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IDB says tax revenues in LAC showing signs of recovery after taking historic hit

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WASHINGTON, United States (CMC) — The Inter-American Development Bank (IDB) says tax revenues in Latin America and the Caribbean (LAC) fell by eight percent on average in nominal terms and by 0.8 percent as a share of gross domestic product (GDP) in 2020 because of the coronavirus pandemic.

However, in a new report, the IDB said the region’s economic recovery and a rebound in commodity prices supported a recovery in tax revenues in 2021.

Caricom countries included in the report are Antigua and Barbuda, Bahamas, Barbados, Belize, Guyana, Jamaica, St Lucia and Trinidad and Tobago.

The Revenue Statistics in Latin America and the Caribbean 2022, released during the 56th General Assembly of the Inter-American Center of Tax Administrations (CIAT), shows that the decline in tax revenues in LAC in 2020 exceeded the region’s economic contraction in nominal terms.

Tax-to-GDP ratios fell in 20 of the 26 LAC countries covered by the report and LAC’s average tax-to-GDP ratio fell by 0.8 percentage points to 21.9 percent.

The decline in LAC’s tax-to-GDP ratio in 2020 contrasted with the Organisation for Economic Co-operation and Development (OECD) area, where the average tax-to-GDP ratio rose by 0.1 percentage points to 33.5 percent. The gap between the LAC and OECD averages widened to 11.6 percent of GDP in 2020 from 10.7 percent of GDP in 2019 as a result.

The IDB said revenues from all main tax categories declined in nominal terms between 2019 and 2020 on average across the LAC region.

It said taxes on goods and services, which accounted for about half of total tax revenues in LAC, were the worst affected, decreasing by 0.7 percent of GDP on average. Revenues from corporate income tax (CIT) declined by 0.2 percent of GDP while revenues from personal income tax (PIT) and social security contributions (SSCs) remained relatively stable as a percentage of GDP.

The Washington-based financial institution said that the impact of the pandemic on tax revenues differed between LAC and the OECD.

As a percentage of GDP, taxes on goods and services remained unchanged in the OECD, while CIT revenues declined by twice as much as those in the LAC region and PIT and SSCs both increased. Relative to the OECD, PIT and SSCs accounted for a small share of total tax revenues in the LAC region (28.2 percent in LAC in 2020 versus 49.4 percent in the OECD in 2019).

A special feature in the report highlights a decline in hydrocarbon revenues for a sample of major producers in the LAC region, from 3.1 percent of GDP in 2019 to 2.1 percent of GDP in 2020, but these revenues rebounded to an estimated three percent of GDP in 2021.

Meanwhile, mining revenues for major producers in the region fell from 0.4 percent of GDP in 2019 to 0.3 percent in 2020 but rose to an estimated 0.6 percent of GDP in 2021.

A second special feature tracking monthly revenue data during the COVID-19 pandemic for a sample of 18 LAC countries reveals that cumulative revenues from PIT, CIT, VAT and excises between January and August 2021 rose 4.6 percent in real terms from the equivalent period in 2019 as economies in the region recovered.

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