The measure announced within the Economic Program will apply to policies over $ 150. $ 23 million will be generated annually between 2019 and 2021.
By the last days of April, the Government is expected to send the Urgent Bill with the program to the National Assembly. In tax matters there are elements to clarify, especially in relation to insurance and reinsurance.
The authorities assure that there is no tax increase, but that the tax collection will grow due to greater efficiency.
However, analysts believe that the program has a “hidden” increase, since removing tax benefits implies a new tax burden for a population group.
Leonardo Orlando, general director of the Internal Revenue Service (SRI), said that the impact will be felt by taxpayers with higher incomes.
Article 56 of the Internal Tax Regime Law establishes 23 items with a zero rate of value added tax (VAT). Among them are insurances and reinsurance of individual health and life, in groups, medical assistance and personal accidents, as well as those required by personal traffic accidents.
The proposal is to tax those services with a 12% tariff to generate revenue for the fiscal fund for $ 11 million in 2018 and $ 23 million annually between 2019 and 2021.
According to Orlando, the people who will pay 12% “have the capacity economic to contribute more “. For the analysis, a universe of 811,000 clients was considered.
The measure will have an effect on life and health insurance. Discount insurance tied to mortgage, unsecured or productive credit is ruled out.
The increase will be in policies over $ 150, clarified in recent days the Minister of Economy and Finance, Maria Elsa Viteri, who argued that high-level customers will be affected.
But that assertion was rejected by Roberto Aspiazu, executive director of the Ecuadorian Business Committee (CCE) and spokesman for the prepaid medicine companies, who argued that the most expensive insurance is, for the most part, of older adults due to their vulnerability, not because of its ability to pay.
“A person over 50 is unlikely to get good insurance for less than $ 150.” And he stressed that the damage will also be for insured people suffering from recurrent or pre-established diseases, as well as corporate plans in companies.
Bernhard Griesbach, Equinoccial Insurance Marketing Manager, said that although the measure will not directly affect the company it represents, it will have an impact on the country’s preventive culture.
“The insurers will have to increase the costs to cover the tax. The measure generates more costs to the consumer and lowers the appetite to make sure “.
In Ecuador, the beneficiaries of health insurance and prepaid medicine contracts are approximately 1 million, according to the Ecuadorian Federation of Insurance Companies
As of December 31, 2017, Grupo Vida premiums total $ 340 million, 12% of VAT represents $ 40 million. The Individual Life equals $ 29 million with an estimated tax of $ 3 million.
For three consecutive years, from 2014 to 2016, the insurance market experienced negative growth reaching -5.54%. In 2017, it recovered and grew 1%, mainly driven by the two premiums that are currently being imposed on VAT.
Patricio Salas, executive secretary of Fedeseg, added that insurers, by law, are part of the National Health System, which has the characteristic of taxing 0% VAT on all its components, medicines, supplies, medical fees, etc.
“Why is that discrimination that affects the functioning of the system? The insurances and the services of prepaid medicine allow the financing of the attention of health of at least one million Ecuadorians “, questioned Salas.
He also explained that increasing access to reinsurance tends to promote more retention of risk, which could affect the degree of solvency of the market. “It is opposed to the prudence with which one must act to respond to the interests of the users. It is a bad message for economic actors. ”
The proposal contradicts rules approved in recent years, which seek to increase the hiring of private insurance to decongest the public health system, added Napoleón Santamaría, a tax lawyer.
The Tax Incentives Law (2017) grants employers an additional deduction of 100% for the expenses of private medical insurance and / or prepaid medicine contracted in favor of their workers.
By having double deduction decreases the tax base of income tax. “If now the VAT goes up, many companies will not be able to transfer the tax; that will demotivate its hiring and will not decongest the public system “, analyzed Santamaría, and indicated that the economic plan shows technical flaws.
Life and savings insurance
The Fedeseg states that life insurance seeks to generate some investment for the future of members’ relatives, especially now that the state pension system is in question. These insurance are promoted because they generate savings.
31 insurance companies serve around 4 million clients in the country.
Reinsurance is a mechanism that allows greater solvency to the insurance sector for the benefit of its users and the country. This is a legal obligation in Ecuador.(I)