Background
Latin America faces persistent challenges in generating tax revenues, which limits governments in financing social programs and fostering economic growth.
- High labor informality: The informal economy comprises a significant portion of the labor market in the region. It reduces the tax base and hinders efficient tax collection, which generates a shortfall in tax revenues.
- Tax evasion and avoidance: Tax evasion and avoidance practices, particularly by large companies, are structural problems affecting tax collection. The lack of effective control and supervision systems eases these practices.
- Low tax pressure: Regarding other regions, Latin America enjoys a low tax pressure. It reflects a tax system that relies heavily on indirect taxes, such as VAT, rather than more progressive direct taxes.
- Inequitable tax systems: The region’s tax systems fail to reduce economic inequality significantly. In many cases, the wealthier sectors proportionally contribute less than the lower-income sectors.
- Lack of regional coordination: The absence of coordinated tax strategies among countries limits fighting against unfair tax competition and addressing cross-border problems, such as profit shifting.
Conclusion
Insufficient tax revenues in Latin America is a complex challenge that requires structural reforms and joint efforts between governments and international organizations. Without significant changes, the region will still face difficulties in financing its social and economic needs.
Call to Action
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Source: Mais Vip - 5 reasons why tax revenues in Latin America are insufficient
