The Ministry of Finance justified the 15% increase in VAT, due to the million-dollar deficit in resources that the country is dragging and due to the need to solve ‘the state of war’.
The Minister of Finance, Juan Carlos Vega, at a press conference, in Quito, on January 15, 2024.
The Minister of Finance, Juan Carlos Vega, justified the proposal for a 15% increase in the Value Added Tax (VAT), because the State has a million-dollar resource deficit in the budget and delays in payments.
He said that 40% of the Executive’s arrears, set at around USD 3.4 billion, is for health goods and services, such as payment to suppliers of medicines, medical supplies, and school textbooks.
As indicated by Vega in a press conference on January 15, 2024, held in Quito, the Government is aware that there are other spaces for maneuver to face the problem of lack of resources.
And he added that due to the lack of resources “we have retirees at risk of not receiving their pensions due to the arrears accumulated by the State.”
For Vega, the economic measure on VAT is necessary so that the State has more income “to face the war”, in the midst of a shortage of resources in the economy.
Regarding this, the Vice Minister of Finance, Daniel Falconí, expressed that Ecuador requires about USD 1,020 million to ‘sustain the state of war’.
After a series of violent events in the country, President Daniel Noboa himself warned that Ecuador is in a ‘state of war’ against organized crime.
For this reason, the Minister expressed that the Government’s proposal is not a ‘temporary’ VAT, since “the war against drug trafficking will take years, as happened in Colombia.”
Finance Plan ‘B’
Deputy Minister Falconi recognized that VAT cannot be raised for just one year, because the structural problem of lack of resources requires an increase over time.
“If the proposal to increase the VAT does not pass in the assembly, we have a plan B. But plans B take more time, they are more difficult,” explained Minister Vega.
And what would this plan B be? Vega anticipated that the Government is “working on an economic plan that includes targeting subsidies.”
This program will have the advice of multilaterals, ” we are studying the targeting of subsidies, but that does not mean that the VAT would stop increasing,” Vega said.
Precisely, on Sunday the Legislative Administration Council (CAL) qualified the economic project, which seeks to increase the Value Added Tax (VAT) from 12% to 15%.
During the virtual session held by the CAL, the members decided that the Economic Development Commission, chaired by the official assembly member Valentina Centeno, will be in charge of processing and preparing the report that will be debated in the Plenary.
Until now, the PSC, Revolución Ciudadana, Construye and Pachakutik groups have announced that they will not support the Executive’s proposal.
