Latin America and Caribbean lagging behind on tax law compliance says World Bank

By: Staff Writer

February 22, 2022

A new World Bank report shows that Latin America and the Caribbean fall far behind on tax compliance laws, well below other regions.

The “Innovations in Tax Compliance : Building Trust, Navigating Politics, and Tailoring Reform,” noted that the region fell far behind other regions in tax law compliance, with the worldwide average being 245 days to comply with tax laws and the region posting an average of 379 days for compliance.

For the Caribbean this data is significant, because it shows that very little is being done to ensure that the offshore centres in the islands are staying off of the European Union (EU) and Organisation for Economic Co-operation and Development’s (OECD) black list of countries that they classify as tax havens.

The report said: “It is not surprising that inequitable tax burdens, questionable interactions with tax officials, and the poor translation of revenue into services are reflected in the limited trust that much of the low-income world has in tax systems. In the majority of African countries, less than half of taxpayers trust their tax administration, with levels of trust falling below 30 percent in some countries (Isbell 2017). Across Latin America and the Caribbean, trust in government can be as low as 26 percent (Argentina) and 17 percent (Brazil).

“This analysis suggests that the central challenge facing reformers lies in both identifying innovative technical strategies to strengthen revenue mobilization and improving trust to enhance compliance, build political support for reform, and reinforce stronger social contracts. Recent research points to possible elements of a strategy, including strengthening the morale of taxpayers, paying more attention to the political challenges of reform, tailoring reform to local contexts and needs, and empowering taxpayers. However, these strands of research have yet to be consistently applied in practice or translated into an overarching vision for reform.”

With countries like The Bahamas, Barbados, Dominica and Costa Rica, still in the cross hairs of the EU and OECD, showing little to no effort in shortening the times for compliance is not a good look.

“The report offers feasible, clear-cut paths to putting trust building into practice,” said Edward Olowo-Okere, Director of the World Bank’s Governance Global Practice.  He continued, “With detailed information on successful initiatives, it urges reformers to focus on how to more effectively tailor strategies to local contexts and constraints. In Freetown, Sierra Leone, for example, successful property tax reform followed significant public education programs and new forums for engagement between taxpayers and the city.”

“Discussions about how to raise extra resources are especially relevant now that governments across the world are having to substantially increase public expenditure to protect people and economies from the damage wrought by the pandemic,” said Marcello M. Estevão, the Bank’s Global Director for Macroeconomics, Trade and Investment. Adding: “Fiscal pressures are growing because of record-high levels of debt in lower- and middle-income countries and because of the need to transition to a green economy.”

Tax reforms have leaned heavily toward strengthening tax enforcement and facilitating compliance, with sanctions for citizens and corporations that avoid paying their obligations and mechanisms that make it as easy as possible for taxpayers to find out what they owe and make payments. Despite important successes, these efforts have not been sufficient to consistently deliver more effective, equitable, and accountable tax systems. In fact, taxation of the wealthy remains highly ineffective in many countries. Weak taxation in many places appears rooted in political resistance to more effective taxation, low trust and compliance, and the difficulties posed by wealth held offshore.

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