National Assembly passes new capital gains tax but its future is uncertain

Dec 28, 2016 | 9 comments

Ecuador’s National Assembly passed President Rafael Correa’s capital gains tax on “extraordinary” profits on property Tuesday afternoon. The Ley de Plusvalía, intended to curb land speculation that, according to Correa, drives the prices of real estate out of the reach of most Ecuadorians, passed with 79 votes in favor and 27 opposed.

Presidential candidate Lenin Moreno.

The law, which does not affect sales on property that is currently owned, would impose a 75% tax on sales where profits are above a threshold established by the legislation

The future of the of the new law is uncertain, however, as Correa leaves office in May 2017, and seven of the eight candidates running for president say they would repeal it. Its only supporter is Lenin Moreno, candidate from Correa’s Alianza País party, and some of his supporters claim he would repeal or modify it if elected.

Polls show Moreno leads all candidates in the presidential race but also indicated that his advantage is shrinking in recent weeks.

Following the vote, conservative presidential candidates Cynthia Viteri and Guillermo Lasso repeated their claim that the law will discourage investment and is poorly timed, during an economic recession.

Supporters of the law claim that many average Ecuadorian have been priced out of the housing market by price inflation. Statistics provided by the national association of real estate agents show that property prices increased 200% from 2007 through 2014 while inflation and wages increased by 30%.

Ernesto Lopez of the Quito real estate association agrees that measures are needed to protect home buyers but says that the Ley de Plusvalía is not the answer. “Yes, the inflation in housing costs was too much for a period of time but we need to find a solution that is fair to both investors and home buyers,” he said. He added: “I am convinced that this law will not stand.”

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