As soon as the National Assembly adopted the Law on Economic Efficiency and Employment, the export sector reacted with the negative side of this urgent project promoted by the Government.

“No incentives compensate for the impact on working capital that occurs with the tax reform as it has just been approved by the Assembly,” announced the President of the Board of Directors of the Corporation of Exporting Guilds of Ecuador (Cordex), José Antonio Camposano, on his X account (formerly Twitter) related to the implementation of monthly income retention, which, according to him, directly affects the liquidity essential for the operations of export companies.

The emergency law on economic efficiency and the creation of new jobs is approved by a large majority

With the approval of the law, from January 2024, all exporters must transfer this advance to the Tax Administration (SRI). Camposano indicated that this did not exist for this segment until this year. “By using the average of each sector as the upper limit for this contribution, those below that average are affected. This affects working capital,” he explained.

“We are concerned that the proposed scheme does not set limits such as income tax already paid, which will be a double whammy for 2024, as the income tax liability corresponding to 2023 and this new monthly withholding tax will coincide. “The lack of consideration of the unique situation of each company when calculating the withholding tax, using the average, further complicates the situation,” he said in a union statement the day before the adoption by the Assembly.

The leader warned that, although the refund of the overpayment sounds positive, it brings additional complications for the exporters, since in anticipation of the said refund, the company will continue to face the monthly burden of withholding next year. “It is crucial to point out that export production chains are not used to keeping part of their sales monthly, and this proposal directly affects the capital needed for their operations. Although the application of the TIE (Effective Tax Rate) is going in the right direction, the most vulnerable companies are particularly penalized without taking into account the taxes paid in the previous year,” he emphasized.

The changes in the tax reform provide new parameters for the ‘advance payment’ of income tax and incentives for youth employment

The proposal has seen some changes in the legislature. In the original draft, the retention was proposed as a fixed percentage of 3%, but in the discussion it was modified so that it is the percentage that regulates the TIE according to each sector. However, the creation of this type of advance payment of income tax, which is the central goal of the Government’s proposal, was retained, which is to encourage employment, especially for young people, increase tax collection and encourage investment.

The final document also includes tax credits for the private sector donating equipment and tools to the National Police for security issues.

Another point of the law that Alberto Acosta Burneo, editor of the publication, points out weekly analysis, These are free zones. He assessed the adoption of the emergency law as good news. “Free zones are being created and public-private associations are being strengthened,” the analyst said.

The proposal will be submitted to the executive authority for approval or veto within 30 days.