Government will charge IVA on private insurance policies; Business community vows to fight back

As part of the deficit reduction plan announced Monday by President Lenin Moreno, the national 12 percent IVA tax will be applied to all private insurance policies in Ecuador. The tax will affect an estimated 940,000 home, health, accident and life insurance policy holders.

President Lenin Moreno

The move, announced Wednesday by Minister of Finance María Elsa Viteri, was met with stiff resistance from the business community.

“In his comments, the president pledged not to increase taxes,” said Roberto Aspiazu, director of the Ecuadorian Business Committee (CEE). “If this is not a direct tax increase, I don’t know what is.”

Aspiazu says he hopes to talk Moreno and Viteri out of applying the tax to insurance policies but says his organization is willing to go to court if necessary to stop it. “The law is clear that insurance policies are exempt from the VAT. Paragraph 22, Article 56 of the tax law states that there will be no tax on individual and group insurance policies. We feel we are on solid ground in opposing this measure,” he says.

Viteri says the VAT on insurance policies will raise $80 million over three years. “Because of the budget crisis we are forced to make hard decisions and we understand that everyone will not agree,” she said. “This is one of many hard choices we are forced to make to protect the dollar.”

During his Monday night comments, Moreno explained that unlike other countries, Ecuador cannot devalue its currency to adjust deficits. “We use the U.S. dollar as our currency and we cannot adjust its value, neither can we print it, as other countries can print their own currency,” he said. “I am committed to protecting dollarization and will do what is necessary to that end.”