According to a report by the Economic Commission for Latin America and the Caribbean (ECLAC), the amount collected by the Undersecretariat of State for Taxation (SET) concerning personal income tax represents 0.3% of GDP, or about US$113 million.
This places Paraguay as the country with the lowest tax pressure in the region.
The analysis entitled Fiscal Outlook for Latin America and the Caribbean 2023 addresses different aspects of public finances in the region.
One is the pressure of personal income tax concerning GDP and how a higher level would allow economic development.
The comparison is based on data for 2019 and the nominal GDP value for that year.
TAX
It is worth mentioning that the Personal Income Tax (IRP) taxes income from Paraguayan sources obtained by individuals, such as income and capital gains, excluding income taxed by the Tax on Dividends and Profits (IDU), as well as income derived from the rendering of independent personal services and in the relationship of dependency.
All individuals will be taxed for the income derived from the rendering of services once their gross income taxed under such concept, computed as of January 1 of that year, exceeds ₲80,000,000 (approximately US$11,000).
Also, according to SET data, as of April of this year, the IRP collected ₲365.544 billion (approximately US$5 million), representing only 5.7% of the total amount paid into the Treasury.
LOW LEVEL
The low relevance of personal income tax is present in several countries in the region, not only in Paraguay (although it stands out for its lower level).
The organization attributes the low performance of this tax to four factors:
- The first is the high tax reliefs (such as personal deductions and income exemptions);
- second, the high non-taxable minimums;
- third, the reduced tax bases (mainly salaried workers);
- and fourth, the high tax evasion and avoidance levels.
In the case of Paraguay, at least three of the four aspects mentioned above can be mentioned, but one of the most important is tax evasion.
In this regard, SET has tried to strengthen the data cross-checking and control system; however, the system is still in the adaptation process.
IMPORTANCE
The organization suggests countries adjust the tax rates, provided that reforms are made to improve the operation of the tax since it could generate gains in terms of revenue without high costs in terms of growth and with additional benefits in terms of progressivity.
“The observable differences with developed countries may also be linked to the characteristics of the tax design, especially in personal income taxation, where deficiencies in this regard would reinforce the negative impacts associated with the tax,” ECLAC analyzes.
It also adds that personal income tax could positively affect economic growth through various channels.
With information from DFsud
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