The World Bank has just released its report on “Taxes on Wealth for Equity and Growth” related to the Latin American and Caribbean (LAC) region.
Among the different types of wealth, the report identifies property taxes as a possible avenue to focus. It finds that LAC countries have a “property tax paradox”: 80 percent of wealth in the region is held in real estate, even among the top 10 percent of earners, yet countries typically collect only 2 percent of their tax revenue from property taxes. In North America, about 47 percent of wealth is held in real estate, and helps to collect about 12.8 percent of tax revenues.
The report recommends modernizing property valuation systems and collection efforts to benefit from this potential. According to some studies, properly administered property taxes could contribute up to 3 percent of GDP, significantly enhancing the region’s capacity to finance development.
Revisiting property taxes also has an important equity component. They can empower subnational governments entrusted with their collection, incentivize more productive and environmentally friendly land use, and shift the fiscal burden away from the business environment. However, the report warns that reforms must be carefully designed to ensure progressivity and avoid burdening low-income property owners.
In presenting the report, William F. Maloney, chief economist for the Latin American and Caribbean region, highlighted that the tax system in Latin America, including the Dominican Republic, is complicated. He urges it be simplified to close legal loopholes and to make it more progressive and efficient.
The report highlights that both public and private investments in LAC remain low, and the region is not fully capitalizing on nearshoring opportunities. Foreign direct investment (FDI) levels are below those of 13 years ago in real terms, with greenfield investment announcements favoring other regions. Despite competitive wages compared to China and other destinations, high capital costs, weak education systems, poor energy and infrastructure, and social instability reduce LAC’s attractiveness as a nearshoring destination.
“Seizing LAC’s major windows of opportunity, the green transition and the nearshoring movement, requires structural reforms across the board to make the region more productive and competitive. This will require generating more fiscal space, improving government efficacy, as well as reducing the tax burden on the productive sectors. This is a good time for the region to reconsider how its tax systems can best generate revenue while stimulating growth and advancing equity,” said William Maloney, World Bank Chief Economist for Latin America and the Caribbean.
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World Bank
El Dia
10 October 2024