Tax credits for youth employment are not seen as an incentive that has a real effect on employment

The creation of new jobs for young people in Ecuador depends not only on tax incentives, but also on factors such as economic stability and investment, and currently the country is far from that scenario. This is the opinion of analysts who do not believe that the tax relief on the income of companies that employ young people, proposed in the tax reform that was considered in the Parliament, will produce results.

Maybe for five or ten large companies that can employ 500 young people, and the state already has implemented models to encourage the employment of certain groups and “they were a failure”, which is why they say that reforms are very necessary. commercial.

What changes does the new tax reform proposed by Daniel Noboa bring?

One of the changes in the tax reform is to add to Article 10 of the Law on the Internal Tax Regime an additional deduction for the purposes of paying income tax (PPD) for the increase of new jobs with fixed or indefinite contracts for young people aged 18 and 29, as and for persons who have been sentenced to imprisonment.

The additional deduction will be applied according to the following table:

Tax reform: the union warns that the bill creates a new sales tax

For tax lawyer Napoleón Santamaría, no company employs someone just to get a tax break, because it is not enough to hire one worker but at least twelve, and so for starters – he says – small companies that have up to ten workers, so in his opinion it would only apply to medium and especially large companies. “If the target of 500 employees is met and there is an additional (90% deduction), I think that is positive,” he claims.

However, he is very reserved about the measure: who can hire 500 workers? and if so, it would be “only five or ten companies, the giants of this country, which is a benefit, but only for that group, and not for the 2.5 million taxpayers who exist in the country”.

In addition, he comments that when hiring, the employer must provide the tools to perform the function, so pay and benefits must also be taken into account. “That makes Ecuador’s payroll 35% more expensive.”

Joselo Andrade, a researcher associated with the Ecuadorian Institute of Political Economy (IEEP), indicates that it is not only necessary to generate incentives for the employment of young people, but also to promote a comprehensive reform of the Labor Law in order to make the employment relationship more pleasant and simple. In addition to the fastest possible transition to a commercial, pension system, financial and fiscal reform that rationalizes public spending, and not only aims to generate income for the state treasury. “If all this is part of the reform package, we will be on the right track to create jobs and reactivate the economy.”

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In addition, Santamaría indicates that this law per se It does not create jobs, because in order to create jobs, you must first know whether the economic cycle is being fulfilled, i.e. whether there is supply and demand for products and services or bank financing of purchases and sales. “Really, the economy or economic growth is what determines more or less employability,” he says.

Andrade has a similar criterion and adds that in order to promote contracting, Ecuadorian production needs markets that are ready to buy the product. “The imperative for job creation is that we have more markets towards which we will direct what is produced in our country, and for that the ratification of trade agreements, among which the most important one with China, and new trade agreements are the most effective mechanism for job creation “, he states.

Deductions for personal expenses to reduce income tax are retained, the tax reform does not change them

Discrimination against over 30 job seekers?

Another point to consider and more than that, thinking, says Santamaría, is that the establishment of contracts from 18 to 29 is a positive that discriminates against other groups and turns it into a negative measure. “That positivity discriminates precisely those over 29 years old, among whom I include myself, then we would be disposable material. There is a very clear case of positive discrimination.”

He also points out that in Ecuador, models with incentives to generate employment have already been implemented, but they have not worked, and as an example he refers to benefits for migrants who have returned to the country, a deduction of an additional 140% for the creation of a new job. jobs intended for the employment of, among others, women. “We already had models for helping other human groups and they were always a failure, a failed model,” he says.

In this context, he points out that every proposed reform has “broken the taxation of the country” instead of making it firmer, stronger, more structural, etc., and what the country really needs is to encourage investments. “Employment is encouraged when capital comes in,” he muses.