Journal of Business and entrepreneurial
January - March Vol. 6 – 2 - 2022
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e-ISSN: 2576-0971
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Page 32-43
Impact of the implementation of the trade
agreement between Ecuador and the European
Union on the tax burden and revenue from vehicle
imports
Impacto de la aplicación del acuerdo comercial entre
Ecuador y la Unión Europea en la carga tributaria y
recaudación por importaciones de vehículos
Tannia Acosta
*
Christian Pavón*
Monica Paccha*
Daniel Cuesta*
ABSTRACT
In 2017, the trade agreement with the European Union came
into effect, which establishes, among other things, a progressive
reduction of the tax burden levied on imports from its member
countries. The present research aims to determine whether the
implementation of this agreement affected the amounts
collected by the taxes: ICE, FODINFA, VAT and Tariff, as well
as the total values obtained from vehicle imports. Taxes show a
variation rate of less than 0.08% before the agreement was in
force, but exceed 0.1% after the application of the agreement.
The hypothesis test yielded a significant difference with p<0.05
in the means before and after the implementation of the
agreement, considering a higher mean after the implementation
of the agreement. However, although the collection of the tax
burden for vehicle imports is higher after the implementation of
the agreement with the European Union, this does not imply a
significant difference in the total values of the amounts collected
for vehicle imports.
*
Magíster en Docencia Universitaria, Universidad Agraria del Ecuador-
Universidad de Guayaquil, Guayaquil, Ecuador, tacosta@uagraria.edu.ec,
https://orcid.org/0000-0002-4740-2213
*
Magíster en Enseñanza de la Física, Universidad de Guayaquil, Guayaquil,
Ecuador, christian.pavonb@ug.edu.ec, https://orcid.org/0000-0002-8913-1546
*
Magíster en Docencia Universitaria e Investigación Educativa, Universidad
Agraria del Ecuador, Guayaquil, Ecuador, mpaccha@uagraria.edu.ec,
https://orcid.org/0000-0002-9401-7107
*
Economista Agrícola, Universidad Agraria del Ecuador, Guayaquil, Ecuador,
ccuestab93@gmail.com, https://orcid.org/0000-0002-1613-4965
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Keywords: University, Society, Bibliometrics, SciMAT
RESUMEN
En el año 2017, entra en vigencia el acuerdo comercial con la Unión Europea que establece entre
otras cosas, una reducción progresiva de la carga tributaria gravada a las importaciones
procedentes de sus países miembros. La presente investigación pretende determinar si la
aplicación de este acuerdo afectó los montos recaudados por los tributos: ICE, FODINFA, IVA
y Arancel, así como a los valores totales obtenidos de las importaciones de vehículos. Los
impuestos muestran una tasa de variación inferior a 0,08% antes de la vigencia del acuerdo, pero
superan el 0,1% después de la aplicación del mismo. La prueba de hipótesis arrojó una diferencia
significativa con p<0,05 en las medias antes y después de la aplicación del acuerdo, considerando
una media mayor después de la puesta en marcha del acuerdo. Sin embargo, aunque la
recaudación de la carga tributaria para importaciones de vehículos es mayor después de la
vigencia del acuerdo con la Unión Europea, esto no implica una diferencia importante en los
valores totales de los montos recaudados por importaciones vehiculares.
Palbras clave: Universidad, Sociedad, Bibliometría, SciMAT
INTRODUCTION
Since the 1990s the Organization of American States, the Development Bank and the
United Nations Economic Commission for the Development of Latin America have
suggested a steady evolution of taxation for Latin American countries to develop their
economies Clemente et al., (2014). Regulatory entities in Ecuador since the year 2000,
after the banking holiday, have constantly cancelled and created taxes to reduce the
outflow of foreign currency for the importation of goods necessary to activate the
internal economy.
For Mantovani & Santos, (2015) the tax burden lessens the impact that arises when
neighboring countries devalue the currency, generates liquidity for the State and
protects the sales of domestic producers. (Kato, 2013) With specific reference to vehicle
imports, these are taxed with seven taxes that affect the sale price to the final consumer:
the Foreign Exchange Outflow Tax, the Child Development Fund, the Merchandise
Tariff, the Value Added Tax, the Special Consumption Tax, the Road Tax and the Motor
Vehicle Property Tax.
Ochoa, (2016) imports of fully assembled vehicles for family transportation are the most
demanded by the automotive industries that have the role of satisfying natural and legal
persons. The automotive market drives the Ecuadorian economy by boosting the
participation of other sectors. Según Sánchez & Martínez, (2018)It also generates
significant amounts of foreign currency and is an example of how far the government
can intervene to avoid harming a company's customers, employers and employees.
