2024-03-27 05:05:00
The VAT reduction on construction materials, a misguided measure
On March 12, 2024 in RO Supplement N°516, the Organic Law was published to confront the internal armed conflict, the social and economic crisis, in the part corresponding to Reformatory Provisions, it says: FIRST.- In the Tax Regime Law. 1.- Following Art 55, add the following unnumbered article “The Value Added Tax rate will be 5% on local transfers of construction materials.” The spirit of the law is to reactivate the Construction Industry, which needs many unskilled employment positions, especially in the real estate sector (home construction) where the weight of materials is 70% of the cost of housing. The VAT reduction on construction materials is positive, but it has to overcome many obstacles, some that must be resolved in the Regulations of the Law (Identification of materials, imported materials) and others that are difficult to solve, such as: a) The cost of the materials is buried in the unit price of an item, it is not in the budget, much less in the sale price of the home, only the builder knows its value, the buyer does not have access, except when it comes to works infrastructure, where the purchase-sale contract is different. In the construction of homes, the reduction in the sales price with 15% VAT fluctuates between 4.5% and 6.0% depending on the type. b) The market is made up of supply and demand, the latter is the engine that moves the supply, if there are no buyers there will be no sellers. The Government opted for supply, it boasts, saying that its measure will open a large number of jobs, but if there is no demand, the measure will be of little or no use. The one who the Government should have encouraged is the buyer, although it is true that lowering the VAT on materials lowers the sales price, it is also true that the buyer does not have the possibility of verifying it. For him, what he can see and feel is an incentive, such as: lowering VAT to 5% on purchases and sales; have cheap and long-term loans to buy the home, that is what the buyer in the real estate sector wants. Yes, demand is encouraged, the revitalization of the real estate sector and employment will be a reality.
Marco A. Zurita Rios
#Letters #Quito #March