According to a study by the Network of Development Financial Institutions (RFD), 65 percent of small Ecuadorian businesses do not have taxpayer registration numbers (RUC) and pay no taxes other than VATs on some purchases.
The government says there are 4.2 million small businesses, or micro entrepreneurs, in the country, with 39% of them, or 1.5 million, located in rural areas. By definition, the government considers a business of one or two people, or an immediate family, a small business.
In addition to lacking taxpayer IDs, many small businesses do not have bank accounts.
According to Valeria Llerena, RFD director, the study indicates two major problems. “On one hand, the country is not collecting badly needed tax revenue and, on the other, there is a lack of access to banking services for small entrepreneurs,” she says. In total, 55 percent of all Ecuadorians do not have a bank account.
Among other problems, Llerena says, is that small business employees are not covered by labor laws and are not contributing to the national Social Security program. “There is a very large informal economy in Ecuador, as there is in other Latin American countries, and this needs to be formalized to upgrade our standard of living.”
Llerena says that the electronic money system, or digital wallet, will provide many small businesses with financial services, but it will not put businesses on the tax roll.