In 2017, the Trade Agreement between Ecuador and the European Union entered into
force, the purpose of which is the bilateral and gradual liberalization of tariffs for several
elements distributed in different categories. In reference to the automotive market, a
gradual elimination of tariffs is established, in terms of 5, 7, 10 and up to 16 years. For
example: During the government of Rafael Correa, a special consumption tax (ICE) of
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40% was established for imported vehicles, the agreement with the European Union
determines a 5% annual decrease of the ICE, so that for the current year (2021),
European vehicles will pay 15% of this tax for their importation.
Gelabert & Martinez, (2012) in the country, vehicles of European origin represent
between 2 and 3% of the total sales of the automotive sector. With the EU agreement,
this economic segment has some benefits, especially the reduction of import tariffs. The
products enter a gradual process of tariff reduction and, in the case of light vehicles, the
tariff reduction will be over a period of 7 years. Kato, (2013) The agreement is not only
about freeing tariffs, but also about allowing new markets to position themselves in the
country; thus, there are already brands that want to produce or assemble vehicles of
European origin in the national territory.
In this framework of the signing of this trade agreement, Ecuador reduced the tariff for
Europeans from 40% to 20%. In exchange for the elimination of 15% in Ad-valorem tariffs
on assembled vehicle parts. Huerta, (2017) . However, imports of vehicles used for
economic activities were limited, which could affect the tax burden, in addition to the
fact that people with high purchasing power could import domestic vehicles with better
technology and at a lower price.
Based on the above, it can be inferred that the tax burden constitutes a large part of the
final price of the vehicle, as confirmed by the president of the Ecuadorian Automotive
Association, who states that tariffs have increased to one of the highest levels in the
world. Gil et al., (2010)This is confirmed by the president of the Ecuadorian Automotive
Association, who assures that tariffs have increased to one of the highest levels in the
world. "Today, more than 9 taxes directly affect the vehicle trade and 60% of the cost
of a vehicle is due to taxes and regulatory charges".
Romero, (2016) Having reviewed important aspects regarding certain items that involve
vehicle imports, we are concerned with mentioning that this research aims to identify
the variations in tax collection, as well as the values collected for vehicle imports before
and during the agreement with the European Union in a period between January 2011
and June 2021.
In order to achieve the above objective, the following specific objectives must first be
met:
1. Identify the most important taxes applied to imports in the automotive sector and
their variations over time.
2. Interpret the historical behavior of vehicle imports.
3. To compare tax collection, as well as the values collected for vehicle imports
before and during the agreement with the European Union.
MATERIALS AND METHODS
The study was carried out with a quantitative approach, since numerical data will be
analyzed for both the values collected for taxes and those recorded for vehicle imports.
All the data to be processed was requested from the National Customs Service of
Ecuador (SENAE), consequently the research modality is non-experimental, because the
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study variables will not be directly influenced, they will simply be collected in their
natural context in which they occur, and it will be studied if there are modifications in
them before and after a certain event. This study was developed through the use of
descriptive and inferential statistics.
The study variables will be:
- Values for tax collections on a CIF basis (Cost, insurance and freight; named port
of destination) related to vehicle imports between January 2011 and June 2021.
- Amounts collected for vehicle imports between January 2011 and June 2021.
The most important taxes applied to vehicle imports are: Tariff, VAT, FODINFA and
ICE, due to the fact that they are the ones registered by the National Customs Service
of Ecuador. Next, we will observe, for each of them, their rate of variation, their
evolution over time and their analysis before and after the implementation of the trade
agreement with the European Union.
To verify whether the agreement with the EU significantly affected the collection of the
variables identified as the most important taxes on vehicle imports, a T-Student for
paired samples will be applied, but not before verifying the normality of the data, an
important requirement for a longitudinal study. To improve the robustness of the T-
test, the data will be evaluated on a monthly basis within the established period (July
2012-June 2021).
We will apply the non-parametric Kolmogorov-Smirnov normality test for all variables
before and after the implementation of the agreement with the EU, except for the ECI
variable where Anderson Darling will be applied. The normality assumptions are as
follows:
Taxes before the effectiveness of the agreement
H0: Tax burden data before the agreement with the European Union was in force fit a
normal distribution.
H1: Tax burden data before the agreement with the European Union did not fit a normal
distribution.
Taxes after the effective date of the agreement
H0: The data on the tax burden after the agreement with the European Union came into
force fit a normal distribution.
