The economic recovery and the tax reform that raised the Income Tax for individuals explain the good performance of the collection in the first half of 2022. The higher collection in the first half of 2022 it was driven by Income Tax (IR), which represented 36% of the total. In the first six months of 2022, the SRI collected USD 3,119.2 million for this tax paid by companies and individuals. Compared to the first half of 2021, it represents a growth of 28%. Twitter vs. Musk: the fight is about to begin another tax that performed well was the Value Added Tax (VAT), which represented 35% of the total collected. VAT collected USD 3,909 million in the first half of 2022; this is 27% more than in the same period of 2021.
Income with more momentum
By 2022, according to the Ministry of Finance, the goal is to collect USD 4,600 million in IR. As we reach the halfway point of the year, 68% of that goal has been raised. This higher collection is due to three factors. One of them is that, after the economic contraction of 2020, companies recovered and generated more sales in 2021, explains Javier Bustos, a tax analyst.
For this reason, the collection of the tax (which corresponds to the income of 2021) reaches its highest peak in the fourth month of 2022, which is when it is declared. In April 2022, the SRI collected USD 1,185 million for IR, that is, it grew 67% compared to April 2021.
Tax reform
Yael Fierro, tax analyst, explains that another factor that has driven the growth of Income Tax in 2022 It is the highest taxation of natural persons who are under a dependency relationship. After the tax reform, which came into force in November 2021, people who earn more than USD 2,000 per month pay more Income Tax in 2022? In addition, the reform eliminated the deductions for personal expenses that taxpayers could make to their income, and that allowed the amount to be paid to be reduced. Each month of 2022, employers have been deducting the proportional Income Tax for the year from their workers. Between January and May 2022, the SRI collected USD 146.7 million for Income Tax from natural persons; this is 28% more than in the same period of 2021.
The Ministry of Finance projects an additional collection of USD 100 million in 2022 for this concept. A third factor, says Fierro, is that the tax reform established the cancellation of interest and fines for taxpayers with debts who take advantage of mediations and pay the capital.
Challenges for the second semester
Bustos, a tax analyst, explains that the higher collection of VAT and Income Tax shows that the country experienced a recovery in consumption compared to the first semester of 2021. However, in the following semester of 2022 it is possible that the growth of these two taxes is lower than expected, says Gabriela Uquillas, executive director of the Ecuadorian Business Committee. This, due to the 18-day national strike that affected the sales of companies in the agro-export sector, which are among those that pay the most. According to Uquillas, due to the losses of USD 800 million generated by the strike, the productive sector asked the government for facilities to pay taxes. "We ask for more slack in times to pay taxes and other commitments, for example, with the IESS, because the strike affected the liquidity of the companies," he says. For 2023, a greater growth of the Income Tax was expected, due to the tax reform. The Ministry of Finance projected an increase of USD 712 million in the collection of this tax.
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