Cuenca industries worry VAT hike will reduce sales, say gov’t should target informality, subsidies; VAT refunds resume soon; Cuenca employment rises

Lunes, 4/3/2024

Hola, Todos –

Titular –

Culminan los 60 días del Estado de Excepción (60-day state of emergency ends) – See Monday’s CHL article for story.

Cuenca –

Se prevé una reducción del consumo por alza del IVA (Consumption expected to fall due to VAT increase) – In the industries of Cuenca, most of the products pay IVA including tires, ceramics, and white goods; and it is foreseen that commerce will be affected. The IVA will increase from 12% to 15% in less than month <If you were seriously thinking about making a major purchase, maybe do it before the end of the month?>. Since the Government talked about raising the tax, there have been warnings about the impacts such as reduced consumption, decreases in sales, lower profits and investments in business and less job creation.

Cuenca industries, such as appliance manufacturers, worry that the increased VAT rate will reduce sales. The VAT increases to 15% in April. (El Mercurio)

Andrés Robalino, executive director of the Cámara de Industrias, Producción y Empleo e Cuenca (CIPEM) said the situation of the country is complicated with a deficit bordering on $6 billion, debts owed by the Government to providers, an external debt on which interest and principal payments will begin this year, closure of the ITT block <oil extraction>, and the addition of the safety crisis in addition. The productive sector has expressed support of the Government measures, but is not happy, and feels that other policies should accompany the tax increase. These would include control of informal or illegal commerce which approaches 50% in Ecuador; reduction of public expenses such as eliminating public ministries and departments that don’t generate efficiencies, and eliminating or focusing fuel subsidies.

For economic analyst Luis Tobar, there are other ways to cover the deficit, but due to the lack of political will, the easiest option – raising the IVA – was chosen. He mentioned options such as not deferring interest on unpaid business taxes which exceed $2 billion and eliminating the prefectures which amount to between $800 & $900 million a year. There should also be structural changes and that it’s fine to fight against insecurity, but there should be parallel measures such as improving education, reducing poverty, and increasing employment. <All easier said than done, so of course, the option selected would be the low hanging fruit.>

Although the products in the canasta basica aren’t subject to the IVA, the production chain and supplies pay the tax. Josefina Reyes, a produce and fruit dealer, said distribution and transport will make products more expensive, and this will show up on the factura.

Brief statistics:

• SRI collected $8.444 billion in IVA in 2023, a 3.8% increase over 2022 when $8.133 billion was collected.

• Azuay was the province paying the 3d most in taxes with $866,767,926 paid. The activities generating the most taxes were from commerce, finance, and manufacturing.

• Debts owed by contributors to the SRI rose to $2,094 billion. The main debtor is Exportadora Bananera Noboa with $90 million of which $30 is capital and $60 is interest.

<And here’s the news a whole bunch of you have been waiting for – some phlegmatically and others with the patience of a starving shark.>

SRI devolverá IVA a adultos mayores entre marzo y abril (SRI to refund VAT to senior citizens between March and April) – Damián Larco, director of the Servicio de Rentas Internas (SRI), said that the National Government has set the time for IVA refunds to adultors mayores and people with disabilities at between marzo y abril. <Don’t get your hopes too high in case between marzo y abril is a time frame like “mañana.”> Larco said that the debts date back to septiembre, 2023 and there is currently $70 million to pay beneficiaries. Last year SRI received 5.3 million requests from almost 1.1 million people. The Government should return more than $133 million to fulfill all the applications. <So don’t get your hopes too high that you’re going to get every dollar you claimed, either.>

Sucesos –

De El Mercurio del domingo, 3/2 (1 article):
Cuatro tacos de dinamita ubicados en la vía CRS Turi (Four sticks of dynamite blocks located on the road to CRS Turi) – The Policía Nacional is investigating the discovery of 4 sticks of dynamite placed at the foot of a light pole on the new road to the jail in Turi. It was found by a jogger. <Sounds like the jogger had the sense to call the cops instead of playing with what he found.> The road was closed and the explosives were deactivated by the Grupo de Operaciones Especiales (GOE). If it had gone off, the shock wave could have extended 100 meters. <So if the dynamite had been in the middle of Parque Calderón, every building facing the park would have been within that radius.> Police are determining if the explosives were targeted against any particular citizen.

Nacional –

De El Mercurio del domingo, 3/2 (1 article):

En 2023 bajó desempleo en Azuay, según INEC (Unemployment dropped in Azuay in 2023, according to INEC) – The Instituto Nacional de Estadísticas y Censos (INEC) published the results of a national survey on employment, underemployment and unemployment covering the year 2023. Unemployment in Azuay Province was at 3.0%, at 4.2% in Cuenca, 7.9% in Quito and 3.4% in Guayaquil. Those numbers were all lower than in 2022. The lowest unemployment was in Morona Santiago, Bolívar, y Napo with .6, .7 & .8%. The highest was Esmeraldas with 9.0%.

Full employment rose in Cuenca to 58.5% with increases in Quito, Guayaquil, y Machala as well. Nationally, unemployment was higher for women (4.7%) than for men (3.2%), and full employment higher for men (41.8%) than women (29.1%). Nationally, in 2023, the average income for men was $496.80 and was $420.30 for women. <No wonder Ecuadorians have concluded that gringos are rich. Just compare the income needed for a retiree visa with the local average income.>

According to Victoria Cordero, an economist and market analyst, Cuenca and Azuay are where there is less unemployment and more full employment due to 2 main factors. One is that Cuenca is an industrial city with tire, large appliance, ceramics, furniture, cardboard processing, and liquor factories. <Good that there are lots of liquor factories to satisfy the demand from those hard drinking gringos.> The industry needs workers and generates employment. A 2nd factor is the tourism potential in Cuenca and Azuay which has been exploited in a better way thanks to effective coordination between the public and private sectors.

Juan Monsalve, an economist and business consultant, agreed with Cordero that Cuenca’s industry gives it an advantage over the rest of the cantons in generating jobs. Another factor is that the reactivation of public works in Cuenca was faster than in the rest of the country. He said that the employment rate in Cuenca in 2023 was 95.8%, compared to 94.5% in 2022. In the city, 49.5% work in the private sector where a person earns $660.40; 10.6% work in the public sector with earnings of $1,309.90; and 39.9% work independently. <Where stated earnings are probably a fraction of actual earnings.>

And that’s all for today so hasta ? –

Jeanne