Caribbean & Central America - May 2025
REGION: New Oxfam report sheds light on cost of tax evasion
A new report from international charity Oxfam has found that tax evasion costs Central American governments a combined US$17.5bn per year.
Published on 25 March, the report, titled ‘Más Recursos para más Derechos’ (More Resources for More Rights) calls for a crackdown on tax evasion and tax avoidance schemes, such as profit shifting and the use of tax havens, in order to strengthen public finances and enable much-needed social spending.
It also calls for an overhaul of existing tax systems, which it says reinforce the region’s high levels of poverty and inequality by relying more on indirect taxes, such as consumption taxes, than direct taxes, such as inheritance and capital gains, which are only paid by the wealthiest members of society. These efforts would help the region to deal with these long-term issues, which are being worsened by more recent developments such as climate change and rising global food prices, the authors say.
To do so, the report’s authors recommend eight measures including a progressive tax of 2.5%-5% on fortunes of more than US$5m, which would bring in US$1.6bn per year or 0.59% of regional GDP, as well as getting rid of regressive tax breaks, which would raise US$2.1bn per year. Other recommendations include reducing tax evasion by 50%, raising US$8.7bn per year, and the introduction of a minimum rate of corporation tax on multinational companies of 25%, to raise a further US$1.2bn. In addition, Oxfam says that independent auditing capacity should be increased, as should regional coordination on tax policy.
Pushback
Efforts to improve tax collection in Central America have been stymied for decades by the power of regional elites, who have been able to maintain a status quo that is beneficial to their interests through lobbying and corruption schemes. To this day, regional governments have tended to avoid proposing reforms that will increase tax rates, instead focusing efforts on improving collection rates so as not to anger these powerful vested interests.