Legal and fiscal doubts due to the announced reduction of the ISD for the air sector

Divided criteria on viability that the Executive can reduce the ISD by sectors

Several doubts, of a legal and fiscal nature, shoot after the announcement of the President of the Republic, Guillermo Lasso, about the elimination of the tax on the outflow of currency (ISD)for the air transport sector, and was endorsed by the State Attorney General's Office. The ISD that taxes with 5 % at the exit of capital abroad contributes significantly to the treasury. Between January and December 2019 were $ 1,140 million; In 2020 it reached $ 964 million and by 2021, between January and June $ 557 million have already been raised. However, the aforementioned elimination would allow to lower costs to the air sector and therefore better rates and greater receptive tourism when applying the open skies policy for Ecuador.

According to the response to the consultation made by President Lasso to the Attorney General's Office on the legality of issuing a decree that eliminated the ISD for the air sector, the second general provision indicates textually indicates that"The President of the Republic may, based on the conditions of public finances and balance of payments, gradually reduce the rate of the foreign exchange tax, prior favorable opinion of the governing body of public finances."The latter is the Ministry of Economy and Finance.

Thus, the Attorney General's Office gave the green light, indicating that a gradual reduction of the rate could be given by sectors. Concludes that“The gradual reduction to which the President is empowered both a pure and simple reduction of the rate for all sectors and a sectorized reduction of said rate”.

The Attorney General's criteria is based on the explanatory pronouncement made by the Ministry of Economy in the sense that “(…) the President of the Republic could proceed to the gradual reduction to the rate of the aforementioned tax,by sectors or other variables, strictly observing technical aspects, complying with the respective legal demands and considering the tax principles, in a special way the principle of equality ”.

However, the MEF emphasized that in addition to the legal procedure, the Need to examine the technical aspects that the reduction of the ISD rate produces, related to the decrease in tax collection, the identification of sources that compensate for the loss of income.

According to Napoleón Santamaría, tax lawyer, thePresident of the Republic is empowered to reduce the rate, but it must do it to all, by a constitutional principle of equity and generality.He recalled that this tax was born being 0.5 %, then rose to 1 %, then to 2 %, to finally place at 5 %.

For Santamaría, the presidentGuillermo Lasso took a wrong path to consulting the attorney on tax issues.Passegon the expert, on this type of matter, the SRI must pronounce. Additionally, he explained that if these measures are taken to take a preferential and exception regime.

It also highlights the pronouncement of the Ministry of Economy and Finance that tells the Attorney General to lower theISD would mean a decrease in resources for the budget, so he tells him that he must seek compensatory income to that reduction.

Pablo Guevara, Andersen partner in Ecuador,It considers that although the President of the Republic has the best of intentions by eliminating this tax for the air sector, the law does not allow it. He explained thatThe law allows you to gradually reduce, but this does not mean reducing to 0 %, because this would already be an elimination of the ISD. And, in addition, he assures that he cannot do with a single sector, but in general, to all.

However, he considers that what the president is looking for is to make an exemption to a sector, and for this, the correct route is a legal reform that must go through the assembly.

Xavier Sisa, legal director of the Chamber of Industries and Production (CIP),Consider that the presidentLasso has the entire facultyto disassemble or reducing the ISD based on the criteria of the Ministry of Economy and Finance. He believes that gradually reducing does not only refer to the rate, but that sectors can also be considered,Always taking into account the conditions of public finance and payments of payments.