VAT impacts on household spending and inflation in Ecuador

The increase of the value added tax (VAT) from 12% to 14%, in force from today, will represent that a typical family (4 members) spend more money to maintain their standard of living or waive certain consumptions to adjust to the current reality.

The government has defended the measure, established in the Solidarity and Citizen Co-responsability Law, stating that 90% of the food products of the basic basket do not pay the VAT. But that basket, consisting of less than 80 products, mostly food, is the one that serves as an indicator to define the poverty line and contains only the group of basic goods and essential services to guarantee a minimum standard of living or to not be considered poor, said Jose Hidalgo, director of the Corporation for Development Studies (Cordes).

Therefore, he states that that the basket of goods and services of the Consumer Price Index (CPI), used by the National Institute of Statistics and Census (INEC) to measure inflation, must be considered.

That basket is composed of 359 products the INEC identify as the most representative in household expenditures: 208 pay the VAT and 151 do not, ie approximately 55%.

Source: http://www.eluniverso.com/noticias/2016/06/01/nota/5610459/iva-impacta-gasto-hogares-inflacion