Since the goals of tax policy go beyond mere fiscal goals, as happened in some recent experiences, it is becoming increasingly important to establish new guidelines for tax reform in the countries of the region. However, many of the core problems or weaknesses of Latin American tax systems remain, and solutions seem slow and difficult.
The tax situation in Latin America: background and stylized facts
Tax revenues in Latin America: recent trends
Latin America exhibits considerable heterogeneity in terms of the magnitude and relative intensity of the observed changes. In terms of total tax burden, these two countries are currently very close to Germany.
The evolution of the tax structure in the countries of the region
The increase in the tax burden was more gradual and reached 26.3% of GDP in the last analyzed year. The increase in the relative share of these taxes was mainly concentrated in the first few years of the previous decade.
Factors that demonstrate the heterogeneity of the region’s tax systems
- Social security financing
- The revenue composition of subnational governments
- Income from natural resource exploitation
- Environmental tax policy: pioneering experiences in the region
- The behavior of the main taxes in the region
ECLAC (2006) has proposed a system classification that essentially sorts the different social security systems according to their funding arrangement, taking into account that due to the total or partial privatization of the pension system (and in some cases healthcare) , some countries in the region recorded a decline in the relative share of social security contributions as a source of revenue. As a result, the tax revenues of these levels of government in the countries of the region have stagnated over the past decade.
The value added tax: the main source of revenue
As a result of these changes in tax design and improvements in tax administration, average VAT revenues in Latin America increased significantly between 1990 and 2012, reaching levels similar to those in OECD countries. First, the share of VAT in the tax structure in Latin American countries is much higher than in the OECD. However, there is a large gap between this group and the rest of the countries in the region, which generally have rates between 12% and 16%.
Finally, the design of VAT also varies between countries in relation to the taxable base. Based on total revenue, most countries in the region record VAT revenue between 0.34 (Colombia) and 0.65 (Paraguay) points of GDP for each point of the standard rate.
The structural imbalance of the income tax
At the same time, the income effects of this downward trend in personal income tax rates were not offset by a broadening of the tax base. INCOME LEVELS FOR THE APPLICATION OF MINIMUM AND MAXIMUM INCOME TAXES IN SELECTED LATIN AMERICAN COUNTRIES. Consequently, much of personal income tax is generally borne by wage earners, reducing the redistributive effect of the tax.
THE TAX BURDEN AND THE RELATIVE INCOME TAX STRUCTURE IN LATIN AMERICA: AVERAGE OF 17 COUNTRIES (EXCLUDING THE BOLIVARIAN REPUBLIC OF VENEZUELA), 1990 TO 2010. In contrast, personal income tax revenue averaged 1.10% in Latin America in Latin America 1.14 %. which is six times lower than the average for the sample of 34 OECD countries in the same year (8.4% of GDP).
The chronic weakness of the wealth tax: is there hope?
Not only are the top marginal income tax rates significantly higher in developed countries, but the share of personal and business taxes in their income structure is practically the opposite of Latin America. In addition, property taxes are essential to complement the distributive effects of personal income taxes, given the previously described structural weakness in the region's tax systems. In the region, the property tax is the most widely accepted source of tax revenue for the lower levels of government.
Most Latin American countries assign jurisdiction over property taxes to the local or municipal government, but there are exceptions where the tax remains under the authority of the central government (Dominican Republic) or where a taxing authority is still in the hands of the central government (e.g. Brazil for rural taxes, Guatemala and Panama) or the provincial government (Argentina). Finally, all these factors influencing property taxes are exacerbated by the insufficient decentralization of tax systems.
Unconventional roads to strengthening tax revenues
Taxes on financial transactions
In the case of financial transaction taxes, administrative convenience comes from the ability to implement them very quickly. In Colombia, the Financial Transaction Tax (Gravamen a los Movimientos Financieros, or GMF) also occupies an important place in the current tax structure, contributing in the order of 0.83% of GDP and 4.24% of the total revenues in 2010. As described by Coelho (2009), on January 1, 2008, Brazil repealed its temporary levy on financial transactions (Contribuição Provisória sobre Movimentação ou Transmissão de Valores e de Créditos e Direitos de Natureza Financeira, or CPMF), after the had generated a turnover of 1.4% of GDP in the previous year (5.8% of total tax revenue).46.
47 After undergoing a series of legislative changes, the rate was 1.5% on bank debits in the last year the levy was in force (2008). In a recent report, Pecho Trigueros (2013) reviews the Latin American experience of the application of these taxes in 1990-2012.
Minimum or alternative taxes to the income tax
Firstly, there is a direct effect to the extent that people in the lower income groups do not have access to the banking system, so that they are not immediately covered by the tax (a progressive effect). Finally, in addition to the easy administration of the tax, it opens the door to the potential use of the associated bank details in tax enforcement, especially of VAT and income tax. This can result in disinvestment in loss-making businesses, regardless of the tax mechanism (lump sum, percentage of assets, gross income, etc.), because taxation on net income makes the income tax a capital tax.
