VAT rise in Ecuador to fund post-quake rebuilding

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Quito, June 2 (IANS) A one-year increase in Value Added Tax (VAT) came into effect in Ecuador to fund reconstruction after a massive earthquake hit the country in April.

The “Solidarity and Civic Responsibility Law for the Effects of the Earthquake” which has been recently approved by the Ecuadorian authorities, suggested a 2 per cent rise to the VAT for one year, increasing the tax rate from 12 per cent to 14 per cent, Xinhua news agency reported.

The law, which came into effect on Wednesday, aims to collect $1.09 billion to rebuild infrastructure in areas hit by the 7.9 magnitude earthquake that devastated the coastal provinces of Manabi and Esmeraldas, killing 663 people and affecting 85,000 more.

The official reconstruction cost has risen to at least $3.3 billion, announced Sandra Naranjo, head of the National Planning and Development Secreatariat.

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She added that 67 percent of the cost for the post-quake reconstruction will by paid by the government while the rest will be provided by the private sector, she added.

Ecuador will also use a credit from the International Monetary Fund, which is worth $400 million, a sum that the government had claimed was granted “without conditions” and other financial sources from the government’s general budget.

Besides the increase in the country’s VAT, which will not apply to the areas affected by the disaster, the law also includes the contribution of one day’s salary of workers who earn over $1,000, two days for those earning over $2,000 and progressively higher contributions for those earning $5,000 or more.

Meanwhile, the law includes a tax of 0.9 per cent on assets of people having over $1 million worth of property and a one-time tax of 3 per cent on the profits companies achieved in 2015.

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