Government announces VAT increase from 12% to 15%

Vega confirmed that Noboa will use the prerogative conferred in the tax reform that he carried out, where it was proposed that the VAT be raised from 12% to 13% permanently, with the possibility that the head of state can raise it to 15% if he sees it necessary with the prior approval of the Ministry of Economy and Finance.

This tax increase was proposed by President Daniel Noboa with the justification of continuing the work of the Armed Forces against terrorism. However, there has been criticism of that premise, since the money raised will go to the national accounts.

Vega assured that the measure will be applied “to sustain the successful campaign to combat insecurity.” It will come into force from April 1, after the Law to Stop the Armed Conflict is published in the Official Register.

With the increase in VAT to 15%, the government expects to raise an additional $1.3 billion.

Vega did not give details on how long the VAT hike will be in effect. He explained that the 2024 Budget Proforma sent to the Assembly on February 20 does not contemplate the increase in VAT.

Adjustment does not cover the deficit

He added that President Daniel Noboa will apply the targeting of the fuel subsidy “when he sees fit.” And that the plans are already ready, but that domestic gas and diesel will not be touched.

“It will always focus on protecting those most in need. Initially, diesel will not be touched and will not affect the country’s competitiveness,” he emphasized.

Vega said that the economic adjustment makes it possible to finance the economy, although it does not cover the entire deficit that exists. Regarding the increase in the Tax on the Exit of Foreign Currency, he justified that it is necessary to maintain the security campaign carried out by the National Government.

Regarding the closure of oil exploitation in the Yasuní ITT, he acknowledged that this could be extended beyond August of this year, alleging that a risk report must be carried out.

Currently in Ecuador, the prices of 85-octane gasoline, the most consumed, are frozen at $2.40 per gallon (3.78 liters), while diesel has a fixed price for the consumer of $1.75 per gallon.

“We have great pressure on public finances, and we have responsibly taken measures to recover the country, create opportunities, and above all generate employment,” Vega said.

The head of the Economy and Finance portfolio recalled that the fiscal deficit inherited by the Noboa government, amounting to about 5,000 million dollars, equivalent to almost 5% of the gross domestic product (GDP), which for this year will make the financing needs of the public accounts around 9,000 million dollars.