[Economics] Between $500 and $2,500 less would be paid in income tax with a new reduction scheme that proposes tax reform

[#Steeven.™]

SRI calculations show the effect that the urgent bill sent to the National Assembly will have. There will be a new table.

The changes that the Government proposes for the payment of income tax imply that almost all natural persons who paid taxes in 2022 will have a benefit: those who have a gross salary of $1,900 a month will no longer pay anything and those who earn $ 2,400 and up will pay between $500 and $2,500 less. This according to information from the Internal Revenue Service (SRI).

And it is that with the tax reform there will be a greater reduction for the payment of this tax. Currently the reduction is 10% and 20% of personal expenses that had seven basic baskets as a limit (about $ 5,000). The 10% reduction was obtained by those who reported annual income greater than $25,000 and 20% by those who had less than that value. Now the reform provides that the reduction is 18% of these expenses, but the ceiling and the reduction vary according to family responsibilities.

Those who do not have family responsibilities may deduct 18% of their personal expenses that cannot exceed seven basic family baskets (this is $5,352.97 taking into account the January 2023 indicator). If you have a load, your limit will be nine baskets ($6,882.39). If you have two loads, eleven baskets ($8,411.81). With three loads the cap will be fourteen baskets ($10,705.94). With four charges, seventeen baskets ($13,000.07). And with five or more loads, twenty baskets ($15,294.2). And for the person with or in charge of people with catastrophic, rare and/or orphan diseases, the limit will be twenty baskets.
Thus, 18% of these caps are equivalent to a reduction ranging from $964 to $2,753, compared to the current ones that were $500 and $1,000, depending on income level.

The SRI details that a gross salary of $1,900 that pays $237 will go to zero whether or not it has charges.

• If the monthly income is $2,400, the tax payment would go from $999 to $459 if there is no charge, but if it does, the amount would be zero.
• If the gross salary is $2,750, the current payment is $1,569 and with the reform it would be $1,029 without charges or $478 with two charges and $0 with five charges.
• If gross pay is $3,000 the current pay of $1,977 would drop to $1,436 with no charges, $886 with two charges, and $0 with five charges.
• If gross pay is $3,500 the current pay of $3,054 would drop to $2,466 with no charges, $1,915 with two charges, and $677 with five charges.
• If gross pay is $4,500 the current pay of $5,515 would drop to $4,848 if you have no charges, $4,298 if you have two charges, and $3,059 if you have five charges.

Modifications are also proposed in the ranges of the table that is used to settle the tax. The Quito Chamber of Commerce indicates that some of these ranges have been improved, because they are broader, especially from $40,000 in annual income.

For the SRI, this new income tax table for natural persons is more progressive and fair.

The basic fraction remains at $11,722. The tax on the basic fraction rises in most ranges. In the third it drops from $161 to $160; in the fourth range it goes up from $534 to $606; in the fifth from $984 to $1,356; in the sixth from $2,539 to $2,571; in the seventh range it rises from $4,612 to $4,768; in the eighth from $7,203 to $8,472; in the ninth from $10,312 to $14,427, and in the tenth range it goes down from $24,231 to $23,594.
The percentages that are applied to the surplus fraction to quantify the tax remain between 0% and up to 37%.
The Chamber of Commerce of Quito exposes cases in which less tax will be paid with the tax reform; but it also compares it with what was paid before the Government changed the scheme that governed until 2021 and there "a better situation is not presented."

He gives as an example that a person whose monthly taxable income is $2,500 paid $268 of income tax in 2021 and then -with the previous tax reform- he went on to pay $1,551 in 2022. Now with the new bill presented to the National Assembly that same person would pay $496 in 2023 if they have two family responsibilities and if they do not, the tax would be $1,046.

If the monthly income is $3,000, the tax was $939 in 2021, $2,558 in 2022, and for this year it would drop to $2,059 if there are no loads, $1,784 if you have one, and $1,509 if you have two loads.

If the monthly income is $4,000, before the 2021 reform, $2,738 was paid and by 2022 it rose to $5,127. With the proposal pending, the amount of the tax would drop to $4,624 without charges, $4,349 with one and $4,074 with two.

"In the examples we can see that in no case is there a better situation than what was in force prior to the reform introduced to the Economic Development Law in 2021," the union refers to in an analysis carried out after the presentation of the Executive's proposal.

 

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