Sun. Apr 21st, 2019

Tax evasion stifles Latin America

La evasión fiscal ahoga a América Latina

Estimates of the Economic Commission for Latin America and the Caribbean (ECLAC) indicate that the gross public debt of the central governments of 18 Latin American countries increased, on average, from 39.4% of the Gross Domestic Product (GDP) in 2017 to the 42.3% in 2018. This difference of 2.9 percentage points reflects the bias produced by the behavior of the level of indebtedness in Argentina.

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In the report 'Fiscal Panorama of Latin America and the Caribbean 2019. Tax policies for the mobilization of resources within the framework of the 2030 Agenda for Sustainable Development', ECLAC reports that the cost of tax evasion and avoidance in the region reached 6.3% of GDP in 2017, equivalent to 335 billion dollars.


Illicit trade

In addition, illicit flows derived from the manipulation of international trade in goods reached 85 billion dollars in 2016; that is, around 1.5% of Latin American GDP.

Meanwhile, total revenues showed no change in 2018 compared to the level of the previous year (18.1% of GDP). While in South America they gained more dynamism, in Central America and Mexico they went from 16.9% in 2017 to 16.4% of GDP in 2018, as a result of a decrease in non-tax revenues and a slowdown in tax collection, especially the taxes associated with consumption.

A producer feeds her sheep in the village of San Lorenzo, in the State of Chiapas (southern Mexico).

A producer feeds her sheep in the village of San Lorenzo, in the State of Chiapas (southern Mexico).
(Alex Webb / EFE)

The situation has impacted the decline in public spending, which contracted from 21.3% in 2017 to 21.1% of GDP in 2018. It highlighted the reduction recorded in capital expenditures of 3.6% in 2017 to 3.2% of GDP in 2018, the lowest level since 2007.

There was also a reduction in primary current expenditure in South America that could exert downward pressure on social spending.

The main purpose of tax systems is to collect revenues for the operation of the State, provide public goods and services, and finance public social spending. Among other actions, governments often use the tax structure to promote certain economic policy objectives, among others. that of encouraging savings and investment, stimulating employment or protecting the national industry, and promoting or discouraging consumption of certain goods and services. In the cases in which deductions are used to pursue these objectives, the tax system fulfills a role similar to that of public expenditure, but by way of the State's waiver of the collection that would be obtained from certain taxpayers or activities "

Cover of the report on the fiscal outlook in Latin America in 2019.

Cover of the report on the fiscal outlook in Latin America in 2019.
(Genaro Rodríguez Navarrete / GRN)

The study emphasizes that the behavior of the economy, in particular, of the tax policy, has repercussions on the availability of resources to achieve the Sustainable Development Goals (SDGs) contained in the 2030 Agenda promoted by the United Nations, in dimensions such as inequality , poverty, the welfare of women, the elderly, young people and other vulnerable populations.

Alicia Bárcena, Executive Secretary of ECLAC, presented the Fiscal Panorama of Latin America and the Caribbean 2019, in the framework of the XXXI Regional Seminar on Fiscal Policy, held in Santiago, Chile, on March 25 and 26.

The event brought together finance officials, experts from international organizations, as well as representatives of academia and civil society organizations.

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