Urgent law of the Executive receives criticism and requests for changes to avoid contraction and impact on the middle class

The urgent project of Economic Development and Fiscal Sustainability, on the first day of appearances at the legislative Development table, was showered with criticism and observations from economic and tax experts with whom the analysis and debate that will contribute to the construction began. of the report for first debate in the next nine days.

The criticisms focused on the table of tax contributions of natural persons, the patrimonial tax and the elimination of deductions for personal expenses, as they warn of the risk of contracting the economy, informalizing trade and discouraging investment in the country.

Legislative Commission approves schedule for processing of urgent Law on Economic Development and Fiscal Sustainability

After the first round of appearances, Assemblywoman Wilma Andrade (ID), president in charge of the legislative commission, indicated that the observations made by the tax experts will be analyzed and some incorporated for the debate of the project.

What is striking, added the legislator, is the tax referred to natural persons who earn more than $ 2,000 per month, without generating deductions as existed before, which would undermine the formality of the tax issue.

It is possible to find a balance, said the national representative, because if the tax base is broadened, the percentages in what the patrimonial contributions mean could be lowered. In some exhibitions there are reasons and grounds, she said, since she agrees on the need to review the elimination of deductibles, because if it does not end up affecting the middle class, the economy will contract and consumption will fall.

Andrade considered that the government’s ambitious proposal to obtain $ 1.8 billion, with the approval of the Economic Development project, will have to land more realistically, should avoid economic contraction and be less dramatic for some people.

The commission will continue this weekend in permanent sessions with appearances from the business sector and from Monday the economic representatives and the government’s financial sector will attend.

Juan Francisco Jaramillo, a tax expert, began his presentation by pointing out that the project has redeemable things that should be supported, such as the inclusion of the transaction as a form of extinction of tax obligations, which will allow resolving conflicts between the taxpayer and the active subject as collector.

But regarding the tax burden on natural persons, which according to the proposal would mean about $ 800 million, Jaramillo pointed out that this part of wrong definitions because it is said that it will only affect 3.4% of Ecuadorians, but that this group of People belong to the middle class that is the one that moves the country’s economy, who have incomes between $ 2,500 and $ 5,000 per month, but at the same time have a certain type of comfort and can educate their children in a private school or take out insurance private, and that is consumption and reactivation of the formal economy of the country.

These people, he added, should not be punished with more taxes and if they want to maintain the tax table proposed in the project, the deduction system should be applied for that sector of people, because when they have expenses, invoices are requested and that formalizes the trade, and that generates indirect taxes, he pointed out.

Roberto Silva, a tax expert, also argued that the income tax for natural persons as proposed in the project aims to return to what was set in 2007, where there were no deductions for personal expenses such as housing, health, education and clothing. . And that would be a setback.

He also suggested that the commission review the compensation table for natural persons, as it affirms that it must be a technically revised table. That the middle class should not be taxed so much, that at the moment they do not have savings.

For the former president of the Quito Chamber, Patricio Alarcón, the objective of the government reform is purely tax collection, it goes against the economic reactivation and the formalization of the economy, and said that the General State Budget does not see an effort shared with the State that increases around $ 2 billion for next year.

Regarding the wealth tax, Alarcón assured that it is harmful to savings and discourages investment in Ecuador, because in 2022 companies will have to pay three taxes: wealth tax, income tax and the tax that was created in the Tax Simplicity Law, which implies less liquidity. He said that it is irresponsible to include companies that did not generate profits among those that have to pay wealth tax.

Regarding the personal income tax, according to Alarcón, it is a dangerous and inconsistent reform with the intention of having an efficient and progressive tax system, since it encourages informality and becomes confiscatory, reaching a 37% tax in various ranges, since the right to deductions is eliminated. This reform must not happen, he insisted.

The president of the Pichincha College of Accountants, Cristina Trujillo, warned legislators that the elimination of deductions for personal expenses will affect the tax culture of Ecuadorians who demand invoices on a daily basis because they serve to deduct the payment of income tax; therefore, if a higher table is being generated for income tax, personal expenses must be maintained as currently provided by law.

What the economic analyst Francisco Swett observes, in the urgent Law, is that there is only one mention of economic growth in the explanatory memorandum, when it is economic growth that enables the creation of the million jobs that was the promise campaign of the current government. That only with economic growth is the fiscal problem solved, since he argued that taxes do not create added value, they simply transfer resources from taxpayers to the State.

Javier Robalino Orellana, tax expert, asked the legislative commission to meditate on the economic effect of the increase in income tax on the middle class and also on the elimination of deductions for personal expenses, since a middle class person with An average salary is going to leave less than $ 500 deduction for general items, and also if you are a salaried worker you will not be able to deduct neither mobilization nor other expenses, leaving that person without any type of tax benefit, he stressed.

He also recommended reviewing the progressivity of the tax table of Article 43 of the Executive’s project, where the middle segment of the table alters the principle of progressivity generating a tax “much higher in the middle class,” he insisted.

Additionally, Robalino affirmed that the draft Law under discussion establishes several norms that threaten legal security, the certainty and stability of the investments made in Ecuador and of the investments in progress, since there are projects under development and tenders awarded in the country. that were presented on the basis of economic conditions that were part of the financial equilibrium formula applicable to the contracts.

But that with the elimination of incentives without a clear transitory nature in the Law, it will only scare away investments, explained Robalino; therefore, he said, it is important that the commission work on a transitional provision that recognizes ongoing investments. (I)