New study finds taxes on labour income lower in Latin America and Caribbean
WASHINGTON, United States (CMC) — A new study has found that taxes on the labour income of the average worker in Latin American and Caribbean (LAC) countries totalled 21.7 per cent of total labour costs in 2013.
The Inter-American Development Bank (IDB), said that the new study titled “Taxing Wages in Latin America and the Caribbean,” found that the figure was one-third lower than in Organisation of Economic Cooperation and Development (OECD) countries, where the average was 35.9 per cent.
The study found more than 90 per cent of the difference between LAC and OECD is due to personal income tax estimated at 13 per cent of total labour costs.
The new report, covering 20 LAC countries, was produced jointly by the Inter-American Centre of Tax Administrations (CIAT), the Inter-American Development Bank (IDB), the Development Centre and the Centre for Tax and Policy Administration.
It was launched in Argentina during the VI LAC Fiscal Policy Forum hosted by the Ministry of Treasury and Public Finances.
“The relatively low level of the LAC tax wedge – which measures the difference between an employer’s labour costs and an employee’s corresponding net take-home pay –reflects very low average personal income tax (PIT) rates,” the study noted.
According to the key findings of the study, the tax wedge across LAC countries varies widely, from 34.6 per cent in Argentina and 32.2 per cent in Brazil to 11 per cent in Trinidad and Tobago and 10 per cent in Honduras. Colombia and Uruguay also have levels above 30 per cent, while Guatemala’s tax wedge is also less than 15 per cent.
Chile had the highest personal average tax rate in the region followed by Uruguay and Argentina. The lowest rates were in Honduras, Guatemala and Trinidad and Tobago.
“For the single worker without children, LAC tax systems start to exhibit slight progressivity around the eighth income decile as workers in some countries start to pay PIT. On the other hand, for a one-earner married couple with two children, the average tax system is slightly progressive at lower levels of income,” the study found.
It said it then becomes proportional in the middle-income deciles before matching the single worker without children at the upper deciles of the income distribution.
