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ECLAC report finds public revenues in the Caribbean improved in 2017

Tuesday, March 26, 2019

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SANTIAGO, Chile (CMC) — A new report by the Economic Commission for Latin America and the Caribbean (ECLAC) has found that public revenues in Latin America and the Caribbean (LAC) improved in 2017 after dipping the year before.

The report, “Revenue Statistics in Latin America and the Caribbean 2019”, was launched during the 31st Regional Seminar on Fiscal Policy that began here on Monday.

The report states that the average tax-to-gross domestic product (GDP) ratio in Latin America and the Caribbean (LAC) rose to 22.8 per cent in 2017, a gain of 0.2 percentage points from 2016.

“The rebound was primarily driven by Caribbean countries and in particular Guyana and Barbados, on the back of tax policy and administration reforms,” the report states.

It said that the LAC average remained 11.4 percentage points below the average of the Organization for Economic Cooperation and Development (OECD) member countries – 34 per cent of GDP in 2017 – but the difference between the two regions has declined from 16.4 percentage points in 1990.

The report is a joint publication by ECLAC, the Inter-American Centre of Tax Administrations (CIAT), the Inter-American Development Bank (IDB), the OECD Centre for Tax Policy and Administration and the OECD Development Centre. It is the eighth edition and the first produced through the European Union's Regional Facility for Development in Transition for Latin America and the Caribbean.

This year's edition covers 25 countries, although only partial data are available for Venezuela.

The report states the increase in the unweighted average tax-to-GDP ratio in the LAC region in 2017 reversed a year-on-year decline of 0.1 per cent points in 2016 and reflected an overall recovery in the regional economy.

However, the report notes the year-on-year change was uneven across the region.

While tax revenues increased as a proportion of GDP in 12 countries, they declined in 10 and remained unchanged in two, the report says.

Moreover, it says tax-to-GDP ratios across the LAC region vary significantly, ranging from 12.4 per cent in Guatemala to 40.6 per cent in Cuba and that the region continues to rely on taxes on goods and services, with value-added taxes alone accounting for 27.9 per cent of total tax revenues on average in 2017, equivalent to 6.0 per cent of GDP.

Over the past decade, corporate income tax (CIT) revenues have declined as a percentage of GDP; whereas, revenues from personal income tax (PIT) have steadily increased, respectively, reaching 3.4 per cent and 2.2 per cent of GDP on average in 2017.

However, while CIT revenues remain higher than the OECD average (2.9 per cent of GDP), “PIT revenues are still well below the OECD average (8.2 per cent of GDP),” the report finds.

Overall, it says the average tax structure in LAC has evolved to be closer to the average OECD structure, thanks to an increase in revenues from income taxes and value-added tax (VAT) and a decline in revenues from taxes on trade.

The report also says environmentally-related taxes are “an emerging source of revenues” in a number of LAC countries.

Across the 22 countries for which data are available, the report noted that Brazil and Barbados had the highest tax-to-GDP ratios after Cuba, at 32.3 per cent and 31.8 per cent, respectively; while Paraguay (13.8 percent) and Dominican Republic (13.9 percent) had the lowest tax-to-GDP ratios.

In 2017, the average for the Caribbean region exceeded the LAC average, while the average for South America was in line with the LAC average, and the tax-to-GDP ratio of Central America, including Mexico, trailed the regional average.

The report notes that at 27.9 per cent of total tax revenues, VAT was the largest source of revenue on average in the LAC region in 2017, followed by revenues from taxes on income and profits (27.1 per cent) and from other taxes on goods and services (21.8 per cent).

Between 1990 and 2017, revenue from VAT as a percentage of GDP more than doubled for LAC countries on average, from 2.3 per cent of GDP in 1990 to 6.0 percent in 2017, according to the report.

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