Latin American tax revenues “more than one-third below OECD average”

18 Mar 16

Tax revenues in Latin American and Caribbean countries are still well below the OECD average, despite a slight rise in 2014, an analysis has found.

Tax-to-GDP across the region stood at 21.7% in 2014 – the most recent year for which figures are available – compared to an average of 34.4% across all OECD countries. This means that revenues are nearly 37% lower across the continent.

The analysis undertaken by OECD, Inter-American Centre of Tax Administrations, the Economic Commission for LAC, and the Inter-American Development Bank, stressed the scope for broadening the tax base, modernising tax policy and administration and supporting domestic revenue mobilisation in LAC.

It noted that the share of taxes collected at the sub-national level is small in most countries in the region and has not increased, despite the slight increase in the average tax take as a percentage of GDP from 21.5% in 2013.

This reflects relatively small taxing powers compared with the same levels of government in other OECD countries, according to the review. Widespread levels of informality among both firms and workers, as well as higher tax breaks, also contribute to the gap, it said.

Revenues from non-renewable resources, which have been hit hard by the sharp decline in commodity prices, resulted in a substantial fall in income to many LAC governments’ coffers.

However the report highlighted substantial variation in revenues collected by countries across the region, with tax-to-GDP rations ranging from 12.6% in Guatemala to 33.4% in Brazil.

Some countries have also seen bigger increases since 1990 than others, including Bolivia, which saw a rise of 20.6 percentage points and Argentina, where there was a 19.8 percentage point increase.

In comparison, Jamaica and Venezuela saw rises of only 1.2 and 0.1 percentage points respectively.

The whole region did manage to close the gap somewhat between its tax collection and that of the OECD between 1990 and 2008, when the disparity fall from 18 percentage points to 13. However, it has remained around this level every year since.

This catch up was originally driven by VAT revenues, but after 2000 revenues from personal and corporate income taxes were responsible for the majority of the closing.

In 2013, general consumption taxes (mainly VAT and sales tax) accounted for 31.2% of tax revenues in LAC countries, compared to 20.2% in OECD countries.

Taxes on income and profit and social security contributions accounted for 27.4% and 16.6% respectively, compared to 33.7% and 26.1% in the OECD.

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