Taxes. In the last 15 years, Ecuadorians have faced between one and two tax reforms per year.
Public finances have a growing deficit. The temptation to reach into citizens’ pockets will be the order of the day with the next President.
According to an analysis by the Fiscal Policy Observatory, the state revenue, within the General State Budget (PGE), totaled $1,501 million in June 2023; while the billswithout taking public debt amortizations (quality payments) into account, reached $1,908 million.
That is to say, In just one month there is already a red or missing balance of $407 million. This lack of resources can be deepened with the result of the popular consultation on oil exploitation in the ITT and with the negative effects of the El Niño phenomenon.
With the promise to reactivate the economy and generate employment with more spending and public works, and with fewer resources even to pay for the basics in the State, The way is open for the next President of the Republic to seek again the tax reform formula: more taxes and more income for the Treasurybut less liquidity and more charges for individuals and companies in the private sector.
Next, it is detailed where the five candidates with the most options to reach Carondelet are aiming, in tax matters:
Luisa Gonzalez
According to his government plan, he proposes raise the tax burden to international standards and apply progressiveness criteria; not only in taxes but also in other issues such as contributions to security, tariffs, among others.
According to a latest study by Análisis Semanal, under “proposals for 18 months, the candidate of the Citizen Revolution is in favor of increasing the Tax on Foreign Currency Outflows (ISD)”.
It must be remembered that Andrés Arauz, current candidate for vice president of Correísmo and who in 2021 disputed the Presidency with Lasso, at the time proposed increase the ISD to more than 20%.
González, like the rest of the candidates, proposes fight against evasion and establish a progressive tax system, that is, where those who have the most pay more; but it does not give concrete clues on how to achieve those objectives.
Lasso’s first tax reform, which significantly raised the income tax of Ecuadorians with the highest income, was criticized by all political sectors, including correísmo, but it was progressive, as most of the candidates now propose.
Yaku Perez
The Pachakutik candidate proposes to create one contribution on companies to finance their social programs. Its goal is to raise revenue by around $2.4 billion, that is, more than 2% of the Gross Domestic Product (GDP), according to the Weekly Analysis.
But if the government plan is analyzed, the goal is more ambitious. It is intended that the income tax, which in 2022 represented 4.6% of GDP, will now collect the equivalent of 15% of GDP, that is, an increase of more than 10 points.
Supposedly, that significant increase in income tax would be offset by less VAT; but it does not explain how to achieve it in a country where less than 400,000 people pay this tax and more than 60% of trade is informal.
Otto Sonnenholzer
In his government plan, the candidate of the Alianza Actuemos, proposes fight against large tax evaders to guarantee tax justice and equity, through the strengthening of the unit of large taxpayersthe strategic management of information exchanges, the improvement in customs control and the collection of large evaders of social security, and employers in arrears
But, at the same time, without giving further details about it, it aims to create a progressive tax reform and, according to Weekly Analysis, the candidate agrees to raise the ISD back to 5%
Like most of the candidates, it also offers to facilitate the formalization, especially of the micro, small and medium, but without clues on how to do it.
Fernando Villavicencio
The applicant from the Construye movement is in line with increasing collection through formalize the economy and review subsidies, exemptions and exonerations to companies. This review could be done via executive decree and regulatory changes, without necessarily going to a tax reform.
In his government plan, he literally promises “not raising taxes on the middle class and the poorest population”.
The complete elimination of the Exit Currency Tax (ISD) is included, but it does not rule out modify tariffs (increase) to “defend the current dollarization system and promote the development of those sectors and industries where our country has competitive advantages”.
All the candidates assure that they want tmake public spending transparentwhere in most cases they propose publicize recruitment processes more openly; but Villavicencio includes the creation of the Technical Office of Budgetary Control as an entity attached to the Presidency, for the evaluation of the quality and quantity of spending. (JS)
Sonnenholzner, Topic and González propose at least targeting subsidies, such as fuel, to finance spending on other issues.