The OECD launched a tax policy report outlining the rebound of tax revenue in Latin America and the Caribbean (LAC). The rebound was primarily driven by Caribbean countries and in particular Guyana and Barbados, on the back of tax policy and administration reforms.
The LAC average remained 11.4 percentage points below the average of OECD member countries (34.2% of GDP in 2017) but the difference between the two regions has declined from 16.4 percentage points in 1990. Further, the OECD found that the average tax-to-GDP ratio across 24 LAC countries increased to 22.8 percent in 2017, a 0.2 percentage point gain from 2016. The increase is partly related to economic recovery in the region in 2017 following a two-year recession.
The rebound was primarily driven by Caribbean countries and in particular Guyana and Barbados. The report shows that Guyana 2017 tax-to-GDP ratio increased 2.6 per cent compared to 2016 after carrying out series of administration reform including the creation of a large taxpayer unit, stronger tax collection processes, the adoption of risk models, and VAT reforms. In addition, Barbados recorded a 2.2 percentage point increase in its tax-to-GDP ratio from 2016 to 2017, as a result of its decision to increase the rate of its national social responsibility levy from 2 percent to 10 percent. That change, which took effect in July 2017, was a significant factor that boosted Barbados’s tax-to-GDP ratio.
The OECD report outlines that revenues generated by recurrent taxes on immovable property in Latin America are a critical mechanism for the provision of basic services but are low relative to OECD countries and not achieving the level required to help local governments meet the challenges of an increasing decentralization of public expenditure, extensive urbanization and growth in informal settlements. On average across the region, revenues on recurrent taxes on immovable property were equivalent to around 0.3% of GDP, versus an OECD average of 1.1% of GDP.
Unlike the immovable property, mining revenues in the LAC region were on the upswing in 2017 because of strong global growth and positive spillover effects of China’s fiscal and financial stimulus in 2016. In 2017, a tax revenue boost increased revenues overall, from an average of 0.28 percent of GDP in 2016 to 0.37 of GDP in 2017.
Overall, the rebound of tax revenues in the LAC region is small yet it is significant, as it represents a trend towards the OECD average.
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