Ecuadorian consumers should see lower prices on most purchases beginning tomorrow as the value added tax (VAT) drops from 14% to 12%. The government increased the tax for a period of one year following last year’s earthquake.
More savings, although not necessarily immediate, will come from the elimination of import surcharges imposed by the government two years ago. The surcharges end at midnight.
The drop in the VAT and the end of surcharges were campaign promises of new president, Lenin Moreno. Ex-President Rafael Correa said in April that the VAT and surcharges might be extended due to ongoing demands of earthquake reconstruction and the strength of the U.S. dollar. Moreno disagreed.
The VAT reduction and end of the import surcharges are unrelated to price reductions from the European Union (EU) trade agreement that went into effect in January.
Most businesses say they have made the price adjustments for the lower VAT on product labels and cash register computer systems. To make sure consumers pay the new tax and that unscrupulous merchants don’t pocket the two percent tax differential, the government says tax agents will conduct price-checks in the country’s stores in the coming weeks.
Savings from the elimination of the import surcharge will be slower to appear at cash registers, according to merchants. “Most retailers have inventory purchased with the surcharges and until that inventory is sold, prices will be reduced incrementally,” says José Esteban, spokesman for the Ecuador Chamber of Commerce. “By the end of the year, prices on almost all products should reflect the end of the surcharge,” he adds.
The surcharges, at one time 40% to 45% on most consumer items, have been reduced month by month on most products, and today amount to 5% to 10%. The World Trade Organization (WTO) allowed Ecuador to impose the surcharges with the stipulation that they end June 1.
“Between the EU trade agreement, reduction of the VAT and end to the surcharges, Ecuadorians will see significant savings in their purchases and this will benefit the overall economy,” says Esteban. “These extra charges have been a heavy burden for most families and it is good to see them coming to an end.”