The tax reform that the Government is analyzing was not adopted on May 8, as announced by the Minister of Economy and Finance, Pablo Arosemena.

The director of the Tax Administration (SRI), Francisco Briones, said this Monday afternoon in Carondelet – where the government was held – that the reform is not going today.

The Ministry of Economy has announced that it will announce this in advance.

The new tax reform will benefit people who earn between $800 and $3,000

Expectations are given by announcements from these two institutions. Minister Arosemena indicated last week that the regime is proposing raise the personal expense deduction level to $15,200 per year, Well I know is looking for “lighten the pockets” citizen.

Briones indicated that the tax changes will mostly benefit people earning between $800 and $3,000.

An innovative scheme has been developed that will take into account number of dependents taxpayers, distinguishing between those who, for example, have an income of $2,000 or $1,500 and have no children or benefits and those who earn the same but have dependents.

New tax reform: The government is analyzing options for reducing the tax burden

The reform will be sent as an urgent economic project.

On November 29, 2021, after the COVID-19 pandemic, the Organic Law for Economic Development and Fiscal Sustainability entered into force. This included a tax reform that applied higher taxes to the wealthiest sections of society. Thus, companies with assets of more than $5 million and individuals with assets of more than $1 million and civil partnerships with more than $2 million had to make a temporary contribution to contribute to the tax coffers.

The law included a component of higher taxes for the middle class sector earning more than $2,000 a month. Until 2023, for those earning less than $1,750, the income tax payable is zero and with no role discount, according to SRI; from there, the tax rises as income rises.

The possible effects of the reform worry the manufacturing sector

In view of the imminent presentation of the new tax reform, the president of the Chamber of Commerce of Quito (CCQ), Mónica Heller, sent a letter to President Guillermo Lasso on Monday, May 8, in which he outlines the concerns of the manufacturing sector about the effects of the rules.

Heller cites statements from the executive branch that predicted the reform would have a tax cost of $200 million, which would be sought to be recouped through the manufacturing sector. It refers to the statements of the director of the Media Institute.

“This statement causes deep concern, given that the manufacturing sector has faced more than six tax reforms in the last few years and is still in the recovery phase, therefore we believe that any future reform must aim to have a system of simplified tax system , to provide security for the private sector, to encourage domestic and foreign investments, as well as to encourage the creation of jobs, which is the main challenge we face as a country”, the head of the CCQ points out.

The trade union conveyed observations on the existing tax regime to the executive authority and made eight proposals.

The change in income tax for 2022 affected 539,366 taxpayers. That changes in the deduction of personal expenses “generated a reduction in family income” and increased tax payments.

In this regard, the Chamber of Commerce of Quito proposes the application of a deduction scheme, with the possibility of deducting the costs of housing, food, health, education, clothing, services and more from the income.

Other proposals are the abolition of the limit for personal consumption and the adjustment of the income tax payment table for natural persons (maximum 35%).

In order to stimulate the manufacturing sector, it is proposed to exempt from paying income tax for new investments of micro and small enterprises, for five years.

Reduce the corporate tax rate in investment contracts by up to 10%. Return the deduction of 10 percentage points in the income tax rate for the current year, for the reinvestment of profits.

Include additional deductions in the tax standard when there is a net increase in employment. Abolish the withholding on the distribution of profits to shareholders.

Finally, the CCQ also proposes changes regarding value added tax (VAT). The idea is to apply a VAT rate of 0% to physical and electronic books, as well as to their complementary materials.