ECLAC says tax revenues are the cornerstone of the basic financing of modern States
The Economic Commission for Latin America and the Caribbean (ECLAC) says evasion is one of the main weaknesses of the tax systems in the region’s economies, accounting for US$320 billion in 2014.
ECLAC just released its Fiscal Panorama of Latin America and the Caribbean 2016, noting that tax revenues are the cornerstone of the basic financing of modern States, and it is therefore vital to prioritise the creation of a tax culture in which evaders are effectively punished.
The ECLAC document is being presented at the two-day 28th Regional Seminar on Fiscal Policy which opened here yesterday.
The report states that fiscal non-compliance represents 2.2 points of gross domestic product (GDP) in terms of value-added tax (VAT) at the regional level, and 4.1 GDP points in terms of income tax.
While ECLAC acknowledges 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 reforms 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 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 sub-regions.
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.