Correa announces new round of ‘sin taxes’ and other measures to cover budget shortfall

President Rafael Correa said Friday that he is sending a package of tax increases to the National Assembly to cover an $800 million budget deficit. In addition, he proposes rewriting rules that allocate funds from the federal to local governments.

President Rafael Correa

Included in the package are another round of taxes on liquor, cigarettes, and sugary drinks. Ecuador already has the highest rate of taxation on liquor in South America, and border police and liquor store owners say that as much of 50% of imported liquor sold in the country is bootlegged from Peru and Colombia.

“We have already reduced the budget twice due to the fall of oil prices, which have dropped from a $35 per barrel basis to $25,” Correa said. “But we still have a deficit of $800 million and must make further adjustments.”

According to Correa, taxes will also be increased on utilities, including gas, electricity and telephone service. “We will all have to share the burden for the budget, and pay a little more to help the government through this period of a bad economy.”

Correa said his budget reduction proposal will also contain a new formula for allocating tax collections from the federal to provincial and municipal governments. He said it would include provisions to adjust payments based on the income of the federal government, which includes revenue from oil, minerals and other sources. Currently, payments to local governments are made based on a fixed formula. Again, the president said that the “pain of budget shortfalls must be shared at all levels.”

Correa said that the new taxes would be temporary and would be withdrawn as conditions change. He noted that oil prices have already rebounded by more than 50% from their lows of January.”

The President did not provide details on tax increases, saying they were still under consideration. The proposal is expected to pass the Assembly shortly after it is submitted.