By executive decree on Tuesday, President Guillermo Lasso, repealed Ecuador’s Foreign Currency Outflow Tax for suppliers of fuel and natural gas. The assessment, commonly called the exit tax, remains at 4.75 percent for other financial transfers out of the country but is being reduced by .25 percent every three months.
Lasso said that the tax has limited fuel imports to low quality products and discouraged market competition. “With this action we are opening the energy market and allowing it to reduce charges and provide higher grade fuels,” he said.
Although Ecuador is a net oil exporter, limited refining capacity means it must import much of its gasoline and diesel fuel for domestic consumption. The country also lacks the production infrastructure to meet its needs for natural gas.
In a Tuesday interview, Lasso said that the entire financial exit tax will be eliminated by the time he leaves office in three-and-a-half years. The tax was imposed 10 years ago by the government of former president Rafael Correa to stem outflows of cash and generates an estimated $1.2 billion in revenue annually.
“The tax has been a major deterrent for attracting foreign investment,” Lasso said. “Foreign companies, especially companies that operate in multiple countries, need the option to move money in and out of Ecuador to support it activities. The tax must be eliminated on all transfers to bring the country into alliance with the world economy and what we did today is a step in that direction.
Lasso added that the loss of tax revenue from the elimination of the tax will be recovered as businesses in the country expand.