The tax structure created a financial barrier because private generators selling electricity to the state face a zero-percent VAT rate on sales, making it impossible to recover the 20% import tax burden. Juan Carlos Navarro, president of the Guayaquil Chamber of Industries and head of the Federation of Chambers of Industries of Ecuador, described the previous framework as a distortion that rendered many projects financially unviable. He noted that previously only solar projects were exempt from ISD, though they still carried the 15% VAT that could not be recovered.
Tax analyst Freddy Cevallos illustrated the impact using a $2 million equipment import example, where eliminating the 15% VAT saves investors $300,000. He emphasized evaluating the measure beyond foregone tax revenue, considering the value of new investments addressing Ecuador’s energy needs. Tax expert Idrián Estrella indicated the government may implement the zero-percent VAT rate through executive decree, requiring interpretation of Article 55 of the Internal Tax Regime Law since power generation equipment is not explicitly listed among goods currently taxed at zero percent.
The government reports issuing 12 enabling certificates for photovoltaic projects since June and accelerating feasibility processes for generation initiatives. Neira stated the Public Administration Secretariat monitors permit processes across institutions, with typical project approvals taking three to four months under active follow-up. Authorities identified 655 megawatts in thermoelectric projects under development. The policy also targets industrial self-generation to reduce dependence on the national grid, particularly during dry season shortfalls when hydroelectric output declines. Noboa cited private generation, hydroelectric projects and two contracted power barges as measures to maintain supply during peak drought periods and avoid residential blackouts.
This article was curated and published as part of our South American energy market coverage.