H1: Tax burden data after the agreement with the European Union does not fit a normal
distribution.
Once the normality of the data for all variables was verified, the T-test was applied under
the following assumptions:
-Null hypothesis (H0) μd = μ0: The collection of the different taxes before
the trade agreement with the European Union is equal to the collection of the
same taxes after the application of the agreement.
-Alternative hypothesis (H1) μd ≠ μ0: The collection of different taxes
before the implementation of the trade agreement with the European Union is
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different from the collection of the same taxes after the implementation of the
agreement.
Finally, the analyses applied to vehicle import taxes will also be applied to the variable
corresponding to the amounts collected for vehicle imports during the period indicated.
We will review the aspects indicated above for each variable
According to Carbaugh (2009), this tax is applied specifically when a good crosses the
border of a country. From July 2012 to June 2021, Ecuador registers the following
evolution in this tax.
Table 1: Annual amounts collected Tariff (2012-2021).
Table 2 Calculation of the normality of the Tariff variable (2012-2021) before and after the
agreement with the EU.
Prepared by: Authors.
Years
Collection (in
dollars)
Percentage
variation
rate=current
year/previous
year-1
Average
(before and
after the
agreement
with the EU)
July 2012 - June 2013
219113502
July 2013 - June 2014
212365829
-0.03
July 2014 - June 2015
200125747
-0.06
July 2015 - June 2016
94438615
-0.53
0.02% (before)
July 2016 - June 2017
160383174
0.70
July 2017 - June 2018
347271652
1.17
0.29% (after)
July 2018 - June 2019
357013719
0.03
July 2019 - June 2020
325291860
-0.09
July 2020 - June 2021
340283311
0.05
Total
2256287409
Formerly
Then
KS=0.172
KS=0.177
p-value<0.010
p-value<0.010
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Table 3 . Paired T for the Tariff variable (2012-2021) before and after the agreement with
the EU.
Prepared by: Authors.
VAT (Value Added Tax)
Value added tax. In the area of imports, this tax is levied at two stages of the imported
vehicle: in the first instance, the company must pay it to nationalize the good, and
subsequently the buyer of the vehicle pays it when it acquires the vehicle.
Table 4. Annual amounts collected VAT (2012-2021).
T-value
p-value
-7.49
0.000
Years
Collection (in
dollars)
Percentage
variation
rate=current
year/previous
year-1
Average
(before and
after the
agreement
with the EU)
July 2012 - June 2013
187655358
July 2013 - June 2014
174341777
-0.07
July 2014 - June 2015
175473075
0.01
July 2015 - June 2016
81633014
-0.53
0.01% (before)
July 2016 - June 2017
134179178
0.64
July 2017 - June 2018
226530079
0.69
0.19% (after)
July 2018 - June 2019
259165329
0.14
July 2019 - June 2020
232168003
-0.10
July 2020 - June 2021
236809235
0.02
Total
1707955048
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Table 5 . Calculation of the normality of the natural logarithm variable of VAT (2012-2021)
before and after the agreement with the EU.
Prepared by: Authors.
Paired t-tests for the VAT variable (2012-2021) before and after the agreement with the EU.
Prepared by: Authors.
FODINFA (Childhood Development Fund)
The purpose of this tax is to finance programs aimed at covering children's needs. The
rate applied is 0.5% in this case to imported vehicles.
Table 7. Annual amounts collected FODINFA (2012-2021).
Formerly
Then
KS=0.179
KS=0.145
p-value<0.010
p-value<0.010
T-value
p-value
-6.21
0.000
Years
Collection (in
dollars)
Percentage
variation
rate=current
year/previous
year-1
Average
(before and
after the
agreement
with the EU)
July 2012 - June 2013
6164876
July 2013 - June 2014
5538173
-0.10
July 2014 - June 2015
5671888
0.02
July 2015 - June 2016
2453229
-0.57
-0.05% (before)
July 2016 - June 2017
3533734
0.44
July 2017 - June 2018
7019062
0.99
0.26% (after)
July 2018 - June 2019
8040655
0.15
July 2019 - June 2020
7096030
-0.12
July 2020 - June 2021
7276122
0.03
Total
52793769
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Table 8. Calculation of the normality of the FODINFA variable (2012-2021) before and
after the agreement with the EU.
Prepared by: Authors.
Table 9. Paired t-test for the variable FODINFA (2012-2021) before and after the
agreement with the EU.
Prepared by: Authors.
ICE (Special consumption tax)
This tax is determined according to the type of vehicle being imported, and ranges from
5% to 35%.
Table 10. Annual amounts collected ICE (2012-2021).
