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Tax Reforms Mean More Money for Public Investments
FrontLines - March 2010
By Angela Rucker
SAN SALVADOR, El Salvador - Despite the global financial meltdown, tax collection is on the rise in El Salvador, due in part to a U.S. tax reform project.
Several other Latin American countries have been unable to broaden the base of their tax collections, but El Salvador has begun to make progress in that direction, increasing income badly needed for development.
USAID's Tax Policy and Administration Reform Program helped the country bring in just over $3 billion in tax revenue in 2008-up from $1.9 billion in 2004 before the program began. | |
Total Tax Collected | As Percent of GDP |
|---|
| 2004 | $2.229 billion | 12.1 percent |
| 2005 | $2.573 billion | 13.1 percent |
| 2006 | $2.856 billion | 13.8 percent |
| 2007 | $3.198 billion | 14.1 percent |
| 2008 | $3.582 billion | 13.8 percent |
| Source: DAI
|
"I am very satisfied with the project," Marķa Eugenia Rubio, director of Internal Revenue at the El Salvador Ministry of Finance, told FrontLines.
The increased revenue will be invested in hospitals, social services, and security, and can be used to pay down debts, according to Rubio, who said she wants to see the program expanded.
While it might not be popular, increasing the number of taxpayers and going after those who don't pay is critical if the country is to move from developing toward middle-income country status.
"Our main concern is just to support the ministry and make it sustainable," said Enrique Giraldo, chief of party for the tax reform program. "If you don't have a good and efficient tax system, there's no way you can do anything."
The tax administration reforms included modernizing administrative and information technology functions and targeting a culture of "tax evasion"-essentially cutting down on tax cheats.
In the last four years, El Salvador has opened two tax call centers and 10 walk-in centers to assist the public with questions about taxes and to encourage them to pay what they owe.
The tax call centers are each manned by 18 staff members who received intensive training with USAID assistance and who respond to a few hundred or a few thousand calls a day, depending on the proximity to tax season in April. Before, there had been three people to answer three telephones-for the entire country's tax questions.
Since the call centers opened in 2008, tax collections have doubled.
USAID also helped set up an automated system to ensure that audits are meted out fairly. "One of the huge problems especially in Latin American countries is the lack of transparency," Giraldo said.
The informal consensus is that the middle class pays the most taxes, while the rich and corporate entities skate by without paying their fair share, explained USAID's Martin Schulz, who manages the tax reform program for the El Salvador office.
The new Case Selection Management System automatically selects cases among taxpayer databases that are assigned to auditors for follow up.
★
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