Tax reduction will take effect from February 1, 2023

The Government ordered the reduction of the rates of three taxes and these reductions will begin to be applied from February 2023. These adjustments in the tax on the outflow of foreign currency (ISD), value added tax (VAT) and special consumption tax (ICE ) represent $140 million that the State will no longer receive, but that the regime indicates that it will put in people’s pockets.

The Minister of Economy, Pablo Arosemena, explained that each reduction aims to help some sector. “By lowering the ICE, in the inflationary effect, it allows neighborhood stores, commerce, productive logistics, industry, to make money rotate, sales and jobs to grow.” And he highlighted it on the security issue, as he assured that previous administrations made it practically impossible to legally buy a weapon because ICE was 300%, and now it is lowered by 30% so that security companies can strengthen their weapons.

The reduction of VAT from 12% to 8% on holidays that are already defined is aimed at “boosting tourism by giving predictability to the sector and to the family so that they can take advantage of them.” And the lowering of the ISD “benefits all citizens, it is a tax that was nailed down by 21st century socialism eleven years ago, it took $1,000 million from the productive sector each year and now we are lowering it considerably, it will drop from 4% to 2 %”.

The ISD had already been falling since 2022, since during that year a reduction of 0.25% was applied each quarter, so this tax was reduced from 5% to 4% per year. Now -in this 2023- it will drop in three parts: on February 1 the rate will drop 0.25% and for five months the ISD will be 3.75%. As of July 1, it will drop another 0.25% to remain at 3.50% and on December 31, the largest reduction of 1.50% will be given so that this tax remains at 2%.

This is stated in Decree 643 issued by the President of the Republic, Guillermo Lasso, on January 10, 2023. Two more decrees detail from when and how much the tax reduction will be.

The director of the Internal Revenue Service (SRI), Francisco Briones, indicated that in practice this tax is a tariff surcharge that affects all consumer imports of goods consumed in homes.

In the case of ICE, he detailed how the rates will drop:

• Industrial beer will reduce the rate from $13.56 to $13.08 per liter of pure alcohol.
• Craft beer from $1.55 to $1.50 per liter of pure alcohol.
• Non-alcoholic and soft drinks with sugar content greater than 25 grams per liter from $0.19 to $0.18 per 100 grams of added sugar.
• Plastic bags from $0.10 to $0.08 per unit.
• Firearms from 300% to 30%.
• Cigarettes from $0.17 to $0.16.

Decree 645 also includes the reduction of ICE rates for tobacco of heated tobacco consumables and liquids that contain nicotine to be administered through a nicotine administration system with a rate of 50%; alcohol (use other than alcoholic beverages and pharmaceuticals) and alcoholic beverages at a rate of $10 per liter of pure alcohol; and airplanes, small planes, and helicopters, except those intended for the commercial transportation of passengers, cargo, and services; jet skis, tricars, quadroons, yachts and recreational boats, with a 10% rate.

Briones explained that these changes will be implemented as of February 1, as stipulated by law, that annual taxes are changed by fiscal year and come into force on January 1 of each year, and taxes that are collected monthly enter effective the first month of the following fiscal period.

Decree 644, on the other hand, details the holidays on which the value added tax (VAT) will be reduced from 12% to 8% on all services defined as tourist activities. In total there will be eleven days during three holidays:

• In carnival: Saturday 18, Sunday 19, Monday 20 and Tuesday 21 February 2023.
• In Holy Week: Friday 7, Saturday 8 and Sunday 9 April 2023.
• In November: Thursday 2, Friday 3, Saturday 4 and Sunday 5 corresponding to the holiday for the Day of the Dead and the Independence of Cuenca. (YO)