November 24, 2014
Argentina has highest tax-to-GDP in LatAm
Country’s fiscal revenue ratio is slightly higher than OECD average, reports ECLAC
Argentina’s tax revenue was at last count the largest and fastest growing in the region, the Economic Commission for Latin America and the Caribbean (ECLAC) revealed yesterday.
At 37.3 percent, the latest tax revenue-to-GDP data put Argentina ahead of Brazil — the region’s largest economy, which generated tax revenue worth 36.3 percent of its GDP in 2012 — and a few percentage points above the average for OECD countries at 34.6 percent.
“Wide national variations exist across Latin American countries. At the upper end are Argentina (37.3 percent) and Brazil (36.3 percent) which are both above the OECD average, while at the lower end are Guatemala (12.3 percent) and the Dominican Republic (13.4 percent),” ECLAC explained yesterday when it released the data yesterday in Santiago, Chile.
But Argentina’s tax revenue in 2012 was also reflective of a general trend among Latin American countries of rising tax collection, which has slowly increased in relation to the OECD average since 1990.
In fact, according to ECLAC’s report, in 2012 Argentina’s tax collection to GDP ratio grew 2.6 percentage points, which was the highest growth rate among the 13 countries with tax revenue increases during that period, ahead of Ecuador at 2.3 percentage points and Bolivia’s 1.8 points.
Just four Latin American countries of the 18 that form part of ECLAC’s study saw declines in their tax revenue to GDP ratio. Uruguay registered a one percentage point drop in 2012, while for Chile the reduction was of 0.4 percent of its GDP. Costa Rica was the only country to sustain its tax revenue ratio on 2011 figures.
Closing the gap
Yesterday’s report, developed in conjunction with the Inter-American Centre of Tax Administrations the Organization for Economic Co-operation and Development (OECD), also indicated that the gap in tax collection rates for Latin American and OECD countries was slowly decreasing, with Argentina leading that trend.
In the five year period 2007-2011, Argentina’s tax revenue to GDP ratio jumped 8 percent, with another 11 countries in the region also registering increases to see the difference between regional and OECD tax revenue collection decrease from 19 percentage points in 1990 to 14 percentage points in 2012.
In 1990, the regional average was 13.9 percent of GDP while in 2012 this figure has shrunk to 20.7 percent, against the OECD average of 34.6 percent.
ECLAC’s report drew additional comparisons in the area of general consumption taxes, which in Latin America and the Caribbean accounted for 33.8 percent of general fiscal revenues in 2011, compared the OECD average of 20.3 percent, and taxes on specific consumption like excises and taxes on international trade, which in Latin America declined to 17.7 percent of tax revenue in 2011 compared to the OECD’s 10.7 percent average.
The figures mean that the region’s coffers continue to largely rely on a tax that some experts consider to be regressive.
Moreover, taxes on income and profits, and contributions to social security, also lagged behind OECD countries, with Latin America registering 25.4 percent and 16.9 percent respectively, while comparable OECD figures were 33.5 percent and 26.2 percent.
In this regard, Argentina again registered higher tax rates than other Latin America countries. In 2012, taxes on goods and services represented 18.8 percent of tax revenue compared to the regional average of 10.4 percent and more than any other country in the region.
Meanwhile, the proportion of tax revenue from taxes on income and profits was slightly higher in Argentina at 6.5 percent than the regional average of 5.2 percent. Just Chile, Peru and Brazil registered larger tax revenues from income and profit taxation than Argentina in 2012, with 8.3 percent, 7.7 percent and 7.3 percent respectively.
In its report, ECLAC highlighted local government taxation as a key variance between Latin American and OECD countries.
“The share of tax revenues collected by local governments in Latin America is small in most countries and has not increased, reflecting the relatively narrow range of taxes under their jurisdictions compared with OECD countries,” the organization highlighted.
The UN body also cautioned on the reliance of some LatAm economies on revenue from volatile non-renewable resources.
“Increased global demand for commodities, especially in large emerging markets, has led to sharp price increases and greater fiscal revenue associated with non-renewable natural resources,” it said. “While these revenues increased at a faster rate than other government revenues before the crisis, their performance has been roughly three times more volatile than overall tax-to-GDP growth since 2000.”
And while revenue from non-renewal resources has increased, ECLAC warned that though “this implies both a greater benefit from the revenues they generate as well as a higher level of risk due to the dynamics of the global market.”