The Legislative Administrative Council (CAL) this Sunday, January 14, 2024 qualified an urgent economic project to deal with the internal armed conflict, social and economic crisis, which proposes to increase the value added tax from 12% to 15% (VAT). The initiative was presented on January 11 by the President of the Republic, Daniel Noboa.

The analysis and preparation of the first report of this project will be in charge of the Commission for Economic Development, under the chairmanship of the government’s Valentina Centeno, which handled the last two urgent projects of economic efficiency and energy competitiveness, although the report of the Legislative-Technical Unit (UTL), non-binding, recommended that the project be referred to the Commission for Economic and Tax Regime and its regulation and control.

CAL is aware of and decides on an urgent project that proposes an increase in VAT to deal with an internal armed conflict

During the CAL virtual session, legislators Viviana Veloz and Esther Cuesta (RC) proposed that the project go to the Regime Commission as proposed in the UTL report, but the second vice president of the Assembly, Eckenner Recalde (ADN), moved that the project go to Committee for Development, although he is a member of the Committee for Economic and Tax Regime.

The person who decided that the proposal should go to the commission under the chairmanship of Valentina Centeno was the Speaker of the Assembly Henry Kronfle, who had the deciding vote due to the tie, considering that the legislator Jorge Acaituri-Villa did not connect to the session.

Esther Cuesta and Viviana Veloz (both from RC) and Alexandra Castillo (Construye) spoke against Recalde’s proposal, as they indicated that the executive branch’s proposal should go to the Economic Regime Commission.

Diego Matovelle and Eckenner Recalde (both from ADN) and Henry Kronfle (PSC) voted for the motion. In case of a tied number of votes, the President of the Assembly exercises the powers granted to him by Article 15 of the Organic Law on Legislative Function, which in the case of a tied vote will have the deciding vote.

After the results, Legislator Viviana Veloz (RC) proposed a reconsideration of the vote, but it did not pass, so what was approved was met with Kronfle’s casting vote.

The debate on this project at the level of the Parliament begins with a setback in terms of political support. The Social Christian Party (PSC) and the Civil Revolution (RC) groups, linked to the Noboa regime, have predicted that they will never support the tax increase, but open the possibility of discussing other temporary alternatives that allow exclusively to obtain resources to oppose the armed conflict. Executive Decree 111.

The political organizations Construye and Pachakutik have also indicated that they will not support this third urgent project submitted by the executive in less than two months.

The executive authority, namely, proposes to amend the existing text of Article 65 of the Law on the Internal Tax Regime and establish a value added tax (VAT) rate of 15%, but clarifies that the tax reliefs and exemptions applied to VAT will remain in force. .

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.

The deadline for the National Assembly to consider this bill expires on February 10, 2024.