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VAT evasion reaches 54%: which are the most non-compliant sectors

2023-12-01T10:00:24.688Z

Highlights: VAT evasion reaches 54%: which are the most non-compliant sectors. This tax accounts for 24% of the total revenue. Evasion is higher than the average for the region.. Failure to comply with tax obligations dominates much of Argentina's fiscal landscape. A recent private study calculates that the level of evasion of VAT, the tax levied on consumption, reaches 54% and is more marked in sectors such as construction, agriculture, mining and services. The average VAT efficiency in the region is 55%. In 2018, Argentina, with 50%, was among the 6 countries with the worst efficiency in Latin America.


This tax accounts for 24% of the total revenue. Evasion is higher than the average for the region.


Failure to comply with tax obligations dominates much of Argentina's fiscal landscape. A recent private study calculates that the level of evasion of VAT, the tax levied on consumption, reaches 54% and is more marked in sectors such as construction, agriculture, mining and services.

The Center for Tax Studies (CET) of the Universidad Austral produced a report on VAT tax evasion as a "proxy" for the informal economy.

In Argentina, VAT represents 24% of total revenue, so non-payment of this tax can be used to approximate total evasion. The authors of this report, Diego Rivas and Lucio Cardinale, surveyed the VAT collection gap for 18 Latin American countries from 1990 to 2018.

The average VAT efficiency in the region is 55%. In 2018, Argentina, with 50%, was among the 6 countries with the worst efficiency in Latin America, followed by Colombia, Costa Rica, Mexico, Nicaragua and the Dominican Republic. Brazil, Uruguay, Chile, Bolivia, Paraguay and Peru are more efficient than Argentina, although there are no countries in the region with evasion of less than 20%.

In the European Union, the numbers are reversed. Of the 28 countries reported by the European Commission, from 2000 to 2020, only three nations had a non-compliance gap greater than 20%: Italy, Romania and Malta. "This contrasts sharply with what has been observed previously for Latin America, which has much higher levels of evasion," the CET researchers said.

The sectors that evade the most

The report points out that, during the period 2004-2020, VAT evasion in Argentina has remained at around 60%, with a slight decrease in the last estimated year, 2020, where it stood at 54%.

"The high tax burden faced by the formal sector of the economy, with levels of around 30% (similar to OECD countries, but with much higher informality than those) does not help to reduce informality," the authors argue.

Added to this is the complexity of the tax system. "The high administrative burdens imposed on those entering the formal economy are a very high cost, difficult to bear in many cases. The goal should be to broaden the tax base, and not to further increase the burden on those already under the state's radar."

Industry is the sector with the lowest VAT evasion for all the years analysed, followed by commerce. Agriculture, construction and services are vying for first place among the sectors with the most non-compliance.

Agriculture was the one with the highest evasion in 2015 and 2016 with rates of 78% and by 2020 it fell to 57%.

In construction, there were almost no improvements: it went from 75% in 2015 to 74% in the last measurement. In mining, there was a growing phenomenon of non-compliance: it went from 52% in 2015 to 62% in 2020.

In the case of industry, in the period under analysis, evasion fell from 37% to 31%, while in commerce it went from 42% to 49% and services moved between 66% and 64%.

"Far from being incriminating, the results of this work seek to alert about the need to accompany certain sectors in a beneficial transition to formality. The current situation, which combines high tax pressure with high informality, accounts for an exhaustion of tax policy that adds burdens to the formal sectors of the economy and that, far from achieving its objectives, only results in greater incentives for informality," conclude the CET researchers.

Source: clarin

All business articles on 2023-12-01

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