Moreno ends gasoline and diesel subsidy but keeps the IVA at 12 percent

President Lenin Moreno announced an end to the government subsidy for gasoline and diesel fuel Tuesday night but said the value added tax (IVA) will remain at 12 percent. The elimination of the fuel subsidy will result in a savings of $1.3 billion annually, he said.

President Lenin Moreno

In a brief address to the nation, the president also proposed the elimination of some import taxes, an overhaul of corporate taxes and revision of labor rules, changes that must be approved by the National Assembly.

Moreno said the economic measures are necessary to reduce the annual budget deficit and national debt, conditions set by the International Monetary Fund (IMF) in exchange for $9 billion in loans to be disbursed to the government over a three-year period.

“These changes have been needed for a long time and now we are forced to make them,” he said.

The end of fuel subsidies means that the price for regular gasoline will increase from $1.85 a gallon to about $2.30 while diesel will rise from $1.08 to $2.27, based on current market rates. “Ecuador is one of only two countries in South America to maintain these artificial prices,” Moreno said. “The other one is Venezuela, not a very good example to follow.”

Without offering specifics, Moreno announced a three-year special tax on companies with annual revenue above $10 million, saying the move will raise $300 million a year. In addition, he said that public employees will contribute one day of earnings per month to the national treasury while their annual vacation days will be reduced from 30 to 15.

To “stimulate economic growth,” the president said Import taxes will be reduced or eliminated on a broad range of products, including computers and computer equipment, cell phones, clothing, cars, heavy machinery and raw material for agriculture and industry.

Repeating an earlier pledge, he said the tax on funds sent out of the country, commonly known as the exit tax, will be phased out.

Changes to labor law includes measures making it easier for companies to hire employees on a temporary contract basis and a reduction of some employee protections.

“The goal is to create more work, more entrepreneurship and better opportunities … boosting economic growth and employment,” Moreno said.

Except for ending fuel subsidies, which has been ordered by presidential decree and will go into effect within a matter of days, Moreno’s other proposals go to the National Assembly which will have 30 days to act.