Mass protests threatened if government pursues new capital gains tax law

Dec 9, 2016 | 13 comments

Ecuador could see a repeat of large-scale anti-tax protests that brought Quito and Guayaquil to a standstill 18 months ago. Those protests forced the government to withdraw legislation that would have increased capital gains and inheritance taxes.

A 2015 anti-tax protest in Cuenca.

A 2015 anti-tax protest in Cuenca.

President Rafael Correa reintroduced a new version of the capital gains law relating to real estate sales to the National Assembly this week and business and community groups say they will take to the streets again, if necessary, to oppose it.

The new legislation would tax what the government considers to be “extraordinary gains” on real estate sales at a rate 75%. The tax would apply to second sales of property and would exempt “ordinary” gains based on inflation, improvements and “reasonable gains.”

Correa claims that most property sellers will pay less under the new law than under current law.

Almost all business groups in the country oppose the legislation, as do seven of the eight presidential candidates, both on the political right and left, Lenin Moreno, a member of Correa’s País party, being the exception. A number of groups representing farmers and indigenous communities have also announced their opposition.

Ecuadorean Business Committee leaders at Wednesday press conference.

Business leaders at a Wednesday press conference.

At a Wednesday press conference in Guayaquil, the Ecuadorean Business Committee called on the government to withdraw the legislation. “We are in an economic recession that is only recently showing signs of ending,” said committee chairman Ricardo Martrinez. “We are also entering a political campaign to elect a new government. Now is not the time for such radical legislation.”

Martinez calls the proposed 75% tax a form of “confiscation” that stigmatizes individual initiative to generate personal and family wealth. He adds that Correa is wrong in claiming that most real estate sellers will make more money under the new law. “This makes the people poorer at the expense of the government,” he says.

In a press release, the business committee said that the new law would deepen the current construction industry slump that has seen the number of projects drop by more than 50% since 2013. It added that businesses that supply the construction industry will also be negatively affected.

Political parties and community organizations are asking members to “prepare to mobilize” if the legislation advances in the National Assembly, where it is currently in committee review. “We are prepared to organize a great national crusade to stop this law,” said Social Christian Party presidential candidate Cynthia Viteri. “We will not allow Correa to implement his socialist plan.”

The Socialist Party of Ecuador also opposes the legislation.

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