The proposal passed through the Ministry of Law, would raise $ 1.9 billion in three years. Taxes for people who earn more than $ 2,000 are increased.
The Tax reform that was sent yesterday to the Official Registry for enactment, by the Ministry of Law, will obtain about $ 1,900 million in three years y represents the increase in income tax for some 274,000 people earning more than $ 2,000; and also the delivery of a temporary contribution for two years for 1,931 companies that have assets of more than five million and for one year for 6,000 persons and conjugal partnerships that must pay equity contributions of $ 1 million and $ 2 million, respectively. In the case of these 6,000 people, they pay more twice: income tax and contribution.
This, briefly, is the summary of the original proforma that the Government delivered to the Assembly, and that after it could not even approve an improved text (in which the tax increase was for those who earned $ 2,500 per month ), nor will it be filed, it will come into effect by the Ministry of Law. Although the reform has been criticized for allegedly taxing the middle class more, According to experts, this would bring a reduction in the fiscal deficit, a better image in the markets and would even guarantee the delivery of more multilateral disbursements.
According to the Economy and Finance data, in 2022 the Government will receive $ 800 million extra; in 2023 it will be $ 1,089 million, while by 2024 about $ 662 million will reach the fiscal coffers.
Only the first year, the resources will arrive as follows: $ 261 million from the contribution of the patrimony of individuals, while $ 467 million will come from the contributions to the patrimony of companies. On the other hand, people who from $ 2,000 onwards will contribute $ 100 million the first year, but by 2023 they will already contribute $ 460 million annually.
The Ministry of Finance had already established that the increase in taxes on individuals will grow in proportion to the volume of income. In other words, whoever earns the most, pays the most. Thus, for example, citizens who earn more than $ 2,000 to $ 2,500 in the country, which are about 85,400 people, will pay in total about $ 28 million per year; On the other hand, those who earn between $ 2,500 and $ 3,000, which are 51,200 people, will pay $ 41 million. Meanwhile, 93,500 people earning $ 3,000 to $ 5,000 would contribute $ 136 million each year. And those who earn $ 5,000 and up, which are only 42,760 contributors, will pay $ 253 million.
According to the Government’s own data, taxes on individuals, which generate a permanent flow to the State, do represent a significant increase, in some cases doubling what was previously paid. Despite this increase, the contribution is not as strong for the lower ranks of the table and it becomes more important for the higher ranks.
That is, for example, a person who earns $ 2.000 with the current tax rule pays 0.7% of your income; however, with the new one you will pay 1.4% of your income. Someone who earns $ 5,000, such as a private manager, a senior public sector manager, or an assemblyman, used to pay 6.8% of their income and now they will pay 10.9%. Someone who earns $ 11,416 per month paid 18%, but now he will pay $ 24.6%.
For him Executive Secretary of the Fiscal Policy Observatory, Jaime Carrera, the approval of the tax reform it is a positive step towards fiscal sustainability. However now the Government must be strict in public spending and attract investment so that it can be consolidated fiscal economy (balancing income and expenses). Regarding the complaint that exists from various sectors saying that if consumption is taxed with more lower consumption, he explains that this is compensated, since the liquidity passes from the private to the public sector.
The public sector also consumes, pays wages, buys goods and services, and pays bonuses to the most vulnerable. On the subject of companies, he believes that there may be a certain problem due to low liquidity, however, he commented that companies with $ 5 million of equity are solid. In any case, remember that the country has few alternatives to generate permanent income that is necessary to cover permanent expenses (salaries, interest on debt, Social Security, bonds).
In this sense, for Carrera, although on the one hand it can lower liquidity in the actors, on the other, when consolidating the accounts, the fiscal deficit and the country risk fall, with which investments can flow.
On the other hand, about certain discomfort generated among people who earn $ 2,000, $ 3,000 or $ 4,000, or more, he said that they have acquired a certain standard of living and do not want to give a penny to the State. But he considered that it is necessary to have solidarity to help other people who live with less than $ 84 per month.
For its part, Alberto Acosta Burneo, director of Weekly Analysis, considered that the “event of the weekend”, to which he said he does not know whether to call it “Hidden pact or massive error”, Generates a relief on the fiscal side and even above the expectations of the Government.
He also considers that as there is an increase in the price of crude oil, he will also receive more income than expected. In this sense, he proposes that having taken these measures, which he qualifies as recessive, it could try to compensate taxpayers by lowering the outflow tax (ISD). Acosta does not agree with this or any other tax reform, as he considers that these generate the perception of a volatile tax environment, which is not attractive for investors.
For Acosta Burneo, the underlying issue comes from the side of spending, and he hopes that the reforms that have been made to the Planning and Public Finance Code, focused on controlling spending governments, will bear fruit. not only in this, but in future governments.
For its part, the investment bank Barclays explained in an analysis published yesterday that the approval of the law accelerates its pace, accelerates the process of fiscal consolidation and significantly reduces political risks., removing from the table the possibility of a scenario of “Cross death”, which could have triggered an early general election if the reform was rejected.
By entering through the Ministry of Law, the Government could raise $ 1.9 billion in additional revenue over the next two years and approximately 0.7% of GDP in permanent revenue. Additionally, Barclays emphasizes that by entering the reform in this way, it also integrates a series of regulatory changes and introduces production-sharing agreements for oil contracts, which should help the Government attract investment to this key sector of the Ecuadorian economy. .
The Reform was also key to the upcoming review of the International Monetary Fund (IMF) program. Although some revisions to the program might be necessary, due to the recent freeze in domestic fuel prices and the resulting potentially higher subsidy, the passage of the bill puts to the Government in good condition not only to approve the December review, but also to complete the IMF program.
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