OECD report: 6 taxation insights on Latin America and the Caribbean

The OECD recently published  a report on tax revenues for 26 countries in Latin America and the Caribbean thus outlining the differences between OECD and Latin American countries.

 

What are the conclusions?

The OECD report “Tax Statistics in Latin America and the Caribbean 2020” presents relevant information on tax revenues for 26 countries in Latin America and the Caribbean (LAC) compared to the economies that are part of the OECD.

  1. The first conclusion of interest of this report is that in LAC, tax revenues as a percentage of Gross Domestic Product (GDP) are on average 11% lower compared to other regions of the world, that is, 23.1% LAC vs 34.3% OECD.
  2. The second conclusion is that tax revenue as a percentage of GDP in LAC has constantly increased every year, going from 15.9% to 23.1%, mainly due to the increase in tax pressure related to the Value Tax Aggregate (VAT), the Corporate Income Tax and the Individual Income Tax.
  3. The third conclusion is that as of 2018, the countries with the highest tax revenues as a percentage of GDP are the following: Cuba, Barbados, and Brazil, while Guatemala, the Dominican Republic, and Paraguay have the lowest ratio.
  4. The fourth conclusion that results from the report has to do with the fact that consumption taxes are the largest source of tax revenue in LAC, representing just over half of these, 50.5%, compared to a third in the OECD countries. It is important to note here that VAT is the tax on consumption that has grown the most in the period analyzed. With regard to this aspect, given the relative importance of VAT in LAC, the report presents the difference between the tax revenues collected by VAT in 23 LAC countries compared to those that would result from taxing the entire tax base that should be subject. It shows that the difference results from tax policies that seek to benefit the lower-income population and the non-compliance with the payment of tax by taxpayers.
  5. The fifth conclusion has to do with the fact that in LAC, tax administrations collect more for Corporate Income Tax than for Individual Income Tax, while in OECD countries the relationship is reverse.
  6. The sixth conclusion could be curious for many, tax revenues as a percentage of GDP of Social Security Taxes in LAC, 17.3%, are less than in the OECD space, that is, 26%.

Finally, it is important to highlight that the report analyzes the issues related to the Equivalent Fiscal Pressure (PFE), the sum of the tax revenue ratio as a percentage of GDP plus payments to private social security systems plus non-tax revenue on natural resources , resulting that for 2018 the PFE in LAC was 25% of the GDP.

 

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