Lasso announces a reduction of currency exit tax and VAT and ICE taxes during 2023 holidays

Following through on a campaign promise, President Guillermo Lasso announced Tuesday he was reducing the currency exit tax from 4% to 2%. He also said that the value added tax (IVA) and special consumption tax (ICE) will be reduced during four national holidays in 2023.

During his presidential campaign, Lasso claimed the currency exit was a deterrent to foreign investment and trade since it taxed companies and individuals 5% on funds transferred out of the country. The tax was reduced from 5% to 4% in early 2022.

President Guillermo Lasso

The government had earlier announced targeted exit tax reductions to international airlines and three other industries, but Lasso said this was unfair to others. “This was necessary in the case of airlines to increase air connectivity but it must be applied to everyone equally,” he said. “This is a tax that punishes commerce and is a deterrent to trade with other nations and I intend to reduce it to zero by the end of my term.”

He added that the exit tax also reduces the amount of needed industrial and technological equipment imported into the country since local companies must absorb the tax when they make payments to international vendors.

In his news conference, also said the IVA and ICE rates will be reduced during Carnival, Easter, the Day of the Dead and the Cuenca Independence holidays. IVA will drop from 12% to 8% while the ICE, or luxury tax, which varies by product, will see across the board reductions. ICE applies to alcoholic beverages, soft drinks, plastic bags, firearms and a variety of other products.

In the case of firearms and ammunition, the tax will drop from 300% to 30%, a reduction Lasso said is necessary to allow authorized users to “properly prepare for the fight against crime.”

The intention of the holiday IVA reduction, Lasso said, was intended to promote tourism and travel within the country.

Lasso said the tax reductions are necessary to promote the “revitalization” of the economy. “These reductions will put more money in the pockets of Ecuadorians at a time when many continue to struggle in the aftermath of the pandemic. In total, the holiday reduction in the IVA will mean $140 million additional money circulating in the economy.”

After the IVA and personal income tax, the ICE and currency exit tax generate the most income for Ecuador’s Internal Revenue Service.