Ecuador Rejects VAT Hike but Approves One-Off Tax on Bank Profits


The congressional lawmakers have rejected the proposal for raising VAT from 12% to 15% till 2026 and then it would be set at 13%.

A bill to levy a one-time tax on bank profits from 2023, varying between 5% – 25%, has been ratified. Currently, Ecuadorian banks do not pay tax on their profits.

Despite the VAT hike decision defeat, the government was optimistic about generating approximately $1.1 billion annually.

A projected estimate of $145.9 million is expected from the bank profit tax.

Noboa will attempt again to raise VAT up to 13% permanently with a new approach named a partial objection.

Legislators will vote on the newly proposed partial objection.

Ecuador is contending with a surge in violent activities due to the pandemic’s adverse impact on its economy.

VAT Hike Proposal Defeat

The proposal to increase the VAT to 15% till 2026, and set it at 13% from that year onward, was opposed by lawmakers in a vote of 83 to 43, with nine abstentions.

Approval for One-time Bank Profits Tax

Lawmakers passed a measure to impose a one-time tax on banks’ profits from 2023, ranging between 5% and 25%. At present, banks in Ecuador do not pay taxes on their profits.

Revenue Boost Expectations

The government’s proposed VAT hike to 15% was expected to generate about $1.1 billion annually, as per the bill.

Bank Profit Tax Revenue Forecast

The one-time tax on bank profits is projected to raise around $145.9 million.

Noboa’s New Effort on VAT Hike

Noboa’s next effort to increase the VAT by implementing a measure known as a partial objection, which will permanently set the VAT at 13%. The president would have the power to raise the VAT to 15% according to the state of public finances and balance of payments, according to an announcement from Ecuador’s presidency.

The Vote on the Partial Objection

Lawmakers are gearing up to vote on Noboa’s partial objection.

Increased Violence Amid Pandemic

Ecuador, traditionally a sanctuary for foreign retirees, has been witnessing increased violence since the pandemic devastated the South American nation’s economy. Armed criminals attacked a television station on air last month, and a presidential candidate was assassinated as he left a rally during last year’s elections. Furthermore, there has been a surge in prison riots, leading to the death of numerous inmates.

Response to Rising Crime

The escalating crime rate has led many civilians to learn to use handguns for self-defense and demand authorities to enforce more stringent law and order.

Legislative Setback for Noboa

This voting event signifies a legislative upset for Noboa, who previously gained lawmakers’ support on an electricity bill purposed to increase power production and draw foreign investment, and another tax bill aimed at encouraging youth employment.

PIP Penguin