The government proposes that the minimum rate of the value-added tax (VAT) be reduced from 14% to 12%, and that the tax's scope be extended to cover more items.
At present the minimum rate applies only to basic food items, medication, and tourism services, but the government wants it also to cover health services and long-life milk.
At the same time, the government has proposed that the basic VAT rate, of 23%, be applied to sales of petrol and diesel fuel in order to reduce the difference in price between the two products, which used to be taxed under the Impuesto Específico Interno (Imesi).
The government also hopes eventually to lower the basic VAT rate to 19% and the minimum rate to 10%, but warned last week that such a reduction would not be possible until certain fiscal targets are achieved.
In order to cover the shortfall produced by the cuts in VAT, the government has proposed the establishment of a new tax, the Impuesto a las Rentas Empresariales (IRE), which will group together the current Impuesto a las Rentas de Industria y Comercio (IRIC) and the Impuesto a las Rentas Agropecuarias (IRA). The IRE will increase the number of taxpayers and the amount of tax paid by a wide range of professionals, including sole traders and university workers.
The government hopes that the measures will stimulate growth and pull Uruguay out of its long period of recession while ensuring that the fiscal deficit targets are met.
* Real wages in Uruguay increased by 0.74% in May; though minimal this has been celebrated as the first monthly rise since November 2001. The driving force behind the increase was the 2.26% increase in public-sector pay.
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