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Correa’s tax plan would restrict the amount of untaxed cash that can be taken out of the country and limit senior VAT refunds

No one was surprised by provisions in President Rafael Correa’s budget-balancing legislation to increase taxes on cigarettes, alcohol and soft drinks. Almost everyone was caught off guard, however, by some of the other changes he proposes.

President Rafael Correa
President Rafael Correa

The legislation, called the Organic Law for the Balance of Public Finances, was delivered to the National Assembly Wednesday night and made public Thursday.

Among the proposals are one that would reduce the amount of cash travelers can take out of the country tax-free, from $11,170 to $1,098. Although opponents of the reduction say it is an infringement on individual liberty and access private money, Director of Ecuador’s Internal Revenue Service Leonardo Orlando says the measure is needed to combat money laundering. The rule would apply to tourists as well as citizens and residents.

Cash taken out of the country above the $1,098 limit would be taxed at five percent, the same rate as for out-going wire transfers and checks cashed out of the country.

A provision of the legislation that will affect some expats is a new annual limit on VAT refunds for people over 65. The new limit will be $732. Under current law, an individual can receive refunds up to $1,830.

As announced two weeks ago, the legislation raises taxes on cigarettes, alcohol and soft drinks. Cigarettes will cost two cents more per unit and the price of a bottle of beer (pequiña) will rise 13 cents.

Another provision would assess a 15% tax on phone companies, both fixed and mobile.

One of the intents of the legislation is to expand the government’s electronic money system. The tax on phone service providers would be waived if their customers pay through the electronic system. In addition, VAT and income tax refunds would be paid via electronic money.

The electronic money system, started by the government two years ago, has not been well received by the public. To date, only 60,000 have signed up. The government had hoped for 500,000 accounts by 2016.

In all, the legislation contains nine changes to current tax laws and rules that the government says will raise $300 million annually.

Debate begins Monday, April 4, and a final vote is expected within 30 days. With Correa’s País party holding a super majority in the Assembly, the legislation is expected to pass.

 

32 thoughts on “Correa’s tax plan would restrict the amount of untaxed cash that can be taken out of the country and limit senior VAT refunds

  1. These liquor prices are enough to drive a man to drink! I’ll drink berry smoothies instead. And $1,098 limits on cash out of the country? No way. Will not pass.
    In my town, locals have been selling what must be illegal booze from their cars. A new black market seems to have opened up. Good thing I am an honest citizen; I do not partake in such illegalities. I leave law breaking up to the gov’t, since they are best at it.

        1. Yup, a “little place” with nearly 600,000 residents. Seems like the dolts are having a convention this morning. Of course hypocrites like ecexplorer would be the first to complain about lack of planning for the future when the little pueblo of Cuenca grows to a million people and gridlock chokes el centro and people grow sicker and sicker due to the bus fumes.

          1. Where did you hear that I would complain in the future about lack of planning. If I somehow said or implied that I retract and apologize.

            1. Nah, I was really just criticizing my foil, LadyDolt who truly would complain about something she advocated but didn’t work out the way she planned or hoped for.

        2. Isn’t the population of Cuenca 500,000 + wouldn’t less cars and more public transit and pedestrian ways be better…

          1. 585,000 is a lot closer to 600,000 than it is to 500,000.

            Ecuador’s National Institute of Statistics and Censuses (INEC) reports that Cuenca’s population has grown by 62,000, or more than two percent per year, since the 2010 census. The city’s metropolitan population currently stands at 585,000, INEC says.

            https://www.cuencahighlife.com/ecuadorians-returning-from-overseas-power-cuencas-population-growth-city-adds-56000-since-2010-national-census/

          2. Thinking on terms of cost-benefit would lead to thinking that it would be better to re-orient traffic patterns in El Centro and perhaps later create Tranvia when the city and national governments have the money to pay for it without tacking it on to the deficit. I plead guilty of thinking like an economist but gringos that spent their whole life mismanaging their assets and now finding themselves broke and complaining about Ecuador’s fiscal condition will find fault anyway. Hammer away!

            1. Nothing wrong with thinking like an economist as long as you aren’t a Keynesian economist. If you’re schooled in Austrian or Chicago School economic thought, I’m right with you.

              However, you may be off a little in the specifics of your plan. First, the tram was conceived, planned, designed and funded before the huge drop in oil prices struck the revenue base of the Ecuadorian government. Second, reorienting traffic patterns in el centro will do nothing to address the problems of narrow rights of way. The city carefully studied the routes before settling on the Mariscal Lamar and Gran Colombia routes through el centro and found them to be the lesser of evils.

              Let’s face it. You will run into NIMBY’s wherever you go and people will always complain about what affects them adversely. This is the best they could do.

            2. Beware…people who have no compassion will surely reap what they sow. “Gringos…spent their whole life mismanaging their assets…” I am trying very hard to control myself and not spew expletives at you….

