Tax revenues recovering in LAC
Tax revenues in Latin America and the Caribbean (LAC), which had taken a hit since the novel coronavirus pandemic, have began to show signs of recovery following a rebound in commodity prices and economies across the region.
An Inter-American Development Bank (IDB) report published Wednesday, coming out of the 56th General Assembly of the Inter-American Center of Tax Administrations (CIAT), shows that the decline in tax revenues in LAC in 2020 exceeded the region’s economic contraction in nominal terms.
“Tax-to-GDP ratios fell in 20 of the 26 LAC countries covered by the report and LAC’s average tax-to-GDP ratio fell by 0.8 percentage points to 21.9 per cent. Tax-to-GDP ratios in the LAC region ranged from 12.4 per cent in Guatemala to 37.5 per cent in Cuba in 2020,” the IDB report stated. It noted that while revenues from all main tax categories declined in nominal terms between 2019 and 2020 on average across the LAC region, taxes on goods and services, which accounted for about half of total tax revenues in region, were the worst affected, decreasing by 0.7 per cent of GDP on average. Revenues from corporate income tax (CIT) also declined by 0.2 per cent of GDP while revenues from personal income tax (PIT) and social security contributions (SSCs) remained relatively stable as a percentage of GDP.
However, as the strangling effects of the pandemic subsides, a special feature of the report has shown where some significant revenues across the region have begun to deliver positive outturns. These include hydrocarbon revenues which declined by some 3.1 and 2.1 per cent in 2019 and 2020, respectively; but has since last year been registering average estimated growth of three per cent. This, also as mining revenues for major producers in the region fell from 0.4 per cent of GDP in 2019 to 0.3 per cent in 2020 but rose to an estimated 0.6 per cent of GDP in 2021.
“A second special feature tracking monthly revenue data during the COVID-19 pandemic for a sample of 18 LAC countries reveals that cumulative revenues from PIT, CIT, VAT and excises between January and August 2021 rose 4.6 per cent in real terms from the equivalent period in 2019 as economies in the region recovered,” the IDB said.