Source: SENAE (2021).
Prepared by: Authors.
Formerly
Then
KS=0.122
KS=0.175
p-value<0.047
p-value<0.010
T-value
p-value
-5.86
0.000
Years
Collection (in
dollars)
Percentage
variation
rate=current
year/previous
year-1
Average
(before and
after the
agreement
with the EU)
July 2012 - June 2013
128246040
July 2013 - June 2014
134579763
0.05
July 2014 - June 2015
140708736
0.05
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Table 11. Calculation of the normality of the natural logarithm variable of ICE (2012-2021)
before and after the agreement with the EU.
Prepared by: Authors.
Table 12. Paired t-tests for the ECI variable (2012-2021) before and after the agreement
with the EU.
Prepared by: Authors.
Vehicle imports
The purpose of this section is to analyze the amounts collected from vehicle imports
during the period indicated throughout the document.
Table 13. Annual amounts collected from vehicle imports (2012-2021).
July 2015 - June 2016
76480388
-0.46
0.07% (before)
July 2016 - June 2017
127062366
0.66
July 2017 - June 2018
209900246
0.65
0.12% (after)
July 2018 - June 2019
210101689
0.00
July 2019 - June 2020
196492256
-0.06
July 2020 - June 2021
177649043
-0.10
Total
1401220527
Source: SENAE (2021).
Prepared by: Authors.
Formerly
Then
AD=2.655
AD=0.751
p-value<0.005
p-value<0.047
T-value
p-value
-6.65
0.000
Years
Collection (in
dollars)
Percentage
variation
rate=current
year/previous
year-1
Average
(before and
after the
agreement
with the EU)
July 2012 - June 2013
2112295208
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Table14 . Calculation of the normality of the natural logarithm variable of vehicle imports
(2012-2021) before and after the agreement with the EU.
Prepared by: Authors.
Table 15. Paired t-test for the variable vehicle imports (2012-2021) before and after the
agreement with the EU.
Prepared by: Authors.
RESULTS
The annual results in the amounts collected for taxes show an average percentage
variation rate of less than 0.08% and even negative in the case of the FODINFA variable,
before the signing of the agreement with the European Union; however, after the
agreement came into force, a variation of more than 0.1% is observed in all cases. (See
Table No.1) (See Table No.4) (See Table No.7) (See Table No.10).
The normality tests for all variables showed that the sample data fit a normal distribution
with a probability of 95%, both before and after the agreement with the European Union.
(See Table 2) (See Table 5) (See Table 8) (See Table 11).
July 2013 - June 2014
2124991111
0.01
July 2014 - June 2015
2117496064
0.00
July 2015 - June 2016
1063063741
-0.50
-0.05% (before)
July 2016 - June 2017
1384216974
0.30
July 2017 - June 2018
2221052358
0.60
0.09% (after)
July 2018 - June 2019
2286149745
0.03
July 2019 - June 2020
1646864299
-0.28
July 2020 - June 2021
1652648093
0.00
Total
16608777593
Formerly
Then
KS=0.178
KS=0.205
p-value<0.010
p-value<0.010
T-value
p-value
-1.25
0.218
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The average tax collection is higher after the application of the Agreement with the EU,
this difference is significant given its p-value, therefore a decisive increase in the
collection of these taxes can be observed after the application of the Agreement. (See
Table No.3) (See Table No.6) (See Table No.9) (See Table No.12)
Regarding the amounts collected for vehicle imports during the study period, before the
application of the agreement we observe a negative variation rate, while the opposite
happens after the agreement is in force, clearly then we observe an increase in the
variation rate. (See Table 13).
The normality test for vehicle imports showed that the sample data fit a normal
distribution with a probability of 95%, both before and after the agreement with the
European Union. (See Table 14).
The average collection of vehicle imports after the application of the Agreement with
the EU is higher, however, this difference is not significant given its p-value. (See Table
No.15)
CONCLUSIONS
After analyzing the data, it can be observed that the collection of taxes on vehicle
imports is not constantly increasing, but rather it experiences positive and negative
variations. However, in general, the rate of variation is higher after the implementation
of the agreement with the European Union for all taxes.
The averages of the tax burden collection for vehicle imports: Tariff, FODINFA, VAT
and ICE, show a significant difference after the agreement with the EU came into force;
the average in all cases is higher after the application of the agreement. With regard to
the amounts collected from vehicle imports, these experienced a negative variation rate
before the implementation of the agreement with the European Union, which grew to
become positive after its entry into force. However, although the values for this
collection increased, this growth is not statistically significant.
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