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VAT rise takes effect in Ecuador to fund post-quake rebuilding

Xinhua, June 2, 2016 Adjust font size:

A one-year increase in Value Added Tax (VAT) came into force in Ecuador on Wednesday to fund reconstruction of the country hit by a massive earthquake in April.

The "Solidarity and Civic Responsibility Law for the Effects of the Earthquake," which has been recently approved by the Ecuadorian authorities, suggests a 2-percent rise to the VAT for one year, increasing the tax rate from 12 percent to 14 percent.

The law aims to collect 1.09 billion U.S. dollars 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 dollars, Sandra Naranjo, head of the National Planning and Development Secreatariat, announced on Wednesday.

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.

The initial funding, said Naranjo, will include income from the Solidarity Law as well as 660 million dollars of contingency lines from three institutions, the Andean Development Corporation, the Inter-American Development Bank and the World Bank.

Ecuador will also use a credit from the International Monetary Fund, which is worth 400 million dollars, 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 dollars a month, two days for those earning over 2,000 dollars and progressively higher contributions for those earning 5,000 or more.

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

Ecuadorian President Rafael Correa confirmed on Tuesday that "surgical measures" are unlike those of past governments which have increased gas and fuel prices after less serious earthquakes. Endit