The Legislative Administrative Council (CAL) plans to meet this Sunday, January 14, at 10:00 a.m. to review and resolve the qualification of an emergency bill to deal with the internal armed conflict, social and economic crisis, which proposes to increase the value added tax (VAT) at 15%.

Namely, the executive authority proposes to change the current text of Article 65 of the Law on the Internal Tax Regime and sets the rate of value added tax at 15%, but clarifies that tax deductions and exemptions applicable to VAT will remain in effect.

Furthermore, it is foreseen that the funds collected as a result of the VAT rate increase will not be considered the subject of any pre-allocation, since in the proposal the Executive Power indicates that the purpose of the bill is to collect taxes to fulfill the obligations of the State in the implementation of plans, programs, actions and public policies for Ecuador’s social sectors, as well as stabilizing public finances, redistributing income and dealing with the need for resources due to the internal armed conflict and the serious social and economic crisis that crosses the equator.

In its proposal, the government argues that the current debt situation requires the adoption of proactive fiscal measures to avoid the accumulation of long-term debts; Therefore, an increase in VAT would ensure a permanent source of income that would not only enable the settlement of existing debts, but also prevent the accumulation of new financial obligations, thus promoting fiscal responsibility.

It also argues that the connection between internal armed violence, borrowing from decentralized autonomous governments, financing weapons for internal war and the need to improve the prison, health and social systems creates a complex scenario that justifies the consideration of fiscal measures such as VAT increases.

As an explanation, the Executive Power points out that in Executive Decrees 110 and 111 of January 8 and 9, 2024 that is, the critical situation that the state faces in the fight against criminal organizations is described in detail, which is why the Government sees the need to solve the security threat that has economic repercussions, which are added to the severe fiscal crisis inherited by the current regime. Therefore, it is necessary to consider new revenues that enable us to face the crisis, such as the need to increase VAT, as a key measure for facing these challenges.

Political positions

Bench of the Social Christian Party (PSC) In a statement, he announced that he would not vote for an increase in VAT or the introduction of any tax. And to finance the security crisis, he proposes establishing a special and temporary contribution.

The increase of VAT to 15% does not find an echo in the National Assembly, Government blocks do not support

In addition, he claims that the money collected will be exclusively for this purpose and will be managed through a special transparent and audited account, but in order to do this, the necessary amount, which is not already budgeted, will have to be determined and the relevant set deadline.

This political sector, an ally of the Government in the Parliament, warns that a serious security, economic and social crisis should not be mixed up and solved with the failed practice of creating or raising taxes.

Construye movement benchthrough a statement, he also warns that Daniel Noboa’s “tax” law would hit the pockets of the middle and poor sectors of the country.

This political sector clarifies that it strongly supports Executive Decree 111 on the declaration of armed conflict, but that it does not agree with the president “reaching into his pocket by trying to raise the VAT when less than a month ago he approved the reform of exemptions for large companies, including those related to their family group.”

Construye suggests some alternatives, such as reducing the size of the state, reducing the advertising costs of the Presidency, the Central Bank, the National Telecommunications Corporation, cutting ministries in half, reducing 10% of government costs, without affecting health or education, focus on subsidies, put public companies that are in the hands for sale states inefficient and sources of corruption, eliminate unnecessary costs such as all communication costs, impose a tax on the extraordinary profits of banks or companies of mining companies; “After we have exhausted these options, let’s discuss a tax that affects without distinction those who are already victims of this crisis”, claims this political group composed of 19 representatives.

The adoption of the bill is also opposed by the Citizen Revolution (RC) bloc, which, although it supports the Government’s decision to combat insecurity, believes that the priority order of financing this issue should be reviewed, as it should be determined that the last resort that should be resorted to is to ask citizens to contribute with an increase in VAT from 12% to 15%.

For this sector, also related to Nobo, there are some alternatives that should be followed, such as refunding the tax on the exit of foreign currency from the country, a special tax on banking profits, collecting the amount owed to the Tax Administration (SRI), reconsidering the issue of exemption from income tax as would have more liquidity.

The Civil Revolution Bench, according to its spokesman Leonardo Berrezueta, does not refuse to sit down at the table to discuss alternatives to the financing of the internal armed conflict, and in these discussions it will present its position, funding priorities and possible alternatives.