Academic journal article Journal of Legal, Ethical and Regulatory Issues

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

Academic journal article Journal of Legal, Ethical and Regulatory Issues

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

Article excerpt


Taxes play an important role in a country's economic development; their aim is to promote wellbeing in society through several actions which are taken by governments.

Muñoz (2014) states that taxes:

"Are the duties that generate the most revenue for public administrations (state, autonomous and local) ? Therefore, they have gradually displaced other state revenue and has become the main source of money for public spending, which contributes to economic development and stability, thus improving the economy " (Muñoz, 2014).

Taxes are part of the tax systems implemented in all regions of the world. There are different types of taxes worldwide, such as: a) personal and real; b) objective and subjective; c) direct: d) periodic and immediate; e) State: personal income tax (IRPF for its acronym in Spanish), income tax of non-residents (IRNR for its acronym in Spanish), corporate tax, wealth tax, value added tax, tax on insurance premiums, special taxes; f) Autonomic; g) local and municipal (Muñoz, 2014).

Governments have created a type of tax which imposes taxes on special consumption; according to Ramón (2015), this levy accumulates a series of taxes that are then imposed on the consumption of certain goods, which are regulated by a specific law and which are justified by the special costs that the consumption of these goods create for society. In the words of Moscó (2013) these are "taxes of an indirect nature that befall on specific consumption and impose a tax in a single phase, manufacturing, importation and wherever appropriate, the introduction of certain goods into the domestic territory". Mendoza & Chavely (2009) defines it as a "tax of an indirect nature that affects certain goods and services considered harmful to health in a specific manner and with varying rates". In Ecuador, this tax is known as Impuesto a los Consumos Especiales (1993) or ICE (Special Consumption Tax) and is applied "to national or imported goods and services" (LORTI, 2016).

The tax on special consumption in the European Union is known as Special Tax, it was established on December 28, 1992 by Law 38 (BOE, 2017), which imposes taxes on products such as alcoholic beverages and beers, tobacco, wine and fermented beverages. In Latin American countries like Mexico, it is known as IEPS or Special Tax on Production and Services, which came into effect in 1980 and whose purpose is to tax the sale and importation of alcoholic beverages and beers, tobacco, gasoline and diesel, energy drinks, drinks with added sugars, among others; its rate varies from 3% to 160%. In Bolivia, the special consumption tax was created along with the new tax reform implemented by Law 843 of May 20, 1986 and its rate ranges from 10% to 50%.

In Ecuador, this type of tax first appeared in 1981 as the Tax on Selective Consumption (Mendoza & Chavely, 2009) and was then replaced by the special consumption tax by Law 56 of the Internal Taxation Regime established in the Official Registry Number 351 on December 22nd, 1989 (Internal Revenue Service). In the late 1980's, the government of President Borja put forward a tax reform in order to reduce taxes and focus on only three: Income tax, value added tax and the special consumption tax. The aim was to finally settle the partial and inconsistent changes of the system due to adjustments made in the time of military dictatorship, as well as ensure income for the state and its expenditure forecasts (Paez & Miño, 2015). Since the implementation of this levy, the rate of the special consumption tax has varied from 5% to 300% from 1993 to 2016.

The aim of this paper is to learn about the evolution of the special consumption tax between 1993 and 2016 in the face of the application of fiscal-tributary policies, which is basically about the General State Budget and its components such as public expenditure and its funding sources like taxes (Poveda, Pico & Alcivar, 2016) which the Ecuadorian government has introduced in different periods seeking stability and the development of the country's productive sectors. …

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