Tax systems in Latin America and the Caribbean work for the benefit of the elites

September 9, 2014
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While OECD countries reduce inequality by more than 35% through taxation and social spending, in Latin America and the Caribbean this reduction is less than 10%.

The global development organization Oxfam calls on the governments of the region to take appropriate measures to maximise the redistributive impact of the tax system and increase social investment.

The governments of Latin America and the Caribbean must implement fiscal reforms that benefit all citizens and not only economic and political elites, according to Oxfam’s report “Fiscal Justice to Reduce Inequality in Latin America and the Caribbean” published today.

The report highlights the low tax collection levels in the region, in comparison to the great social needs.  According to Oxfam, the lack of political will among the governments of the region to collect income and wealth taxes benefit those who have the most, and reduces the quality of life of lower income citizens. According to the report, Latin American and Caribbean companies have levels of tax evasion that range from 46% in Mexico to 65% in Ecuador, without adequate sanctions for tax evaders.

“Poverty and inequality are not inevitable and do not drop out of the sky. The tax system design is a reflection of the political will of government officials to achieve a more equitable society or at least one with less inequality. Our analysis of the tax systems in the region shows that they are shaped to benefit economic and political elites and not the majority of the population”, claims Rosa Cañete Alonso, Oxfam’s Inequality Campaign Coordinator for Latin America and the Caribbean.

Despite the region’s economic growth and poverty reduction in the last decade, LAC still remains the most unequal region in the world. According to ECLAC data, in Latin America and the Caribbean 28% of its 575 million of inhabitants live in poverty.

“The governments of the region are not willing to pay the political price of improving the revenue collection of taxes on wealth.  Therefore tax systems depend on consumption taxes, such as VAT, which ultimately affect poor people the most, Cañete explains.

According to Oxfam, the inequality of tax systems in the region is also reflected in the large tax exemptions that the governments from the region grant to multinational and large domestic companies. “These exemptions reinforce the accumulation of the elites’ wealth and in the end it is the most vulnerable population that pays the price of not having quality public services”, Cañete said.

Oxfam also warns that the governments tolerance of tax havens constitutes a clear incentive for tax evasion and avoidance by companies and billionaires. According to the report, the tax revenue that would be generated from just 3,5% of Latin American capital, that is hidden in tax havens, would be enough for 32 million people to be lifted out of poverty. That is, all people living in poverty from Bolivia, Colombia, Ecuador, El Salvador and Peru.

Oxfam launches an urgent appeal to the governments of Latin America and the Caribbean to implement the recommendations presented in this report and guarantee that their tax systems reduce inequality and protect the rights of all. The following stand out among the report’s recommendations: the governments of the region must prioritise and fund public policies that address inequality from its roots; exert more pressure on those who have more, to contribute more; apply zero tolerance to tax fraud; and put an end to the lack of transparency of tax havens.

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