Impact of the Tax Reform on financial efficiency in agricultural SMEs in the Province of Los Ríos-Ecuador

Abstract

Purpose: The aim of this study was to evaluate the impact on the financial efficiency of SMEs in the agricultural sector of Ecuador, after the application of the organic law for the reactivation of the economy enacted in December 2017. Method/design/approach: The data envelopment analysis was applied to the agricultural SMEs of the Province of Los Ríos that presented income during the years 2017, 2018 and 2019. The inputs of the model were: sales revenue, income tax, operating costs and expenses and the outputs were: net margin and earnings before taxes. Results and conclusion: Small companies decreased their efficiency for the year 2018 with a recovery in 2019. Medium companies increased their efficiency for the year 2018 and decreased in 2019. Due to the variation in inputs and outputs observed, it cannot be concluded that this decrease in efficiency is solely due to the impact of the new law. Originality/value: Medium-sized companies had an increase in efficiency by four percentage points in the year immediately after the application of the law (2018), and for the year 2019 it fell by six percentage points, despite showing a significant decrease in the IR. However, this result is consistent with the regression analysis where it turned out that this variable does not explain the results in net margin for this year.