Ecuador’s Lasso Moves to Hit the Ground Running With Tax Reform

(Bloomberg) -- Ecuador’s President-elect Guillermo Lasso plans to introduce tax reforms as soon as he takes office next month aimed at encouraging commerce and boosting government revenue with an eye on balancing the budget by the end of his term.

The 65-year-old career banker, who with Sunday’s election victory becomes first fiscal conservative to govern Ecuador in close to two decades, wants to cut taxes rather than increase them. Lasso is banking on the combination of lower tax rates and stepped-up collection that deters tax evasion.

“Don’t tell me you’ve been an entrepreneur for 10 or 20 years and that you’ve never made money, I don’t believe that,” Lasso, himself one of the country’s biggest taxpayers, said in an interview with CNN.

The president-elect’s plans run counter to suggestions from the International Monetary Fund, which has yet to distribute $2.5 billion of a $6.5 billion funding agreement signed last year, that Ecuador raise its 12% value-added tax, one of the lowest in the region.

Instead, Lasso wants the new tax system to allow a cut in VAT during four annual holidays to stimulate retail and tourism. He plan aims to end a 2% tax on sales for small companies -- on the premise that taxes should be paid on profits rather than sales -- and to phase out a 5% currency export tax that’s undermined foreign direct investment.

Road Ahead

The president-elect faces no shortage of challenges. Ecuador’s dollarized economy shrank 7.8% in 2020 as the pandemic decimated activity, its worst performance since at least the 1970s, and the vaccine rollout in the nation of 17 million people has been sluggish.

Though new to politics, Lasso’s ramped-up timetable also betrays a pragmatic concern: With just 31 supports among the 137 members in the unicameral National Assembly, Lasso will need to build bridges with other political parties to advance his agenda. Ahead of the seating of the new legislature on May 14, he’s pledged to forge a government of national unity.

He is meeting with aides in Guayaquil the rest of the week to work on his cabinet, which could include individuals from other parties, he told reporters.

Presidential transition meetings between Lasso’s incoming administration and that of the current president, Lenin Moreno, are slated to begin next week.

“Now comes the most interesting, the most challenging part, to govern,” he said in remarks to his campaign team Wednesday in his hometown, Guayaquil.

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