By spending less on telephony, clothing and education, and paying a thirteenth monthly salary, it is planned to cover the rise in income tax

The consumption of paid telephony and television is the first thing that will be affected in households that have already felt the impact on their income due to a higher income tax payment.

Eliminating these expenses is the first option for 54.8% of people who have monthly income equal to or greater than $2,000, who are for whom the application of the Economic Development and Fiscal Sustainability Law meant a greater discount on their salaries since January 2022 for this tax.

The Technological Business University of Guayaquil (UTEG) conducted a survey of 273 people from that segment about the effects of the new tax policy on income, 210 answered what they will do and that was the majority response. The objective was to know the impact of the application of the reduction of personal expenses in the income tax, before they were larger deductions.

Another 19.5% opted for the monthly payment of their thirteenth salary. However, when adding each response that includes reducing some household expense such as food, outings to restaurants, clothing, outings, trips, fourth level education programs, etc., the decision to eliminate household expenses can reach 70%. home to cover the higher income tax payment.

Few – 1% – are those who plan to change their children’s school or dispense with domestic service.

One in five domestic workers lost their job due to the pandemic. In Ecuador the situation was worse

This is of greater concern to the National Union of Domestic and Allied Workers, since this sector has already lost many jobs and the benefit of social security. “They always say that taxes are very high,” says its president Lenny Quiroz, and those who were fired in the pandemic and rehired now work but only for days and for a payment of $15, $20 and $30.

To the question of what type of measure will you use so as not to be affected in your income?, the answers were several options and also claims. “Monthly, eliminate expenses and completely lower consumption. It is an abuse of the working class. It removes all incentive to improve or look for new opportunities, it is equivalent to paying more than tenths to the State. An abuse that should go to consultation”, said one of those consulted.

A reform of the law or its removal are other requests, and it is something that is in a process that is expected to be long. The Constitutional Court admitted a lawsuit against the current tax reform, and the National Assembly will decide whether or not to consult that same body if the legislators can repeal an urgent economic law promulgated as a decree-law, since there are two projects that have that purpose of overthrowing the tax changes.

Lawsuit against Guillermo Lasso’s tax reform can last for years in the Constitutional Court

CAL suggests consulting the Constitutional Court on the repeal of the tax reform

And it is that the adjustments in households occur because they lost from $100 to $199.99 (24% of respondents), from $200 to $399.99 (24%) and from $500 and more (24%); while for 22% the reduction in income was from $1 to $99.99 and for 6% from $400 to $499.99.

Given this panorama, the path taken – which is also the one suggested – is to reduce and eliminate expenses.

“The ideal is to start with the change of consumption habits, make conscious and reasoned purchases and consumption, avoiding purchases due to emotion or impulse. Eliminate the use of the credit card in order to change the lifestyle, because if we take this bad practice we increase indebtedness by deferring consumption from day to day (food, going to the movies, others), and in a short time we will no longer be in crisis but in a financial catastrophe due to over-indebtedness”, says Karina Díaz, administrator of the Fundación Crisfe financial education project.

Carnival holiday: VAT of 8% will be for immediate consumption

And he considers that paying the tenths or reserve funds monthly is not a good option, because the spirit of the reserve funds is that if the source of income is lost, they help cover the usual expenses for at least three months, a reasonable period to obtain another job or start with an investment. And the thirteenth (December) and fourth (beginning of classes) are intended to be a help to cover seasonal expenses, “if you pay them monthly and make them part of your income for expenses, you will not have these resources and the alternative of cover the expenses will be indebtedness”.

Regarding the invoices of the expenses that serve to obtain a reduction in the tax, 69.2% will continue to ask for them in their purchases and 24.9% say that they will no longer do so. Others will request only the necessary ones, according to the survey carried out by a UTEG work team made up of Otto Suárez Rodríguez, postgraduate academic coordinator; Javier Burgos Yambay and Francisco Cedeño Troya, postgraduate professors, and Olga Morelba Bravo Acosta, director of research.

How to adjust the family budget?

The first thing is to look at the exact value of income and recognize the affectation that exists. Do not take it as a financial catastrophe, but as a crisis that can inspire to transform personal and family finances and give a positive meaning to consumption habits. Crisfe Foundation gives these recommendations:

mortgage payments

• If we have mandatory expenses such as cancellation of a mortgage or other financial commitments, an alternative is to analyze the new payment capacity and request a debt restructuring from the financial institution that allows smaller payments to be made over a longer term.

Feeding

• Regarding essential expenses such as food, it is possible to consume seasonal products, reduce the number of meals outside the home and if we are going to eat out, have a limit for it, that will make it possible to identify different possibilities of food for the daily diet both inside and outside the home. out of home.

Clothing

• Reducing the number of times clothes are replaced, having an annual plan with a budget will make us better face this challenge.

Travels

• Reduce seasonal expenses such as vacations, a good alternative is to change your destination to one that implies lower expenses; as well as the reduction or elimination of discretionary expenses, especially ant expenses and distraction expenses.

Short term alternatives

• If you have savings, you can invest in a fixed-term deposit and request monthly interest payments.
• Generate a business based on your talents, knowing that your main source of income is work in a dependency relationship and you must take care of this fixed income.

In the medium and long term

• If your savings allow it, you can also invest in the stock market and have an income from the performance.
• Yes, it is recommended to monthly reserve funds and tenths, but in a programmed savings account in a financial institution, because there you will generate a culture of savings and an interest rate higher than that of demand savings, and on many occasions you will also have access to a additional bonus. (I)