Ecuador's bankers are scratching their heads wondering how to design products to accommodate a radical new 1% tax on capital transactions, which from January will replace traditional income tax. The tax will be withheld from bank customers whenever a deposit is made into an account or for a fixed-term investment, or when a cheque is cashed. Customers will not be charged, however, when money is withdrawn from an ATM. It is feared that the tax will lead to further distortions - the financial system already has a huge quantity of transactions that don't always provide added value but which are operationally necessary - and to tax avoidance by conducting transactions outside the system, says analysts.
December 01, 1998