Economy and Finance Minister Juan Carlos Vega is somewhat optimistic about the National Assembly’s approval of the value added tax (VAT) increase from 12 percent to 15 percent. The measure will bring in at least $1.071 million this year, amid an announced internal war that would require at least $1.020 million. However, he said this Monday that the possibility of targeting fuel subsidies is also being studied.

Vega defended the need to increase VAT from 12% to 15%. He began by pointing out the difficult and “unsustainable” situation of the fiscal treasury, which has been recorded since the beginning of the Government (minus of almost 5,000 million dollars). At the same time, he admitted that this increase in VAT will not be temporary and that it will even affect the price of fuel, as part of the taxed products.

He explained in a simple way how public finances work, making a comparison with family finances in which, if there is not enough income to cover expenses, and there is no source of financing, the situation becomes complicated. He compared the adjustment to if a family in a bad economic situation continues to party and eat out, instead of reducing their expenses, they will not be able to improve their finances.

The minister commented that measures are already being taken that also lead to a broad contribution from the wealthiest sectors, such as increased retention for the country’s largest companies, including banks. In addition, with the decree that made the foreign exchange outflow tax (ISD) reduction non-existent, it was indicated that the collection of $263 million was not lost.

He also referred to debt relief, which is still in the phase of adjustment through regulation in order to become an attractive mechanism for debtors.

However, he believes that the increase in VAT still has public support since the campaign ‘I’d rather pay more VAT than pay for vaccines’ is supported. In this regard, he even assured that he would be ready to go out into the streets together with the citizens and demand that this measure be approved.

He explained that the situation in the country is so complex that there could be problems with the payment of salaries and pensions. Failure to pay suppliers will create a problem in the payment chain. There are debts in the payment of medicines and even textbook suppliers. He commented that we currently have a deficit similar to that of the pandemic, but without the possibility of new funds or financing.

The situation could create a chain of unemployment, poverty, insecurity and even risks for dollarization.

As for subsidies, he clarified that it will not be about their abolition, but about directing so that the aid reaches the people who really need it. The public transport sector will be subsidized. But it makes no sense to subsidize the drug trade or the wealthy sectors, so that issue should be corrected.

Minister Vega Malo himself noted that the subsidy plan will be presented in mid-January. On this topic, Ana Cristina Aviles, Deputy Minister of Economy, commented that work is already underway on the economic plan, and some of these lines have already been presented to the President. This is a technical job they are doing with the multilateral contingent.