The new tax reform proposal that reached the Assembly will fall on 275,900 taxpayers

On 275,900 taxpayers, between citizens and companies, will fall the new tax reform proposal, called the Law for Economic Development and Fiscal Sustainability after the COVID-19 Pandemic, which was presented by the Executive this Thursday. It is a sector that, according to the Government, would be the wealthiest in the country.

In effect, it is taxed with the temporary contribution to 1,900 companies that have a net worth of more than $ 5 million. In addition, a special contribution is charged to 6,000 people who achieve personal and conjugal assets of $ 1 and $ 2 million, respectively. Finally, more income tax will be charged to 274,000 people who earn more than $ 2,000 per month, as deductions for personal expenses are withdrawn. Within the 274,000 the 6,000 people of the patrimony are included.

The Minister of Economy and Finance, Simón Cueva, said in Teleamazonas that the Government has made an effort to perfect the law, and that the reform responds to the principles of progressiveness and justice, that is, that those who have more pay more.

Explained that 96.5% of the economically active population will not be affected. However, 3.5% of the population will have to contribute more. Regarding the sector of people who earn $ 2,000 upwards and who will see their taxes increased, he clarified that said increase is progressive and that, for example, for those who earn $ 2,000 a month, the payment is equivalent to 1.5% of your income, that is, a reasonable and moderate amount.

Jaime Carrera, Executive Secretary of the Fiscal Policy Observatory, He said that the changes made to the proposal and the proposal itself are reasonable, since it is progressive so that those who have the most contribute the most.

He indicated that, in this sense, the contribution of 0.8% to the equity of the companies is one of the taxes that generates the most income to the treasury ($ 465 million each year for two years), and that falls on companies that have more than five million assets onwards. Within this group, those that contribute more than 90% of this item are companies with equity of more than $ 10 million.

Nevertheless, for Carrera the sustainability of future income remains to be seen. This, because the reform is leveraged in 2022 and 2023 in temporary contributions, but the permanent tax, which is the income tax and which would generate more than $ 460 million as of 2023, is still short to cover the $ 1,200 million that would be needed annually after 2023, when temporary contributions end. For Carrera, surely the Government will have to work hard on the growth of the country so that the collection grows and also in the reduction of expenses, in order to advance with the reduction of the fiscal deficit.

According Napoleón Santamaría, an expert in tax issues, the main changes that the new tax proposal brings, compared to the initial government proposal, have to do with even more progressive measures than in the first one (the one who has the most, the most pays).

He considered that it is fair to ask large companies with assets greater than $ 5 million to contribute more, and in the same way to people who have achieved assets of more than one million. He also reflected that Tax reform is very necessary, because the country has a deficit, since it spends more than it has and, unfortunately, to compensate for the lack of income, it has resorted to debt, which in these times is already too large.

However, he opined that It is a mistake to tax individuals who earn more than $ 2,000 a year with more taxes, since it would be affecting the middle class. He assured that those who win between $ 1,800 and $ 3,000 are in the third quintile, that is, they are middle class.

When asked about what the sources of permanent income could be if they were not those of people who earn more than $ 2,000, the expert considered that, although the Government requires permanent and not only temporary income, permanent income can come from combat to evasion and by removing exemptions that didn’t make much sense.

On the subject of personal income tax and the elimination of the deduction of personal expenses, Jaime Carrera, on the other hand, explained that in dollarization the spectrum of those who are part of the middle class is very wide. In this case, the law would be affecting the upper middle class and the upper classes.

This if it is considered that in Ecuador earning $ 2,000 is an exception if it is taken into account that the country’s GDP per capita is $ 5,800 per year, that is, less than $ 500 per month. He commented that the poor live on $ 84 a month, and people who earn between $ 500 and $ 700 in the public sector, for example, could already be considered lower middle class.

From what is known, Carrera says, a manager of a company can earn $ 2,000. In contrast, in the public sector wages are higher. Consider that these people do have the possibility of contributing an additional percentage of their income to the treasury.

MeanwhileRodrigo Gómez de la Torre, as president of the Chamber of Agriculture of the First Zone, said that his sector maintains its position that rural lands should not be taxed with the temporary contribution to the patrimony.

The union representative said that currently farmers already pay high property taxes that are overvalued. He also explained that these types of measures take away liquidity in the middle of a complex year. He insisted that they will express this to the Assembly.

From the first proposal in the Law of Creation of Opportunities, his sector claimed that the temporary contribution would affect them, since the land is their means of production and their universal heritage. There are many farmers who have their land in their own name and not in a company. Additionally, he noted Gómez de la Torre, what the Government has changed in the proposal is a paleative issue but not a technical one.

Proforma would arrive between Friday and Saturday

The Minister of Economy and Finance, Simón Cueva, reported on Friday morning that the 2022 budget proforma would be sent between Friday 29 and Saturday 30 August. Until the closing of this edition, it had not yet reached the Assembly. The proforma 2022 will not contain the tax revenues that the Government intends to collect with the tax reform called the Economic Development and Fiscal Sustainability Law after the COVID-19 Pandemic. This, because according to the law, only income that is fully approved can be included. This is not the case of the reform that has just entered the Assembly.

In any case, the minister He said he was convinced that a good dialogue would be able to approve the issue and thus strengthen the country’s prospects. Ecuador is currently working with the 2020 proforma, since those of 2021 were not approved by the Assembly, due to problems of deadlines in the delivery of the corresponding documentation.

The Assembly will have to deal with the Economic Development Law (tax reform) almost at the same time as the 2022 proforma. Both arrive at almost the same date and must be dealt with in 30 days.