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Ecuador's Noboa seeks tax hike to fund security

Published 01/12/2024, 09:31 AM
Updated 01/12/2024, 07:56 PM
© Reuters. FILE PHOTO: Ecuador's President Daniel Noboa, accompanied by National Police Commander General Cesar Zapata, Interior Minister Monica Palencia, Defence Minister Giancarlo Loffredo and Armed Forces Commander Rear Admiral Jaime Vela, details plans for two n

By Alexandra Valencia

QUITO (Reuters) -The administration of Ecuadorean President Daniel Noboa has asked lawmakers to weigh an increase in value added tax (VAT) to finance efforts to combat crime gangs, as the armed forces increased operations in violent areas on Friday.

A dramatic spike in violence this week - including the on-air storming of a TV station, the hostage-taking of 178 prison staff by inmates and the kidnapping of police officers - appears to be a response by gangs to Noboa's plans to tackle a dire security situation, the government has said.

Noboa, who took office in November, has declared a state of emergency and named 22 gangs as terrorist organizations.

A total of eight prison staff have been released since late on Thursday, prisons agency SNAI said in a statement on Friday.

Three were being held in Azuay prison in Cuenca, where 21 hostages have also been attended to by the Red Cross. Three were released from a prison in Canar province, while two others were freed in Esmeraldas.

Remaining hostages number 170 - 155 are prison guards and 15 are administrative staff.

The death of an inmate at a prison in El Oro province is being investigated, SNAI added.

The government has said operations to free hostages taken at least seven prisons are ongoing, but there has been scant information about their status, leading to criticism by their families and union.

Videos purporting to show prison staff being subjected to extreme violence, including shooting and hanging, have circulated on social media, but the government has said no hostage has been killed and that some videos had been altered.

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Reuters could not independently verify the videos.

Security has worsened in tandem with serious economic troubles, as the country grapples with domestic liquidity problems, limited options for foreign financing and tens of billions in external debt.

Noboa's tax proposal, sent to the national assembly late on Thursday, would raise VAT by three points to 15%. The bill is classed as urgent and must be approved within 30 days.

The measure would not be levied on basic food products, medicine, public utilities, transport, health or education costs or rented housing, among other things, the government said in a statement.

"The current security crisis in Ecuador underlines the urgency to increase potential tax collection for the state," Noboa said in a document shared with the assembly. "Increasing VAT will give the state a constant source of income."

LAWMAKER DISAGREEMENT

The measure could raise more than $1.3 billion per year and would come into force in March.

Funds would go to finance weapons and equipment for security forces and improvements to the prison system, as well as the payments owed to regional governments, the document said.

Lawmakers - in a rare show of unity - have already approved two urgent proposals from Noboa's government, another tax bill meant to increase youth employment and a law designed to attract investment in the electricity sector.

But lawmakers from the leftist Citizens' Revolution party, which is part of Noboa's majority coalition, said in a statement they will not back the VAT measure, instead urging him raise funds through tax on foreign capital transfers or one-time duties on large sums.

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"President Noboa, you have options, but not at the cost of the wallets of a hurting citizenry!" the legislators said in a post to social media.

The Social Christian party, also part of Noboa's coalition, also said it would not back the bill, potentially forcing the president to seek agreements or make amendments with minority parties.

Ecuador closed 2023 with a fiscal deficit of more than $5.7 billion, according to the government. Its foreign debt totals more than $47 billion.

"Higher public spending on security and a likely loss in revenues from slower growth will put pressure on the government's budget balance. That will make the job of establishing the country's strained public finances even harder," Capital Economics said in a note.

The military on social media said it has intensified operations in several provinces, arresting gang members and seizing weapons.

The attorney general's office said three people were being held on charges of plotting an attack on the head of the national police, without providing further details. The police made no comment on the issue.

Noboa's government blames the deteriorating security situation on an increase in drug trafficking through Ecuador, which borders cocaine-producing Colombia and Peru and has become a major drug shipment point.

Noboa on Thursday presented details of two new high-security prisons he has pledged to build to hold top gang leaders.

The chairmen of foreign relations committees at the United States Congress reaffirmed their support for Noboa's efforts to restore order in a joint Friday statement.

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Washington has not yet provided details of the aid it may offer Ecuador, but the State Department said on Thursday law enforcement officials will travel there to assist with criminal investigations.

Ecuador will ask people entering the country across its borders with Peru and Colombia to show their criminal record or lack of one during the duration of the state of emergency, the government said late on Thursday.

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