Abstract
At the beginning of the 1980s, most Latin American tax structures were complex and cumbersome. Often they were loaded with hundreds of taxes, with little revenue collected from most of them. Consumption and production taxes suffered from multiple rates, leading to difficulties with tax administration. These taxes were inefficient because of“cascading,” that is, they fell not only on the value of production but also on taxes that had been paid in earlier stages of production, and they tended to impair international competitiveness because they were often levied at the manufacturing—rather than the retail—stage, so that exporters also effectively paid the tax. Income taxes were riddled with multiple exemptions and incentives and high rates, and suffered from a failure to integrate the taxing of personal and corporate incomes and a lack of indexation. These conditions led generally to low revenue productivity, inequities reflecting narrow tax bases, and inefficiencies in resource allocation, including biases in the debt-equity composition of business financing. On the whole, tax systems had to depend for revenue on a few highly distortive domestic taxes or on international trade taxes—including export duties.