The Economic Development Committee of the National Assembly hopes to approve a report this weekend for the first debate on an urgent economic project that proposes to increase the value added tax (VAT) to 15 percent to finance the country’s internal armed conflict, social and economic crisis.

On January 19, members of the legislative committee met electronically to receive presentations from trade unions, organizations related to the economic and production sector, and university professors who would present their observations on the proposal of the Executive Committee.

The authorities warn of economic and security consequences if VAT is not increased to 15 percent

During the discussion and debate on the Government’s draft initiative, it was proposed to review the proposal to increase VAT, because for some it is a regressive tax, it was requested to analyze alternatives such as targeting fuel and establishing special contributions, because the increase in VAT could not affect the increase of VAT. could generate the effects of an increase in the price of goods and services because it is an indirect and proportional tax, they warned.

On the other hand, María Paz Jervis, president of the Chamber of Industry and Production, defended the Government’s proposal to increase the VAT by three points, saying that this tax has a less severe impact on consumption, is a less distorting tax, does not affect certain sectors and prevents it from having a disproportionate and subjective impact at the time of its application. The difference is that whoever spends more pays more, he noted.

This tax has immediate effect and is easy to collect, and an increase of three points would bring Ecuador closer to the international average; He also said that the 15 percent VAT will not affect investments and exports, and pointed out that the majority of products in the single basic basket have exceptions and neutralize the impact on families.

He commented that the collection of 3 points of VAT is estimated at 1.071 million dollars, and he emphasized that not all these resources go to the central government, but also 21% will go to GADs and 10% to universities.

Jervis commented that they do not agree that the foreign exchange exit tax (ISD) should be increased, because it is a more regressive tax that exists because everyone pays it in some way, and many imported products are also taxed. which are consumed.. The same happens with the special tax on consumption.

Legislator Viviana Veloz (RC), he invited us to think about the attitude of certain sectors on the thesis that Ecuador has the lowest VAT rate in the region, when it should be known that paying VAT of 12% in dollars is not the same as the rate of 18%.20% in its own currency.

He stated that it is false to claim that the increase in VAT will not affect the basic basket, because this tax increases production costs and what the increase in the tax to 15 percent will generate is an economic contraction.

Rodrigo Gómez de la Torre, from the Holstein Association of Ecuador, He said that they understand that there is an internal war in the country, but they also know that the VAT increase is not only to cover the fight against the internal war, but to reconcile the fiscal accounts.

He pointed out that it is true that agriculture does not invoice VAT, but there are many products that are necessary for production if they are taxed with VAT, and that this tax increases costs for the sector and this is not always compensated.

Gómez de la Torre commented that while the increase will not affect the products sold by the agricultural sector, it will affect production costs.

President of the Ecuadorian Business Committee, Miguel Ángel González, He stated that raising taxes should never be the first option, especially in situations like the one the country is in when there is a slowdown in the economy and when official organizations are projecting 1 percent growth.

He explained that the manufacturing sector is always willing to get involved, help and contribute to society, and that in 2024 there is already a big contribution with the first bills sent by the executive, such as the withholding tax for large corporations and the extension of ISD with one more year of 1.5%; and 1% on vehicle license plates, among others.

González said that although there is openness in the Ecuadorian manufacturing sector, there is a feeling that it is wrong to want to collect more from the citizens and the manufacturing sector that creates jobs, while there are unsolved tasks in the country with corruption, fraud or ineffective subsidies and smuggling persist.

The productive leader commented that before the increase and additional contributions from the production sector, it is essential that the state fulfills its task and starts with targeted subsidies, implementing the fight against corruption; In other words, if there are going to be waivers, they must be from both sides, both from the private and from the public sector.

If the authorities consider that the implementation of these structural changes, such as the targeting of subsidies, the fight against corruption and inefficiency within the public sector, requires time and additional resources in the short term or additional contributions from the productive sector, these increases should be subject to some limits or demands: first, that the increase in VAT is temporary, that it is accompanied by measures that correspond to the state and that way there will be greater security, and that these funds are used for security and internal war.

Vice President of the Development Commission Blasco Luna insisted that there are other options before the VAT increase and to allow for a higher collection, primarily to cover the gap of about 1.3 billion dollars needed for security.

The committee will meet again this Sunday, January 21, to review and approve the first discussion report for the full attention of the Assembly, as planned.