization; while to Chile, three. (I)