In Latin America tax revenues continue to increase, but still represent a much lower percentage of GDP (gross domestic product) compared to most OECD nations, says a new report Revenue Statistics in Latin America 1990-2012 (third edition).
The report shows that average tax revenues as a proportion of GDP in 18 Caribbean and Latin American nations increased from 18.9% in 2009 to 20.7% in 2012, after dropping off from a 19.5% high point in 2008.
The report, produced jointly by the OECD (Organization for Economic Co-operation and Development), ECLAC (Economic Commission for Latin America and the Caribbean) and CIAT (Inter-American Center of Tax Administrations), was launched at the 26th Regional Seminar on Fiscal Policy in Santiago, Chile.
The tax-to-GDP ratio has risen considerably across the whole region over the last twenty years, from 13.9% of GDP in 1990 to 20.7% in 2012. However, it is still fourteen percentage points below the OECD average.
Wide range of tax-to-GDP ratios across the continent
While Argentina and Brazil are above the OECD average with 37.3% and 36.3% respectively, in Guatemala and the Dominican Republic the tax-to-GDP ratios are just 12.3% and 13.5% respectively.
The OECD also had a wide range of tax-to-GDP ratios, from 19.6% in Mexico to 48% in Denmark.
Local taxes still make up a tiny part of tax revenues in Latin America compared to the advanced economies. In fact, the share of tax revenues collected by local governments has not increased over the last two decades in Latin American, “reflecting the relatively narrow range of taxes under their jurisdictions compared with OECD countries,” the authors point out.
Tax revenues from non-renewables
The report includes a special chapter that describes the trends driving revenues from non-renewable natural resources across the region.
Demand for commodities worldwide has increased, especially in the large emerging economies. This has resulted in steep price rises and increased fiscal revenues associated with non-renewable natural resources.
These revenues have grown at a significantly faster rate than other government revenues before the financial crisis, however “their performance has been roughly 3 times more volatile than overall tax-to-GDP growth since 2000.”
In Mexico, Ecuador, Venezuela and Bolivia, fiscal revenues from natural resources account for over 30% of the total. This is good news because they bring in more income for governments, but they also leave the countries vulnerable to the dynamics of the global market.
Below are some highlighted data from the report:
- In 2012, tax-to-GDP ratio fell in four countries (Chile, Mexico, Guatemala and Uruguay), remained unchanged in one (Costa Rica) and rose in 13, out of 18 nations.
- In 1990, the difference between the average tax-to-GDP ratio in the 18 countries compared to the OECD average was 19 percentage points. Today it is 14 percentage points.
- The countries with the greatest increase in tax-to-GDP ratios in 2012 were Argentina with 2.6 percentage points, Ecuador 2.3, and Bolivia 1.8. Uruguay and Chile had the largest falls in 2012, with 1.0 and 0.5 percentage points respectively.
- From 2007 to 2012, eleven nations reported increases, and seven reported declines.
- Sales tax (value added tax) accounted for 33.8% of tax revenues in Latin America in 2011, compared to 20.3% in OECD countries.
- Income and corporation taxes (taxes on profits) accounted for 25.4% of revenues across Latin America in 2011, compared to 33.5% in OECD countries.
- Social security contributions in Latin American in 2011 accounted for 16.9% of tax revenues compared to 26.2% in OECD countries.