The proposal to increase the value added tax (VAT) from 12% to 15% in order to deal with internal armed conflicts, social and economic crisis is a “permanent” measure, and not like 2016, which was temporary, according to analysts. .

But in addition, they indicate that it would lead to an increase in the prices of products beyond what they should be, if there is no control by the authorities, although according to what President Daniel Noboa said, the law Organic to Face the Internal Armed conflicts, social and the economic crisis of the measure would not affect the products of the basic basket, etc., as well as the goods that are taxed at a rate of 0%.

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For the president of the Guayaquil Economic Circle, Larry Yumibanda, this proposal is permanent. Tax expert Napoleón Santamaría agrees with this opinion, saying that “this increase in VAT is not like the one made by (Rafael) Correa, which was later reduced, and although VAT was reduced, prices never fell. It is now proposed that the VAT rate of 15% remains permanent.”

After the earthquake of April 16, 2016 in Ecuador, then President Rafael Correa, as one of the measures to obtain resources, announced an increase (of VAT) by 2 points from 12% to 14%, for one year.

Now, at a time when Ecuador is going through an insecure crisis, President Nobo has sent this law to the National Assembly, which is “aimed at strengthening the security of Ecuadorians in the face of a critical situation in which, among other events, “They provoked acts of terrorism that led to announcement of an ‘internal armed conflict’.”

For Yumibanda, raising VAT in these circumstances of almost ten years of low growth could prolong stagnation because it is recessive. “We know that the president needs resources to finance the internal armed conflict, we are very aware of that, but it cannot be financed by the income of the lower, middle class people.”

Santamaría adds that the measure “affects all” consumption of goods and services in the country, so that “an increase in VAT immediately raises prices”. And with that he considers another point: that the prices will rise more than they should, since with the increase that is proposed it should be 2.5% on average, in some a little more, however, the problem in Ecuador is that it will be a lot traders, entrepreneurs, importers, transporters, etc., who will take the increase in a higher percentage, 7%, 8%, 10%. “That is what worries the most, this debauchery, this abuse that exists on the part of economic entities in determining prices. The bottom line is it’s taxed at 0%, but there are some distorting triggers.”

He cites as an example that fuel has VAT and then the transporter will say: ‘I drive 100 quintals of carrots and charge 50 dollars’, but since they raised the VAT on fuel, lubricants, tires, etc., it is likely that prices will increase, since they are components which are not exempt from VAT, but the increase should not be significant, but minimal. With this panorama, he says that the authorities, mayors, police stations must start implementing greater price control.

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Yumibanda also indicates that there would be an impact on the basket, but on the CPI, which is for the calculation of the consumer price index (CPI), because there is also a basic family basket, which includes 75 products and a vital one, which contains 73 products. products. “There is a basket called CPI where 50% of products, more or less 170, would be affected because they are products subject to VAT and therefore will generate an increase in CPI, which when the change is made, will generate an increase in inflation” , he explains.

In view of this concern, the Government points out that the proposal to increase the VAT does not include products from the basic basket and others such as medicines, basic services, passenger and freight transport at the national level, health, education, apartment rental, and that through municipalities and provinces throughout the country, control operations will be deployed to prevent price speculation.

Other alternatives

According to the President of the Economic Circle of Guayaquil, the VAT increase is not the right way and there are other alternatives such as the early tax collection decree, which is within the constitutional framework and can be done immediately, which is already somewhat in the Law on Economic Efficiency and Employment and intended is to large companies, but it can also be extended to individuals.

And another thing, he says, is that you can reorganize the budget. “We are waiting for the government to first present the National Development Plan, which it has not presented, because based on that, it must present the pro forma budget for 2024, and we are not familiar with that document either.”