Revenue Statistics in Latin America and the Caribbean

Revenue Statistics in Latin America and the Caribbean 1990-2015 XXIX ECLAC Regional Seminar on Fiscal Policy Santiago, Chile March 23, 2017

Revenue Statistics in Latin America and the Caribbean 1990-2015

Revenue Statistics in Latin America and the Caribbean Detailed, internationally comparable data on tax revenues in Latin American and Caribbean (LAC) economies 24 LAC economies from 1990-2015 Comparisons with the average for OECD economies (and on-line data for 33 non-lac countries) Based on OECD Revenue Statistics methodology, a reference source for OECD member countries Joint project with the Economic Commission for Latin America and the Caribbean (ECLAC), the Inter-American Centre for Tax Administrations (CIAT), and Inter-American Development Bank (IDB)

Revenue Statistics in Latin America and the Caribbean Novelties Expanded coverage to include Belize and Cuba Improved disaggregation of personal and corporate income taxes (20 / 24 countries in 2015 vs 16/24 in 2014) Improved subnational data collection (17/24 in 2015 vs 13/24 in 2014) Estimations for subnational tax autonomy VAT-Revenue-Ratio (VRR) estimates

Revenue Statistics in Latin America and the Caribbean I. Tax revenue trends 1990-2015 II. Tax structure III. Fiscal revenues from non-renewable natural resources IV. Taxation and tax autonomy of subnational governments V. Future steps and conclusions

LAC countries continued their convergence process towards OECD taxation levels, despite the economic slowdown Total tax revenues in LAC and OECD, 1990-2015 (Percentage of GDP) Difference B-A LAC (24) (A) OECD (35) (B) 35 30 25 20 15 10 5 0 1990 91 92 93 94 1995 96 97 98 99 2000 01 02 03 04 2005 06 07 08 09 2010 11 12 13 14 2015 Source: OECD/ECLAC/CIAT/IDB (2017), Revenue Statistics in Latin America and the Caribbean

Wide national variations exist across LAC countries ( Americas Latinas ) Cuba Argentina Brazil Barbados Trinidad and Tobago Uruguay Belize Jamaica Bolivia Costa Rica Honduras Ecuador Venezuela Nicaragua Colombia Chile The Bahamas Paraguay Mexico El Salvador Peru Panama Dominican Republic Guatemala LAC OECD Total tax revenues in LAC countries and OECD, 2015 (Percentage of GDP) 0 5 10 15 20 25 30 35 40 Source: OECD/ECLAC/CIAT/IDB (2017), Revenue Statistics in Latin America and the Caribbean

Tax revenues increased for the majority of LAC countries between 2014 and 2015 The Bahamas Mexico Venezuela Ecuador Cuba Argentina Jamaica Barbados Chile Bolivia Trinidad and Tobago Honduras Costa Rica Nicaragua Colombia Brazil Paraguay El Salvador Panama Belize Uruguay Guatemala Dominican Republic Peru Tax revenue growth by country, 2014-2015 (percentage points of GDP) -2-1.5-1 -0.5 0 0.5 1 1.5 2 2.5 3 Source: OECD/ECLAC/CIAT/IDB (2017), Revenue Statistics in Latin America and the Caribbean

However, again, increases in tax revenues were driven by different taxes in different countries p.p. of GDP 5 4 1000 Taxes on income, profits and capital gains Tax revenues growth in LAC, 2014-2015 (Percentage points of GDP) 2000 Social security contributions Change in total tax revenue 5000 Taxes on goods and services Other taxes 3 2 1 0-1 -2 Source: OECD/ECLAC/CIAT/IDB (2017), Revenue Statistics in Latin America and the Caribbean

driven, on average, by taxes on goods and services, and personal income taxes Tax revenues growth in LAC by main tax aggregate, 2014-2015 (Percentage points of GDP) Taxes on goods and services Personal income tax Social security Property Other taxes Payroll Corporate income tax -0.2-0.1 0 0.1 0.2 0.3 0.4 0.5 Source: OECD/ECLAC/CIAT/IDB (2017), Revenue Statistics in Latin America and the Caribbean

p.p change 1.5 1.0 0.5 0.0-0.5-1.0-1.5-2.0-2.5-3.0-3.5 Changes in taxes on income, profits and capital were mainly driven by changes in the corporate income tax Annual change in revenue from taxes on income and profits, corporate income tax and personal income (Percentage points of GDP) 1100 Of individuals 1200 Corporate 1000 Taxes on income, profits and capital gains Note: Ecuador, Nicaragua and Venezuela are excluded as more than a third of their revenue from taxes on income and profits cannot be allocated to corporate income tax revenue (1200) or personal income tax revenue (1100). Source: OECD/ECLAC/CIAT/IDB (2017), Revenue Statistics in Latin America and the Caribbean

