Reduction of taxes on towels, masks and other products was not fulfilled despite the validity of the Economic Development Law

It is On December 1, in several businesses, pharmacies and stores, the entry into force of the Economic Development and Fiscal Sustainability Law (tax reform) was unknown, which in its text provides for the elimination of the value added tax (VAT) for sanitary napkins, several feminine hygiene products, masks, antibacterial gel, among others.

For example, at Almacenes Tía, the prices of sanitary napkins and intimate soaps this morning included VAT. Employees of that chain indicated that they had not received any instructions on price changes.

Meanwhile, in the Mega Mercado, located in the Chillos Valley, VAT was also charged on sanitary napkins, but not on masks. The seller explained that she had no instructions on withdrawing VAT from the towels, but explained that the masks were not taxed previously or now. In any case, he considered that it could happen that when the new merchandise arrives, it already comes without VAT. In a Medicity pharmacy branch, the rate change for this tax was also unknown.

However, there were also few stores in which the new prices were already being applied. In a Farmared pharmacy branch, they reported that the system automatically showed them that sanitary napkins no longer included VAT, and this happened throughout the chain.

The entry into force of these new tax rates occurs because in the Tax Code The behavior of the taxes is indicated in the event of their entry into force, that is, those settled in periods of less than one year (for example, VAT and ICE) and those that are annual, such as the tax on income. rent. Article 11 of the Tax Code indicates that Laws that are liquidated with periods of less than one year will come into effect “from the first day of the following month” after the law is approved. In this case, on December 1. On the other hand, it says that “the rules that refer to taxes whose determination or settlement must be made for annual periods, as a merely declarative act, will be applied from the first day of the following calendar year”, in this case, on January 1, 2022.

The law eliminates VAT on sanitary napkins, personal hygiene products, masks, oximeters, popular disposable diapers, among others. Meanwhile, the ICE is lowered to cellular plans, to hybrid cars, among others.

On the subject of cellular plans, Jorge Cevallos, executive director of the Association of Telephone Companies (Astel), explained that these standards will be met in a timely manner. He considered that they could hardly be breached, since, on the one hand, companies comply with the law, and on the other, the controls are very rigorous and they would even be exposed to heavy penalties for not doing so.

Meanwhile, about popular disposable diapers, the Internal Revenue Service (SRI) explained that, by provision of the law itself, the category of popular diapers must be final at the regulatory level. Therefore, until it is issued, the 0% rate would not apply..

Additionally, regarding the alcoholic beverages market segment, the Economic Development Law orders an increase in ICE. This rate is unique for all types of alcoholic beverages, national or foreign, except beer, which has a different treatment.

According to the law, each liter of alcohol rises from $ 7.18 to $ 10, explained Felipe Cordovez, president of the Ecuadorian Association of Liquor Importers. In practice, it is an increase in 39.2% at the ICE rate. Therefore, he foresees that spirits will rise between 6% and 30% depending on its alcoholic strength: the higher the alcoholic strength, the higher the tax increase. Cordovez explains that the impact that will be felt the most will be the lowest cost and highest alcoholic beverages.

In this sense, he considered that for the national industry, dedicated especially to the production of popular consumption beverages, it represents a great blow.

However, he comments that the price change would not be felt immediately. This is because the industry expected to have a sales recovery in December, so it will surely wait for stocks to be consumed before increasing prices. Then, with the following shipments, the elevation will already be felt, he explains, because since the level of increase in ICE is so high, businessmen will not be able to assume the increase through profit margins, since the increase exceeds them.

Several experts agreed that the time to apply the new rates was short, since the law was published on November 29 in the Official Gazette and, therefore, the productive sectors had just two days to make the changes to the law. (I)