Law that increased tax collection now faces debate in the Assembly to repeal it

The National Assembly is preparing this Tuesday, November 29, 2022, to debate in the second debate the draft Organic Law Repealing the Decree-Organic Law for Economic Development and Fiscal Sustainability after the COVID-19 Pandemic. The Economic Development Law that entered into force by the Ministry of Law in November 2021 was key to ordering public finances, especially since it increased tax collection for individuals and contributions to companies and individuals with high net worth.

However, a few days after its entry into force, some assembly members, on the one hand Viviana Veloz Ramírez (UNES) and on the other Bertha Sánchez Gallegos, Ángel Maita Zapata and Salvador Quishpe Lozano (Pachakutik), presented repeal proposals. The commission for Economic, Productive and Microenterprise Development unified the projects and this Tuesday it will be known in the second debate. The law was debated in the first instance on August 9, 2022.

In general, the arguments of the assembly members to request the repeal have to do with:

• A supposed tax burden on the middle class.
• The protection of non-renewable resources such as oil.
• Incorporate microentrepreneurs and entrepreneurs into the formal economy.
• Maintain the progressivity of taxes: whoever has the most is the one who must pay the most.
• Stimulate the economy.

Qualified two projects that seek to repeal the tax law that created new taxes

Jaime Carrera, from the Fiscal Policy Observatory, comments that if the Assembly proceeds to repeal the law, it would be falling into a behavior of “economic terrorism that would destroy the treasury and the economy.” He believes that the impact on the country’s finances will not only be due to an economic issue, since it would mean a reduction in 2023 of at least $600 million (both personal tax and company contributions). In addition, there would be an effect due to the issue of ungovernability and tax instability, since the prospects of sustaining the increase in country risk would collapse.

For José Gabriel Castillo, former Vice Minister of Economy, it is important to remember that there has already been a pronouncement by the Constitutional Court on the law and some observations have been made on the inheritance tax, the Simplified Regime for Entrepreneurs and Popular Businesses (Rimpe) and the issue of the regularization of assets abroad. But additionally, the Court has already recognized that there is no reason to argue that the reforms are not progressive.

Spending less on telephony, clothing and education, and paying a thirteenth monthly salary is intended to cover the increase in income tax

He also comments that the Economic Development Law was an important advance in terms of progressive payment of income tax, since Ecuador was the country that paid the least tax. With the law, Ecuador has remained within the region’s average.

He maintains that the deduction system was also too generous and, above all, it was regressive because those who benefited the most were those who earned the most. Now it has become more moderate.

He also explains that it is not true that the issue affects the middle class. “It has been shown over and over again that this affected those who earn more than $2,000, that is, less than 5%.

And he reminds the assembly members that it is not logical on the one hand to insist on increasing spending for education, health, public works, among others and on the other to take away sources of income from the treasury. “It is to say the least irresponsible.” (YO)