Corporate Effective Tax Rates in Latin America and the Caribbean

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Hanappi, Tibor;
Nieto Parra, Sebastián;
Orozco, José René;
Sep 2023
Using a methodology developed by the Organisation for Economic Co-operation and Development (OECD), this paper estimates forward-looking effective tax rates on corporate income for 21 Latin American and Caribbean (LAC) countries. When compared with countries in other regions, the results show that effective average and marginal tax rates on corporate income in LAC countries tend to be high, with several countries ranked among those with the highest effective tax rates in the large sample. This is mainly due to relatively high corporate income tax (CIT) statutory rates and tax provisions that are less generous than those observed in other jurisdictions (e.g., allowances for corporate equity, half-year conventions, inventory valuation methods). Results also show that there is wide heterogeneity of effective tax rates across LAC countries and across asset categories, pointing toward non-neutralities in the CIT system, which do not always seem to be intended or justified by the existence of market failures. In addition, ETRs were also increased by the macroeconomic context over the period 20172021, as LAC countries had higher real interest and inflation rates. These results indicate that there is ample space for reforming CIT systems in LAC to improve their neutrality.