With a greater contribution for companies with more than $ 5 million of equity, a new tax proposal arrives at the Assembly

Around 7:30 p.m. this Thursday, the Government delivered the tax reform to the National Assembly. The Executive seeks to raise $ 1.8 billion in two years with the new tax reform proposal that was presented tonight in the National Assembly. This is called the Law for Development and Fiscal Sustainability after the COVID-19 Pandemic. The new proposal brings some changes, compared to the first proposal, which was delivered last September and was part of the Opportunity Creation Law, which was not qualified by the Legislative Administration Council (CAL).

The first change is related to the amount collected. In the original proposal, they were expected to raise up to $ 1.5 billion in two years. This change occurs as part of the mitigation measures that the Government has had to take due to the concession it made when freezing fuel prices, which means a need for more resources to cover fuel subsidies.

According to the Ministry of Economy and Finance, the new proposal contains a series of changes resulting from the dialogues that have been held with legislative benches and even with business sectors. Always keeping the principle of progressivity, that is, those who have the most are those who pay the most.

For example, within the dialogues it had been suggested that taxes and contributions should not be charged more to individuals, but to companies. Thus, the great change is generated by applying a temporary contribution, for two years, to companies that have assets greater than $ 5 million. In the original proposal, it was intended to apply the contribution to companies with assets of more than one million and that would have had profits in 2020 and sales greater than those of 2019, and only for one year. However, in the new proposal the application floor is raised, but it is no longer a requirement to have had higher sales.

This contribution must be paid by 1,931 companies. According to previous data from the Internal Revenue Service (SRI), those from the commerce, financial, insurance and manufacturing sectors will contribute 66% of this contribution. Thus, the estimated collection increases from $ 105 million in the original proposal to $ 467 million in the new one, each year and for two years. The bulk of these resources (90%), that is, $ 420 million, will be paid by some 1,080 companies with equity of 10 million onwards, the Ministry explained.

Regarding the contribution of people, those who have individual assets of one million must pay the special contribution only for one year; or in conjugal partnership, two million. However, there will be the possibility of establishing a tax credit equal to the value of the first home purchased or non-productive home or land of up to $ 200,000. With the new proposal, the number of people who will contribute is reduced: from 18,000 to 6,000. In this change, there is a tax sacrifice compared to the previous proposal, since they were expected to raise about $ 320 million, but with the change, it will reach $ 260 million.

Meanwhile, the income tax with the elimination of deductions for personal expenses, which will increase the amount of tax payment, is maintained and will progressively affect those who earn from $ 2,007 per month. What changes in this matter is that a tenth level is created in the tax payment table, which will have a marginal rate of up to 37% and will be paid by those who earn more than $ 100,000 per month. In the current table, the maximum range, which is 35%, is for those who earn more than $ 61,630. To remember: in the current system, a taxpayer who has $ 11,213 in income already pays 5% tax. The tax is currently calculated by discounting from gross income up to $ 14,576 of deductible expenses, although the average deduction has been $ 9,920 nationally. This changes now, since the taxable income is calculated from the gross income, to that amount the basic fraction is applied and the marginal rate is applied and the tax caused is obtained. This is reduced up to $ 500 (in the case of those who earn more than $ 2,000) as a tax credit.

According to the Ministry of Economy and Finance, the original proposal was expected to raise $ 434 million, but with the change, which establishes a higher payment for those who earn the most, it could be increased to $ 460 million or $ 465 million more. The Ministry reported that the suggestion that the higher burden be applied to those who earn more than $ 5,000 was accepted.

The Government is betting that this new project will be qualified by the CAL and have the opportunity to be debated, both at the corresponding legislative table and in the plenary session of the Assembly.

They eliminate VAT for popular diapers

The Value Added Tax (VAT) for diapers will be modified in the new proposal that is presented to the Assembly. In the original, VAT was eliminated for disposable diapers, but in the new this benefit will only apply to disposable diapers considered popular. This will be precisely defined in a regulation issued by the Internal Revenue Service (SRI).

For the other hygiene products that were left without VAT, such as sanitary napkins and other intimate hygiene products, the decision to eliminate VAT is maintained.

Regarding the Special Consumption Tax, the Government reversed its measure of increasing the placement of 12% VAT for hybrid and electric vehicles and for solar panels, as this was not compatible with the support measures with the environment.

Tax incentives are moderated for investments

In the tax proposal presented to the Assembly, there is an automatic reduction of 3 points in Income Tax for new investments for up to 15 years. In special cases, up to 5 points less can be awarded in the IR. In addition, the Tax on the Exit of Foreign Currency (ISD) may be reduced and there could be a lower tariff burden, but with the approval of the Ministry of Economy and Finance. In the current law, 15 years of IR exemption is given.

Additionally, legal stability is given to investment contracts on essential regulations. The current law establishes that this legal stability is guaranteed prior to a favorable report from the Ministry of Economy and Finance, which does not make practical sense.

Asset regularization, with incentive

The Government also proposes a process of regularization of assets abroad, so that the resources legitimately generated outside the borders are at the service of the country. A 5% tax for regularization had been raised in the first proposal. However, the new proposal establishes a kind of progressive table in order to encourage early regularization. Those who do it until March 2022 will pay 3.5%, until June 4.5% and those who delay until December 31, 2022 will pay 5.5%.

The idea is that those who have not reported these assets are encouraged to do so, because from next year Ecuador, which has signed agreements with 137 countries for the exchange of information, will be able to more efficiently identify those who have not complied with this obligation and punish them.