Revenue Statistics in Latin America and the Caribbean I. Tax revenue trends 1990-2014 II. Tax structure: How revenue is raised III. Fiscal revenues from non-renewable natural resources IV. Taxation and tax autonomy of subnational governments V. Future steps and conclusions

Tax structures continue to be based on indirect tax receipts (VAT and other taxes on consumption) Tax revenue composition in LAC and OECD, 2015 (Percentage of GPD and total tax revenues) Taxes on income and profits Social security contributions Property Taxes on goods and services Other taxes 0.9 p.p, (4%) 0.7 p.p. (2%) 6.2 p.p. (27%) 11.0 p.p. (32%) 11.5 p.p. (34%) 11.2 p.p. (49%) 0.8 p.p. (4%) 3.8 p.p. (16%) 1.9 p.p. (5%) 9.1 p.p. (27%) LAC (24) 1 OECD (35) 2 1. Represents a group of 24 Latin American and Caribbean countries. Chile and Mexico are also part of the OECD (35) group. 2. Represents the unweighted average for OECD member countries in the year 2014. Source: OECD/ECLAC/CIAT/IDB (2017), Revenue Statistics in Latin America and the Caribbean

1990 91 92 93 94 1995 96 97 98 99 2000 01 02 03 04 2005 06 07 08 09 2010 11 12 13 14 2015 1990 91 92 93 94 1995 96 97 98 99 2000 01 02 03 04 2005 06 07 08 09 2010 11 12 13 2014 14 60 55 12 50 45 40 10 35 30 25 8 20 15 The region is slightly less reliant on indirect taxes compared to two decades ago, while taxes on profits have increased Main tax aggregates in LAC and OECD, 1990-2015 LAC LAC (Percentage of total tax revenues) Taxes on income and profits Social security contributions Taxes on goods and services 60 55 50 45 40 35 30 25 20 15 OECD 14 12 10 8 10 6 10 6 4 Source: OECD/ECLAC/CIAT/IDB (2017), Revenue Statistics in Latin America and the Caribbean 4

Taxes on income and profits accelerated their ascent in the early 2000s, driven by the corporate income tax (commodity cycle) Revenue from various taxes in LAC, 1990-2015 (Percentage of GDP) % 7 Value added taxes Other taxes on goods and services Personal income tax Corporate income tax 6 5 4.6 6.0 4 4.0 3 2 2.4 2.2 1 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: OECD/ECLAC/CIAT/IDB (2017), Revenue Statistics in Latin America and the Caribbean and OECD (2017), Revenue Statistics in Latin America: Comparative tables, OECD Tax Statistics (database)

Despite recent increases, personal income tax collection continues to be low (vs CIT) Personal and Corporate income tax revenues in ALC countries and OECD, 2015 (Percentage of GDP) PIT CIT Barbados Trinidad and Tobago Jamaica Mexico Argentina Uruguay El Salvador Brazil Cuba Belize Honduras Peru Panama Chile Costa Rica Colombia Dominican Republic Guatemala Paraguay Bolivia The Bahamas OECD LAC 0 3 6 9 12 15 Note: the share on taxes on income and the share on taxes on profits may not add up to the total share on taxes on incomes and profits due to unallocable revenue. Only countries that could allocate 75% or more of revenue of taxes on incomes and profits into the sub categories taxes on income and taxes on profits are shown in the figure above. Source: OECD/ECLAC/CIAT/IDB (2017), Revenue Statistics in Latin America and the Caribbean

