Moreno’s tax reform proposals go to the Assembly without an IVA hike

Oct 21, 2019 | 135 comments

The government hopes to generate almost $600 million in new revenue from a series of new taxes and adjustments to current taxes. The package of proposals, which does not include an increase to Ecuador’s 12 percent IVA tax, was submitted to the National Assembly on Saturday.

Ecuador Finance Minister Richard Martinez

Among the proposals is an income tax surcharge for large companies and the elimination of exemptions for families earning more than $100,000 a year.

In television interviews over the weekend, Finance Minister Richard Martinez said that many of the proposals are recommendations from the International Monetary Fund (IMF), which is coordinating a $9.5 billion loan package to Ecuador. “We have listened to their recommendations and have taken their advice in many cases,” he said.

Martinez says that the government still hopes for savings by reducing fuel subsidies that were rescinded by President Lenin Moreno in an October 13 agreement with indigenous leaders. “We have not given up on this and are working with Conaie [Confederation of Indigenous Nationalities] to develop a new plan to reduce some of the subsidies,” he said.

He added: “Above all, it is very important that citizens understand there will be no increase in the IVA tax. There has been misinformation in the media about this suggesting we would raise the rate and this is not true.” The IMF proposed a three percent IVA increase, citing the fact that Ecuador has one of the lowest rates in Latin America.

In addition to proposals to increase revenue, the economic reforms include concessions to business that Martinez says will generate more tax revenue in the future. Among them are the elimination of the advance business income tax, which required companies to pay tax on estimated income, reduction in paperwork and taxes for small businesses, and a partial elimination of the tax on funds sent out of the country.

“One of our chief aims is to make it easier for little businesses to operate in the country,” Martinez said. “We are a nation of small family businesses and recognize that some old laws and requirements are too burdensome.”

The new income tax on large companies would cost companies between .10 percent and .20 percent depending on total revenue.

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