The tax reform announced by the Government is correct, the main thing is to re-establish the benefits that until now made it possible to discount personal expenses when paying income tax. It is now indicated that it will be ready “this week”.

It will be an urgent economic project. “It only has to do with the tax field. Its central nucleus has to do with deductions that will favor the large middle classes in a dependency relationship. It is a very small reform, the details will be explained in the presentation by the minister of the economy”, stated this Wednesday, May 10, the minister of the government, Henry Cucalón.

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

The Organic Law for Economic Development and Fiscal Sustainability, which applied higher taxes to the wealthiest sectors and included a component of higher taxes from 2022 for the middle-class sector earning more than $2,000 per month, is currently being implemented. Then the Government claimed that it only affected the top 4% of the population.

In some cases, the amount paid for income tax has more than doubled, for example, on Monserrate’s pay list, the monthly discount has risen from $80 to more than $170.

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

In others, it was much higher: “A person with a taxable income of $2,400 previously paid (annual) tax of $14.5 (in 2021), and in 2022 paid $1,112, or 77 times more.” And that is that the change in the method of abolishing the income tax for the year 2022 for natural persons affected 539,366 taxpayers who used the deduction of personal expenses, an item that was deducted from the income to determine the basis of that tax, according to the press release. The Chamber of Commerce of Quito in a letter sent to President Guillermo Lasso with its proposals before the elaboration of the new reform.

This union ensures that applying a maximum reduction of between $500 or $1,000, which replaced deductions, generates a reduction in family income and the ability to spend and save. Another “second effect it creates is that because there are no deductions, illegality is encouraged, people stop asking for bills; So instead of promoting the economy and commercial activation, we are producing deactivation and disincentive,” commented President Mónica Heller.

Mónica Heller: It is important to recompose the tax reform well, we cannot recompose the damage that was done to individuals to now damage companies

In view of this, the application of the deduction scheme is proposed, with the possibility that expenses for housing, food, health, education, clothing, services and others can be deducted from the income. In addition, abolish the limits for personal consumption and adjust the income tax payment table for natural persons (determine a maximum of 35%). And to promote the manufacturing sector, it is proposed, among other things, to exempt from paying taxes on new investments of micro and small enterprises for five years, to reduce the tax rate on investment contracts to 10% and to include additional deductions when they exist, which is an increase in net employment.

For analyst Alberto Acosta Burne, the tax reform, which is now being changed, took money out of citizens’ pockets when the economy was just reactivating, “it meant less money to spend, less money to save, less money to invest. It was harmful to all citizens. Every tax increase only provokes a new escalation of spending. The only way to reduce the fiscal deficit is to work on the consumption side, to control unnecessary and excessive consumption.”