VAT raise more revenues than PIT in Latin American countries, but not in the Caribbean VAT and Income taxes in LAC countries and OECD, 2015 (Percentage of GDP) PIT VAT 10 9 8 7 6 5 4 3 2 1 0 BRB BOL CHL URY ARG BRA HND PER SLV PRY COL DOM TTO GTM CRI JAM MEX PAN BHS BLZ CUB LAC OECD Note: For OECD, the data for 2014 are used. the share on taxes on income and the share on taxes on profits may not add up to the total share on taxes on incomes and profits due to unallocable revenue. Only countries that could allocate 75% or more of revenue of taxes on incomes and profits into the sub categories taxes on income and taxes on profits are shown in the figure above. Brazil, Belize, The Bahamas, Barbados, Cuba and Trinidad & Tobago are excluded. Brazil operates a multiple rate system with tax levied at different rates for each sub-national level. Some underlying information was not available for Barbados, and Trinidad and Tobago; Belize, The Bahamas and Cuba did not operate a VAT system in 2014 Source: OECD/ECLAC/CIAT/IDB (2017), Revenue Statistics in Latin America and the Caribbean

VAT shows similar levels of performance than in OECD countries VAT Revenue Ratio (VRR) in 2014 (as a share of potential VAT revenue) VRR Loss revenue Revenue as % of GDP LAC OECD Jamaica Mexico Dominican Republic Colombia Costa Rica Argentina Guatemala Honduras Nicaragua Uruguay El Salvador Peru Chile Panama Ecuador Venezuela Paraguay Bolivia 0 10 20 30 40 50 60 70 80 90 100 Sources: OECD/ECLAC/CIAT/IDB (2017), Revenue Statistics in Latin America and the Caribbean and OECD (2016) 6.2 6.8 4.0 3.9 4.7 5.1 4.7 7.2 5.1 6.8 6.3 8.1 7.2 7.2 8.2 2.7 6.2 9.0 6.8 9.0

Revenue Statistics in Latin America and the Caribbean I. Tax revenue trends 1990-2014 II. Tax structure: How revenue is raised III. Fiscal revenues from non-renewable natural resources IV. Taxation and tax autonomy of subnational governments V. Future steps and conclusions

Commodities prices declined sharply in 2015 International reference price for crude oil Annual change of mineral and metal prices, 2014-15 Index 100=2000 400 350-36.3% -47.2% Lead Gold Percentage change on the basis of current USD -8-8 300 Zinc -11 250 Silver -18 200 150 Coal Copper Minerals and metals -23-20 -18 100 Tin -27 50 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Nickel -30 Iron ore -42-45 -40-35 -30-25 -20-15 -10-5 0 Source: OECD/ECLAC/CIAT/IDB (2017), Revenue Statistics in Latin America and the Caribbean

which translated into a decline of public revenues from hydrocarbons Public revenues from hydrocarbons, by country and type of revenue, 2014-2015 (Percentages of GDP) Country Total Tax revenues Non-tax revenues 2014 (r) 2015 (p) Δ 2014 (r) 2015 (p) Δ 2014 (r) 2015 (p) Δ Argentina 1.8 1.7-0.1 1.3 1.3-0.1 0.4 0.4 0.0 Bolivia 13.1 10.4-2.7 2.3 2.4 0.1 10.8 7.9-2.9 Brazil 1.5 1.3-0.2 0.9 0.9 0.0 0.7 0.4-0.2 Colombia 4.3 2.5-1.8 1.8 1.3-0.4 2.5 1.1-1.4 Ecuador 10.7 6.3-4.3 0.0 0.0 0.0 10.7 6.3-4.3 Mexico 7.0 5.9-1.2 0.0 1.3 1.3 7.1 4.6-2.5 Peru 1.6 0.9-0.7 0.8 0.5-0.2 0.8 0.4-0.4 Suriname 5.2 0.5-4.8 2.3 0.3-2.1 2.9 0.2-2.7 Trinidad and Tobago 12.3 7.7-4.7 10.9 6.7-4.2 1.4 0.9-0.5 Venezuela 10.7 6.7-4.0 2.5 0.8-1.7 8.2 6.0-2.3 Simple average 6.8 4.4-2.4 2.3 1.5-0.7 4.6 2.8-1.7 Source: OECD/ECLAC/CIAT/IDB (2017), Revenue Statistics in Latin America and the Caribbean

