In 2023, tax-to-GDP ratios in the LAC region ranged from 11.6% in Guyana to 32.0% in Brazil. Three-quarters of LAC countries recorded a tax-to-GDP ratio below 25% whereas more than three-quarters of OECD countries had a ratio above this level. Tax-to-GDP ratios decreased in more than half of LAC countries (14 countries) between 2022 and 2023. In the previous two years, tax revenues increased as a share of GDP in a majority of countries. In all but three countries where the tax-to-GDP ratio declined in 2023, growth in nominal GDP outpaced growth in nominal tax revenues.
The largest decreases in 2023 were observed in Chile (3.2 p.p.) and Peru (2.1 p.p.), driven by declines of 3.2 p.p. and 1.2 p.p. in income tax revenues respectively. In both countries, income tax revenues fell as a share of GDP from their peak in the previous year, as corporate profits weakened over the course of 2022, resulting in high refunds and tax credits the following year. A fall in non-renewable natural resource prices also contributed to the fall in income tax receipts for both countries in 2023.
Overall, income tax revenues declined by 0.1 p.p. on average across the LAC region in 2023, following an increase of 0.6 p.p. in 2022, when a sharp rise in hydrocarbon revenues drove up corporate income tax (CIT) receipts. Meanwhile, personal income tax (PIT) revenues increased by 0.1 p.p. in 2023 while revenues from VAT and other taxes on goods and services remained unchanged.
Tax trends varied significantly across sub-regions, reflecting distinct economic pressures and shifts in commodity prices. Tax revenues declined strongly as a share of GDP (by 0.5 p.p.) in the South American sub-region, which was most affected by the fall in non-renewable natural resource prices and experienced the most pronounced economic slowdown in 2023. However, South America continued to record the highest level of tax revenues as a share of GDP on average, at 22.9%. The average tax-to-GDP ratios in the Caribbean and Central America and Mexico stood at 21.9% and 19.0% respectively in 2023. Tax revenues decreased by 0.2 p.p. in Central America and Mexico in 2023, while the Caribbean’s tax-to-GDP ratio increased by 0.3 p.p. after being the only sub-region where revenues fell as a share of GDP in 2022.
Over a longer timeframe, the average tax-to-GDP ratio for the LAC region rose by 6.7 p.p. between 1990 and 2023, due largely to increases in revenues from VAT and from taxes on income and profits (of 3.8 p.p. and 2.9 p.p., respectively). The gap between the LAC and OECD average tax-to-GDP ratios narrowed over this period, from 16.3 p.p. in 1990 to 12.7 p.p. in 2023. LAC countries principally converged to OECD countries up to the first decade of the 21st century but this trend did not persist in the second decade. Since the COVID-19 pandemic, the gap has widened.
