Fiscal certainty and tax stability leaves the Constitutional Court with its ruling on the repeal of the law

The opinion of the Constitutional Court that qualifies as unconstitutional what was done by the Assembly -which had repealed the Economic Development Law last December- leaves a message of tax stability and fiscal and legal certainties. This was the opinion of analysts after the judgment of the Court issued on January 25 and known on February 1.

This Economic Development Law was approved on November 29, 2021 and included a tax reform that modified certain taxes, which produced an increase in the amount to be paid for income tax to those who earned more than $2,000 per month and incorporated temporary contributions for companies and individuals with high net worth. That is now ratified and without the risk of being eliminated in the future by the assembly members.

In accordance with Jaime Carrera, executive secretary of the Fiscal Policy Observatory (OPF), The Court gives a message of tax stability by having ruled that the National Assembly cannot constitutionally have initiative on taxes.

This means, on the one hand, that the budget calculations for 2024 are maintained and will not suffer any reduction. If there had not been the pronouncement of the Court, there was the possibility that the Assembly in December 2023 would try to insist on the repeal, which would have meant a loss of tax revenue to the State both for income tax, and for the elimination of some exemptions or exonerations.

According to a press release from the Presidency, on the tax issue The decision meant guaranteeing the entry of $1,000 million to the treasury to finance various social projects.

In addition, Carrera says that qualitatively the pronouncement reduces tax risks, because it is clear that the Assembly does not have the power to modify, create or eliminate taxes and that this is the exclusive power of the Executive.

In accordance with Pablo Guevara, Andersen Tax consultant, although it was always clear in the Constitution that the tax power corresponds to the Executive, the pronouncement of the Court gives certainty that the law remains firm and that it will not be modified. He explains that the chances that the repeal by the Assembly would succeed were always vague. In this sense, he indicates, there was no expectation that taxes would be lowered, since expectations can be generated in real events and not in chimeras.

In its ruling, the Court concludes that the bill approved by the Assembly (which repealed the Economic Development Law) violated the rule of procedure provided for in article 135 of the Constitution. “Since there has been a violation of the legislative process rule and since there is an undermining of the constitutional principle that attributes the stewardship of taxes, fiscal policy and public finances to the Executive Function, it must be concluded that there is a vice of unconstitutionality. Therefore, the presidential objection proceeds for formal reasons”, the Court says verbatim in its conclusion.

The Article 135 of the Constitution establishes that only the President of the Republic may present bills that create, modify or abolish taxes, increase public spending or modify the political-administrative division of the country.

It must be remembered that in November 2021 the Economic Development Law entered into force by the Ministry of Law, in the midst of a confusing chapter in which the Correísmo sector abstained. Several members of the assembly filed unconstitutionality lawsuits against the law and the Constitutional Court ended up declaring certain articles unconstitutional, without affecting the amount of new collections that were raised in the law, in order to stabilize public finances.

The Assembly, for its part, waited a year to deal with it again and at that time repealed the law. The Government immediately vetoed said repeal and consulted the Court on whether the Assembly could repeal a tax law. Thus, with its pronouncement, the Court has agreed with the Executive.

The Court approved the resolution with the positive votes of the constitutional judges Karla Andrade, Carmen Corral, Teresa Nuques, Richard Ortiz and Daniela Salazar; and with four saved votes from judges Alejandra Cárdenas, Johel Escudero, Enrique Herrería and Alí Lozada, president of the organization. (YO)