Government will modify tax policies on collection and inheritance

September 13, 2021

Mónica Orozco and Diana Serrano provided their clarifications through “El Comercio” website regarding the details indicated by the Ecuadorian Government with respect to the new economic agreement reached with the International Monetary Fund (IMF).

1. Government statements

As commented by the authors, last Monday, September 6, President Guillermo Lasso said that the previous government had negotiated to increase tax revenues by USD 2.5 billion, but that his administration has made a better negotiation so that the goal is not of that magnitude. In addition to the above, details of some of the guidelines of the new tax reform were provided, stating that it will seek to combat tax evasion.

Likewise, the Ecuadorian President pointed out the elimination of the inheritance tax, established in 1927 through the Law of Inheritance, amended in 2008, when the tax rate was modified.

It is important to point out that, according to a PwC ranking, Ecuador is among the seven countries charging the highest percentage of inheritance tax in the world. (60%).

2. Inheritance tax

Ecuador’s inheritance, bequests, and donations tax are levied when an heir or beneficiary receives an amount of USD 72,090.01 or more and must pay a progressive tax starting at 5% and going up to 35% when the amount received exceeds USD 865,113.

The latest statistical results show the tax in question representing only 0.2% of the country’s total tax collection. In 2020, the SRI (Servicio de Rentas Internas – Internal Revenue Service) collected USD 24.37 million for this tax, which places it among those with the lowest collection.

3. Tax problems

According to the US non-governmental organization TaxFoundation, many countries have recognized this type of tax as a bad source of revenue as high control costs, eliminating it as a result.

Likewise, another existing conflict is the paperwork, since even those who do not reach the expected amounts must comply with the IRS paperwork for the control of the declarations.

Source: El Comercio 09/09/21