Ecuador Plans to Reduce Corporate Tax Rate in Bid to Encourage Investment
Ecuador’s government will propose a 3 percentage point tax reduction for businesses to help boost investment and job growth in South America’s seventh-biggest economy, Production Minister Nathalie Cely said.
President Rafael Correa’s Cabinet agreed yesterday to propose a cut in the corporate income tax rate to 22 percent from 25 percent in an effort to at least double investment by next year, Cely, a 45-year-old Harvard University-trained economist, said today in an interview at her offices in Quito.
Ecuador’s government is rewriting at least 31 laws, including industrial, financial, labor, land, and oil regulations, after approving a new constitution in 2008. The industrial bill to be proposed to Congress will create tax incentives for companies to invest in rural areas and sell shares on the nation’s securities exchanges, Cely said.
“It’s very important to investors that the rules of the game are clear and that they have incentives to invest,” Cely said. “In Ecuador there’s been a certain mistrust between the private and public sectors in relation to the economic model that the government wanted to implement.”
The proposed new industry law “makes it clear that we trust productive investment,” she said.
Ecuador has also signed a memorandum of understanding with the Singapore Aviation Consortium, a jointly-owned public- private industry group, to operate the Port of Manta and the city’s airport, Cely said. The company will spend more than $500 million to improve the Pacific coast city’s transportation infrastructure, she said.
The concession was previously held by Hutchison Port Holdings Ltd., the world’s largest container-terminal operator, which stopped operating the port last year over a contract dispute.
Rohani Baharin, an official at Singapore Aviation Consortium, didn’t respond to an e-mail seeking comment sent after normal business hours.
Asset Allocation Advisors Group Ltd., a Hong Kong-based real estate development firm, told Ecuador’s government yesterday that it plans to invest $300 million in tourism projects, including hotels in three cities on the country’s Pacific coast, Cely said. The company has already begun buying land, she said.
Peter Obrist, the company’s chief executive officer, didn’t answer telephone calls to his Hong Kong and Abu Dhabi offices after normal business hours.
Companies may invest more than $2.5 billion in Ecuador in 2011, up from about $1.2 billion this year, Cely said. The proposed tax cuts and incentives should help boost investments to more than $4.2 billion by 2014, which will create jobs, she said.
Ecuador’s unemployment rate fell to 7.7 percent in the second quarter from 9.1 percent in the three months ending in March, the country’s National Statistics and Census Institute reported in July.
“Our goal is very aggressive,” Cely said. “We are putting aside the doubts that some groups in this country may have had” about investing, she said.
The extra yield investors demand to hold Ecuadorean dollar bonds instead of U.S. Treasuries narrowed eight basis points, or 0.08 percentage point, to 10.32 percent at 2:34 p.m. New York time, according to JPMorgan’s EMBI+ index. Ecuador’s spread has widened 2.63 percentage points this year, compared with 0.29 percentage point for the index.
Ecuadorean government debt is the second-riskiest after Venezuela’s among 15 developing nations tracked in JPMorgan’s benchmark emerging-markets index.