In view of the increase in interest rates at the international level, in Ecuador the terms of external loans are being reviewed so that their interest continues to be deducted from income tax (IR) and exempt from tax on foreign exchange outflow (ISD).

This was stated by the governor of the Central Bank of Ecuador (BCE), Guillermo Avellán, explaining the proposal presented by this entity, through the Monetary Policy and Regulation Committee, and to clarify the issues generated by these tax incentives.

More than 3,000 million dollars were placed by private banks in agricultural loans, a sector that employed 2.5 million people in Ecuador

The official refers to the “significant increase in interest rates at the international level” and that “this is a necessary reform of the current policy”, since he recalled that in 2004, the Law on the Tax Regime established that costs (interest) for foreign loans are considered IR expenses and deductions, as long as they are registered in BCE.

He added that in 2008, the Reformed Tax Fairness Act established that principal and interest payments for external loans registered with BCE were exempt from ISD payments.

“These tax policies facilitate the arrival of funds from abroad through loans under better conditions for financial entities and companies, in order to encourage productive activities, employment, financial inclusion and strengthening dollarization,” he added.

Avellán spoke over the weekend to clarify “inaccuracies expressed on social media” regarding the income tax deduction and foreign currency outflow tax exemption for foreign loans.

And that’s how former president Rafael Correa tweeted: “Really shameful and shameless.” Do you know what this means? ‘Incentives’ is a euphemism for subsidies for the rich. In this case, for those who are in charge abroad, criminals! Others, such as Ramiro García, a professor at the Faculty of Law of the Central University of Ecuador, question that “public education, public health, roads, social security, justice, citizen security, all with budget cuts and an analysis of government incentives for the business sector due to the country’s high risk”.

The manager of the Central Bank replied that “during the government of former President Correa, these legal provisions remained in force. Resolution 188-2015-M regulated the deduction of income tax for external loans” and Resolution 107-2015-F regulated the exemption of ISD for external loans and that both resolutions were issued by the defunct Monetary and Financial Department, chaired by former Minister of Economy and Finance of former President Correa.

How much will the price of plane tickets fall with the reduction of VAT for these holidays and lower prices from June?

Ecuador is currently going through an escalation of country risk, it is growing in a significant way since the last elections in February 2023. Now this indicator reflects greater nervousness in the markets, after the end of the political trial against President Guillermo Lasso, promoted by the opposition in the National Assembly and approved by the Constitutional Court.

On April 5, Ecuador’s country risk was 1,966 points.

This indicator measures Market perception of whether a country will meet its external debt obligations is key to accessing credit and attracting investment. The more points the country’s risk has, the worse, because it is understood that there is a greater risk of non-payment and in the case of seeking financing, the interest rate increases, for example, 1,000 points would mean a rate of 10%, and 2,000 points, 20%.