Napoleón Santamaría: ‘Someone must pay the bill for the corruption, waste and hyper-indebtedness of Correísmo’

Napoleón Santamaría, an expert in tax matters, explains the improvements that could be made in the Economic Development and Fiscal Sustainability Law via regulations. The law could hardly be repealed and, rather, it could be reformed in the Assembly, he maintains. Additionally, it considers that the tax burden for individuals is barely matching the average for the region. But it also explains that the strong adjustment that exists in the income tax is a kind of bill that we now have to pay as a society, after the processes of corruption and excessive spending in the time of Correísmo.

How is Ecuador’s tax burden compared to other countries in the region with the entry into force of the Economic Development Law?

The tax burden in Ecuador was always below the average in Latin America. With the new rates, in terms of people, it will go up. But it will be paid by natural persons with a dependency relationship, since they are retained by their companies. There are informal workers who could pay more, because their income is not low, but they do not have someone to retain them; that should be worked on. In any case, the tax burden will increase. Unfortunately, someone has to pay the bill for the corruption, waste and hyper-indebtedness that occurred in Correísmo. At that time the country spent like crazy on bureaucracy, many unnecessary and overpriced works. Now you have to pay.

It’s a fair fit, then, but still strong?

In the personal income tax it is a strong adjustment for some reasons: first, because the person already has their expenses budgeted. For example, you already have $ 300 earmarked for the car, $ 500 for the bank, school, health. So now it is going to get complicated, because there is a mismatch. What these people will do is cut their expenses on less essential items, such as clothing or travel, their vacations. What you have to understand is that this is the cost of the bill for the ten years of corruption of Correísmo. Many of those who now complain that you have to pay more were acolytes of that regime. Sorry, we are going to have to pay more, and I include myself. But I know that there are other people who have a more complex situation and it is okay that they do not pay.

Many sectors speak of the repeal of the law, is it possible?

This rule is already the law of the Republic and must be complied with, whether we like it or not. It will be necessary to see what the gentlemen of the Assembly do. But by raising the repeal, they are only causing it to not be reformed. If they got the votes for repeal, this would go to the Presidency and surely the Executive would veto it. Rather they should seek to reform, amend themselves. There is no way in the short term for it to be discontinued. There may be claims of unconstitutionality; But on specific issues, the Court does not usually rule on the entire law, but on certain articles.

Since the regulation, you have said that the law could be tempered. What can be done?

There are tariff issues that are specific and there is nothing to clarify about that in the regulations, and they must be complied with from now on. For example, on sanitary napkins their VAT rate dropped to 0%. Those who are not complying with it should be reported to the SRI. Nor can it be accepted that sellers want to give the customer an extra product in exchange for 12%, the well-known combos.

You can’t do anything about rates, but what about tax bases?

About this yes. In art. 5, which talks about the patrimonial contribution, in the final paragraph it is indicated that the regulation to this norm may create discount mechanisms. This should be regulated in favor of those who have done their returns well, have their taxes up to date, and this must be defined with the same legal technique. This is to show that those who do comply have better treatment than those who do not declare or those who have glosses, among others.

You have suggested that this regulation should have the contribution of large companies, MSMEs and micro. What would be the points to include?

On the buses, if you see the new SRI list, there are 760,000 buses. These buses are shops, small businesses. But the law does not say what happens if another pandemic comes, another shock. The law must provide for exceptional cases.

There are people who believe that this law will serve to launder assets, is that correct?

There is a whole chapter on the declaration of assets that had not been previously declared in Ecuador. But there are exceptions: it cannot be done by those who have committed theft, nor by the families of those who committed that crime, nor by those who have committed crimes of drug trafficking, human trafficking, bribery, and concussion. Those on the FATF lists could not benefit from this issue either. But those who have had business and income but did not declare it can be accepted. For example, certain lawyers who charged companies and had them deposited abroad, or who had business abroad and did not testify. That is, those who have money whose origin is not illegal, although their owners did have an incorrect behavior. What is achieved is that they declare and pay a fee. In addition, on these already declared assets, the equity contribution will be paid and then the payment of income tax is regularized. It is not laundry. People who say this cannot see the forest. Other countries did it and it was successful. In Argentina $ 110,000 million were regularized.

How is the issue of tax residents in your understanding?

What the law seeks is to accentuate a concept: who has income in Ecuador, house in Ecuador, family in Ecuador, investments must pay taxes in Ecuador, even if they do not stay 183 days in the country. This, for example, in the case of people who can be called stateless, who do not live the 183 days in Ecuador, but neither in the United States nor in Germany. They go from one destination to another and never count enough days to pay taxes in any of the countries. These would be considered tax residents of Ecuador. This could also be better clarified in the regulation. (I)