Active legislative week with positive results

ECUADOR - In Brief 09 Feb 2024 by Magdalena Barreiro

---

After several weeks of discussions, agreements, and disagreements, there is finally a decision on the tax reform proposed by President Daniel Noboa to raise the VAT tax from 13% to 15%. His original proposal was not approved by the Assembly and after several debates, the plenary voted individually for the proposal from Correistas and Social Christians, but not for the VAT increase. Social Christians and Correistas proposed two alternatives to the VAT increase. Correistas proposed a progressive tax on 2023 profits from private banks and cooperatives that exceed $10 million. This is a one-time tax that might help the government collect close to $150 million no later than May 25th. The highest tax rate of 25% is for profits over $100 million, and the three largest banks will be taxed at this level. On the other hand, Social Christians proposed also a one-time, 3.25% percent tax over 2022 profits of private businesses with the exemption of micro and small businesses. This tax might collect close to $325 million. The president can also raise the capital outflow tax from the current 3.5% to the previous 5%, thereby increasing tax collections by an additional $250 million.  On the other hand, there will be a 5% reduction on VAT taxes paid on local purchases of construction materials, which has not yet been quantified, but that will have an estimated impact no higher than $50 million. Presidential Noboa issued a partial veto of the document approved by the Assembly, and the Assembly also very quickly qualified the veto without reaching the 92 votes to nullify it. Thus, today, the above proposals were ratified, together with an increase of the VAT tax from 12% to 13%, which wil...