Noboa wants a 3% VAT hike but the plan faces major opposition in the National Assembly

Jan 13, 2024 | 0 comments

President Daniel Noboa is asking the National Assembly to increase Ecuador’s value added tax from 12% to 15%. The VAT hike is necessary, he says, to fund the battle against organized crime and to reduce the budget deficit.

Before debate begins, however, there is already significant opposition to the plan in the Assembly.

President Daniel Noboa

Based on Economy Ministry estimates, Noboa says the tax increase will generate $1.07 billion in 2024 and $1.3 in 2025. If passed by the Assembly, it would go into effect March 1.

In an interview on FM Mundo Radio shortly before midnight, Noboa warned the country faces “dire circumstances” if immediate action is not taken to boost revenue. “We must make this difficult economic decision to cover the cost of the fight against terrorists,” he said. “As hard as this is, I suggest it is a small price to pay for restoring peace to Ecuador.”

Early reactions show that Noboa’s tax hike faces major opposition in the Assembly. Members of the Social Christian, Consturye and Citizen Revolution blocs said they would vote against it. “I will not vote for any tax increase given the economic situation of the country,” said Vicente Taiano of PSC. “This is not the time to add financial burdens to Ecuadorian families who are already suffering from bad times.”

Taiano also criticized the VAT hike for having no end date. “It appears he [Noboa] wants to make this permanent since he does not include an end date for the tax, like we had after the 2016 earthquake.”

Pachakutik Assemblywoman Mariana Yumbay agrees and claims that six million poor Ecuadorians are on their way to extreme poverty. “No, now is not the time for more taxes. The president will need a better proposal to get my support.”

Consturye’s Otto Vera does not believe there are the votes to approve the increase, although he agrees the country needs more income to fund the narco trafficker fight as well as cover its deficit. “Obviously, there will be negotiations with the president, but I believe the final agreement will look much different than what he is proposing.”

Vera said there could be a fight between those who oppose all tax increases and those who with alternative plans, such as increasing taxes on corporations and high-income individuals.

Before Noboa submitted his proposal, Economy Minister Juan Carlos Vega had warned that the country faced a $5 billion shortfall without “deep and drastic” budget cuts. “There are many essential services we cannot afford to cut so additional revenue must be collected. I am talking to the president about the best way to accomplish this.”

According to Vega, Ecuador has one of the lowest VAT rates in Latin America. “Our neighbors in Colombia and Peru pay 19% and 18%, and the rate is 21% and 22% is some countries in the region.”

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