SANTIAGO, Chile (CMC) — A new report says tax revenues in Latin America and the Caribbean (LAC) dipped in 2016, falling further behind the average Organisation for Economic Cooperation and Development (OECD) country levels, but adds that recovery is likely in subsequent years.
The report titled “Revenue Statistics in Latin America and the Caribbean 2018,” notes the average tax-to-gross domestic product (GDP) ratio stood at 22.7 per cent in 2016, a fall of 0.3 percentage points since 2015.
The Economic Commission of Latin American and the Caribbean (ECLAC) said the 2016 decrease “reflects the overall economic environment in the LAC region, where GDP growth slowed between 2012 and 2016.
“Declining commodity prices partly drove this downturn and remain a key determinant of revenue trends in LAC countries,” ECLAC said.
It said the decline in tax revenue as a percentage of GDP is expected to reverse in subsequent years thanks to a recovery in commodity prices and an improving economic climate, with GDP growth in LAC forecast to be between two per cent and 2.5 per cent in 2018.
Launched during the 30th Regional Seminar on Fiscal Policy in Santiago, ECLAC said the report covers 25 LAC countries including Guyana for the first time.
The report is 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 Paris-based OECD Centre for Tax Policy and Administration, and the OECD Development Centre.
The report says that between 2015 and 2016, the average tax-to-GDP ratio in the LAC region decreased by 0.3 percentage points to 22.7 per cent. In the OECD area, the ratio increased by 0.3 percentage points to 34.3 per cent.
In 2016, the tax-to-GDP ratios of the 25 countries covered by the report ranged from 12.6 per cent in Guatemala to 41.7 per cent in Cuba.
The report says Barbados and Brazil had the highest tax-to-GDP ratios after Cuba, at 32.2 per cent; while Dominican Republic (13.7 per cent) and Venezuela (14.4 per cent) had the lowest tax-to-GDP ratios after Guatemala.
In 2016, the report says tax revenues as a percentage of GDP declined in about half the countries, whereas declines were only recorded in four countries in 2015.
The report says the fall in the LAC average tax-to-GDP ratio in 2016 was driven by a decrease in revenue from income taxes of 0.2 percentage points, “which was due to lower corporate income tax (CIT) revenue.”
In 2016, value added tax (VAT) was the biggest source of tax revenue in the LAC region (29.3 per cent of total tax revenues), followed by revenues from taxes on income and profits (27.3 per cent) and from other taxes on goods and services (21.2 per cent), according to the report.
“This represented a shift towards value-added taxes and away from taxes on income and profits,” it says.
This year’s report contains two special features: The first identifies trends in fiscal revenues from non-renewable natural resources for 12 commodity-exporting countries in the LAC region in 2016 and 2017.
In the first feature, the report finds that fiscal revenues from non-renewable natural resources continued to fall on average in the 12 commodity exporters in LAC, from 3.5 per cent of GDP in 2015 to 2.3 per cent in 2016.
The report says hydrocarbon-related revenues drove this decrease — falling on average from 5.0 percent of GDP in 2015 to 3.4 per cent in 2016 in the 10 oil-exporting countries in the region — “as a result of a gradual decline in crude oil prices, weak profits at major oil producers and a sharp contraction in regional production.”
Mining revenues, in contrast, held relatively stable at around 0.4 per cent of GDP on average in 10 mineral-producing countries, the report says.
It says corporate income tax receipts from the sector continue to fall, “reflecting in part substantial losses realised in 2015.”
Overall, the report says the region’s dependence on non-renewable natural resources declined significantly between 2010 and 2016, “reflecting commodity-market dynamics and higher mobilisation of revenues from other sources such as VAT and income tax.”