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Ecuador’s Tendency Towards Tax Reform: A Deeper Understanding

A History of Reform: Ecuador’s 30 Tax Changes in Two Decades

With the election of President Daniel Noboa, Ecuador stands on the brink of its 30th tax reform in less than twenty years. This frequent overhaul of the tax system raises questions regarding the motives behind these persistent changes and their overall impact on the nation’s economy.

The Inception of Reform: President-Elect Noboa’s Proposal

As President-Elect Daniel Noboa steps into office on December 1, he brings the promise of new tax legislation. The incoming reform, according to Noboa, aims to reduce the tax burden and organize it effectively, with the broader agenda to enhance Ecuador’s competitiveness with its neighbors.

Noboa eyes tax reductions as a means to encourage companies to employ Ecuadorian workers. He also plans to slash the value-added tax (VAT) for construction materials from 12% to 5%, providing significant relief and potentially spurring the construction sector.

Ecuador’s Economic Reforms: An Overview

Speaking to Sputnik, economic sociologist Andrés Chiriboga points out a “recurring need for reform” within Ecuador’s tax system. While these reforms may respond to greater needs for tax collection or moments of economic distress, such as natural disasters, a notable shift in the country’s economic policy has fueled continuous reforms under various administrations.

Analysis of Past Governments: Correa to Lasso

During Rafael Correa’s presidency (2007–2017), approximately 22 tax reforms were introduced, drastically increasing state revenue. Correa’s administration was succeeded by Lenin Moreno and Guillermo Lasso, who also enacted their respective tax legislations, with Moreno passing four reforms and Lasso introducing three.

Business Sector and Tax Reforms: Missed Opportunities?

Chiriboga identifies a “double responsibility” at play. On one hand, there’s the business community that has often failed to capitalize on the existing tax benefits. On the other hand, governments have not actively promoted these advantages, leading to a gap in the awareness and application of available tax exemptions.

Urgency vs. Impact: The Tax Reform Dilemma

Noboa’s limited tenure may inhibit the full realization of the reform’s effects, warns Chiriboga. Even if the reform is urgently enacted, the fiscal and social impact generally takes about a year to manifest, meaning that the true influence of Noboa’s policies may remain unseen during his term.

Facing the Future: Strategic Tax Implementation

Experts suggest that for tax reforms in Ecuador to be forceful, they need to target significant capital, restrict the outflow of funds to tax havens, and encourage the repatriation of capital. While reforms aiming at these outcomes could significantly influence the economy and the nation’s dollarization process, their immediate results might not be readily apparent.

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