22/04/21

LATIN AMERICA: OECD presents COVID-19 recovery recommendations for region.

As published on step.org/industry-news, Wednesday 21 April, 2021.

The OECD's report, Going for Growth: Shaping a Vibrant Recovery, presented last week, offers recommendations to various countries, including several in Latin America, on how they can promote economic growth and resilience as they see the ongoing impact of COVID-19. The report sets out “2021 structural reform priorities” for Argentina, Brazil, Chile, Colombia, Costa Rica and Mexico.

For Argentina, the OECD has recommended the reduction of regulatory burdens to encourage business opportunities in the country, as well as improving "the efficiency of the tax system, including by broadening tax bases." The report suggests, among other measures, phasing out the provincial turnover tax and financial transaction tax; broadening the VAT base by reducing exemptions and special rates; and lowering the basic deduction in personal income taxes while making rates more progressive.

The OECD notes that Brazil's 2019 pension reform constituted a “major milestone” forming the basis for further reform, but adds that the country's “complex tax system distorts incentives for productivity enhancements and results in high compliance costs.” Although it acknowledges that the government is examining broad reform of consumption taxes, it suggests consolidating the current six consumption taxes into one broad-based VAT.

Recent pension reform in Chile was also praised by the report for progress in reducing social inequality, along with the creation of a new personal income tax bracket for high-income taxpayers. However, the OECD says that post-COVID recovery would require further structural reform, including by lowering the thresholds at which the bottom and top brackets apply for personal income tax.

The report notes the importance of recent fiscal reforms in Colombia (2019) and Costa Rica (2018). For the former, however, it notes that although the pandemic may spur an appetite for further reform, the 2022 elections may scupper progress. The Colombian government has recently proposed a Bill reforming federal taxation in the country, although this must be passed by the country's congress in order to be enacted.

Although the report recommends that Mexico should “simplify tax and regulatory systems to ease compliance costs,” it places a higher emphasis on the government continuing its fight against corruption, recommending that it should broaden its anti-corruption initiatives at state level.

On a global level, the OECD report highlights its ongoing drive to reach international policy cooperation on the taxation of multinational enterprises and the digital economy: a move that has gained US support under the new Biden administration and may reach consensus later in 2021.