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Poverty & SDGs

Corruption, Tax Evasion Fuel Inequality in Latin America

(1) Tax evasion and fraud join forces in Latin America to exacerbate inequality in the region. Credit: Marianela Jarroud/IPS

SANTIAGO, Oct 14 2014 (IPS) - Corruption and tax evasion are flagrant violations of human rights in Latin America, where they contribute to inequality and injustice in the countries of the region, according to studies and experts consulted by IPS.

“Tax evasion means that those who are most vulnerable are denied the full enjoyment of their economic and social rights, including health and education,” said Rocío Noriega, an adviser on governance, ethics and transparency for the United Nations Development Programme.

“Corruption has a negative impact on the enjoyment of human rights,” she added. It also constitutes “a threat to democracy, because it systematically violates the foundation of citizenship by perpetuating inequality based on access by the few to power, wealth and personal connections,” she told IPS.

Corruption, as a way of distributing public resources for purposes other than the common good, is a serious violation of human rights, experts agreed.

Perceptions of corruption

Most Latin Americans view corruption as one of the three main problems in their country, according to the 2013 Latinobarómetro public opinion poll.

In Costa Rica, 20 percent of respondents complained of corruption, 29 percent of economic problems and six percent of crime.

In Honduras the proportions were 11 percent for corruption, 61 percent for economic problems and 28 percent for crime. In Brazil and Colombia, 10 percent of respondents said corruption was their primary concern, in third place behind economic problems and crime.

In Argentina and Peru, eight percent of interviewees named corruption as their main problem: in Bolivia and the Dominican Republic it was seven percent; in Mexico six percent; in Ecuador, Panama and Paraguay five percent; in Guatemala four percent; in Nicaragua three percent; in El Salvador and Venezuela two percent; and in Chile and Uruguay, one percent.

Latinobarómetro said the poll appeared to show that corruption is not as serious a problem as experts and transparency reports would indicate, but this is because – as happened previously with crime – in many countries of the region corruption is a hidden issue, and they cited Mexico as a prime example.

Mexico is the country with the highest proportion of people who are aware of cases of corruption (39 percent), and transparency reports say its level of corruption is high; yet only six percent view corruption as the main problem.

Source: 2013 Latinobarómetro poll

In 2013 the Office of the United Nations High Commissioner for Human Rights said that, since corruption can occur in many different forms and contexts, it is almost impossible to identify all the human rights that are violated.

They added that corruption is an obstacle for the development of societies, but is also a serious problem for strengthening the legitimacy of democracy, because its prevalence and the perception of citizens of its incidence in public affairs and institutions can greatly undermine support for democratic regimes.

The 2013 Latinobarómetro poll indicates that 26 percent of all Latin Americans said they were aware of at least one case of corruption in their country in the past 12 months. A similar percentage said that nearly everyone in their government was corrupt.

Venezuela and Mexico top the ranking for perception of corruption, with 39 percent making these statements, followed by Paraguay (38 percent) and Chile (35 percent). Among the countries with the lowest perception of corruption were Uruguay (19 percent), Nicaragua (17 percent), Honduras Guatemala and Brazil (16 percent), and El Salvador (eight percent).

Francisca Quiroga, a political analyst and expert on public policies at the University of Chile, told IPS that both corruption and tax evasion are directly correlated to inequality and injustice.

She said: “Tax policies are a potential instrument for distributing resources and funding the development of social policies.

“The underlying rationale is the duty to combat inequality and to redistribute resources, as well as to build more sustainable economies,” she said.

“When talking about human rights and social rights, in particular, one of the elements to take into account is taxation policy, and the institutional mechanisms to ensure the legitimacy of the decisions taken,” she said.

High inequality is one of the most distinctive characteristics of Latin America’s social situation.

According to the Economic Commission for Latin America and the Caribbean (ECLAC), income distribution inequality in the region is substantially higher than in other global regions, with an average Gini coefficient of 0.53.

The Gini coefficient is a measure of income inequality, expressed as an index between zero and one. Zero represents perfect equality, while a value of one represents complete inequality.

For example, the least unequal country in the region is more unequal than any non-Latin American member of the Organisation for Economic Co-operation and Development (OECD), or than any country in the Middle East and North Africa, according to a report titled “Evasión y Equidad en América Latina” (Evasion and Equality in Latin America) by the ECLAC Economic Development Division.

The five Latin American countries with the worst income distribution, according to the report, are Brazil, Guatemala, Honduras, Paraguay and Chile, in that order.

In Chile, most employed people earn around 500 dollars a month, in a country where bread costs two dollars a kilo, while the richest 4,500 families live on more than 30,000 dollars a month.

“Tax evasion is a form of fraud that undermines equality, there is no doubt about it,” sociologist Marta Lagos, the head of Latinobarómetro, told IPS.

“There is massive empirical evidence that shows that income distribution improves when taxes are paid,” she said.

“The lack of formality of our state agencies allows tax evasion to occur,” and this may happen in powerful and wealthy circles as well as among ordinary citizens, she said.

She calls this phenomenon “social fraud,” pointing to its basis in customs overwhelmingly regarded as acceptable in social practice, so that the state is unable to eradicate it. “It is customary, however wrong, illegal and immoral,” she said.

Lagos stressed that social fraud may be wrong, immoral or illegal. Wrongness refers to offences that are not legally penalised but affect coexistence, such as parking a vehicle badly and paralysing traffic. Immoral acts include situations like eating something while shopping in a supermarket and not paying for it.

Illegal social fraud, in turn, may occur on a mass scale and covers those who avoid paying for a bus ticket, use state subsidies improperly, or evade paying taxes.

In Chile, as in other Latin American countries, it is common practice for retail outlets in outlying neighbourhoods not to issue receipts for every purchase, said Lagos, and this is wholly accepted by the population.

“I don’t really care,” Bernarda, a middle-aged woman who buys bread every day from a small store near her home in La Florida, a mainly middle class suburb southeast of Santiago, but who does not always receive a formal receipt for her purchase.

“I have known this woman (the store owner) for years and I know she is honest,” she said. “It’s all the same to me,” said another neighbour beside her. “What do I want a tax receipt for? Anyway, everybody does it,” she said.

This behaviour is widespread in the region and is reflected daily in the question that retailers and service providers in many countries constantly ask consumers when it is time to pay: “With IVA (value added tax) or without IVA?”

Lagos said that over the past decade tax evasion has come to be seen as increasingly legitimate, since corruption in high places “increases people’s perception that it is acceptable not to pay taxes, because the money is being stolen and misspent.”

Quiroga, however, believes the time has come for citizens to realise that their political and social rights are infringed whenever the system allows tax evasion and corruption to become common practice.

“This is the only way we are going to be able to overcome this scourge,” she said.

Edited by Estrella Gutiérrez/Translated by Valerie Dee

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