The effect of VAT regressivity on the popular and solidarity economy and social equity

Abstract

The Value Added Tax (VAT) in Ecuador represents one of the primary sources of tax collection and constitutes an essential component within the country's tax system. Although it is a tax of an indirect nature that falls on the consumption of goods and services, its application generates a significant impact on the popular and solidarity economy, especially on the most vulnerable sectors. The objective of this research was to analyze the effect of VAT on social and fiscal equity in Ecuador, evaluating how its structure affects the organizations of the popular and solidarity economy, and in particular, their distribution of the tax burden. Through a quantitative and qualitative methodological approach, the study used a descriptive and correlational design, with a transversal approach. Structured surveys and semi-structured interviews were used to obtain information about the participants' perceptions regarding VAT and its impact on the operation of these organizations. The results obtained reflected that, despite being a crucial mechanism for financing the State, VAT has a regressive impact that disproportionately affects the most vulnerable sectors, making it difficult to reinvest in their productive activities. The effective implementation of tax reforms, such as the optimization of the collection process and the improvement of control and inspection mechanisms, are presented as necessary measures to guarantee the sustainability of the Ecuadorian tax system and improve the quality of life of the actors involved in the popular and solidarity economy.