Law prohibits the Central Bank from providing liquidity to the Ministry of Finance
The project ends with the previous government’s practice of obtaining resources through cetes or any other financial instrument. The fiscal rules on the debt give three years of stabilization without a ceiling of indebtedness.
During the next three years, the Ecuadorian economy will be managed without a limit to the level of indebtedness, while public spending stabilizes and optimal financing levels are reached.
This stage is called “Stability” and is the first of three that make up the Fiscal Sustainability Plan, included in the draft Organic Law for Productive Development, Attraction of Investments, Employment Generation and Stability and Fiscal Equilibrium. “The expense has to be adjusted (…) That will allow us to reach a successful conclusion in the next three years. If oil prices accompany us, we will reach that goal faster, “said Richard Martínez, Minister of Finance.
The Government has considered reducing public spending by at least $ 1 billion per year.
the next phase is “Convergence”, which consists in returning to the current limit of 40% of indebtedness against the Gross Domestic Product (GDP). According to the project, the Ministry of Finance will apply a strengthening and fiscal sustainability plan aimed at reducing the ratio between the balance of total public debt and GDP in each four-year plan.
The last stage is “Sustainability” in the long term, creating a stabilization fund to cushion external shocks. Martinez explained that unlike past funds in this has been left a space to “ensure that social programs are not affected.”
At the discretion of analyst Alberto Acosta Burneo, the plan shows positive signs of how the debt will be handled. However, he recommended detailing in the law exact parameters so that in the stabilization stage there are no excesses. The underlying problem is not the volume of the debt but the country’s ability to pay and in the current circumstances there is no option but to contract more debt, but this must be managed responsibly, stressed Acosta Burneo.
Another twist of the project is that the Central Bank of Ecuador will be prohibited from receiving securities and obligations issued by the Ministry of Finance. The bank “will no longer be used to generate liquidity for Finance,” summed up Veronica Artola, general manager of the Bank. To date, the investments in the Ministry are close to $ 3.1 billion.
“That will be honored in the same terms that are given and established,” said the official. The previous government appealed several times to the Central Bank to obtain financing through the treasury certificates (cetes) issued by the Ministry of Finance, but those obligations were not accounted for to measure the level of indebtedness.
Minimum payment of the advance to the income tax is eliminated
As an incentive to existing investments and companies and such as announced by President Lenin Moreno, the bill proposes the elimination of the minimum payment of the income tax advance from 2019.
This has been a recurring request of the private sector. When Richard Martinez headed the Ecuadorian Business Committee (CCE) he said that the advance damages the liquidity of the businesses, especially the smallest, and that it constitutes a minimum tax that is not returned.
According to a CCE study, small businesses end up paying a rate even higher than 45%, when the normal rate is 22%. Another important aspect proposed in the bill is the restructuring of interest on tax debts.
Marisol Andrade, head of the Internal Revenue Service, explained that the impact of this measure for this year will mean $ 602 million; for 2019, $ 115 million; and for 2020, $ 57 million.
In total it is estimated to raise $ 774 million per referral. Andrade said that micro, small and medium-sized companies will have longer deadlines to comply with the provisions of the regulations.
Exonerations of taxes for new investments
In order to attract investments in greater volume, the bill extends the current benefits of the Production Code (Copci). New productive investments in prioritized sectors outside of Quito and Guayaquil will be entitled to exemption from income tax for 10 years, counted from the first year that income is generated.
The investments made in Quito and Guayaquil will enjoy 8 years of exoneration. Also, new investments that sign investment contracts will be exempt from the exit tax for imports of capital goods and raw materials, according to amounts and terms established in the contracts.
Nor will they pay for dividends distributed by national or foreign companies domiciled in Ecuador, after payment of income tax, in favor of beneficiaries who are natural persons domiciled or resident in the country.
The exonerations will be valid for 24 months and may be extended for the same time. Pablo Campana, Minister of Foreign Trade and Investment, said that so far this year the Government has signed investment contracts for a total of $ 879 million.
Procedures for low-income housing will be reduced
Housing projects of social interest rated by the governing body of the sector will be considered priorities in national development policies.
For this reason, the bill contemplates benefits for these constructions. They also apply to the low-income housing manufacturing industries.
The proposal aims to simplify the administrative and procedural process for construction. When municipal or metropolitan approval is required, a three-phase procedure will be applied. First, the Decentralized Autonomous Government (GAD) will issue a report on land compatibility for residential use within 10 days from the submission of the application.
Then, the governing body will have 10 more days to qualify the preliminary project as social interest housing. And to obtain the construction permit, the GAD will register the respective plans and issue the construction license for the project.
It also raises the refund of value added tax (VAT) for the construction of low-income housing and 0% rate on the services thereof. The minister of Industries, Eva García, said that these benefits will accelerate the execution of the “Casa para Todos” program. (I)