Proposed tax on gas appliances catches manufacturers off guard; 100% ‘special consumption tax’ was added to legislation at last minute

Cook tops being assembled in Cuenca.

Ecuador’s appliance manufacturers say they have been “ambushed” by provision in new legislation that would levy a 100% tax on gas stoves and hot water heaters. The tax was added shortly before the final vote on the Production Incentives and Tax Fraud Prevention law.

The legislation, which also eliminates the 12% VAT tax on electric induction stoves and range tops, goes to President Rafael Correa for final approval on Friday.

Advocates for the new tax, called a Special Consumption Tax (ICE), say it is meant to support the government’s national electrification program and encourages Ecuadorians to switch from LP gas powered appliances to electric ones. So far, the number of households that have replaced gas stoves with electric, has fallen far short of expectations.

The government announced last year that it will end the subsidy for gas in late 2016, which it says will mean $700 million in savings.

Several manufacturers and store owners say the ICE tax on gas appliances could put them out of business. “Three out of four cook tops that we sell today are gas,” Pedro Muñoz, an appliance shop owner in Quito. “Sales are increasing for electric stoves but most customers want gas. This law takes away the rights of individuals to make their own decisions. I feel like I’ve been ambushed and I hope the president vetoes it.”

General manager of Cuenca-based Indurama, Juan Pablo Vela, says he was also caught off guard by the proposed tax and worries that it will mean cut-backs at the firm. “We will try to increase our exportation of gas cookers but it won’t make up the losses at home,” he said. The company current exports about 180,000 a year to more than 20 countries.

Vela says that Indurama is increasing production of electric stoves, which currently15,000 to 20,000 units per month. “Overnight, our sales of gas appliances will disappear,” he added.

Muñoz says the government’s timing is bad. “Electric stoves need a different kind of electric wiring and most homes do not have it. It will take years and a lot money to do this,” he said. “Another problem is the cost. A nice electric stove costs $600 or $700.”

Appliance stores report a sharp decline in the sales of gas hot water heaters and say that electric hot water heater sales will soon surpass those of gas units. If the 100% ICE tax is approved by Correa, it will eliminate almost all gas water heater sales, store managers say.

If Correa signs the new law, there may be a silver lining for consumers, but they will have to act fast. Store owners say that gas appliances will sell for less than 50% of the former cost and maybe for as little as 25%. “Stores will need to get rid of the old units so there will be bargains” says Muñoz.