Step by step, what workers and their employers must do to recalculate the withholding tax for this 2023 will be determined by the new regulations that will be issued by the Tax Administration (SRI) on June 30, which will start applying the tax reform.

The deputy director of the SRI, Ricardo Flores, indicated that the decision on personal expenses will come out that day, as well as other regulations or clarifications on what should be understood as a public spectacle for the collection of value added tax (VAT), “so that it completely clear because as it is a monthly tax, it starts to be collected from July”.

Who will no longer pay income tax from July, when the 2023 tax reform is implemented

This is because arts and cultural services continue to be zero-rated and public performances will go to the 12% rate. “There are many people who doubt what is artistic, what is cultural, what is a public spectacle. We will clarify.” There is already a decree issued by the then president Lenín Moreno that said what is artistic and cultural and this is being analyzed with the National Legal Directorate of SRI, and so on June 30 it will be clear whether the cinema – for example – will be taxed. ​12% VAT.

The income tax reform has been in effect since July, and a recalculation must be made. The deputy director of SRI explains that this will be done in two ways: first, update personal expenses and second, inform your employer about the family obligations you have.

In the first case, this update is because the new mechanism allows for a larger deduction for personal expenses, so those who presented a $5,000 expenditure projection in January, because that was the upper limit, now that the reform is expanding those upper limits, will be able to adjust it upwards. In addition, because the expenses for pets are also taken into account for the reduction and can be added to the expenses for housing, clothing, food, health, education and healthcare, which are items in which deductions are allowed. Thus, there will be those who no longer have to pay anything from July, and what was discounted in these six months will be able to request a refund in 2024.

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

And family obligations are a key and very important issue, since the maximum amount of expenses that are deducted and the reduction of income tax will depend on the number of children or dependent members. “They must inform their employer of the family responsibilities they have so that they can correctly calculate the withholding tax they must practice.”

If two people in a couple have a job in a relationship of dependence, they must agree on how to distribute the burdens, because the norm expressly states that the burdens cannot be repeated, if both of their two children are reported as burdens, they will have inconveniences. What will happen is when the next year’s return is loaded, when the charges are loaded, they will automatically be blocked and they will give you an error and that way the balance will be paid because those charges will not be taken into account.

SRI is working on updating the supplement on personal expenses and has not yet defined whether it will be where the expenses are reported or whether it will be through independent communication. Nor will there be a specific item for pets or will their costs be distributed among already existing items: health, food, clothing.

Who are family responsibilities?

While the regulation of the Organic Law for strengthening the family economy is being prepared by the Legal Secretariat of the Presidency and will be published later. There, the changes to Rimpe and the new tax on sports predictions that will come into effect in 2024 will be discussed (I)