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Rafael Correa Won’t Let Ecuador’s Death Tax Die

By: Jorge Chuya - Nov 2, 2015, 11:12 am
Following widespread protests earlier this year against an increase on the inheritance tax, Ecuadorian President Rafael Correa presents a new approach.
Following widespread protests earlier this year against an increase on the inheritance tax, Ecuadorian President Rafael Correa presents a new approach. (La Prensa)

EspañolLast June, Ecuadorian President Rafael Correa tried to increase the inheritance tax on individual estates in the country. The plan was to start at 2.5 percent for inheritances over US$35,400, and 77.5 percent for estates over US$849,500.

However, widespread protests across the country ultimately thwarted Correa’s initiative. Now, the Ecuadorian president aims to increase the revenue that the state gains from the death tax through different means.

On October 23, Correa sent a bill to the National Assembly that intends to make it more difficult for Ecuadorians to evade taxes on inheritances. While the bill would not increase the tax, it would prevent Ecuadorians from transferring their estates to national or foreign trusts, nonprofit organizations, or companies based in tax havens.

The so-called Organic Law for Avoiding Income Tax Evasion on Inheritances, Legacies, and Donations aims to address the “the need to implement indispensable tools to combat the distortionary practices that prevent [the government] from collecting the tax.”

The law would cover all property taxes on inheritances, donations, legacies, or any other act by which property is gratuitously transferred in Ecuador.

Untimely Bill

Aparicio Caicedo, a political analyst and founder of the Inteligencia Estratégica consulting firm, tells the PanAm Post that he believes the measure is “badly timed,” given the tense political environment in Ecuador. “Furthermore, it is based on an ideological whim, since it is a tax that — as they admit — doesn’t generate much revenue, but repels foreign investment.”

Caicedo says the protests earlier this year showed that Ecuador’s opposition “was strong and real,” and made Correa “give in” on raising taxes on inheritances and capital gains.

“Of course, such laws are not necessary. On the contrary, they are quite harmful, because it shows that the economic policy of the government depends on ideological whims of the president.”

The analyst believes that the current economic conditions in the country should compel the government to consider how best to encourage entrepreneurs, and “not how to better plunder their estates when they’re dead.”

Xavier Andrade, an economic analyst and head of institutional development at the Ecuadorian Institute for Political Economy, says Correa’s new bill has the same problems of the previous one. “The underlying principle is the same: redistributing wealth, or in other words, that the main way to help the poor is by taking from the rich.”

He agrees with Caicedo on the poor timing of the bill, adding that “Ecuador needs to stimulate private investment.”

“The problem is not about numbers or tables; the problem is the discourse that states that creating wealth is bad, when that is the path for sustainable economic growth, lifting people out of poverty,” Andrade says.

“The underlying problem is poverty, not inequality,” he concludes.

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An Expected Move 

During a press conference a month ago, the national secretary for Planning and Development, Pabel Muñoz, announced that the government was preparing a proposal “to fight against tax evasion through organizations, foundations, and trusts, particularly those based overseas.”

He said that the government was carrying out “national dialogues” on the inheritance and capital-gains tax, and expected such talks to last until this December.

Despite the new initiative, the government will decide in January whether or not to resend the initial tax-increase proposals to the National Assembly for a vote.

Translated by Adam Dubove.