Ecuador's Moreno announces tax reform after rolling back fuel price hike

QUITO (Reuters) - Ecuadorean President Lenin Moreno on Friday proposed a new tax on corporations and a simplification of the tax system to improve government finances after a plan to eliminate fuel subsidies was met with violent demonstrations.

FILE PHOTO: Ecuadorian President Lenin Moreno visits areas affected by protests, in Quito, Ecuador October 17, 2019. REUTERS/Henry Romero

Indigenous protesters led almost two weeks of demonstrations after Moreno announced he would eliminate decades-old subsidies on diesel and gasoline. He walked back the measure and promised dialogue to find different ways to close the fiscal deficit.

“Today a tax reform proposal was sent to the legislature ... We will not raise the Value Added Tax,” Moreno said in a televised address.

“We will ask those who have more to pay more.”

The proposal includes a new tax on companies with annual revenue of more than $1 million, which he said would raise about $532 million over three years.

Citizens with annual income above $100,000 will not be able to deduct personal expenses from their income tax. The plan also includes a tax on plastic bags and electronic cigarettes.

The measures will need congressional approval.

The tax reform proposal had been part of a broad agreement with the International Monetary Fund (IMF) for about $4.2 billion in financing that had also included changes to labor regulations.

Moreno said the plan would provide incentives for small and medium exporters, as well as aid for companies affected by looting and damage during the protests.

The president said he will continue with the dialogue to define a new scheme for fuel subsidies, which according to official data cost about $1.4 billion per year.

“The new decree must contain a fuel subsidy policy, a policy that is fair, efficient and protects the poorest and that allocates a good part of the resources for its benefit,” he added.

Reporting by Alexandra Valencia and Brian Ellsworth; Editing by Daniel Wallis