IMPACT OF CURRENT CRISIS ON TAXATION CLAUDINO PITA CIAT EXECUTIVE SECRETARY

STRUCTURE OF THE PRESENTATION 1.Global economic situation. 2.Strategies and policies for reducing the impact and recovering from the crisis. 3.The impact of the crisis on tax collection. 4.The impact of the crisis on the tax administrations. 5.Tax mesures adopted by CIAT MC.

GLOBAL ECONOMIC SITUATION Again the “age of uncertainty”? John K. Galbraith vs. Milton Friedman. Neoliberal triumphalism of 3 decades “The blow on thrust”, Lehman Brothers. Financial crisis, transfer to the real economy.

IMPACT ON THE REAL ECONOMY Downfall of economic activity. Reduction of investment. Reduction of consumption. Downfall of foreign trade. (exports and imports). Downfall of the price of commodities Reduction of remittances. Increase in unemployment

DISSEMINATION TO LATIN AMERICA Prosperity in region between 2002/2007, 5.7% growth in 2007; 10% decrease of poverty between 2002/2007; 11% unemployment in 2003 to 7.5% in Fundamental contact points, international trade and capital flows.

SIMPLE AVERAGE VARIATION BY GROUP OF COUNTRIES CAN MERCOSUR & CHILE EUROPE NAFTA Q2Q*1Q2Q*1Q2Q*1Q2Q*1Q2Q*1Q2Q* GDPINTERNAL DEMAND GROSS INVESTMENT IMPORTSEXPORTSUNEMPL. RATE

“The poorest and most vulnerable are those who run the greatest risks during economic crises” Robert B. Zoellick, World Bank President According to said Bank, as a result of the crisis, by the end of 2010, 89 million more people will be living in extreme poverty with less than US$1.25 per day.

A question that arises from this crisis is: Is this a phase of the cycle and therefore, temporary and short-term or does it have deeper roots requiring a structural readjustment in the global economy with a change of paradigms such as, for example, from “less State more market” to “more effective State and better market”?

Strategies and policies. Reduction of the impact and recovery. The G20 Plan. The anti-cyclic fiscal policy. –Paul Krugman, “at times, necessary changes are hindered by dogmatic doctrines of an obsolete orthodoxy”. –Joseph Stiglitz, the “green buds” could involve a recovery promoted by governmental stimulus followed by an abrupt downfall; that is, a “W” recovery”.

The impact of the crisis on tax collection Economic and tax factors affecting collection: – decrease of tax base as an effect of recession; – action of automatic stabilizers; and – concession of total or partial exemptions with different extension and modalities; – payment arrangements and suspensions.

Measures to minimize the impact and recovery from the crisis Exemptions (including moratoriums and condonations) Reduction of rates Deductions and credits Facilitation of payment and refunds –In general, subject to compliance with certain conditions and of a temporary nature.

Characteristics of TSs and vulnerability of collection level of tax pressure – low or inadequate tax pressure for the level of development according to international patterns. structure of collection – Dependence on VAT – VAT imports with participation in total VAT exceeds internal VAT

TAX REVENUES AS % OF GDP BRASIL ARGENTINA BOLIVIA URUGUAY NICARAGUA COSTA RICA CHILE PROMEDIOCOLOMBIA HONDURAS REP. DOMINICANA PERÚ ECUADOR GUATEMALA VENEZUELA EL SALVADOR PARAGUAY PANAMÁ MÉXICO

2008 VAT – GDP % AND TOTAL COLLECTION ARGENTINA BRASIL CHILE COLOMBIA (bruto) ECUADOR MÉXICO PERÚ USA CANADÁ ESPAÑA FRANCIA ITALIA (bruto) GDP %COLLECTION %

ARGENTINA, 38.7 BOLIVIA, 57.8 URUGUAY, 46.9 COSTA RICA, 53.6 CHILE, 59.1 COLOMBIA, 43.9 DOM. REP., 47.9 PERU, 50.6 ECUADOR, 48.9 GUATEMALA, 59.8 EL SALVADOR, 59.1 AVERAGE, % IMPORT VAT / TOTAL VAT - T4 2008

