Tax Revenues Continue to Rise in Latin America, but Are Low and Varied Among Countries

Santiago, January 21- Tax revenues in Latin American countries continue to rise but are lower as a proportion of their national incomes than in most OECD countries. The publication Revenue Statistics in Latin America 1990-2012 (third edition) shows that the average tax revenue to GDP ratio in the 18 Latin American and Caribbean countries covered by the report increased steadily from 18.9% in 2009 to 20.7% in 2012, after falling from a high point of 19.5% in 2008.

The report, produced jointly by the Inter-American Centre of Tax Administrations (CIAT), the Economic Commission for Latin America and the Caribbean (ECLAC) and the OECD, and launched yesterday during the XXVI Regional Seminar on Fiscal Policy which is being held at ECLAC headquarters in Santiago, Chile, shows that the tax to GDP ratio rose significantly across Latin American and the Caribbean over the past two decades - from 13.9% of GDP in 1990 to 20.7% of GDP in 2012. But the tax to GDP ratio is still 14 percentage points below the OECD average of 34.6%.

Wide national variations exist across Latin American countries. At the upper end are Argentina (37.3%) and Brazil (36.3%) which are both above the OECD average, while at the lower end are Guatemala (12.3%) and the Dominican Republic (13.4%). The corresponding range in OECD countries was from 48% in Denmark to 19.6% in Mexico.

The share of tax revenues collected by local governments in Latin America is small in most countries and has not increased, reflecting the relatively narrow range of taxes under their jurisdictions compared with OECD countries.

A special chapter in the report describes the trends driving revenues from non-renewable natural resources across Latin America. Increased global demand for commodities, especially in large emerging markets, has led to sharp price increases and greater fiscal revenues associated with non-renewable natural resources. While these revenues increased at a faster rate than other government revenues before the crisis, their performance has been roughly 3 times more volatile than overall tax-to-GDP growth since 2000.

In many Latin American countries, fiscal revenues from non-renewable natural resources continue to be very important as a percentage of total revenues, accounting for more than 30% of the total in Bolivia, Ecuador, Mexico and Venezuela. This implies both a greater benefit from the revenues they generate as well as a higher level of risk due to the dynamics of the global market.

Main findings:

Tax to GDP ratios

- In 2012, the tax to GDP ratio rose in 13 of the 18 countries covered, fell in 4 (Chile, Guatemala, Mexico and Uruguay), and remained unchanged in one (Costa Rica).

- The difference between the OECD average tax to GDP ratio and that for the 18 countries covered is currently around 14 percentage points, compared with 19 percentage points in 1990.

- The largest increases in tax to GDP ratios in 2012 were in Argentina (2.6 percentage points), Ecuador (2.3 points) and Bolivia (1.8 points).

- The largest falls in 2012 were in Uruguay (1.0 percentage point) and Chile (0.4 points) - Over the 2007-2012 period, 11 countries recorded increases, the largest being in Argentina (8 percentage points), Ecuador (7 points) and Paraguay (4 points). There were declines in the other 7 countries, the largest being in Venezuela and the Dominican Republic (3 percentage points).

Tax structures

- Following strong growth over the past twenty years, general consumption taxes (mainly VAT and sales taxes) accounted for 33.8% of tax revenues in the Latin American countries in 2011 (compared to 20.3% in OECD countries). The share of specific consumption taxes (such as excises and taxes on international trade) declined to 17.7% (versus 10.7% in the OECD).

- Taxes on income and profits accounted for an average 25.4% of revenues in 2011 across Latin America, while social security contributions represented 16.9% (in the OECD, comparable figures are 33.5% and 26.2% respectively).