In the case of financial transaction taxes, tax productivity decreases when they are in place for long periods because the tax base tends to shrink due to financial disintermediation or the development of avoidance mechanisms. With minimum taxes or alternative income taxes, the duration of this type of tax is usually temporary and legally highly variable in the tax structure over the years.
The economic and social consequences of the current tax systems
The low redistributive effect of taxes in Latin America
Some authors emphasize the progress that has been achieved - despite the extreme proportions - in the distribution of income in the countries of the region (Gasparini et al., 2009; Cornia, 2013). Roca (2010) confirms these results by estimating the combined distributional impact of the main taxes in the Uruguayan tax system. This brings up another very important stylized fact: the distributive impact of taxes (and of fiscal policy as a whole) is much greater (and more progressive) in developed countries than in Latin American countries (Goñi et al., 2008). ).
On the contrary, they are the result of the structural weaknesses of the tax systems in the region analyzed in this report. This has a regressive effect on income distribution in most countries of the region.
The link between informality and tax policy
Based on the simple average of the countries (the left-hand columns in the figure), there is a clear difference between high-income countries (OECD) and other, less developed regions. 57 See Gerxhani (2004), who examines an extensive range of studies on the subject; OECD (2008), which analyzes the fiscal implications of informality; and Vuletin (2008), who assess the relevance of the tax system as a determinant of informality in Latin America. 59 Under the productive definition, workers are considered informal if they belong to one of the following categories: (i) unskilled self-employed workers; (ii) wage workers in small businesses; and (iii) unpaid workers.
60 Mexico is an exception in the region, as informality is higher by legal definition than by productive definition; this can largely be explained by the low coverage and structural deficiencies of the current pension system (Levy, 2008). These instruments are a clear example of adaptation of the tax administration at the regional level.
Tax expenditures: the need to level the playing field
Starting in 2013, a new methodology was introduced in the case of Guatemala, which no longer counts the amount of the minimum non-taxable income tax as an item of tax expenditure. This has encouraged the study of the economic effects of tax concessions in the region. 63. 65 In the case of Brazil, annual estimates from the Brazilian Federal Revenue Authority (Receita Federal do Brasil, or RFB) do not include subnational taxes such as the goods and services turnover tax (ICMS) and the service tax (ISS); Therefore, the results may be underestimated compared to other countries.
66 The case of Guatemala is unique in the region and illustrates the large methodological discrepancies between assessments. Excluding this item would reduce Chile's total tax expenditure by about 1.6% of GDP in 2012, bringing it very close to Argentina's level in the same year.
The new paradigm of tax administration
This process also resulted in a change in the functional structure of the tax system, which can basically be divided into four systems: executive (management, coordination and supervision), regulatory (legislative processing, programming and operating systems), operations (collections, audit). and invoicing) and support (registration, data processing and statistics). Finally, as tax administration strategies have evolved, many of the collection responsibilities have been transferred to financial institutions that offer an extensive network of tax collection points either through direct collections or internet transfers. For example, in Chile "the simplification of the system was actually accompanied by a remarkable development in the computerization of the taxation process, which reached in Chile a higher degree than in the OECD countries" (Cominetta, 2007).
To ensure optimal application of new technologies, countries introduced merit-based selection for the employment of civil servants. Of particular interest to the region's tax administrations are recent U.S. regulatory developments.
Tax evasion in Latin America: past advances and pending improvements
Tax reform guidelines for Latin America
Current main priorities in the area of taxation
Therein lies the constant dichotomy between the efficiency and fairness of the tax system, with any attempt to reduce inequality generally accompanied by efficiency losses (Okun, 1975). However, many of the tax measures deemed necessary in Latin American countries may imply a trade-off between the two policy objectives. The specificity of the cases analyzed goes against the development of a uniform prescription for all countries in the region.
Make employment and work formalization policies viable by using the available tax tools targeting small taxpayers, which would have positive effects in controlling evasion, given the close link to informality in the region. Encouraging an ongoing assessment of the efficiency and effectiveness of the tax administration to identify key achievements and key shortcomings over time.
Tax reform proposals for the countries in the region
Iti panagsapsapul iti baro nga adyenda ti reporma (LC/G.2324-P), Santiago, Chile, Ekonomiko a Komision para iti Latin Amerika ken Caribe (ECLAC), Disiembre. Bernardi ken dagiti kakaduana (eds.), Papel ti MPRA, no. 2013), “Dagiti uso ti saan a panagpapada ken dagiti determinanteda: Latin Amerika iti las-ud ti panawen Bumasbassit a di panagpapada idiay Latin Amerika. 111 (LC/L.3336), Santiago, Chile, Komision ti Ekonomia para iti Latin Amerika ken Caribe (ECLAC), Mayo. 2011b), "Estruktura ti buis ken panagliklik iti buis idiay Latin Amerika", Papel ti Panagtrabaho, no.
Servén (2008), "Fiscal redistribution and income inequality in Latin America", Policy Research Working Paper, No. 1995), "Environmental taxation and the double dividend: a reader's guide", International Tax and Public Finance, vol. Sepúlveda (2011), “Verduideliking van eiendomsbelastinginvorderings in ontwikkelende lande:. die geval van Latyns-Amerika”, International Studies Program, Working Paper, No. 11.