Percentage of GDP Percentage of GDP Prospects of fiscal revenues from non-renewable resources are still bleak Public revenues from non-renewable natural resources, 2000-2016 (Percentage of GDP) Hydrocarbons (10 countries, left axis) Mining (10 countries, right axis) 9 8 7 6 5 4 3 2 1 3.0 2.5 2.0 1.5 1.0 0.5 0 0.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Notes: Mining covers Argentina, Bolivia, Brazil, Chile, Colombia, Dominican Republic, Jamaica, Mexico, Peru and Suriname. Hydrocarbons include Argentina, Bolivia, Brazil, Colombia, Ecuador, Mexico, Peru, Suriname, Trinidad and Tobago and Venezuela Source: OECD/ECLAC/CIAT/IDB (2017), Revenue Statistics in Latin America and the Caribbean

Fiscal revenues from non-renewable natural resources are (too?) important sources of revenue As % of GDP Fiscal revenues from non-renewable natural resources, 2015 (in billions of dollars and percentage of GDP) 6.1 1.4 6.7 1.7 2.7 6.3 10.9 1.3 1.3 7.7 0.3 0.9 0.2 Mexico Brazil Venezuela Argentina Colombia Ecuador Bolivia Chile Peru Trinidad and Tobago Dominican Republic Suriname Jamaica 0 10 20 30 40 50 60 70

Revenue Statistics in Latin America and the Caribbean I. Tax revenue trends 1990-2014 II. Tax structure III. Fiscal revenues from non-renewable natural resources IV. Taxation and tax autonomy of subnational governments V. Future steps and conclusions

Tax revenues are predominantly collected at the central government level Tax revenues by sub-sectors of general government in LAC and OECD, 2014 (Percentage of total tax revenue) Central Government State or regional governments Social security LAC OECD 0 10 20 30 40 50 60 70 80 90 100 Note: Barbados, The Bahamas, Cuba, Dominican Republic, Nicaragua and Venezuela have been excluded since data is not available. Source: OECD/ECLAC/CIAT/IDB (2017), Revenue Statistics in Latin America and the Caribbean

Tax revenues are predominantly collected at the central government level Tax revenues by sub-sectors of general government in LAC countries, 2014 (Percentage of total tax revenue) Central Government State or regional governments Social security Jamaica Belize Trinidad and Tobago Bolivia El Salvador Chile Peru Guatemala Honduras Paraguay Ecuador Mexico Colombia Uruguay Panama Argentina Costa Rica Brazil LAC OECD 0 10 20 30 40 50 60 70 80 90 100 Note: Barbados, The Bahamas, Cuba, Dominican Republic, Nicaragua and Venezuela have been excluded since data is not available. Source: OECD/ECLAC/CIAT/IDB (2017), Revenue Statistics in Latin America and the Caribbean

Subnational governments rely increasingly on transfers from the central government Percentage of GDP 9.0 Revenue sources composition in sub-national governments. Average for Latin America, 2000-2014 Own revenues Transfers Others 8.0 7.0 6.0 5.0 4.0 0.8 2.3 0.4 2.9 0.5 0.6 0.6 0.5 0.6 0.4 0.4 0.4 0.4 0.4 0.4 2.8 2.8 3.0 3.1 3.2 3.2 3.5 3.6 3.6 3.6 3.7 0.9 0.9 3.9 4.0 3.0 2.0 1.0 0.0 2.6 2.8 2.6 2.8 2.8 2.9 2.9 2.9 3.0 3.0 3.0 3.0 3.1 3.2 3.2 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: OECD/ECLAC/CIAT/IDB (2017), Revenue Statistics in Latin America and the Caribbean

.. and collect revenue from few sources, mostly based on indirect taxes Tax revenues of subnational governments, by type of tax Average for Latin America, 2000-2014 Percentage of GDP 3.0 Others Immovable property (4100) Taxes on production, sale, transfer, etc (5100) Taxes on use of goods and perform activities (5200) 2.5 2.0 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.1 0.1 0.2 0.2 0.2 0.2 1.5 1.0 1.4 1.3 1.2 1.3 1.3 1.3 1.4 1.4 1.4 1.4 1.4 1.5 1.5 1.5 1.6 1.8 0.5 0.0 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.5 0.1 0.1 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.3 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: OECD/ECLAC/CIAT/IDB (2017), Revenue Statistics in Latin America and the Caribbean

