HomeEconomic IndicatorEcuador's Noboa advocates for VAT increase after lawmakers reject hike, aiming for...

Ecuador’s Noboa advocates for VAT increase after lawmakers reject hike, aiming for economic growth.

Ecuador President Pushes Lawmakers to Revote on VAT Hike

Lawmakers Reject VAT Hike, Approve Tax on Banks’ Profits

Ecuadorean President Daniel Noboa has taken action to force lawmakers to reconsider a measure to increase the value-added tax in order to fund a security offensive against criminal groups. The move comes after legislators initially voted against the proposal earlier in the day.

The measure to raise the VAT from 12% to 15% until 2026, and then to set it at 13% from that year onward, was defeated by a vote of 83 to 43, with nine abstentions. However, lawmakers did approve a one-time tax on banks’ profits from 2023, ranging from 5% to 25%. Currently, banks in Ecuador do not pay taxes on their profits.

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Government Revenue Projections

The proposed increase in the VAT to 15% was expected to generate approximately $1.1 billion per year, according to the bill. Meanwhile, the one-time tax on bank profits is forecast to raise $145.9 million.

New Effort to Raise VAT

Noboa’s new push to raise the VAT involves a measure called a partial objection, which aims to permanently increase the VAT to 13%. Additionally, the president will propose that lawmakers authorize him to raise the VAT to 15% “based on the conditions of public finances and the balance of payments,” according to a statement from Ecuador’s presidency. Legislators are set to vote on Noboa’s partial objection.

Security Concerns in Ecuador

Ecuador has recently witnessed a surge in violence, largely attributed to criminal activity. The country, which has traditionally been a popular destination for foreign retirees, has seen a rise in crime incidents, including a high-profile attack on a TV station and the assassination of a presidential candidate.

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The deteriorating security situation has led to increased public demand for stronger law enforcement and crime prevention measures.

Legislative Setback for Noboa

The recent vote represents a setback for President Noboa, following previous legislative support for initiatives such as an electricity bill aimed at boosting power generation and attracting foreign investment, as well as a tax bill incentivizing youth employment.

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