Tax collections in Latin America, a quick view to the region
The idea of this blog is to take a look of the strategic planning and main characteristics of some of the Tax Agencies in Latin America. First of all, I’m going to expose some of the global trends in this matter.
As we look for trends in Tax Administrations around the globe we can identify basic objectives that make the foundation of each country Tax strategy. Fiscal efforts at the end drive and support a broader country vision:
- Macroeconomic stability
- Tax system design so that taxes are more efficient and less distortionary against market forces
- Easier Tax administration
To align with these objectives, we found that Tax Administrations must be modernized, and, on the other hand, its effectiveness should be measured and improved.
It is important to have in mind the level of taxpayer’s noncompliance or the “tax gap” to select the right tax strategy, but there is a direct relation between the size of the tax gap and the effort needed for a strategy to be instrumented. Tax gap is defined as the difference between the tax actually paid and the taxes which should be paid according to the existing laws and statutes.
Once we instrument this macro-strategy, the most obvious and tangible result is an increase in tax collection. Not that obvious but equally important are the efficiency gains obtained from reducing the tax gap
We are certain that there is a consensus for designing a Tax Administration Strategy with the following guiding principles:
- Reducing the complexity of the Tax System
- Encourage taxpayers’ voluntary compliance
- Differentiate the treatment of tax payers by their revenue potential
- Ensure the effectiveness, meaning define and manage measurement elements
Now, we are going to analyze and summarize some examples Tax agencies from Latin-America to compare against the above global trends.
Chile – Servicio de Impuestos Internos.
“Servicio de Impuestos Internos” (SII) is the Chilean Tax Agency. SII mission includes elements like:
- Promote that each taxpayer gets full compliance with his tax obligations
- Implementing and monitoring taxes in an effective and efficient manner
- Strict adherence to the law
- Facilitate compliance
SII also define their Strategic objectives as follows:
- Achieve effectiveness in monitoring actions
- Tax avoidance, tax evasion and tax crime control
- Tax payer experience management
- Risk characterization of taxpayers
As we can see, they’re focused on facilitate compliance, Tax control, taxpayer segmentation.
Colombia – Dirección de Impuestos y Aduanas Nacionales
“Dirección de Impuestos y Aduanas Nacionales” (DIAN) defines its mission and strategic objectives in a broader manner. They put them in the context of the nation’s impact – Competitiveness, people equity, economic growth). We can perceive the following elements in their mission:
- Tax obligations, customs and foreign exchange compliance management through quality service, monitoring and control
- Facilitate foreign trade operations and provide reliable and timely information, in order to ensure the fiscal sustainability of the Colombian State
DIAN defines 4 strategic objectives
- Contribute to the public finance sustainability of the Colombian State
- Optimize the debt collection process to increase collections
- Lead the construction of an efficient, equitable and simplified customs and tax framework
- Take comprehensive and innovative control and monitoring actions to reduce tax evasion, avoidance and smuggling
- Improve country’s competitiveness
- Improve customs controls in order to reduce national security risks
- Support with cooperation and Information exchange agreements related to customs and internal taxes
- Promote voluntary compliance on tax obligations, customs and foreign exchange
We can notice a clear focus on promoting foreign commerce and economic growth.
Mexico – Servicio de Administración Tributaria
At “Servicio de Administración Tributaria” (SAT) the Mexican tax agency, they collect internal taxes as well as those taxes coming from customs. They have two simple elements in their mission:
- Collect those internal and customs resources defined by law
- Provide taxpayers with the tools necessary to facilitate voluntary compliance
As the main strategic objectives, we can see the following:
- Increase Tax revenues
- Simplify tax filings and payment of taxes
- Provide technological tools to the taxpayers that simplify tax statements presentation and online payment
- Apply audit and collection standard mechanisms using modern technological platform
Again, we can see facilitate compliance with the addition of the voluntary concept, process simplification and more important in this case, the use of a technological platform for every process.
Latin American Tax Agencies, in general are not different from the ones on other regions. The main difference between their strategies are the size on the Tax Gap and the impulse on their current National Development plans, they give attention to specific taxpayer segments, type of goods or even social programs.
Please feel free to comment, ask or suggest about this topic.