These days, the 20th tax reform in 18 years should arrive in the National Assembly. This number means that in two decades there was one reform per year, and in some years two. However, this time the reform carries many doubts both because of the pre-announced announcements of the President of the Republic, Daniel Nobo Azín, and because there is clearly no well-defined plan that justifies the said reform.

On this topic, tax expert Napoleón Santamaría expressed concern that, strictly speaking, it is the Minister of Economy and Finance who must present, defend and support tax reform. But it is so, because the minister is the one who presents the Government’s program in which he elaborates the goals in detail, determines income and expenses, employment goals, investments, among other things. However, it seems that this plan has not yet been defined. Just in the afternoon of this Monday, November 27, the official inauguration of the new Economy portfolio leader: Juan Carlos Vega Malo.

The business cash received by Daniel Noboa is $179.7 million, which is not enough to pay salaries and other pending payments.

Regarding the first insights that President Noboa gave about the content of the reform, Santamaría says that the question of reducing the value added tax (VAT) for the construction sector is not convenient. For Santamaria, it would be a useless and ineffective proposal, but above all unconstitutional, because it does not maintain equality and equality for all. He assures that the revitalization of this sector is not motivated by the reduction of VAT, because a lot of money is laundered in that area.

He also believes that it could benefit the real estate sector, but it does not look good considering that some of President Noboa’s relatives are connected to the real estate sector. In any case, he comments, according to what is known, this reform has been completely decided.

Meanwhile, a three-point cut in income tax, Santamaría says, would not help boost investment. He explains that the country has been through this for a long time and it didn’t work out.

It also indicates that the president should not make the mistake of continuing to lower the foreign exchange outflow tax (ISD). This tax, which was 5%, has been gradually reduced since 2022, and on December 31, 2023, it will drop to 2%, in accordance with Decree 643 issued last January by then-President Guillermo Lasso.

The tax on the outflow of foreign currency is already 3.50%, with the change of Government, will it continue to fall to 2% as determined by Guillermo Lasso?

The tax expert maintains that the law dictates that the president can reduce this percentage only if he assesses that there is room for it in the public finances. Furthermore, he explains that the race was made within the Internal Revenue Service (SRI) and it would mean a drop of 730 million dollars, so it would not be good for the state.

Meanwhile, Vicente Albornoz, dean of the Faculty of Economic Sciences of UDLA, explains that we currently have a bankrupt government, which cannot pay salaries for November and even worse for December. The deficit will reach more than 5,000 million dollars, because October alone is 3,500 million dollars, and we must take into account that November and December are “nightmare months” for every government, because expenditures are higher. In this sense, he says that “any reform that reduces taxes is absurd”.

He comments that there are people who think that cutting taxes will boost the economy. However, he explains that the state will not function better by reducing taxes. And first of all, it has to be done so that the state functions better, that there is trust, and then taxes could be lowered. Furthermore, it must be taken into account that tax cuts without compensation will be a bad sign vis-à-vis multilaterals.

It also suggests that the large number of tax reforms that the country has had have created a certain level of uncertainty, but in reality have been so timid that nothing has changed with them. Remember that Guillermo Lasso’s reform was quite interesting and progressive, but in the end he overturned it, “which was a lot of nonsense”.

On the other hand, John Arias, manager of Census Consultores, believes that there are three important issues that could come into the tax reform proposed by President Daniel Noboa.

When asked how the downward reform could affect public finances, he recognizes that this reform, in addition to the reductions that could be made, should also seek a compensatory mechanism. In this sense, he says he could create a new tax or introduce a wealth tax, increase VAT on luxury products, among others.