Noboa’s measure in the face of the escalation of violence in Ecuador: raising VAT to 15%

In the midst of the declared war on organized crime, the tension due to attacks and riots in prisons, with more than a hundred prison officials held hostage, and the complicated economic situation of citizens, the president of Ecuador, Daniel Noboahas decided to play an unpopular card: raise the value added tax (VAT) from 12% to 15%.

He “internal armed conflict”declared by the series of attacks in various parts of the country, attributed to organized crime gangs, now classified as terrorists, has led Noboa to resort to something he said he would not do: raise taxes.

The proposal has generated immediate rejectionsalthough it still must be studied by the National Assembly (Parliament), where Noboa has achieved the approval – in less than two months – of two urgent economic laws, despite the fact that the official party is in a minority.

Although in a statement the Government has anticipated that This increase will not affect basic products or housing, health, education or transportationFor the president of the Unitary Workers Front (FUT), José Villavicencio, the possible increase in VAT, “is a club to the people, because everyone pays for it: those who must survive on a dollar a day, as well as those who have great fortunes.

“We cannot accept, in any way, that, taking advantage of what is happening in the country, he wants to give more taxes to the Ecuadorian people,” he told EFE, pointing out that the proposal is even contradictory because, In the electoral campaign, Noboa offered to lower the VAT on construction “because that generated more investment.”

Other alternatives proposed instead of increasing VAT

Villavicencio mentions three alternatives to obtain resources: charging tax evaderswhich amounts to 4.5 billion dollars, of which 2,500 are firm debt, meaning that they have surpassed all legal demands, he maintains.

He also proposes that the external debt is not paid in 2024with which “the State would have income of around 10,000 million dollars”, and re-charge the 5% foreign currency outflow tax (ISD)with which, according to calculations, the State would achieve about 1.4 billion dollars in income.

“Instead of continuing to hit the Ecuadorian people, you have to hit those abovewho have benefited from the economic crisis in this country,” he said.

Economic analyst Alberto Acosta-Burneo describes “wrong” the proposals mentioned by Villavicencio Well, although positive, the collection of evaders is not a permanent income, and the Government is already on the way to collect these pending payments through a tax remission.

“Not everything is collectible because there are bankrupt companies that simply do not have the resources”he added before pointing out as “absolutely wrong” the approach of the debt moratorium because, if it stops being paid, “there will be no possibility of obtaining new funds.

Nor does he see it advisable to return to 5% of the ISD because, by charging the exit, capital inflow is limited, and therefore the ISD “is a barrier to capital entry.”

Accompanied by a reduction in spending

The president of the Federation of Chambers of Commerce, Monica Hellerunderstands that paying more taxes “is an effort for everyone, but it is necessary to face the crisis that the country is going through.”

“However, for this adjustment to be acceptable to citizens, must be accompanied by a reduction by the State in current spendingtargeting of subsidies and fiscal transparency,” he indicates.

And Acosta-Burneo agrees with her, who sees it is necessary to optimize public spending“eliminate useless state institutions and focus on allocating resources to what is important: health, education, security.”

Acosta-Burneo considers the proposal to increase VAT “inconvenient”, as it is a “regressive tax, which will weigh more on the poorest”and – although unpopular – sees as an option focusing on fuel subsidies, which “is another source of gigantic waste of resources.”

“A unfair waste because 50% of the fuel subsidy goes to the richest quintile of the population,” he indicated, pointing out that “1,500 to 2,500 million dollars a year are allocated to subsidize (gasoline and diesel) to the richest population.” from the country”.

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