Tax proposals spark anger from business groups and retirees; protests are planned

Business leaders, store owners and retires are reacting angrily to the government’s proposed tax increases. The National Assembly begins discussion on Monday of the tax package submitted Wednesday by President Rafael Correa.

Guayaquil Mayor Jaine Nebot plans tax protest.

Called the Organic Law for the Balance of Public Finances, the legislation includes tax increases on cigarettes, alcohol, soft drinks, telephone services, and on the pensions of some retirees. In addition, it reduces the amount of untaxed cash travelers can take out of the country from $11,170 to $1,098, and limits VAT tax refunds to citizens and residents over 65-years-old.

The public had expected more taxes on cigarettes, alcohol, soft drinks, but the other proposals came as a surprise to many.

Telephone providers say that the 15% tax on their services will slow the growth of the industry. The tax was in place in 2008 when Correa removed it to encourage development in the Internet and wireless business sector. Telephone providers and avoid the tax if they require customers to make payments through the government’s electronic money system but the providers say such a change is not feasible.

Roberto Aspiazu, Executive Director of the Ecuadorian Business Committee (EEC) calls the phone tax destructive. “This is an obstacle to expansion of the industry and it limits access to customers,” he said, adding: “The damage to business is difficult to quantify at this point but it will be significant.”

Store owners who sell alcoholic beverages and soft drinks say the higher taxes will drive down sales. “When is enough enough” asks Cuenca liquor distributor Andres Fernandez. “We have had five increases in eight years. This is only good news for bootleggers,” he says. The price of a can of beer will rise 13 cents. The increased cost for liquor will be established during Assembly debate, but it is expected to average about 40 cents for a 750 ml. bottle.

National organizations of retirees are objecting to the payment of income tax on pensions of more than $3,000, claiming that the government has plans to lower the threshold. Retirees are also complaining about he reduced amount of money that can be taken out of the country by travelers, calling it an infringement on their freedom.

Alfonso Yanez, president of an organization of retired teachers, call the taxes “another blow to teachers and citizens of Ecuador,” adding that his organization is planning events to oppose the taxes.

Some retiree groups say they will join an anti-tax protest next Thursday in Guayaquil being organized by Mayor Jaime Nebot.

Another provision of the tax proposal reduces the amount of VAT refunds that those over 65 can collect per year, from $1,830 to $732.