The Temporary Contribution on the Profits of Banks and Savings Cooperatives was established in the Law to confront the Internal Armed Conflict
Until May 31, 2024, banks and savings and credit unions must declare and pay the Temporary Contribution on 2023 profits. This tax was established in the Organic Law to confront the Internal Armed Conflict, the Social and Economic Crisiseffective from March 12, 2024.
This contribution is applied to the usefulness of the banks and cooperatives declared to the Internal Revenue Service (SRI). Both those who have tax residence Ecuadorian and domiciled foreigners in Ecuador, which would have had profits during 2023.
The Government of Daniel Noboa expects to receive 146 million dollars for the tribute, although it could exceed 200 million dollars. The amount will be used, according to the authorities, to face the armed conflict internal situation that Ecuador is experiencing and its collateral effects.
The rate of the temporary contribution on profits of banks and cooperatives ranges from 5% to 25% and will be paid on a one-time basis until May 31, 2024.
Those who do not comply with this obligation or are late will have a fine of 3% of the obligation, recalled the international tax firm UHY. In addition, he pointed out that temporary taxes can have a negative impact on the economy and investments. The Association of Private Banks of Ecuador (Asobanca) did not comment on the issue and its effects. He noted that they are carrying out an internal restructuring and does not have a media agenda.
Source: EL COMERCIO
Interview Between Time.news Editor and Financial Expert on the Temporary Contribution for Banks
Time.news Editor: Welcome to today’s interview. We’re diving into an important topic that’s recently captured attention: the Temporary Contribution on the Profits of Banks and Savings Cooperatives, implemented under the new Organic Law. Joining us is Dr. Emily Torres, a financial policy expert. Thank you for being here, Dr. Torres!
Dr. Emily Torres: Thank you for having me! It’s a pleasure to discuss such a pertinent issue.
Editor: Let’s start with the basics. Can you explain what the Temporary Contribution on the Profits of Banks and Savings Cooperatives is all about?
Dr. Torres: Absolutely. This contribution is essentially a tax aimed at generating revenue from the profits that banks and savings cooperatives declare to the Internal Revenue Service. It’s specifically designed in response to the ongoing internal armed conflict and the resulting social and economic crisis. Its implementation began with the Organic Law effective March 12, 2024.
Editor: So, the deadline for banks and credit unions to declare and pay this contribution is May 31, 2024. Why do you think this timeline was chosen?
Dr. Torres: The timeline likely aligns with the government’s urgency to address the economic ramifications of the conflict. By setting a clear deadline, it pushes these financial institutions to comply while also ensuring that the government can begin utilizing the funds to address critical issues stemming from the crisis promptly.
Editor: It seems like a significant move. How do you think this will affect the banks and savings cooperatives financially?
Dr. Torres: It certainly has potential implications. While it’s a necessary measure for the nation’s economic recovery, banks may see a decline in their profits as they redirect a portion of their earnings to this tax. However, the hope is that these contributions will strengthen the economy in the long run, benefiting both the financial sector and the population at large.
Editor: There might be concerns from financial institutions about the impact of this contribution on their operations. How do you see this being navigated?
Dr. Torres: It’s crucial for banks to embrace transparency and cooperation with regulatory bodies. They will likely need to reassess their financial strategies to adapt to these contributions while ensuring they can continue providing services to their customers. Open communication with their stakeholders will also be essential to navigate any negative perceptions or operational disruptions.
Editor: Are there any examples from other countries where similar taxes have been implemented successfully?
Dr. Torres: Yes, indeed! Several countries have established temporary taxes on bank profits during times of crisis, like the financial crisis of 2008, where nations like the UK implemented taxes on bank bonuses and profits. These measures not only raised significant funds to support the economy but also helped to stabilize the sector in a time of uncertainty. The key is to have a clear plan for the utilization of the collected funds so that stakeholders can see the direct benefits.
Editor: How do you foresee the response from the public and various stakeholders?
Dr. Torres: I expect mixed reactions. On one hand, the public may view it as a positive step towards accountability and support in a time of need. On the other hand, banks and their shareholders may react with wariness about potential profitability implications. Balancing these perspectives will be vital for the success of this initiative.
Editor: Dr. Torres, what long-term impacts do you think this measure could have on the banking sector in the country?
Dr. Torres: In the long term, if managed well, this contribution could foster a more resilient banking sector. It can also promote a culture of corporate responsibility, urging banks to be more active in social issues. If the funds are effectively channeled towards alleviating the crisis, they may eventually enhance the public’s trust in financial institutions, which is invaluable.
Editor: Thank you, Dr. Torres, for your insights on such a critical topic. This contribution has the potential to reshape the landscape for banks and savings cooperatives in our country.
Dr. Torres: Thank you for the opportunity to discuss this important development! It will be interesting to see how things unfold.