Government extends VAT to bread, dairy and 60 other prepared food categories as producers protest

The Internal Revenue Service (SRI) has ordered retail outlets to begin charging the 15% value added tax on dozens of previously untaxed food items, including bread and most dairy products. The SRI says its order does not change existing tax rules and only provides “clarification” for food items that have, “for various reasons,” previously gone untaxed.

Most bakery products will now be subject to the 15% VAT.

SRI says it will enforce a rule that only food in its “natural state that has not be transformed or processed” will avoid taxation.

According to the new order, most bread and pastries will be subject to the 15% VAT. Only the artisanal pan de agua will not be taxed.

Dairy products that must pay the tax include lactose-free, fortified, skimmed, semi-skimmed, creamed and flavored milk.

Other food items subject to the VAT include instant noodles, noodle soup, prepared meats, sweeteners, dressings, marinates, tea, fruit pulp, tofu, and spices containing more than one ingredient.

Producers of bakery and dairy products protested the new SRI rules, claiming they would affect sales, cause financial hardship for some families and lead to unemployment. According to Rodrigo Gómez, president of Ecuador’s Chamber of Agriculture, the SRI order comes as “total shock” and does not conform to previous SRI rules. “They say these rules were already on the books but this is not true,” he said. “They are reinterpreting the existing language for the purpose of generating more tax revenue. If they want to change the food taxation categories, this must go through the National Assembly since it involves a change in the law.”

Gómez says the order for new taxes comes directly from President Daniel Noboa. “The president ordered the SRI to make these changes and he did it without consulting the industries affected,” he said. “The claim that this is a correction or clarification of old ules is a smokescreen.”

In addition to producers, representatives of vulnerable groups, including diabetes and cancer patients, and campesinos, protested the new taxes. Lucía Mantilla, president of the Juvenile Diabetes Foundation, complained additional expense will be a burden on the sick. “For their health, they require some of the products that will now be taxed,” she said. “I also worry for the poor population that will now be required to pay more.”