Bahamas was near top of tax-to-GDP ratio increase in LAC region pre-COVID, IDB study finds

“The COVID-19 pandemic caused a sharp decline in tax and resource revenues in 2020”

NASSAU, BAHAMAS — The Bahamas saw the second largest increase in tax-to-GDP ratios between the two years preceding the onset of the COVID-19 pandemic, according to a recently released Inter-American Development Bank (IDB) analysis.

According to the Revenue Statistics in Latin America and the Caribbean 2021 analysis, the largest increases in tax-to-GDP ratios between 2018 and 2019 occurred in Nicaragua with a rise of 2.7 percentage points (23.2-25.9) and The Bahamas with a rise of two percentage points in total tax revenue as a percentage of GDP, from 16.7 in 2019 to 18.7 in 2019.

According to the IDB, the analysis shows that the average tax-to-GDP ratio in the LAC region rose to 22.9 percent in 2019, an increase of 0.3 percentage points, due largely to increases in the Caribbean sub-region.

“Although the COVID-19 pandemic subsequently caused a sharp decline in tax and resource revenues in 2020, the report identifies the key role of fiscal policy in the region’s response to the pandemic and considers how tax policy can contribute to a green and inclusive recovery,” the IDB noted.

It added: “Tax-to-GDP ratios in the LAC region ranged from 13.1 percent in Guatemala to 42 percent in Cuba in 2019. Of the 26 countries covered by the average, which includes Antigua and Barbuda for the first time and excludes Venezuela due to data availability issues, 14 registered an increase in their tax-to-GDP ratio in 2019 and 12 experienced a decline.

“Other than Cuba, the rest of the countries (25) recorded tax-to-GDP ratios below the OECD average of 33.8 percent. However, the gap between the LAC and OECD averages has narrowed from 15.4 percentage points in 1990 to 10.9 percentage points in 2019.”

The Caribbean’s average tax-to-GDP ratio rose by 0.8 percentage points between 2018 and 2019 to 24.9 percent, while South America’s declined by 0.1 percentage points (to 22.9 percent) and the tax-to-GDP ratio of Central America and Mexico increased by 0.2 percentage points (to 21.3 percent).