      1. Oh, how cute. The amantes kissing in public. John G finally comes up with an intelligent, humorous post that doesn’t tell us to prepare accordingly, but his dolt amante, in spite of every one of her fake concerns about the tranvia being addressed and debunked, just continues to take meaningless pot shots from the cheap seats. How pathetic.

  2. He is doing this because he isn’t running for office again. If he did he would lose. You can only tax people so much and I think the Ecuadorian people have had enough taxes placed on them. All I can say about taking money out of the country is Bring a credit card and debit card with you and get your money when you arrive back in the States or wherever you are traveling too.

  3. Just paid our first electric bill with various taxes already added for police, firemen, garbage removal (besides what we already pay for the latter with our condo), seems like perhaps 16% plus IWA as I recall. If they want ex-pats to stop coming – and investing in Ec – this proposal may be a quick way to achieve that!

    1. Awwww, those poor ex-pats! Now they will have to pay about 20% of what they paid for utilities “back home” instead of the previous 15%. I’m sure that will deter lots of them from coming down here to take advantage of a cost of living that will still be 25% of what it would have been for them “back home”

      Hmmmm… “Walking it out”. What an apt screen name. Maybe you can just start walking south and mooch off the Peruvians for a while until they return Ecuador to your liking. We’ll really miss you.

      1. Right. And the limit in IVA refunds is a good thing. The purpose of that program is to assist the poor Ecuadorians. By Ecuadorian standards we are in no way poor except by our home country standards. Of course it may limit bar hours for some but is that a real necessity of life?

        1. What is this, Alice in Wonderland? I’m agreeing with you all day. What will tomorrow bring?

          1. Hahaha Actually, you and I are on the same page for the most part. It is just that we are not afraid to disagree on other things.

  4. This is what happens when you deficit spend the way the current administration has done since PAIS took control of all branches of government. Defaulted on $3.2B to IMF and now the debt in $33B+, can’t print the own currency, electronic currency has been a failure, China WON”T forgive loans, pumping oil at a loss to pay debts! The country is in a very bad way and the current president is going to run to Europe

    1. True that currency is a big problem. As long as US policy continues to prop up the dollar exporting economies that use the dollar like Ecuador will continue to suffer. The Colombian peso has lost around 50% of its value against the dollar and their economy and exports are doing very nicely.

      1. I pray for the day that one of your posts is based on facts, logic and reason. The Colombian economy doing very nicely? Adequate proof that you don’t know what you’re talking about. Tell that to all the economic refugees that keep flocking here from Colombia, Venezuela and Peru. Wait until Brazil collapses. Hope you speak Portuguese.

  5. Sounds like there are a lot of angry drinkers out there. First — it’s about time that the VAT for seniors was reduced, although I would not reduce it for Ecuadorians, many of whom have actually lost their pensions and are struggling to make ends meet. Cigarettes and alcohol are luxury items and not necessary for day to day living, so if taxes need to be increased, then that is probably the best place to increase them. What is with this criticizing the tranvia? It will help to reduce the traffic congestion in El Centro and greatly reduce air pollution. It’s a ‘clean’ form of transportation. You guys need to look on the bright side of things…and make some effort to look at the realities that many Ecuadorians now face.

    1. Bless your heart. The voice of reason has finally reared its head. Thank you for coming.

    2. Are you sure that the Tranvia will reduce traffic in El Centro? Are you saying that people will abandon their cars to take this train? That is a dream waiting to be realized. Are you also sure about the reduction in air pollution? And is it worth forcing countless generations of Ecuadorians to pay for this just to avoid a few black fumes? Ah! my opponents are true Americans who believe that the public coffer has no bottom. Just keep borrowing money – that’s the American dream.

  6. I’m not there yet, and these might be stupid questions, but…

    So, if I bring say $10,000 in cash with me when I come there, will I have to pay any tax on it on the way in? (Or other fees)
    And, when I leave, whether to visit back home or because I don’t like it and want to move, will they tax me on it? What if I go back home for a visit, and want to bring $2,000? Do they search your purse (and your person) to see how much money you have?

    Also, what is VAT?
    Thanks

    1. No tax on the way in. And all you have to do is keep in touch with the forums and there are a lot of grongos that can give you advice on how ro smuggle dollars out of the country. Some don’t seem terribly respectful of Ecuadorian law.

      1. Thanks for the reply, but I’m not really looking to smuggle anything. I was just wondering if you take a couple thousand out for a vacation, how would they know it, and would it be taxed?

    2. Chemfreemom? Hardly. I recognize the style from The Expat Exchange and you are the one that posts there as Organicmom. Why are you wasting our time here as well? You have never visited Ecuador and never will. You are an armchair troll and all of your questions can be answered with just a little bit of research on your own part.

  7. What’s going to happen when the US dollar crashes in the near future? I would think the American expats receiving Social Security benefits and other US retirement funds are going to be in for a rude awakening. It’s not a matter if it is going to happen – just a matter of when.

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