Latin America And The Caribbean’s Rise In Tax Cooperation

The Economic Trap in Latin America and the Caribbean: A Decade of Stagnant Growth

Over the past decade, the economies of Latin America and the Caribbean have been ensnared in a challenging cycle of slow growth, averaging a mere 1% annual GDP increase between 2015 and 2024, as reported by the United Nations Economic Commission for Latin America and the Caribbean (ECLAC). This period of stagnation has raised concerns about the region’s ability to break free from this economic trap. While ECLAC forecasts a slight improvement with a projected 2.4% growth rate for 2023, it emphasizes that this pace is insufficient to address the chronic underperformance of the region. The question remains: What strategies can Latin American and Caribbean countries employ to escape this cycle of slow growth?

The Path Forward: Enhancing Tax Revenues and Public Finances

ECLAC highlights the crucial role of increasing tax revenues and strengthening public finances as essential steps to stimulate economic growth. This approach involves revising tax expenditures, combating tax evasion, and implementing progressive income, property, and wealth taxes. The motivation behind focusing on taxation is clear. In 2022, the average tax-to-GDP ratio in Latin America and the Caribbean stood at 21.5%, a figure that has remained stagnant over the years. In comparison, the European Union achieved a tax-to-GDP ratio of 40% in 2023. This disparity underscores the potential for Latin America and the Caribbean to enhance their tax systems and mobilize additional resources to drive growth and development.

A New Era of Regional Tax Cooperation: The Emergence of PTLAC

In response to these challenges, a significant step was taken in the summer of 2023 with the establishment of the Regional Platform for Tax Cooperation in Latin America and the Caribbean (PTLAC). This collaborative initiative was born out of a call to action by José Antonio Ocampo, then Colombia’s Finance Minister, who stressed the need for a unified regional voice in international tax policy discussions. Despite the diversity of countries in the region, ranging from large economies like Brazil to smaller nations like Barbados and low-income countries such as Haiti, Ocampo argued that common challenges in navigating the digital economy and cross-border taxation necessitate a collective approach.

The Cartagena Summit: A Historic Step Towards Unity

The Cartagena Summit in July 2023 marked a pivotal moment as sixteen governments formally agreed to create the PTLAC, signing the Declaration of Cartagena de Indias. This declaration expressed the region’s commitment to building an inclusive, equitable, and sustainable international tax system. The swift establishment of PTLAC within less than a year of Ocampo’s initial announcement reflects the strong desire among participating countries to have their voices heard on the global stage. However, the platform’s early progress has revealed potential challenges, including uneven participation from Caribbean nations, with only two countries from the Caribbean attending the summit, and initial leadership dominated by Latin American countries.

The First Year of PTLAC: Laying the Foundation for Reform

During its first year, PTLAC focused on laying the groundwork for meaningful tax reforms through four main objectives: enhancing tax progressivity, reviewing tax benefits, advancing environmental taxation, and addressing digital taxation. The work on tax progressivity revealed significant disparities in how income from labor and capital is taxed across the region. Recommendations included introducing wealth taxes, increasing tax rates for high-income brackets, and reducing reliance on regressive consumption taxes. The platform also examined tax expenditures, emphasizing the need for greater transparency and evaluation of their effectiveness. Environmental taxation initiatives explored innovative solutions such as a global corporate income tax on high-revenue companies and regional carbon tax treaties.

Looking Ahead: The Road to a More Inclusive and Equitable Tax System

As PTLAC enters its second year, the focus is on building capacity and fostering international collaboration. Under Chile’s pro tempore presidency, the platform aims to develop coordinated positions for key global forums such as the United Nations and the OECD. Educational programs and webinars have been instrumental in enhancing member countries’ understanding of international tax policies. Despite the challenges of regional divergence and varying levels of participation, PTLAC represents a promising step towards a more unified and influential voice for Latin America and the Caribbean in shaping a fairer and more sustainable global tax system. The coming months will be crucial in determining whether PTLAC can overcome its current limitations and achieve its ambitious goals, ultimately contributing to the region’s economic growth and development.