As our countries confront the pandemic, governments must review and eliminate tax privileges

by Alex Ciconello & Paolo de Renzio, International Budget Partnership— Jul 14, 2020

Together with our colleagues at leading civil society organizations around Latin America, the International Budget Partnership (IBP) has worked on a regional initiative focusing on the impact of tax expenditures on inequality in the continent (Latin America Tax Expenditure Research, Analysis and Learning Project, LATERAL). Today, in the face of the global COVID-19 pandemic, we launch a joint statement asking all Governments and Parliaments across the region to make all existing tax expenditures transparent, to review and eliminate those that provide unjustified and inequitable tax privileges and to redistribute the tax burden onto the wealthiest sectors of the population and those who can afford to pay more.

The public policy measures that are necessary for addressing the COVID-19 crisis pose significant funding challenges in the short, medium and long term. Governments’ limited fiscal capacity is worsened by the indiscriminate concession of tax privileges to individuals and companies. In Latin American countries, tax expenditures as a whole reduce government revenues by between 10 and 20 percent, and this is done without any proper evaluation of their impacts.

Latin America is one of the most unequal regions in the world, a situation that has worsened as a result of the COVID-19 pandemic. The region is currently the epicenter of the disease which, according to ECLAC (2020) estimates, could result in 16 million people falling below the poverty line this year.

Latin American tax systems tend to be regressive, and even so all of them provide many privileges in the form of tax expenditures. In Colombia, Argentina, Mexico, the Dominican Republic, Guatemala, El Salvador and other countries, for example, there are multiple unjustifiable tax privileges offered to companies located in so-called “free trade zones.” In Brazil and in other countries, generous tax exemptions are applied to the production of fossil fuels, sugary drinks and agrochemicals, sectors that negatively affect health and the environment. In Brazil and Argentina, the income of the richest (such as gains from capital income) is not included in personal income taxation. There are also inexplicable tax exemptions for cosmetic plastic surgeries (in Colombia and Ecuador) and for members of Parliament and the Judiciary in Argentina and the Dominican Republic.

To address the fiscal challenges posed by the pandemic, join us to demand that inequitable and unjustified tax privileges be eliminated and that more progressive tax systems take their place: joint statement in Spanish / joint statement in English.

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