National Assembly approves tax hikes, other measures, to cover budget deficit

Ecuador’s National Assembly has passed a tax bill submitted by President Rafael Correa to cover the national budget deficit. The Assembly is also considering a second bill from Correa to cover reconstruction costs from the April 16 earthquake.

President Rafael Correa

The Organic Law on Balancing Public Finances, submitted prior to the earthquake, raises taxes on cigarettes, beer, sugary drinks, and telephone service, and reduces the amount of IVA tax deductions that can be claimed by citizens and residents over the age of 65. The bill also reduces from $11,170 to $1,098 the amount of cash travelers can take out of the country tax-free.

Opponents of the legislation argued that taxes will be counter-productive and put an unfair burden on small businesses that sell beer, soft drinks and cigarettes. Assemblywoman Cynthia Viteri said, “This comes at a terrible time for the 400,000 small stores in the country. They are already hurting because of the bad economy and this simply adds insult to injury.”

The ruling Alianza Pais (AP) party made minor adjustments to the proposed legislation but refused to concede ground on major issues. According to AP’s Carlos Bergman, it would be irresponsible not to raise taxes. “With the reduction in oil revenues and the effect on trade of the strong U.S. dollar, we must act quickly to maintain solvency.”

The government hopes to raise $335 million in 2016 and $492 million in 2017 from the new taxes, according to estimates provided by SRI.

The Assembly takes up Correa’s earthquake relief legislation today which proposes a 2% increase on the national VAT as well as new taxes on income.