Journal of Legal, Ethical and Regulatory Issues (Print ISSN: 1544-0036; Online ISSN: 1544-0044)


Special Consumption Tax: Its Evolution and Impact on the Financial Statements of the Automotive Sector

Author(s): Irene Buele Nugra, Jesica Marca Fajardo, Fabi??�n Cuesta Astudillo

Throughout history, governments have imposed taxes to sustain public spending. The special consumption tax (SCT), known as ICE (for its acronym in Spanish) in Ecuador, imposes taxes on national or imported goods and services that are not considered to be basic or essential. This paper presents the evolution of the SCT in Ecuador during the 1993-2016 period, its contribution to the General State Budget between 2001 and 2016 and its impact on the automotive sector between 2000 and 2016. The study includes a quantitative analysis of the tax legislation, statistics of tax collection and financial statements. The results indicate changes in the tax base, an increase in rates over the years; during the study period there were 30 changes in the SCT, 7 changes were made to the law, 6 to the tax base, 5 to exemptions and 12 to the products which are imposed with the SCT. The collection of this tax increased by 3.4 times during the years studied, despite the variations in the national economy. Sales decreased by 4.1% in the automotive sector, despite a decrease in sales, profits have not been greatly affected, which shows an average increase of 23% over time. The paper determines that the modifications to the internal taxation regime law had good results in the collection of the SCT. The collection went according to planned and in some cases it surpassed the goal. However, despite these results, there is a low contribution of earnings for the total General budget. It is necessary to point out that the SCT in 2016 represented a participation of 0.82% of the GDP (97,802 million USD). In contrast, Value-added tax (VAT) represented 5%, income tax 3.2% and oil incomes 2.2%. It means that the general Budget has been financed mainly by other budget headings. The SCT was created to restrict the excessive consumption of harmful products. The acquisition of these goods has not been reduced despite the considerable increase of taxes. For example, the consumption of cigarettes has not been affected despite suffering several changes in its rates; the collection from this good has increased with time. Moreover, nowadays the consumption of luxury goods presents continuous growth despite their high acquisition prices due to its high rates which go from 5% to 300%. The collection of luxury goods went from 6.4 million USD in 2000 to 75.16 million in 2016 presenting an increase of 1071%. In conclusion, this tax has not fulfilled its goal and has become a tax with collection purposes since the consumption of these goods remain constant.

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