The recent increase in revenue from corporate income tax (CIT) is one of the most important features of taxation in Latin America. Although the rates of this tax have tended to decline around the world, Latin American companies are paying more income tax than ever. But CIT is far from a horizontally equitable tax, levied equally on all economic sectors, as is desirable in principle. Instead, the effectiveness of CIT is hampered by the proliferation of incentives and lack of good systems of international taxation. To compete for investment, mainly from large companies, and perhaps also because of weakness in the face of the influence of certain pressure groups, governments have granted a large number of incentives, which have eroded the base of CIT. The fiscal cost of these incentives is enormous and often lacks transparency, since in some countries this cost is not even known. Little has been done to develop new forms of international taxation that would help regulate governments’ relations with international companies and strengthen tax administration to attack evasion and avoidance of the tax. With adequate design and administration of CIT, governments can both raise more revenue and successfully compete for investments.
