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It’s true, it’s ridiculous, and hopefully it won’t happen, but Ecuador plans to raise the tax on money sent outside the country from 2% to 5%.It will only raise prices as importers will be forced to cover their costs somehow. It’s all part of the antiquated, outdated, protectionist and erroneous strategy of import substitution the country has been practicing for the last few years. Supposedly this is going to protect local producers of goods to enhance and improve the business environment for local industry-by, no less, making imported goods more costly and thus less attractive. Yet Ecuador produces very little of high quality in the first place. And if the country wants to move towards a strategy of increasing industrial production of quality goods-well, it needs to import equipment from abroad to make those goods in the first place! The only thing we’re going to end up with here are more mediocre locally produced goods, and high-priced, low quality goods from China! And if you listen to the rhetoric in the clip here, it sounds like they’re also terrified of a liquidity crisis in the country as too many dollars are moving out, too few moving in, and they have no tools for monetary policy to control the outflow other than the proposed measure.

There is an article published about it here¬†in Spanish and I’m including a version of it below, with my edits, in English.

QUITO . The Departure Tax on Foreign Exchange (ISD) will rise from 2% to 5%, as presented by the new tax reform will be sent to the Assembly as a matter of urgency by the Executive.

This was confirmed by the director of the Internal Revenue Service (IRS), Carlos Marx Carrasco, in Guayaquil during a seminar organized by the Ecuadorian American Chamber of Commerce and the Human Factor.

According to a report by the Bureau of Analysis, the new reform, which would be the eleventh in this government, provides for three fundamental changes: increase of 2% to 5% tax on foreign exchange outflow, extending from 3 to 6 year period expiration of the given capacity of SRI, and a tax exemption for sporting weapons.

About the ISD, the proposal remains is to tax the export amounts to remain abroad and added an increase of three points.

According to Carrasco, on this issue there are a number of important exemptions which deal with the allocation of tax credits, which will not affect production. But imports of consumer goods and luxuries, he said.

Employers yesterday rejected the measure. Bernardo Acosta, vice president of the Chamber of Industry of Pichincha, called it wrong and harmful to the productive apparatus.

He explained that it is worrying that the government insist on a measure that does not meet the purpose for which it was created, ie, keeping capital in the country.¬†Rather, it discourages investments, it is not attractive for foreign investment in Ecuador if you then will have to pay taxes when you take them out.¬†“The measure not only is a loser for business, but for consumers,” he said.

Joaquin Carvajal, president of the Ecuadorian American Chamber of Commerce of Guayaquil, deemed the measure excessive. There should be a tiered tax, depending on how much capital you are sending out of the country.

The ISD has increased from 0.5% to 1% and then to 2% during this administration.

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Welcome to Destination Ecuador!

Welcome to Destination Ecuador! My family and I have been living in Ecuador for the last four and a half years. We’ve dealt with the worst kinds of red-tape, searched out or ended up making hard-to-find ingredients ourselves, imported equipment for making chocolate confections, learned the import-export business...Continue >>

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