LATIN AMERICA
Taxing the Poor
By Milagros Salazar
BRASILIA (IPS) - Not only do Latin
America and the Caribbean collect less
tax revenue than any other region in the
world, in spite of positive economic
growth this decade, but national tax
systems are unfair, as they rely heavily
on indirect taxes that are levied
equally on rich and poor, according to a
new study by ECLAC.
The tax burden in Latin America averages
18.4 percent of GDP, only half the
average in the Organisation for Economic
Cooperation and Development (OECD),
which includes all the industrialised
nations, says ECLAC (the United Nations
Economic Commission for Latin America
and the Caribbean).
But the average figure hides even wider
discrepancies between countries. In
2008, Brazil led the region in tax
receipts with 35.5 percent of GDP,
followed by Argentina with 30.6 percent
and Uruguay, after a 2007 reform aimed
at correcting its traditional tax
inequality, with 23.3 percent of GDP.
At the other end of the scale is Mexico,
with tax revenues of only 9.4 percent of
GDP, according to the ECLAC report
titled "Time for Equality: Closing gaps,
opening trails", which was launched May
30 at the 33rd session of the U.N.
regional agency, held in the Brazilian
capital.
Tax receipts from exports of oil,
minerals and other natural resources
have risen swiftly in recent years in
countries such as Bolivia, Mexico, Peru,
Venezuela and Chile, but revenues from
this source are volatile, according to
experts.
"If the system worked better and more
taxes were collected, there would be
more resources to implement public
policies and increase social spending,"
Oswaldo Kacef, head of ECLAC's Economic
Development Division, told IPS.
Kacef pointed out that tax collection in
Latin America is low compared to other
regions experiencing similar economic
growth.
The report says "per capita GDP expanded
by 1.7 percent per year on average in
Latin America (in the 19 countries
studied) between 1990 and 2009, the same
rate as the United States."
Brazilian President Luiz Inácio Lula da
Silva hit the nail on the head Tuesday
night at the close of the ECLAC meeting
in Brasilia, when he levelled criticism
at some countries that have achieved
significant economic growth in recent
years, but have not increased social
spending in line with their greater
wealth because they have not tackled
unjust tax systems nor improved
collection.
"Where there is no tax burden, there can
be no state," he said.
ECLAC's report indicates that less than
one-third of tax revenue is collected by
direct taxation, such as taxes on
corporate and financial profits and
personal incomes, whereas two-thirds is
raised by indirect taxation, like sales
tax and value added tax, which fall on
rich and poor alike.
"This sort of flat-rate taxation fuels
inequality and has a negative impact on
redistribution, because it weighs more
heavily on the poor than on the rich,"
Kacef added.
The ECLAC report also compares Latin
America and the Caribbean with the OECD
countries using the Gini coefficient,
which measures the inequality of income
distribution in societies, on a scale of
0 (absolute equality) to 1 (absolute
inequality).
"In OECD, the estimated Gini coefficient
after taxes and transfers (used by
states to redistribute wealth to
low-income sectors) declines by
approximately 0.15 compared with the
pre-tax, pre-transfer level, while in
Latin America it declines by as little
as 0.02," the report found.
"The difference in tax burdens between
the OECD countries and Latin America is
due mainly to the low income and
property tax rates in the latter, since
excise taxes (on fuels, tobacco,
alcohol, and so on) are fairly similar,"
the study says.
"While the corporate tax yield is
comparable, the differences in income
tax revenues are significant, at 0.9
percent of GDP in Latin America,
compared with almost nine percent in
OECD," it adds.
"As personal income tax is the most
progressive form of taxation, it may be
inferred that the tax structure of the
Latin American countries is more
regressive than that of the developed
economies, since it has an adverse
effect on income distribution and is one
of the reasons why Latin America and the
Caribbean is one of the most inequitable
regions in the world," the ECLAC experts
conclude.
Gert Rosenthal, Guatemala's permanent
representative to the U.N., said it was
important for governments to act
transparently and be held accountable if
they decide to increase the tax burden.
In Rosenthal's view, this is a practical
way of putting on the table the
ingredients needed to carry out a reform
to curb inequality, without being
distracted by philosophical discussions
about the relationship between the state
and markets.
Tax evasion is another critical problem,
as several studies have shown that the
rate of income tax evasion is between 40
and 65 percent.
Uruguayan Vice-President Danilo Astori
said "a more just tax structure" is
needed. Fiscal reform entails a focus on
long-term policies, he said on the final
day of the ECLAC meeting, adding that
improving the efficiency of tax
collection is one way of moving towards
greater equity.
"Societies change by making new
policies," and governments should not be
content to be remembered for economic
growth rates alone, said Astori, who was
responsible for tax reform in his
country as economy minister in the
government of former socialist president
Tabaré Vázquez (2005-2010). Both are
members of the leftwing Broad Front.
ECLAC forecasts average economic growth
of 4.1 percent for Latin America this
year, but recommends that the nine
countries with the greatest inequality
in the region should spend between six
and nine percent of GDP to improve
living conditions among the neediest
segments of society.
It also highlights the need for better
employment and social protection
policies, to be implemented as a
redistribution mechanism.
The ECLAC member countries agreed to
hold their next meeting in 2012 in El
Salvador. Among the items on the agenda
will be promoting a social pact, with
greater equality, lower social risks and
greater attention to a gender
perspective in public policies. |
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