REAL VARIATION Q1 & WITH RESPECT TO Q1 & CAN MERCOSUR & CHILE CENTRAL AMERICA AND CARIBBEAN EUROPE NAFTA SOTUH AFRICA VAT 1QVAT 2QINCOME 1QINCOME 2Q

The impact of the crisis on the tax administrations The challenges: – Minimize loss of collection – Maintain effectiveness even in spite of reduced resources – Exercise effective controls – No new strategy or strategies, reassignment of priorities and resources

The impact of the crisis on the tax administrations The answers: –follow-up of collection and economic activity and participation in tax policy counseling –promoting and negotiating role –search for efficiency preserving effectiveness – rationalize expense by reassigning priorities –avoid losses in two fundamental elements for management success: HR and ICTs –promote external policy and internal communication actions –management of risks and withholding and substitution systems –specific treaties on information exchange

MCs responses to CIAT questionnaire (12 countries) Canadá Colombia Cuba España Francia Italia Panamá Paraguay Rep. Checa Rep. Dominicana Suriname Venezuela

MEASURES ADOPTED TO PROMOTE THE PAYMENT OF TAXES FLEXIBILITY OF POSTPONEMENT – (5/12) SUSPENSION OF ADVANCES - (4/12) SUSPENSION OF WITHHOLDINGS (0) PROMOTION OF COMPLIANCE CAMPAIGNS - (6/12) NEGOTIATION OF TAX DEBTS (TRANSACTION) – (5/12) REINFORCEMENT OF COLLECTION FOLLOW-UP ACTIVITIES –(6/12) REINFORCEMENT OF ECONOMIC-TAX ANALYSIS – (6/12) BROAD TAX AMNESTIES - (1/12) CONDONATION OF INTEREST – (3/12) CONDONATION OF FINES – (3/12) DECREASE OF INTEREST RATES FOR DELINQUENCY – (2/12) FLEXIBILITY OF TAX COMPENSATION – (3/12) FLEXIBILITY OF LOSS CARRY-OVER – (2/12)

ACTIONS TAKEN TO PROMOTE ADEQUATE ALLOCATION OF MANAGEMENT RESOURCES -PRESERVE AND/OR INCREASE THE LEVELS OF INVESTMENT IN HR (6/12) -PRESERVE AND/OR INCREASE THE LEVELS OF CURRENT EXPENSES IN HR (5/12) -PRESERVE AND/OR INCREASE THE LEVELS OF INVESTMENT IN IT (7/12) -PRESERVE AND/OR INCREASE THE LEVELS OF CURRENT EXPENDITURES IN IT (6/12) -HAVE INTERNAL POLITICAL ACTIONS BEEN TAKEN TO OBTAIN THE NECESSARY RESOURCES FOR THE APPROPRIATE PERFORMANCE OF THE TASKS OF THE TAX ADMINISTRATION (8/12) -HAVE INTERNAL COMMUNICATION STRATEGIES BEEN DEVELOPED FOR MAINTAINING THE HR LEVELS OF MOTIVATION AND PRODUCTIVITY (9/12) -HAVE INTERNALPROCESSES BEING REDESIGNED FOR RENDERING MORE EFFICIENT THE USE OF THE ORGANIZATION’S RESOURCES (9/12)

ACTIONS TAKEN TO STRENGTHEN CONTROLS AND ADAPT THEM TO THE NEW CIRCUMSTANCES -STRENGTHENING OF RISK MANAGEMENT SYSTEMS (9/12) -PROMOTION OF THE APPLICATION OF WITHHOLDING SYSTEMS (2) -APPLICATION OF GREATER RESOURCES TO THE CONTROL OF SPECIAL REGIMES AND DIFFERENTIATED TREATMENTS THAT ENCOURAGE ARBITRATION (1) -APPLICATION OF GREATER RESOURCES TO CONTROL ACTIONS (6) -PROMOTION OF INTERNATIONAL OPERATIONS CONTROL (7) -STRENGTHENING OF ADMINISTRATIVE COOPERATION WITH OTHER GOVERNMENT BODIES (10) -STRENGTHENING OF INTERNATIONAL ADMINISTRATIVE COOPERATION (9) -IMPLEMENTATION OF NEW INFORMATION SYSTEMS (7) -REDESIGN OF EXAMINATION STRATEGIES AND PROCEDURES (8)