© Reuters. Demonstrators take part in a protest in support of the proposed law to raise VAT in the surroundings of the National Assembly, in Quito, Ecuador February 6, 2024. REUTERS/Karen Toro
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QUITO (Reuters) – Ecuador’s National Assembly on Tuesday voted down a proposed increase to the value added tax (VAT), which President Daniel Noboa said would finance a security offensive against criminal gangs.
Lawmakers voted against raising VAT to 15% from 12% until 2026 and against holding it 13% form that year onward.
The measure failed by 83 votes to 43, with nine abstentions.
Lawmakers did approve a one-time measure to tax banks’ profits from 2023 at between 5% and 25%. Banks in Ecuador currently do not pay taxes on their profits.
The government expected the hike taking VAT to 15% to raise some $1.1 billion per year, according to the bill debated by legislators.
The one-off tax on bank profits is forecast to raise $145.9 million, the bill added.
Ecuador, long a haven for foreign retirees, has been gripped by spiraling violence nationwide since the coronavirus pandemic battered the South American country’s economy.
Armed men stormed a TV-station on air last month and a presidential candidate was gunned down as he left a rally during last year’s elections, while hundreds of inmates have been killed in prison riots.
Increased crime has prompted some fearful civilians to learn how to use handguns for self protection and demand authorities do more to restore law and order.
The vote marks a legislative setback for Noboa, who previously received backing from lawmakers on an electricity bill meant to increase generation and attract foreign investment and a separate tax bill which incentivizes youth employment.
The government did not immediately respond to requests for comment.