Measuring tax autonomy in Latin American countries Tax autonomy the measurement that assesses the degree of freedom with which sub-national governments can create or abolish new local taxes, define tax bases or even grant tax exemptions to natural persons and companies. Tax autonomy classification criteria Source: OECD/ECLAC/CIAT/IDB (2017), Revenue Statistics in Latin America and the Caribbean

Fiscal autonomy (relevant in some countries) could be strengthen in LAC Tax autonomy of subnational governments, 2014 More autonomy Less autonomy Source: OECD/ECLAC/CIAT/IDB (2017), Revenue Statistics in Latin America and the Caribbean

Revenue Statistics in Latin America and the Caribbean I. Tax revenue trends 1990-2014 II. Tax structure III. Fiscal revenues from non-renewable natural resources IV. Taxation and tax autonomy of subnational governments V. Future steps and conclusions

Future steps Continue expanding country coverage Haiti and Caribbean Improve data collection of subnational governments Expand the fiscal picture: statistics on tax expenditures (and on government expenditures)

Conclusions (I): Beyond Americas Latinas, tax revenue trends improved Tax revenues have been resilient to the output decline in LAC. The average tax burden in LAC increased from 22.2% in 2014 to 22.8% GDP in 2015 The average tax burden in LAC countries is still far behind from the OECD average (34.3% of GDP in 2015), but the gap is currently at its lowest (11.4 percentage points of GDP) Heterogeneity is a hallmark of the region. The tax to GDP ratios in LAC countries range from 12.4% (Guatemala), 13.7% (Dominican Republic) and 16.2% (Panama) to 32.0% (Brazil), 32.1% (Argentina) and 38.6% (Cuba)

Conclusions (II): but many challenges remain on consumption and direct taxes Strong growth of VAT and excise taxes offset the decline of 0.2 percentage points of corporate income taxes Taxes on goods and services (mainly VAT and sales taxes) accounted for nearly half of tax revenues in the LAC countries in 2015 (49%), compared to one third (33%) in OECD in 2015 Direct taxes collection is relatively low in LAC countries. Taxes on income and profits accounted for 6.2% of GDP, and social security contributions collected 3.8% of the GDP (vs 11.5% and 9.1% of GDP respectively in OECD)

Conclusions (III): and on strengthening subnational governments revenues Fiscal responsibility is eroded by high dependency on transfers from the central government. Currently, 49% of subnational governments total income is provided through transfers, while 40% come from tax revenues Sub-national governments rely on recurrent taxes on immovable property (16% of total subnational revenues), taxes on consumption (60%) and taxes on business and motor vehicle licenses (7%) for their tax revenues State governments in Argentina, Brazil and Mexico have a high levels of tax autonomy, whereas in Chile 58% of subnational tax revenue is subject to tax-sharing agreements. Local governments have lesser autonomy

Conclusions (IV): In addition, the negative shock on public revenues is substantial The sharp decline in international oil prices since the financial crisis resulted in a reduction of hydrocarbon-related revenues in the region (from 7.3% in 2013 and 6.6% in 2014 to 4.4% of GDP in 2015). An additional decline of 1.8 percentage points is expected in 2016 Mineral and metal prices also decreased public revenues from mining, which fell from 0.5% of GDP in 2014 to 0.4% in 2015, with a further fall to 0.3% estimated for 2016 (Commodity prices fell further in 2016 but less than in 2015)

Conclusions (V): Policy recommendations Given the economic slowdown and weak commodity prices, a no-policy change scenario suggests that tax revenues will not increase. Key to ensure the financing of education and infrastructure and social programmes. The design of the PIT can be improved, and so can the design of the VAT Central governments have a key role in supporting strengthening efforts for subnational governments (policy and institutions) The fiscal management of commodities should be strengthen before the next boom Tax reforms have to come, hand in hand, with improvements in their management. Latin American governments need to strive for more efficient, transparent and innovative services

Gracias! www.latameconomy.org/es/revenue-statistics/ www.oecd.org/ctp/revenue-statistics-in-latinamerica-and-the-caribbean-24104736.htm