Government considers eliminating or reducing the exit tax on wired money and advance income tax

Ecuador’s Internal Revenue Service (SRI) is evaluating the financial impact of eliminating or reducing the tax on funds sent out of the country and the advance income tax on businesses. In discussions with the Productive and Tax Advisory Council, composed of business leaders and government officials, the two taxes top the list of business concerns.

SRI’s Leonard Orlando

According to Leonardo Orlando, director of SRI, elimination of the exit tax would cost the government about $1.1 billion while elimination of the advance income tax would mean a loss of $233 million. He said his office also making calculations for a reduction and multi-year phase-out of the taxes.

In dialogs with the the government, business leaders have claimed that government income lost from the elimination of the taxes would be made by increased tax revenues from improved business profits. “These taxes, especially the tax on money exiting the country, have had a dampening effect on business,” says Richard Martínez, president of Ecuador’s Chamber of Industries and Production. “The exit tax has greatly reduced foreign investment.”

The 5% exit tax applies primarily to funds wired out of the country, and was imposed by the Rafael Correa administration in 2010 to keep dollars in the country. Since Ecuador uses the U.S. dollar, the former government argued, the flight of money out of the country posed an economic threat.

Minister of Industries Eva García said she is evaluating the impact of the tax reductions along with the SRI. “I understand the argument that adjusting these taxes downward would boost business activity and investment,” she said. “This has to balanced against the immediate loss of revenue in a struggling economy.”