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May 27.2025

2 Minutes Read

Tax Revenues Plummet in Latin America and the Caribbean Amid Falling Commodity Prices

Covers of tax revenue books for Latin America and the Caribbean 2025.

Understanding the Shift: Tax Revenues in Latin America and the Caribbean

In 2023, tax revenues in Latin America and the Caribbean (LAC) experienced a significant decline, primarily driven by falling global commodity prices and a slowdown in economic activity. According to the Revenue Statistics in Latin America and the Caribbean 2025 report released by UN-ECLAC, the average tax-to-GDP ratio for the region slipped to 21.3 percent, a slight drop from 2022 and just below pre-pandemic levels.

Why Did Tax Revenues Drop?

The decrease in tax revenues was evident in 14 out of the 26 LAC countries analyzed. Particularly notable were Chile and Peru, where tax-to-GDP ratios fell by 3.2 percentage points and 2.1 percentage points, respectively. The primary reason for this downturn was decreased income tax revenues following lower commodity prices, which also led to increased tax refunds and credits in 2023.

The Role of Commodity Prices

The decline in commodity prices has hit the revenues generated from the non-renewable natural resources sector particularly hard. For instance, hydrocarbon-related revenues for the top oil-producing countries in the region averaged only 3.9 percent of GDP, down from 4.4 percent in 2022. Similarly, mining revenues demonstrated a similar downward trajectory, falling from 0.74 percent of GDP to 0.59 percent.

Insights on Non-Tax Revenues

Interestingly, the report marked a first in presenting harmonized data on non-tax revenues, which include government income from rents, royalties, and other sales. In 2023, these non-tax revenues across 22 LAC countries averaged 3.1 percent of GDP. However, this figure has also seen a declining trend over recent years, indicating a broader issue in government revenue generation.

The Bigger Picture: Future Predictions

The 2025 edition of the report predicts continued declines in hydrocarbon and mining revenues, estimating that hydrocarbon revenues could drop further to 3.2 percent of GDP in 2024, and mining revenues to 0.5 percent. This ongoing trend poses significant risks for fiscal policymaking in a region where economic stability heavily relies on these sectors.

Conclusion: What It Means Moving Forward

As nations in the LAC region adjust to this financial landscape, the implications of falling tax revenues will invariably influence governmental abilities to fund social programs, infrastructure projects, and other vital services. Tracking these developments will be essential for understanding future challenges and opportunities within the region. By staying informed and engaged with these changes, citizens can better advocate for policies that promote economic health and social equity.

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