Ecuadorians pay up to twice less income tax than Colombians and Peruvians
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Loading... - Adriana Salazar
- 24 Mar 2022
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Before Guillermo Lasso's tax reform , approved in November 2021 and in force since January 2022, an Ecuadorian with a salary of $3,000 paid income tax equivalent to 2% of his total annual income . That is, a maximum payment of $654.96 over $32,598 received during 12 months.
By comparison, a Colombian , who earns the equivalent of $3,000, has been paying 9% of his income as income tax for several years. A Peruvian , with the same remuneration, delivers to the treasury 11% of what reaches his pocket in a year.
Thus, the scenario before Lasso's so-called “tax law” was that a high-income Ecuadorian paid between four and seven times less income tax than his peers in Colombia and Peru.
Comparative
From this 2022, those who earn $3,000 per month in the country, and are in a dependency relationship, will pay $2,142.28 per year, which represents 7% of their income. In contrast, their Colombian and Peruvian neighbors will continue to pay more, that is, around $2,847.69 and $4,748.26 per year, respectively.
Napoleón Santamaría, a tax attorney, explained that, after a study carried out jointly with experts from the two neighboring countries, it was determined that the current government's tax reform only closes the tax contribution gap.
“The increase in income tax hits 5% of the highest salaries in Ecuador. The middle class averages $1,100 to $2,000 in income per month. Those pay zero income tax, even with the Lasso reform ”, she pointed out.
Lorena Orellana, a tax attorney, recalled that, for 27 years, all freelance professionals in Ecuador must pay between 16% and 17% of their income in income tax and other surcharges.
“ Ecuadorians in relation to dependency , and high incomes, have been paying a very low percentage of income tax , not with respect to Norway or Denmark, but with respect to neighbors in Colombia and Peru, where the distribution of income is very similar to that of Ecuador”, he said.
The impact of the reform
The increase in the payment of income tax on natural persons is effective from January 2022. Its impact can be measured with the collection of the following month, that is, February 2022.
According to information from the Internal Revenue Service (SRI), $13 million more was collected that month for withholdings at the source. It must be remembered that Ecuadorians with adequate employment and under a dependency relationship have a monthly withholding of a percentage of their income, as long as they add up to more than $2,300.
In total, these additional $13 million represent less than a 6% increase with respect to the $237 million that are collected on average by withholding taxes.
In this context, higher income tax payments could be expected to increase collection by between $150 million and $160 million until December of this year.
These amounts are equivalent to less than 4% of the average collection of this tax during the last four years ($4,706 million).
Orellana pointed out that the additional collection will increase to around $400 million from 2023, due to the payment, under the new rules, of Ecuadorians in free professional practice.
“Citizens who now pay more taxes must be much more demanding with the quality of public spending ; and also request that the formalization of more people and businesses be promoted, which do not pay any tax to the treasury, ”he asserted. (JS)
payment differences
This 2022, an Ecuadorian with a monthly income of $3,000 will pay $2,142 a year in income tax.
A Colombian and a Peruvian will spend $2,847 and $4,748 respectively. Read More...
