After the adoption of the Law on Energy Competitiveness, the president of the Association of Private Banks of Ecuador (Assobanca), Marco Rodríguez, warns that the provision of this new regulation abolishes the exemption from the tax on the outflow of foreign currency (ISD) that had credit lines that came from abroad and that were otherwise financed loans for women, small and medium enterprises, green finance, among others.

The third transitional provision indicates that for one year the exemption established in paragraphs 3 and 8 of Article 159 of the Law on Tax Capital in Ecuador will not be extensive for banks that have only private capital. The scope of this limitation will be determined in the regulations.

Rodríguez believes that this is not in accordance with the Constitution or with the policy of attracting fresh capital to the country. I expected this part to be vetoed, but that didn’t happen. The law that the Assembly accepted on the night of January 10 was published in the Official Register in less than 24 hours.

How does Asobanca view the introduction of a provision in the law on energy that resolves the issue of abolishing the tax exemption on bank foreign exchange outflows?

I divide this topic into two aspects. The first point is eminently legal. The President did not include this issue of exemption from ISD, which has a tax effect, in the bill. Only the President of the Republic has the tax initiative, so only he can send invoices. What is known is that it is the Assembly that incorporates this, going beyond the powers given to it by law and encroaching on the powers of the Presidency. It is clear to us that this would affect the principle of reserve in tax matters that the president has.

But it is also an issue that has nothing to do with energy issues.

The entire law refers to energy issues, it is called the law on the prohibition of power outages. And within that is incorporated a theme that has nothing to do with the unity of matter.

Would the provision affect the bank’s lending policy?

In essence, a provision was approved that penalizes the arrival of fresh funds from abroad to Ecuador through banks. When a private bank receives funds from abroad and brings them to Ecuador to lend them here, when it pays this debt, it will have to pay ISD. It should be noted that usually the credit lines obtained were for climate change, women, vulnerable sectors, small and medium enterprises, among others.

What are the credit lines that the bank received and which would be affected by this article?

In the last two years, more than 2 billion dollars have been raised. The immediate effect of these types of resources is that they become more expensive. Without this measure, resources were expensive due to tax policies in the US and the European Union. Now with this regulatory change there is no longer an incentive to look for resources abroad. These resources are likely to decrease or stop arriving in the same amount. Another element we wanted to highlight is that the abolition of the ISD exemption abolished the exemption that existed for foreign persons who invested in Ecuadorian banks, for which the payment of interest was tax-free. Now when you pay for a certificate of deposit, as a financial institution the ISD must be retained. All this goes against the goal of stimulating the arrival of capital and restarting production.

Do you know from which group this initiative originated?

We have no clarity. What is known is that President Daniel Noboa did not present him within the framework of the project and that he was not part of any discussion. He was not there in the first, and he was not even mentioned in the second discussion.

What would be the legal solution or what are you looking for in this matter?

What we are warning about is that this error exists. We believe that the President of the Republic could use a veto to correct the error that crept into the second report.