Gi-ESCR and partners organised an event to discuss the future of tax reform in Latin America
Latin American countries and others beyond the region are facing overlapping crises. The pandemic, the war in Ukraine, and climate breakdown have left the world on the threshold of recession, with skyrocketing poverty and inequality, a cost-of-living crisis, and high debt levels. In this context, countries including Chile and Colombia are proposing progressive tax reforms, including new net wealth taxes, that have the potential to both generate additional fiscal resources and reduce inequalities. Importantly, both countries are also calling to increase tax cooperation and integration in the region.
These reforms were discussed in Washington DC during the High-level panel “Winds of Change: the future of tax reforms in Latin America”, as part of the World Bank and IMF Annual Meetings. The panelists were Colombian Finance Minister José Antonio Ocampo, Chilean Finance Undersecretary Claudia Sanhueza, Nobel Laureate and ICRICT Co-Chair Joseph Stiglitz, Oxfam International Executive Director Gabriela Bucher, and Director of the IMF’s Western Hemisphere Department Ilan Goldfajn. EFE news agency Patricia Arce moderated the discussion.
The panelists all agreed on the sense of urgency and the need to implement solutions to protect the most vulnerable, and to mitigate the impacts of inflation through progressive tax reforms, such as the ones proposed by Chile and Colombia. Failure to act, according to the panelists, risks contributing to more inequality and social unrest.
Both Colombian Finance Minister José Antonio Ocampo and Chilean Finance Undersecretary Claudia Sanhueza advocated for the need to raise additional revenues to secure fiscal sustainability, namely by taxing the wealthiest. For both, closing corporate taxation’s loopholes and addressing tax avoidance remains a high priority and, in the short term, capturing the super profits from mining and extractive industries.
Professor Stiglitz stressed that the OECD/G20 global tax reform, including a 15% minimum corporate tax rate, is a step in the right direction but falls short of the level of ambition and impact that developing countries are asking for. It is clearly not enough to stop tax competition and profit shifting to tax havens; ICRICT advocates for a 25% rate. Minister Ocampo agreed that the OECD and G20 should keep negotiations open to reach a fairer deal.
Minister of Finance of Colombia José Antonio Ocampo said:
“Our tax reform in Colombia is a response to the huge inequality our country suffers, and the social demands that were reflected by the popular protest last year and the presidential election this year. Therefore, we must go in three directions: first, introduce a wealth tax and eliminate tax benefits for high-income people. Second, introduce windfall taxes on oil and coal: whenever we had a coffee boom in the past, the sector contributed, it is now time for the extractive sector to do the same. And finally, we have to fight tax evasion, which is still too high in Colombia”.
“For Colombia, the OECD agreement on taxing corporations and a minimum tax is insufficient and makes the system even more complicated. We would like to push a better deal for Latin America with the support of Chile that can eventually make things better”.
Chilean Finance Undersecretary Claudia Sanhueza said:
“It is always a challenge to make an agreement that changes the status quo, but we must do it. There are incentives to compete with each other through tax rates. But the possibility of regional coordination is there, and it is now”.
“We need inclusive growth, less inequality, and that is not free. That is why we need tax reforms. We need coordination and cooperation. We must stop competing among countries in the region and stop offering tax incentives to companies. There is no winner in this”.
Nobel Laureate and ICRICT Co-Chair Joseph Stiglitz said:
“I want to say that both Colombia and Chile are moving in the right direction with very important tax reforms. For emerging markets, especially in the current international situation, it is hard to borrow, and they need more fiscal space, and the only way is more progressive taxation: it means introducing wealth tax, making sure multinationals are paying taxes and applying windfall profit taxes”.
“Tax evasion, avoidance and abusive fiscal practices by large corporations in Latin America deprive States of valuable resources to invest in public services, address the climate crisis and reduce inequalities. We have been working with partners in the region and globally so that Latin America acts in an integrated and coordinated manner in these matters, and we believe that Chile and Colombia can play a key leadership role. Both countries are committed to progressive tax reforms at the national level. Now it’s time to take the step towards a regional tax agreement.”