Latin America and the Caribbean: Tax Revenues remain stable

Santiago, March 11, 2015.- Tax revenues in Latin America and the Caribbean (LAC) have remained stable in 2013 and continue to be considerably lower, as a proportion of national incomes, than in most OECD countries.

Revenue Statistics in Latin America and the Caribbean 1990-2013 (fourth edition) shows that the average ratio of tax revenue to GDP in the 20 Latin American and Caribbean countries covered by the report was 21.3 percent in 2013, 0.1 percentage point above the ratio in 2012. The tax-to-GDP ratio rose from 19.5 percent to 21.2 percent over the 2009-12 period.

The report, produced jointly by the Inter-American Centre of Tax Administrations (CIAT), the Economic Commission for Latin America and the Caribbean (ECLAC), the Inter-American Development Bank (IDB), the Organisation for Economic Cooperation and Development (OECD) and the OECD’s Development Centre, was launched during the XXVII Regional Seminar on Fiscal Policy,held at ECLAC headquarters in Santiago, Chile.

It shows that tax revenues rose significantly across the region over the 1990-2013 period, pushing the average tax to GDP ratio up by 7 percentage points, from 14.4 percent to today’s 21.3 percent level. While this revenue boost has provided governments in the region increased capacity to improve spending on social programmes and physical infrastructure, the tax to GDP ratio is still 13 percentage points below the OECD average of 34.1 percent, according to the report.

Wide national variations exist across LAC countries. In 2013, the tax to GDP ratios for the 20 LAC countries included in the report range from Brazil (35.7 percent), which is above the OECD average, and Argentina (31.2 percent), to 14 percent in the Dominican Republic and 13 percent in Guatemala. The corresponding range in OECD countries was from 48.6 percent in Denmark to 19.7 percent in Mexico.

The share of tax revenues collected by local governments in Latin America is small in most countries and has not increased, reflecting relatively narrow fiscal autonomy compared with OECD countries.

The report includes two special chapters. The first measures the usefulness of taking into account non-tax revenues from natural renewable and non-renewable resources, on top of all mandatory contributions to private health and pensions, in addition to tax revenues traditionally covered. The second describes trends since 2000 in revenues from non-renewable natural resources in the LAC countries whose economies are driven by natural endowments, with aggregate projections up to 2014.

Falling crude oil prices in the second half of 2014 are expected to drag down revenues, by as much as 1-1.5 percent of GDP in Bolivia, Ecuador and Mexico. In general, fiscal revenues from non-renewable, natural resources continue to be very important as a percentage of the total revenues in many countries across the region, and in some cases, such as Venezuela and Ecuador, account for more than 30 percent of the total fiscal revenues.

Main findings:

Tax to GDP ratios

- In 2013, the tax to GDP ratio rose in 12 of the 20 LAC countries, fell in 7, and remained unchanged in one.

- The difference between the OECD average tax to GDP ratio and that for the 20 LAC countries is currently around 13 percentage points, compared with 18 percentage points in 1990.

- The largest increases in tax to GDP ratios in 2013 were in Bolivia (2.1 percentage points), Argentina (1.7), Costa Rica (1.2) and El Salvador (0.7).

- The largest falls in 2013 were in Barbados (4.2 percentage points) and Paraguay (1.3 points).

- The countries with the largest increases between 1990 and 2013 were Bolivia (20.6 percentage points), Argentina (18.8), Ecuador (12.2), Colombia (11.1) and Paraguay (11.0). There was a decline of 4.5 percentage points in Venezuela.

Tax structures

- Following strong growth over the past twenty years, general consumption taxes (mainly VAT and sales taxes) accounted for 32.3 percent of tax revenues in LAC countries in 2012 (compared to 20.2 percent in OECD countries). The share of specific consumption taxes (such as excises and taxes on international trade) declined by 14 percentage points, to 17.6 percent (in OECD it is 10.7 percent).

- In 2012, taxes on income and profits accounted for 26.6 percent of revenues on average in the LAC countries, while social security contributions represented 16.5 percent (in OECD countries the corresponding figures are 33.6 percent and 26.2 percent respectively).