Daniel Noboa prepares new tax reform in Ecuador
A tax reform in Ecuador will be one of the first steps of Ecuador’s president-elect, the young Daniel Noboa.
Ecuador has approved 29 tax reforms in the last 17 years, which is almost two laws per year.
And as it seems customary, in 2023 there will be a new reform, as announced by President-elect Daniel Noboa.
Noboa said that the tax and energy reforms will be the first to be submitted to the Assembly, once he takes office, which is scheduled for December 1, 2023.
The tax reform in Ecuador was announced by Noboa after his visit to the United States, where he has met with multilateral organizations, congressmen and investment banks.
What is known about the tax reform in Ecuador, is that Noboa clarified in a dialogue with the investment bank Barclays that his tax bill will not include raising taxes.
Noboa told the executives of this investment bank that he will fulfill one of his campaign offers: to reduce taxes.
According to the president-elect, this reduction will be an incentive for “companies to hire more talent and Ecuadorian labor“.
In addition, the bill will include the reduction of the Value Added Tax (VAT) on construction materials, from 12 to 5%, in order to reactivate this economic activity.
Noboa’s offer comes at a time when tax revenues received by the General State Budget have fallen. Until October, the State’s income from taxes totaled USD 12,210 million; this is USD 574 million less than what was reported in the same period of 2022.
And they could fall further considering that President Guillermo Lasso offered to continue with the reduction of the Tax on the Exit of Foreign Currency (ISD) to 2% at the end of 2023.
Today the ISD rate is 3.5% Prepares new tax reform in Ecuador
On the other hand, the benefits granted to families to pay less Income Tax since July 2023 have a cost of USD 200 million, which have not yet been fully compensated.
Higher tax benefits will mean less income for the fiscal treasury, which is in arrears for USD 1,748 million in payments to suppliers, the IESS and local governments, in a quarter of great expenses, because in December the tenth or double salary is paid to public servants.
The tax reform in Ecuador will have to face the fiscal deficit, which is created when income is not enough to cover expenses, and is already close to USD 2,800 million.
This means that the Government needs to resort to indebtedness to cover the fiscal gap. Noboa requested the assistance of multilaterals such as the World Bank and the International Monetary Fund during his visit to Washington.
The coming to power of Lenin Moreno also brought new tax changes.
On the one hand, two tax reforms were repealed, the capital gains tax and one that introduced environmental taxes. On the other hand, four tax reforms were processed and approved.
The most important was the Tax Simplification and Progressivity Reform, which introduced special contributions to be paid by high net worth companies.
Also read: United States Adds 150,000 New Jobs in October.
