Taxes, audit of subsidies and contributions from citizens and businesses were the source from which governments drew every time there was a war or disaster. When countries’ economies do not have emergency funds or access to credit, they must seek support from taxpayers.

Ecuador is currently experiencing exactly such a situation. In addition to the uncertain fiscal situation, it faces a security problem that has exceeded any previously known limit. The President of the Republic, Daniel Noboa, had to declare an internal war, after the drug mafia, structured into organized crime groups (GDO), became a threat within Ecuadorian territory.

The proposed measure is to increase the value added tax (VAT) from 12% to 15% and thereby collect about 1.3 billion dollars a year to pay this installment. This means covering the cost of weapons, technology and supplies for the armed forces and police to fight gangs that commit murders and terrorist attacks. That amount would not be enough to cover the fiscal deficit, which is more than 5,000 million dollars, nor for additional costs related to security. In this sense, the need to review fuel subsidies would not be excluded.

It is not the first time that a government has resorted to such measures to obtain funds.

For example, after the 7.8 magnitude earthquake that occurred in Manabí and Esmeraldas in April 2016, on June 1, 2016 the value added tax was increased from 12% to 14%. This measure was taken during the government of Rafael Correa as part of the Law on Solidarity and Co-responsibility of Citizens for the Impact of the Earthquake, which was approved by the Correísta Majority Assembly. At the time, analysts believed that this would raise between 700 and 800 million dollars.

This was not the only measure taken at the time. People also had to pay part of their salary, 3% of profits, and companies and people with large assets made an exceptional contribution.

However, there are doubts about the destination of the collected resources. Reports from the Controller’s Office indicate irregularities in the execution and approval of contracts and works. Currently, former Vice President Jorge Glas (RC) is in the Mexican embassy, ​​claiming that he is a politically persecuted person, but must answer for embezzlement in the Reconstruction case.

What taxes were created in Ecuador during the war with Peru?

Meanwhile, in 1981, there was a Paquish war. In January of that year, Peruvian soldiers attacked the detachments of Paquisha, Mayaycua and Machinaza in the El Cóndor mountain range for four days. The crisis was caused by the withdrawal of 17% of money from banks. To solve the financial imbalance of that war, the then president Jaime Roldós introduced a vehicle registration tax, and the price of gasoline increased by 200%, and with it the value of transportation.

However, in 1995, the mechanism used by Sixto Durán Ballén’s government to deal with the costs caused by the Alto Cenepa conflict with Peru was to apply 2% for recording (vehicles) and delivery of two days’ wages of public and private workers.

In Ecuador, in the National Assembly, the main groups have so far opposed the approval of more taxes and have begun to talk about possible temporary contributions.

They also talked about the need to direct these collected funds into a trust, in order to prevent the diversion of funds into corruption.