With eight votes in favor and one vote against, the plenary session of the Constitutional Court (US) approved the extension of the validity period of the Law on the Promotion of Environmental Protection and Optimization of State Tax Revenues until December 31, 2024. The Agency’s decision was made on November 1 through verification order 58-11-IN/23.

The law was declared unconstitutional in January 2022, but the Constitutional Court ruled that its effects remain in force until December 31, 2023.

The norm was promoted during the government of Rafael Correa and entered into force in November 2011 by the Ministry of Law. He raised the foreign exchange outflow tax (ISD) rate from 2% to 5%, reduced the profits of the oil and mining sectors, introduced a vehicle pollution tax or “green tax” (eliminated in 2019), set up a Single Tax on revenues up to 2% in the banana sector, among other things introduced a tax on non-returnable plastic bottles.

According to the 2022 ruling on unconstitutionality, while the law was suspended, the President of the Republic, Guillermo Lasso, could promote legal reforms to “fill regulatory gaps that could affect the sustainability of public finances”, since the Environmental Promotion Law deals with several topics.

The National Assembly could process the initiatives of the executive branch by the end of fiscal year 2023.

It has been established that certain norms have already been replaced by new regulations at the moment, but there are others that have not yet been replaced, abolished or reformed, the Court explains.

The constitutional judges decided to extend the originally set term of validity by one year, because there is little left until the end of 2023, and there is no proposed law to fill the gaps.

“The court finds that neither the executive power nor the National Assembly – up to the date of its dissolution – presented information that would allow verification of progress in compliance. Furthermore, according to a search made on the official pages of the National Assembly, there is no proposed law on that topic,” the Order of November 1 states.

Furthermore, until the last sentence was issued, the date of the appointment of the new National Assembly and the inauguration of the elected President Daniel Noboa was not certain.

“The National Assembly would not have enough time to initiate the legislative procedure for its adoption, and the bodies that have the legislative initiative would not have enough time to submit proposals for laws or laws that would fill the possible regulatory gap that this body observed (…) , it would be materially impossible for the executive and legislature to advance these reforms within the time remaining in the current fiscal year,” the ruling said.

The court warns that regulatory gaps could affect tax and production issues, in aspects such as:

Javier Bustos, a tax lawyer and one of the proponents of the petition for unconstitutionality, believes that the extension granted by the Court is appropriate because otherwise it could affect taxpayers and tax collection.

Given that newly elected President Daniel Noboa announced the promotion of tax reform that should be approved in December, Bustos believes that it is a new law that fills legal gaps due to the unconstitutionality of the Law on Environmental Promotion.