Ecuador recently amended its Organic Law on Production Incentives and Tax Fraud Prevention, a reform measure that entered into force on 1st January 2015.
The law, designed to collect 200 million dollars in annual revenue, overturns 10 earlier laws and attempts to provide greater incentives for domestic production by modifying various areas of Ecuador’s tax system.
In the process of preparing this reform, the European Union’s EUROsociAL II Programme supported anexperience exchange between Chile and Ecuadorfrom 9th to 11th December 2014 in Santiago, Chile. This was in response to the Ecuadoran government’s desire to learn in depth about the tax reform carried out in Chile in 2014, with special emphasis on thespecial taxes and tax incentives implemented in Chile to encourage investment and production.
Among other issues, the reform affects Special Consumption Taxes on cigarettes and alcoholic beverages, including beer. Similarly, the law includes tax incentives to change the country’s energy grid and decrease the consumption of imported fuels.
The reform prohibits companies from claiming an income tax deduction for advertising expenses related to “hyper-processed products”, that is, those that increase the risk of obesity, such as soft drinks, candy and snacks (commonly referred to as junk food), which have little or no nutritional value, high levels of additives, and do not contribute to overall health.
The law also incorporates incentives for the small and medium-sized business sectors and companies in the people- and solidarity-oriented economy. In the area of tax fraud, the law includes mechanisms for preventing tax evasion and strengthening the tax system.
This activity is part of the plan-budget linking action of the Public Finance area of the European Union’sEUROsociAL Programme, coordinated by the FIIAPP with the Institute for Tax Studies (IEF) acting as its operational partner.