ECLAC Calls for Measures to Tackle Tax Evasion amidst Reduced Economic Buoyancy

Evasion is one of the main weaknesses of the tax systems in the region’s economies, accounting for 320 billion dollars in 2014 - according to the Fiscal Panorama of Latin America and the Caribbean 2016, launched today by ECLAC.

Tax revenues are the cornerstone of the basic financing of modern State, and it is therefore vital to prioritize the creation of a tax culture in which evaders are effectively punished – according to the ECLAC document that will be presented at the XXVIII Regional Seminar on Fiscal Policy, which will be held at the Commission’s headquarters in Santiago, Chile, on 16 and 17 March.

The report (available only in Spanish) by the Economic Commission for Latin America and the Caribbean (ECLAC) states that fiscal non-compliance represents 2.2 points of GDP in terms of value added tax (VAT) at the regional level, and 4.1 GDP points in terms of income tax. While ECLAC aknowledges the difficulties of bringing these numbers down against a backdrop of reduced economic buoyancy, it does call for increased efforts to avoid a substantial loss of potential tax resources.

According to the document, there was an across-the-board decline in VAT evasion up to 2007-2008, although that favourable trend was reversed due to the financial crisis. The Commission describes the need for more in-depth refroms of the structure and administration of VAT. Similarly, with income tax evasion there has been no significant progress in recent years.

The Fiscal Panorama 2016 states that, last year, Latin America recorded a slight average reduction in fiscal accounts, and reached a fiscal deficit of 3.0% of GDP and public borrowing of 34.7% of GDP. Out of the 19 countries studied, 11 simultaneously increased their fiscal deficit and public debt as a proportion of GDP.

According to the report, the slowdown in economic growth and the worsening terms of trade have had dramatic effects on the public finances in many of the region’s countries, with many having to carry out significant fiscal adjustments.

ECLAC outlines an uneven future at the regional level, with most South American countries remaining saddled with uncertainty because of the slowdown in China and other emerging nations in 2016, while Mexico, Central America and the Caribbean will benefit from positive growth rates, and from falling oil prices in the latter two subregions.

In order to protect and boost public investment and growth, the United Nations Economic Commission highlights the need to strengthen counter-cyclical institutional arrangements to reduce harmful cycles of expansion and contraction of public spending. Fiscal adjustments should therefore aim to attract investment that leads to growth, according to ECLAC.

The report affirms that 2015 was marked by a loss of income from non-renewable natural resources, although this was offset by higher tax revenues resulting from reform. On average, the region increased its tax burden by 0.2 percentage points of GDP, mainly thanks to improved collection of income tax.

The main conclusions of the Fiscal Panorama of Latin America and the Caribbean 2016 will be presented at the first session of the XXVIII Regional Seminar on Fiscal Policy, which will be opened tomorrow by ECLAC Executive Secretary, Alicia Bárcena, and Chilean Finance Minister, Rodrigo Valdés, among other special guests.