The changes proposed by the government for the payment of income tax mean that almost all natural persons who paid taxes in 2022 will have benefits: those who have a gross salary of $1,900 per month will no longer pay anything, and those who earn $2,400 and up will pay between $500 and $2,500 less. This is according to information from the Tax Administration (SRI).

And that is that the tax reform will lead to a greater reduction in the payment of this tax. Currently, the reduction is 10% and 20% of personal expenses, which were limited to seven basic baskets (around $5,000). A 10% reduction was achieved by those who reported an annual income of more than USD 25,000, and a 20% reduction by those who had less than that value. Now, the reform stipulates that the reduction amounts to 18% of these expenses, but the upper limit and the reduction vary according to family obligations.

Income tax: now the reduction will depend on how many family obligations the taxpayer has, not on salary

Those without family responsibilities can deduct 18% of their personal expenses that cannot exceed seven basic family baskets (that’s $5,352.97 taking into account the January 2023 indicator). If you have cargo, your limit will be nine baskets ($6,882.39). If you have two loads, eleven baskets ($8411.81). With three loads, the maximum will be fourteen baskets ($10,705.94). With four fills, seventeen baskets ($13,000.07). And with five or more loads, twenty baskets ($15,294.2). And for a person who has or is responsible for people with catastrophic, rare and/or orphan diseases, the limit will be twenty baskets.

Therefore, 18% of these limits are equivalent to reductions ranging from $964 to $2,753, compared to the current ones of $500 and $1,000, depending on income level.

How much income tax will you pay if the tax reform is implemented?

SRI states that a gross salary of $1,900 for which $237 is paid will drop to zero regardless of benefits or not.

Changes in the ranges of the table used for tax calculation are also proposed. The Quito Chamber of Commerce states that some of these ranges have been improved because they are wider, especially from $40,000 in annual income.

This is the income tax table proposed by the tax reform

For SRI, this new personal income tax table is more progressive and fairer.

The base fraction remains at $11,722. The base fraction tax increases in most ranges. In the third, it drops from USD 161 to USD 160; in the fourth range it rises from USD 534 to USD 606; in the fifth from USD 984 to USD 1356; in the sixth from $2,539 to $2,571; in the seventh range it rises from USD 4612 to USD 4768; in the eighth from $7,203 to $8,472; in the ninth from USD 10,312 to USD 14,427, and in the tenth range it drops from USD 24,231 to USD 23,594.

The percentages applied to the share of the surplus for tax quantification remain between 0% and up to 37%.

The Chamber of Commerce of Quito exposes the cases in which the tax reform will pay less tax; but also compares it with what was paid out before the government changed the scheme that was in force until 2021, and there “does not show a better situation”.

As an example, he cites that a person with a monthly taxable income of $2,500 paid $268 in income tax in 2021, and then – with the previous tax reform – paid $1,551 in 2022. Now with a new bill presented to the National Assembly that same person in 2023 would paid $496 if she has two family obligations, and if there are none, the tax would be $1,046.

If the monthly income is $3,000, the tax was $939 in 2021, $2,558 in 2022, and for this year it would drop to $2,059 if you have no loads, $1,784 if you have one, and $1,509 if you have two loads.

If the monthly income is $4,000, before the reform in 2021, $2,738 was paid, and by 2022 it had grown to $5,127. With the pending proposal, the tax amount would drop to $4,624 without fees, $4,349 with one and $4,074 with two.

“We see from the examples that in no case is there a better situation than the one that was in force before the reform introduced in the Economic Development Act in 2021,” the trade union urged in an analysis conducted after the presentation of the Executive Act. proposal.