Latin American Tax Revenues Rise Despite Economic Decline

Thanks largely to a widening net of indirect taxation, the region collected 0.6% more personal tax for 2015 compared to the previous year.

Tax revenue

Many countries in Latin America and the Caribbean (LAC) region are seeing their personal income tax revenues rise despite low economic growth and increasing unemployment.

Thanks largely to a widening net of indirect taxation, the region collected 0.6% more personal tax for 2015 compared to the previous year, according to new data from the annual Revenue Statistics in Latin America and the Caribbean publication.

The data was extracted from a joint study by the Economic Commission of Latin America and the Caribbean (ECLAC), the Inter-American Development Bank (IDB), the Organization for Economic Co-operation and Development (OECD).

Despite the increase, the average tax-to-GDP ratio across LAC countries still stands at 11.4 percentage points lower than the OECD average of 34.3%. Cuba is an exception–the Caribbean island has a tax-to-GDP ratio above the OECD average, according to the report.

The problem with Latin America is its history of allocating large sums of money to social welfare programs, coupled with the small amount of people paying income tax.

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On the other side of the coin, the region has suffered a decline in corporate tax revenue for the first time since 2011, decreasing by 0.2% in 2015.

In contrast, personal income tax revenue has reached its highest level, during the period covered in the report, at 2.1% of GDP.

For many countries, indirect taxation is the main revenue source. On average, indirect taxation accounted for a share of 49% of total tax revenue in LAC countries in 2014, compared with an average of 33% in OECD economies.

It seems many countries jacked up indirect taxes to offset the decrease in commodity exports. Oil-related public revenues decreased from 6.8% of GDP on average in 2014 to 4.4% in 2015 for the ten LAC countries, says the report.

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