VAT is headed higher after Assembly fails to reverse Noboa’s changes to funding for narco fight, budget

The National Assembly failed to override President Daniel Noboa’s partial veto that reinstated a VAT increase. In fact, efforts by members of the Social Christian and Citizens Revolution blocs to gain the 92 votes necessary for an override backfired, as the anti-VAT effort lost five votes from the bill’s passage on Tuesday.

President Daniel Noboa

Officially, the Law to Confront Internal Armed Conflict and the Social and Economic Crisis, the measure also increases four other taxes on a temporary basis and gives the president the option of increasing the foreign fund exit tax. The new taxes will go into effect within 30 days or at the date the legislation is officially entered into the Government Registry of new laws.

With Noboa’s changes, the VAT increases permanently from 12% to 13% with the option of a two-year increase to 15%, based on recommendations from the Finance Ministry.

In addition to the VAT hike, the legislation requires a 3.25% tax on company profits for the 2022 tax year; a tax of 5% to 25% on bank and cooperative profits from 2023; a 5% VAT on building materials; and an increase in the ISD money exit fee from 3.5% to 5%, to be implemented at the president’s discretion.

According to an analysis by the Finance Ministry, the new tax revenue will amount to $1.8 billion to $2.1 billion for 2024. Noboa also announced reductions of government agency staff and a partial phase-out of gasoline subsidies that could amount to savings of $2 billion.