Tax Expenditure and Evasion in the Value Added Tax in Latin America

This work estimates tax expenditure and evasion in the value added tax (VAT) in 16 countries in Latin America using a common methodology of tax gap analysis. The results obtained indicate that revenue losses in VAT due to tax expenditures and evasion are high and highly heterogeneous across countries. Tax expenditures were 2.1% of GDP on average in 2019, while evasion reached an average of 2.3% of GDP. Tax expenditures tend to be higher in countries with higher standard VAT rates and in poor countries. VAT evasion tends to be higher when the tax burden on the private sector is greater.