Will Tax Revenues Keep Rising in S.America?

January 22, 2014 International Tax Cooperation

Will Tax Revenues Keep Rising in S.America?SANTIAGO – The rate of growth of tax revenues in the countries of Latin American and the Caribbean is higher than the corresponding GDP increase, but only as a result of taxing the overly volatile export of raw materials and natural resources.

According to information contained in a new report released on January 20th by the Economic Commission for Latin America and the Caribbean (ECLAC), tax-to-GDP ratios are rising across the 19 countries of the region, but there is still significant variation in the growth among the countries, and the average rate is still far below OECD standards.

In its newly published report ECLAC showed that over the last two decades, from 1990 to 2012, the average tax-to-GDP ratio in Latin America rose from 13.9 percent to 20.7 percent, but it is still nearly 14 percent lower than the OECD average of 34.6 percent.

Outlining the economic performance of each particular country, the authors indicted that the highest tax-to-GDP ratio is now seen in Argentina and Brazil, with rates of 37.3 percent and 36.3 percent, respectively, while Guatemala and the Dominican Republic had the lowest rates, at 12.3 percent and 13.4 percent, respectively.

Additionally, analyzing the prospective for further economic and financial development in the region, ECLAC noted that in 2012 alone the highest rates of annual growth were seen in Argentine and Ecuador, at 2.6 percent and 2.3 percent, while the biggest drops for the same period were recorded in Uruguay and Chile, at 1 percent and 0.4 percent respectively.

Despite the overall positive progress, the ECLAC particularly noted that continued rise of revenue collection in Latin America and the Caribbean over the last 22 years was mainly attributed to the collection of newfound tax revenue streams from the export of non-renewable natural resources, although these types of revenues are traditionally regarded as being highly volatile due to variations in national and international demand, and highly unpredictable price fluctuations.

Photo by: Lee Coursey